What Factors Will Determine if J&J’s Third Talc Settlement Attempt Succeeds?

Attempt No. 3 to settle the tens of thousands of talc lawsuits filed against Johnson & Johnson is underway. Red River Talc — a subsidiary of the pharmaceutical giant — filed for bankruptcy in Texas court on Friday in a necessary move to complete its proposed $8 billion talcum powder settlement.

That proposal, which will cover ovarian cancer lawsuits and more than 99% of the pending talc litigation, employs the controversial Texas two-step bankruptcy approach where a subsidiary is formed to take on the primary company’s lawsuit liabilities and then files for Chapter 11 in its place.

The issue: J&J has tried this strategy twice before to settle talc lawsuits and has yet to see success.
But the company hopes that it will see a different result on this attempt, and there are some notable differences from past tries that could potentially work in J&J’s favor.

Johnson & Johnson Says Plaintiff Support for Settlement Is Over 80%

One of J&J’s main pitches in favor of the settlement’s approval is that it has gained significant support among affected plaintiffs. The company said in a statement that approximately 83% of all claimants agreed to support the settlement, which is well above the benchmark of 75% required by the U.S. Bankruptcy Code.

J&J has worked over months to achieve that high level of approval after a secret ballot conducted in July showed that the 75% threshold had already been met.

In early September, the company opted to add an additional $1.1 billion to the initial settlement offer, pushing the overall figure to around $8 billion. After that move, a key plaintiffs’ lawyer representing 12,000 clients agreed to back the settlement.

While there are still vocal critics of the settlement proposal, the high level of support among plaintiffs may help J&J’s case as it pushes for approval.

Venue of Talc Bankruptcy Case Will Play a Key Role

One of the biggest obstacles to the approval of the settlement may lie in the decision of a New Jersey judge.

J&J’s Red River Talc subsidiary filed for Chapter 11 in Texas, a change of scenery from the New Jersey court where the company’s two previous attempts at pushing through a settlement had been denied.

According to Reuters, the U.S. Justice Department’s bankruptcy watchdog and other critics of the settlement have urged New Jersey Judge Michael Kaplan to block this latest attempt after overseeing and shutting down the two previous tries.

If this case were to be placed in front of Kaplan, it would likely be difficult for J&J to achieve a different outcome from past settlement attempts. Kaplan based his past rulings on the fact that he did not see the level of financial distress necessary to qualify for bankruptcy.

But Kaplan on Tuesday declined to take immediate control of the case, allowing it to remain in Texas under Judge Christopher Lopez for the time being.

J&J is hopeful that it will receive a different outcome if the case stays in Texas.