Johnson & Johnson, hoping third time is a charm for solving its multibillion-dollar talc baby powder litigation fiasco, filed for Chapter 11 bankruptcy Friday for its Red River Talc subsidiary in Houston.
Claiming up to $10 billion in liabilities and more than 50,000 creditors, J&J lawyers — led by Porter Hedges and Jones Day — filed a prepackaged plan claiming its bankruptcy has the support of 83 percent of the 62,000 plaintiffs suing the company claiming its talc-based powder caused ovarian and gynecological-related cancer. J&J has denied that its product causes cancer but still withdrew the product from the market last year.
Two Texas lawyers expected to play key roles for the debtors in the case are Jones Day partner Gregory Gordon of Dallas and Porter Hedges partner John Higgins of Houston.
J&J filed the Chapter 11 in the Southern District of Texas, where it was assigned to U.S. Bankruptcy Judge Christopher Lopez.
This is J&J’s third attempt to resolve its talc powder litigation through bankruptcy using the legal scheme called the Texas Two-Step, which purports to allow corporations to shift mass tort liabilities into a separate subsidiary and then dispose of those liabilities through bankruptcy.
The New Jersey-headquartered pharmaceutical giant’s first two attempts to employ the Texas Two-Step in its home state of New Jersey were shot down by federal courts, who pointed out that the J&J parent company was not in financial peril and thus did not qualify for Chapter 11 protection.
In recent weeks, J&J has taken multiple steps to attempt to fix the flaws cited by federal courts in the previous two bankruptcies, including incorporating its subsidiary, Red River Talc, in Texas.
The Big Pharma conglomerate also increased the settlement amount offered to plaintiffs from $6.5 billion to $8.2 billion. The company claims that it has the support of 83 percent of the plaintiffs.
High-profile plaintiffs’ lawyers such as Mikal Watts have publicly supported the new settlement proposal, which reportedly sets aside $650 million to compensation lawyers representing the victims.
But not all plaintiffs’ attorneys support the settlement proposal. Andy Birchfield, a lawyer for Alabama-based Beasley Allen, say the proposal is “a gross undervaluation” of the injuries.
Meanwhile, the Dallas law firm Dean Omar Branham Shirley has scored jury verdicts of $63.4 million and $45 million against J&J, and the firm is currently in trial against the company in Connecticut.
The case is Red River Talc LLC, 24-90505, Southern District of Texas.