(Reuters) — People suing Johnson & Johnson over the company’s talc products urged an appeals court on Monday to revive their claims, saying the profitable company should not be allowed to use a bankrupt subsidiary to block lawsuits alleging the products cause cancer.
They asked a panel of the Philadelphia-based 3rd US Circuit Court of Appeals to dismiss the bankruptcy of J&J subsidiary LTL Management, saying LTL is a “boiled” company formed solely to prevent them from getting their day in court.
J&J, which maintains its talc products are safe, canceled LTL in October, assigned its talc debts and filed for bankruptcy days later on the newly formed subsidiary.
That restructuring strategy, known as the “Texas two-step,”; paused about 38,000 lawsuits J&J faced alleging its baby powder and other talc-based products contained asbestos and caused mesothelioma and ovarian cancer.
Critics, including lawmakers and legal experts, say J&J’s bankruptcy maneuver could provide a blueprint for other big companies to avoid juries in mass tort lawsuits.
At arguments Monday, Circuit Judge Julio Fuentes asked the cancer victims’ attorney, Jeffrey Lamken, whether the bankruptcy court could provide a more efficient resolution of the claims than trying cases one at a time in other courts.
Mr Lamken said the court should not make a blanket decision about whether bankruptcy is “better”, as its protection should be reserved for companies in financial distress that need to reorganize.
He argued that cancer victims should be allowed to sue because bankruptcy requires a comprehensive settlement to be reached through a lengthy court process before any individual case can be decided. LTL is under no pressure to move quickly because it has no business and suffers no penalty for remaining in bankruptcy, Lamken said.
David Frederick, who represents a separate group of cancer plaintiffs, said the bankruptcy allows LTL to pay “less money, more slowly.”
“Not a penny will be paid until the last objector’s final appeal is resolved,” Mr. Frederick.
J&J countered that the bankruptcy court is allowing all current and future talk lawsuits to be settled together, which it says is the fastest and fairest way.
Litigation in other courts creates a huge variation in outcomes. Some plaintiffs will hit home and win large verdicts, while “most people won’t even get a turn at bat,” with some dying before their cases go to trial, LTL attorney Neal Katyal said.
The company has set aside $2 billion to settle talcan claims, which LTL executives describe as a starting point rather than a “cap.”
Before the bankruptcy filing, J&J faced costs ranging from $3.5 billion in judgments and settlements, including one in which 22 women were awarded a judgment of more than $2 billion, according to bankruptcy court records.
But more than 1,500 talk lawsuits have been dismissed without J&J paying anything, and the majority of cases that have gone to trial have resulted in defense verdicts, mistrials or verdicts for the company on appeal, according to LTL court filings.