Last Dance, Last Chance for the Texas Two-Step in J&J Talc Litigation

Trenton, NJUntil mid-2023, the Johnson & Johnson talcum powder cancer lawsuits consolidated in the District Court of New Jersey have been essentially frozen in place, while the Third Circuit Court of Appeals evaluated J&J’s bankruptcy petitions. The stay involved a complicated bankruptcy scheme, commonly known as the “Texas two-step,” which would have permitted J&J to limit its financial liability by shifting the cancer claims to a newly-created, but severely underfunded subsidiary.

The Third Circuit found that the petition had been filed for the express purpose of reducing the company’s liability, even though J&J had not demonstrated that it was in financial distress. J&J re-filed its bankruptcy petition, which the court rejected for a second time in April 2023. In May, the bankruptcy court ordered the parties to resume settlement negotiations.

Since then, the trial court has begun to schedule pre-trial discovery steps. J&J, for its part, has prepared to file a third Texas two-step petition and has re-opened negotiations concerning settlement.

Talcum powder and ovarian cancer

Talc is a naturally occurring mineral mined primarily in the Appalachian Mountain range. Some raw talc deposits also contain asbestos, which  has long been linked to cancers in and around the lungs when inhaled. In addition, personal hygiene powders, such as J&J’s Baby Powder and Shower-to-Shower powder have been associated with ovarian and endometrial cancers, especially when they are used in the genital area.

J&J appears to have either known or had reason to know about the danger posed by contaminated talc for 50 years. Nonetheless, the pharmaceutical giant never added warning labels. As reported by Reuters:

“[F]rom at least 1971 to the early 2000s, the company’s raw talc and finished powders sometimes tested positive for small amounts of asbestos, and … company executives, mine managers, scientists, doctors and lawyers fretted over the problem and how to address it while failing to disclose it to regulators or the public.”

The company did not stop selling talc-based baby powder globally until 2023.

The cost of delay

Ovarian cancer is one of the leading causes of cancer deaths among women. A woman’s lifetime chance of dying from ovarian cancer is about 1 in 130, but women who used talcum body powder as a feminine hygiene product may face a 20 to 30 percent greater risk than those who do not apply talc.

Early detection and treatment are key elements in preserving quality and length of life, but treatment is often affected by the availability of information and financial resources. As the years have slid by during the pendency of these lawsuits, some plaintiffs are likely to have either given up or died.

Moves toward trial, settlement or another bankruptcy

On February 10, 2024, the trial court set a series of deadlines largely relating to expert witnesses and testimony. The bottom line is that bellwether trials are not likely to begin until late 2024 or 2025 – unless, of course, there are further delays.

J&J is eager to find a global settlement for all outstanding ovarian cancer personal injury lawsuits. More than 50,000 cases are currently pending in the District Court of New Jersey. Verdicts in the few lawsuits that have gone to trial have topped out at $2.1 billion, a decision that was later upheld by the U.S. Supreme Court.

J&J is now positioning itself to file a third bankruptcy petition. This time around, though:

• the company intends to file in the Northern District of Texas, rather than New Jersey;
• its offer focuses on non-mesothelioma claims (meaning principally ovarian cancer lawsuits);
• the global settlement sum appears to be $6.9 billion (which is the same as the previous ovarian cancer offer; and
• coincidentally, the name of the subsidiary to which it intends to shift all ovarian cancer claims has been changed to LLT Management from LTL Management.

The chance for success appears to be slim. To proceed, J&J must secure the support of at least 75 percent of the class of ovarian cancer claimants. J&J likely will not initiate the bankruptcy until it has lined up a significant portion of this support. Plaintiffs’ attorneys can be expected to push for more money to fairly compensate victims.

The company must still be able to overcome the legal hurdle that sank the first two bankruptcy efforts. It must demonstrate that, failing bankruptcy, it would find itself in significant financial distress. As of December 31, 2023, J&J had net assets of $68.77 billion.

A glimmer on the horizon?

An imminent resolution to the long drama of talcum powder ovarian cancer lawsuits seems unlikely. The pressure brought to bear by the District Court of New Jersey may begin to finally move settlement negotiations along, however, especially as both sides begin to evaluate expert testimony and scientific evidence.