(Bloomberg) — Johnson & Johnson will ask thousands of people suing over its allegedly tainted baby powder to vote for a settlement that would resolve all lawsuits for $11 billion — more than the amount the company paid last year. That’s $2.1 billion more than the offering.
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In a news release Wednesday, J&J urged those who blame the talc-based powder for ovarian cancer to support a third bankruptcy filing aimed at dismissing all existing and future legal claims. Two earlier attempts to use Chapter 11 to broker such a deal failed because plaintiffs demanded larger payouts.
This time, the world’s largest maker of health care products is seeking so-called “pre-packaged” bankruptcy under rules that allow companies to settle Chapter 11 cases faster if they have enough creditor support. . In bankruptcy court, plaintiffs are turned into unsecured creditors. Under Chapter 11 rules, J&J will need 75% of the talc plaintiffs to support the move for a bankruptcy judge to approve it.
The new plan calls for the company to pay $6.48 billion over 25 years to resolve ovarian cancer claims, though it’s unclear how much of that portion will be set aside for current cases and how much of that portion will be set aside for future claims. How much will be kept in trust? Separately, J&J has settled about 95% of cases alleging that asbestos-containing powders caused another cancer called mesothelioma and resolved consumer-protection suits brought by U.S. states, according to the release. Tentative agreements have been reached to.
J&J shares were up 3.5% at 10:21 a.m. Before Wednesday’s move, the stock was down about 12% over the past 12 months.
Eric Haas, the company’s vice president of worldwide litigation, said in the release that J&J has “worked with attorneys for the overwhelming majority of talc claimants to bring this litigation to an end, which we expect to do through this plan.” “
However, not all plaintiffs’ attorneys agreed.
Andy Burchfield, an attorney for the Talc victims who is helping lead a consolidated case in federal court in New Jersey, said, “We believe that any bankruptcy filing based on this solicitation and vote will be found to be fraudulent and will be voidable under the U.S. Bankruptcy Code. shall be filed in bad faith under.”
60,000 suits
J&J announced in October that it was considering a third bankruptcy bid to settle the talc cases. JPMorgan Chase & Co. analyst Chris Schott said the decade-long litigation, as well as the prospect of potential future cancer lawsuits, is hurting its stock. J&J says talc does not cause cancer and has properly marketed its baby powder for over 100 years.
J&J now faces nearly 60,000 lawsuits blaming the talc used in Baby Power and similar products for various types of cancer. Many of those cases have been consolidated before a federal judge in New Jersey. Other cases are scheduled for hearing in state courts.
In April, a Chicago jury ordered J&J and its Kenview spinoff to pay $45 million in damages to the family of a woman who blamed her cancer on her use of baby powder. It was the first ruling that has embroiled its former consumer products division Kenview in talc litigation since its initial public offering last year. J&J has agreed to indemnify Kenview, which now sells a cornstarch-based version of the baby powder, for any talc liabilities in North America.
In July, a judge rejected J&J’s second bankruptcy effort, in which the company had sought to resolve at least 40,000 lawsuits for about $8.9 billion. The judge said J&J did not meet the financial distress test imposed by a federal appeals court. The company has vowed to appeal that decision to the US Supreme Court.
J&J has reached a $700 million temporary settlement with more than 40 states that targeted the company’s baby powder marketing under their consumer-protection laws. The company also struck a $75 million tentative deal with the state of Mississippi on the eve of a hearing in a consumer case.
The company has also emphasized settling mesothelioma cases but has not provided numbers for those settlements. J&J recorded a $2.7 billion charge in the first quarter of this year in a spate of recent talc-related settlements.
third attempt
If J&J is successful in its third attempt, it would likely be an unprecedented use of Chapter 11 rules. That’s because J&J wants to give up legal claims, not traditional debt, owed to banks, bondholders and other creditors.
For a pre-packaged case to work, companies need heavy lender support, which is much easier to obtain from a relatively small number of lenders. J&J will need the votes of thousands of individuals who have sued the company and are eager to resolve their claims. They will have three months to cast their vote.
J&J has been preparing for a third bankruptcy attempt for months. It transferred a unit to Texas to facilitate another so-called “Texas to Step” Chapter 11 case. Texas law allows companies to assign liability in mass tort cases to an entity that may file for bankruptcy. The maneuver has been criticized by some legal experts for allowing solvent companies to use the bankruptcy court to pressure claimants into a settlement.
This type of bankruptcy would allow J&J to place the money into a trust to pay former talc users who develop cancer years later. The trust will decide how much claimants should be paid rather than allowing a jury to decide damages. Many J&J claimants have vocally opposed relying on a trust.
The consolidated case is In re Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Products Liability Litigation, 16-MD-2738, U.S. District Court, District of New Jersey (Trenton).
(Updated with share move in fifth paragraph)
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