After the 3rd U.S. Circuit Court of Appeals in Philadelphia called out Johnson & Johnson’s controversial “Texas two-step” bankruptcy maneuver in their talcum powder lawsuits, the company agreed to increase its original settlement of $2 billion to $8.9 billion to appease more plaintiffs. While this change has ensured that certain people are on board, some are still skeptical.
Under the Texas two-step maneuver, using a Texas law, a company being sued is divided into 2, and the liability is passed onto the newly formed company. In this case, claims against J&J’s talcum powder being carcinogenic and containing asbestos were passed onto the firm’s newly formed unit LTL Management, which then filed for bankruptcy under Chapter 11 to settle lawsuits.
When the approach was first defeated in an appeals court in New Jersey, it was on the grounds that LTL Management had no legitimate claim to bankruptcy because it was not in financial distress.
While this plan was initially rebuked by courts, LTL Management has once again filed for bankruptcy protection in the same jurisdiction with the intent to present a reorganization plan containing the new proposed settlement that has been agreed upon by about 60,000 talc claimants.
Attorney Michael Watts, who represents more than 16,000 plaintiffs, supports this new agreement as he is aware that most of his clients cannot afford a drawn-out legal process.
According to Watts, “There are many, many, many women that never got their day in court because their life ended before the case was resolved. It’s very much a balancing act. You want to get a fair amount, and you want a large amount on behalf of your clients, but you need it early enough that they can actually use it as opposed to it being some pie-in-the-sky goal for 20 years from now.”
J&J and its subsidiary have also defended the bankruptcy approach by saying that it is more fair, equitable, and effective for all plaintiffs as trials by courts often end up like lotteries instead, where certain litigants get large awards and others get nothing.
Other attorneys, however, have shared their skepticism over the agreement. According to Jason Itkin, founding partner of the Houston-based personal injury law firm Arnold & Itkin LLP, the new deal is nothing but a farce since it does not even amount to most victims’ medical bills.
Lawyers of the plaintiffs are also calling the two-step novelty an abuse of the bankruptcy system where large firms such as J&J, which exceed the $400 billion market, are able to get off the hook fairly easily.
Under the terms of the new deal, plaintiffs that have been diagnosed before April would be paid from a bankruptcy trust within one year of a judge approving the Chapter 11 plan. Any patients diagnosed after would have access to money set aside in the trust for the next 25 years. In order for this plan to come into effect, it needs the approval of 75% of plaintiff-creditors, which is a bar higher than for most other bankruptcies