An attorney for Johnson & Johnson was grilled Monday about the company’s use of a contentious bankruptcy strategy that has halted tens of thousands of lawsuits related to Johnson’s baby powder.
During the hearing, a three-judge panel of the United States Court of Appeals for the Third Circuit in Philadelphia inquired if J&J employed the legal tactic to acquire “a litigation edge” over the approximately 40,000 cancer sufferers who have sued the business.
Women filed the majority of the cases. They believe asbestos contamination in Johnson’s renowned talc baby powder caused their mesothelioma or ovarian malignancies.
J&J has denied any wrongdoing and stated last month that it would cease all talc baby powder sales globally.
The company’s attorney, Neal Katyal, countered by claiming that the bankruptcy tactic, known as the “Texas two-step,” would assist victims, resulting in a speedier settlement of up to $61 billion.
Katyal stated that a “large firm with all these riches is seeking to dodge culpability.”
However, he stated that allowing the tsunami of baby powder-related lawsuits to play out in civil courts would cause legal confusion and “decrease the quantity of cash available to claimants.”
The “Texas Two-Step” and Its Effectiveness For J&J
Here’s how the “Texas two-step” legal strategy played out in this instance.
When New Jersey-based J&J wanted to create a new company in Texas, it did so in October 2017 by taking advantage of a quirk in that state’s law.
The healthcare conglomerate transferred all baby powder-related obligations to the startup.
LTL packed up shop in Texas, moved to North Carolina, and declared bankruptcy within a few days, ending the baby powder litigation.
Whether or not LTL’s bankruptcy was filed in good faith and whether or not it should protect J&J from baby powder-related litigation will be decided by the United States Court of Appeals for the Third Circuit.
Lawyers for women who have filed lawsuits against J&J criticized the company’s legal approach at Monday’s hearing.
Attorney Jeffrey Lamken remarked, “Talc victims… are trapped in bankruptcy as they die.”
When discussing Johnson & Johnson’s actions throughout the LTL bankruptcy process, he pointed out that the company had distributed billions of dollars to shareholders and engaged in stock buybacks, both of which are prohibited for technically insolvent companies.
Women who have sued the company for causing their illness “may only grow more desperate as they confront medical bills and move closer to their mortality,” Lamken said.
Lawyers for cancer patients argue that the civil court system, not the bankruptcy court, is appropriate for determining the company’s obligation.
This Case Has The Potential To Change Civil Justice In The United States
The U.S. Department of Justice has also questioned J&J’s bankruptcy filing.
On Monday, a DOJ attorney claimed that if this legal tactic is allowed by the courts, it will enable other non-bankrupt firms and affluent people to avoid accountability in the future.
“If Johnson & Johnson can get away with this bankruptcy, what’s to stop any other American firm from doing the same?” Sean Janda, an attorney for the U.S. Trustee, a section of the DOJ that monitors bankruptcy cases, was asked.
J&J’s plan has also drawn criticism from members of Congress and widespread outcry.
Hanna Wilt, diagnosed with mesothelioma late last year, expressed outrage about the delay in her baby powder case against the business.
“I see who can play the game the best,” Wilt told NPR. “It’s not new for large businesses to attempt to game the system, so they don’t have to bear full responsibility.”
Wilt passed away in February of this year at the age of 27.
It’s unknown how fast the Third Circuit will rule, though judges in bankruptcy cases tend to hurry. Legal experts believe that an appeal will be filed to the United States Supreme Court regardless of the verdict.
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