State AGs Join Opposition to LTL Bankruptcy in Talcum Powder Lawsuits

Newark, NJOn May 10, the states of New Mexico and Mississippi joined cancer victims and the U.S. Department of Justice in moving to dismiss the latest LTL bankruptcy petition. The bankruptcy is an essential element of Johnson & Johnson’s $8.9 billion offer to settle all outstanding and future talcum powder lawsuits. Of that $8.9 billion, $400 million is reportedly  to be set aside to settle state consumer protection lawsuits. That is news.

The highest individual payments under the settlement would be $500,000 for people diagnosed with terminal mesothelioma before age 45, and $260,000 for people diagnosed with terminal ovarian cancer before age 45. For others, the payout could be as little as $21,000, far less, for example, than the cost of a year’s medical treatment for ovarian cancer.

The state law consumer protection lawsuits launched by states including Mississippi and New Mexico add a whole new puzzling wrinkle. Is this good or bad for people who have been injured by Baby Powder?

Twists and turns in J&J’s scheme to limit liability

J&J is facing nearly 40,000 talcum powder lawsuits alleging that that asbestos contamination in the talc powder caused users to develop ovarian cancer, mesothelioma, and other injuries. More lawsuits are likely to be filed in the future because these conditions may have extremely long latency periods. The company is laser focused on avoiding the kind of ruinous asbestos liability that shuttered Johns Manville in the 1980s.

Its plan involves a controversial bankruptcy tactic known as the Texas two -step. This involves dividing the company into two, shifting the liability to the newly created entity (LTL Management, in this case), and having LTL file for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code. Claimants will be paid from the new entity, but only to the extent of the assets it holds.

J&J amputates the liability and then moves on to the future

In connection with LTL’s first attempt at bankruptcy in 2022, the company made a settlement offer of $2 billion. The Third Circuit rejected the bankruptcy filing in January 2023, finding that neither LTL nor J&J had a legitimate need for bankruptcy protection. Thereafter J&J sweetened the deal with a new $8.9 billion offer, and LTL re-filed for bankruptcy protection.

Reaction has been mixed. Most of the attention has been whether this new offer will provide adequate compensation to individual claimants.

J&J may move on; plaintiffs may not. Now there’s a subplot.

State consumer protection lawsuits

In May, J&J told a New Jersey bankruptcy court that it had earmarked $400 million of the $8.9 billion offer to settle state claims that it deceptively marketed its talc products. (As a rule, a company found guilty of violating a state consumer protection law may be required to pay a fine to the state. There may also be injunctive remedies to prevent a company from further misrepresentations.)  The upshot, however, is the pot of money potentially available to individuals who were harmed is less than it initially appeared.

Mississippi and New Mexico initially filed consumer protection lawsuits in 2021. Both accused J&J of failing to warn consumers of a possible link between its talcum powder and ovarian cancer. The attorneys general for Arizona, North Carolina, Texas, and Washington have also issued civil investigative demands, and the Maryland attorney general issued an administrative subpoena for consumer protection. The amount of activity suggests that more state consumer protection lawsuits may be in the offing. All talcum powder litigation is stayed until mid-June as settlement negotiations continue.

It seems counterintuitive that states have opposed a settlement offer that sets aside an amount of money specifically to address consumer protection claims? Filings from Mississippi and New Mexico argue that the unilateral cap on the company's liability for state consumer protection actions is as unfair to the states as the limit on payments to individuals.

The dilemma seems to be essentially the same as that facing individual claimants. An amount of money set aside for payment of potential claims adds a degree of certainty to the resolution of a dispute. But it is still not clear that the amount is large enough, given the uncertainty of future potential liabilities. In any event, as some commenters have noted, the latest settlement offer is beginning to look worse and worse.

How much money is enough?

To most ordinary mortals, either $400 million or $8.9 billion seems like a lot of money. Given the bifurcation of global wealth, however, that view may be naïve.

J&J is a multinational conglomerate with a market capitalization in excess of $400 billion. Whether U.S courts can reach assets held overseas is a complicated and fact-specific question. In any event, there seems to be cause for caution in crafting a settlement deal.