J&J asylum seekers fail to prevent potential Talc bankruptcy
Delaware judge refused to bar Johnson & Johnson from separating talc-related liabilities from the rest of its business, ruling against personal injury lawyers who feared the company would file thousands of cancer claims to try to get settlements.
Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court in Wilmington, Del., On Thursday did not prevent J&J from segregating talc-related liabilities from other assets, a corporate decision that the plaintiffs see compensation as a likely first step toward filing tens of thousands of tort claims. in chapter 11.
In July, the healthcare company faced around 34,600 lawsuits linking its talc-based baby powder to ovarian cancer, asbestos cancer and other illnesses. During settlement negotiations, the company said it could isolate its talc responsibilities within a new legal entity that could then file for bankruptcy, the Wall Street Journal reported last month.
The separation of tort liability from company assets is possible under Texas law through so-called divisional or separative mergers. They were used by several companies facing a large number of asbestos-related claims in recent years to partition these liabilities into newly formed units which were then placed in Chapter 11.
J&J has not disclosed any strategy for the talc lawsuits other than to defend the safety of its products in the pending cases. The company has also not denied that a merger that divides over its talc responsibilities is a possibility, Judge Silverstein said earlier this week.
The claimants have said it would be a first step towards shifting talc responsibilities in bankruptcy proceedings, protecting J&J from further jury trials. Talc claimants have asked to hold J&J on the theory that its alleged strategy would undermine the reorganization efforts of another company, Imerys Talc America Inc., which mined and supplied talc for J&J for decades before it went bankrupt in 2019.
On Thursday, the judge said the plaintiffs did not have the legal capacity to seek such an injunction against J&J because they had no vested interest in the contractual agreements between the company and Imerys.
J&J lawyer Diane Sullivan said the court “rightly rejected the plaintiffs’ request to prevent J&J from engaging in legitimate business transactions, should it choose to do so.”
“This was another frivolous attempt by the plaintiffs’ emergency lawyers to try to coerce J&J to settle their case as J&J continues to defend the safety of its products in court,” Ms. Sullivan.
The judge’s ruling went against a committee appointed during Imerys’ bankruptcy to represent people who allege they developed diseases such as ovarian cancer and mesothelioma after being exposed to the products J&J talcum based powder such as baby powder and Shower to Shower.
J&J said its talcum powder, which it stopped selling in the United States and Canada last year, is safe and does not cause cancer, and that many tests over the past 40 years have failed did not show the presence of asbestos.
J&J remains under scrutiny for its intentions to overcome the talc dispute. A House oversight subcommittee last month asked J&J for documents and information on any company considering bankrupting a subsidiary. Earlier this week, another group of cancer victims filed a petition in a Missouri state court to bar the company from a divisive merger.
Damage attorneys fear that moving tort claims from state court to bankruptcy may favor J&J, which could benefit from a stay of litigation even if only one affiliate files the Chapter 11 case, according to reports. legal experts. Bankruptcy filings typically put an end to tort cases and discovery proceedings, creating a one-stop forum for companies with large debts to negotiate a restructuring.
“We will carefully review Judge Silverstein’s ruling and take our next steps,” said Andy Birchfield, one of the attorneys who filed the talcum lawsuit. “For now, that fight is moving to a Missouri court where a judge will consider our urgent request to stop any abuse of bankruptcy planned by J&J.”
Imerys, named alongside J&J in talc lawsuits, sold its core Chapter 11 business and proposed a bankruptcy plan to resolve its share of liability on current and future claims. To fund the compensation of Imerys’ claimants, the directors assert its alleged rights to compensation, or reimbursement, from J&J for the costs of defending and settling injury claims. The claimants’ committee argued that a conflicting merger of J&J could prevent or delay Imerys from receiving this compensation.
J&J denies owing Imerys any compensation and has argued in court documents that its corporate governance should not be âhijackedâ on the basis of hypothetical damage and speculation about the possible effect of a conflicting merger .
Judge Silverstein said Thursday that J&J assets are not owned by Imerys and Imerys’ contractual rights are not waived in a conflicting merger scenario. If J&J cannot honor its obligations after a divisive merger, Imerys has other âback-up avenuesâ, the judge said.
The use of separative mergers before filing for bankruptcy has been controversial when it aims to address asbestos liabilities. Earlier this month, a North Carolina bankruptcy judge rendered two rulings that creditworthy companies may have gone too far in creating near-empty ships to shift asbestos-related responsibilities to Chapter 11.
Some Congressional Democrats have proposed cracking down on the use of mergers that divide before bankruptcies. Legislation sponsored by Senator Elizabeth Warren (D., Mass.) And other Democratic lawmakers would require the rejection of bankruptcy cases arising from divisional mergers in certain circumstances.
Corrections and amplifications
Johnson & Johnson no longer sells baby powder containing talc in the United States and Canada, but still sells the product in other countries. An earlier version of this article incorrectly stated that the company had completely stopped selling the product. (Corrected October 19)
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