Cancer victims urge court to end J&J bankruptcy, roadblock to lawsuits

Cancer victims urge court to end J&J bankruptcy, roadblock to lawsuits

Cancer victims urge court to end J&J bankruptcy, roadblock to lawsuits

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Sept 19 (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 bankruptcy 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 “constructive” company created solely to prevent them from getting their day in court.

J&J ( JNJ.N ), which maintains its talc products are safe, spun off LTL in October, assigned its talc liabilities to it and filed for bankruptcy of the newly formed subsidiary days later.

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This restructuring strategy, known as the “Texas two-step,” halted about 38,000 lawsuits J&J faced alleging that 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 Monday’s arguments, Circuit Judge Julio Fuentes asked the cancer victims’ lawyer, Jeffrey Lamken, whether the probate court could provide a more efficient solution to the claims than trying cases one at a time in other courts.

Lamken said the court should not make a blanket decision about whether bankruptcy is “better” because the protection should be reserved for companies that are in financial distress and 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 legal process before a single case can be settled. LTL is under no pressure to move quickly because it has no operations and suffers no penalty for remaining bankrupt, 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 appeal to the last objector is resolved,” Frederick said.

But J&J countered the bankruptcy court is allowing all current and future talc lawsuits to be settled together, which it says is the fastest and fairest way.

Suing in other courts creates a wide variety of outcomes. Some plaintiffs will hit home and win big verdicts, while “most won’t even get a turn at bat,” with some dying before their cases go to trial, LTL attorney Neal Katyal said.

Perpetual litigation also creates significant “dead weight” in legal fees and legal costs, Katyal said.

The company has set aside $2 billion to settle talc claims, which LTL executives describe as a starting point rather than a “ceiling.”

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 filings.

But more than 1,500 talc 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’s court filings.

The cancer victims are asking the appeals court to overrule a New Jersey bankruptcy judge who allowed LTL’s bankruptcy to continue. LTL’s bankruptcy filing automatically stopped lawsuits from proceeding against it, and U.S. Bankruptcy Judge Michael Kaplan in Trenton, New Jersey, ruled in February that LTL’s bankruptcy should also stop talc lawsuits from proceeding against parent company J&J.

In declining to dismiss the case, Kaplan said the bankruptcy court is better equipped to handle mass bankruptcy cases than other courts.

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Reporting by Dietrich Knauth, editing by Alexia Garamfalvi and Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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