Johnson & Johnson Subsidiary to Declare Bankruptcy, Adds $1.1B to Talc Settlement

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According to Reuters, Johnson & Johnson (JNJ.N) is preparing to pay an additional $1.1 billion to resolve thousands of legal claims alleging its talc-based baby powder and other products caused cancer, according to sources familiar with the matter. This increase will push the total settlement amount to over $9 billion, which will be paid over the course of 25 years.

On Wednesday, J&J announced it reached an agreement with a lawyer representing 12,000 clients, recommending they accept the settlement offer, further bolstering the support the company has already received from other claimants.

Bankruptcy Plans and Settlement Finalization

To finalize the settlement, J&J is planning for a subsidiary to file for bankruptcy by the end of this month. However, J&J itself will not file for Chapter 11 and will continue normal operations. The timing of the bankruptcy filing could change depending on how the additional votes from claimants unfold. J&J maintains that its talc products are safe and do not cause cancer.

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The company’s settlement strategy hinges on garnering support from more than 75% of claimants, a legally required threshold for a judge to approve this type of bankruptcy settlement. J&J expects the support from the 12,000 clients of Allen Smith, the plaintiffs’ lawyer now endorsing the settlement, to push them well beyond this threshold.

Ongoing Legal Battle with Opposing Attorneys

Not all plaintiffs’ lawyers are in agreement with J&J’s proposed settlement. Andy Birchfield, a prominent attorney leading the opposition, has vowed to continue fighting the company’s bankruptcy plan. His firm, which shares representation of many clients with Smith, has already seen those clients overwhelmingly reject J&J’s settlement offer. Birchfield, along with other attorneys, will continue challenging the plan.

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Breakdown of J&J’s Proposed Payout

Previously, J&J’s settlement offer was valued at $6.48 billion in present terms, with an actual cash payout of $8 billion over 25 years. The additional $1.1 billion brings the total cash figure to over $9 billion. The company hopes this settlement will address the claims of ovarian and gynecological cancer caused by talc-based products, which represent the majority of lawsuits.

Texas Two-Step Bankruptcy Strategy

J&J’s settlement efforts are part of a controversial legal strategy known as the “Texas two-step,” where the company offloads its talc liability onto a newly created subsidiary that then declares bankruptcy. The goal is to force all claimants into a unified settlement without requiring J&J itself to declare bankruptcy. This strategy has been rejected by federal courts twice, but J&J is making another attempt to resolve the litigation through this maneuver.

Also read: Another Business Files Bankruptcy, 2 Store Closures in Michigan

Exclusion of Mesothelioma Claims

While J&J’s settlement offer addresses the majority of claims related to ovarian and gynecological cancers, it excludes cases involving mesothelioma, a deadly cancer linked to asbestos exposure. Some plaintiffs allege that asbestos-laced talc caused their mesothelioma, but J&J maintains that its talc does not contain asbestos.

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