As reported on Legal Newsline:
WILMINGTON, Del. – Johnson & Johnson has borrowed a page from the legal playbook pioneered by breast-implant manufacturer Dow Corning to try to consolidate thousands of talc lawsuits in a single federal court for resolution.
The consumer-products giant’s strategy hinges upon the Chapter 11 bankruptcy of its longtime talc supplier Imerys. In a recent filing with the U.S. District Court of Delaware, J&J argues all the lawsuits against it alleging talcum powder causes cancer should be consolidated with the Imerys bankruptcy proceedings since the two companies are linked by a web of legal agreements and shared insurance coverage.
The strategy has worked before. When Dow Corning filed for bankruptcy in 1995 to resolve more than 100,000 breast implant lawsuits against it, corporate parent Dow Chemical, which was also sued by most of the same plaintiffs, successfully moved implant lawsuits into federal court, where they were ultimately resolved with a $2.4 billion settlement plan.
A provision of federal bankruptcy law gives federal courts jurisdiction over all litigation “related to” a bankruptcy reorganization, although how that term is defined differs from court to court. The Third Circuit, which includes Delaware and J&J’s home state of New Jersey, has taken differing stances on how to handle lawsuits against non-debtors. A bankruptcy judge in Delaware recently asserted control over lawsuits against automobile companies over airbags manufactured by Takata, whose U.S. unit filed for Chapter 11 reorganization.
In its April 18 filing, J&J says “the aggregation of the talc claims in this court will further judicial efficiency and the `prompt, fair, and complete resolution’ of all claims,” citing a decision in the Dow Corning case.
Already J&J has started filing removal notices in state-court talc lawsuits, setting in motion a process that will require plaintiffs to engage in pretrial legal maneuvering if they want to return their lawsuits to what they may consider more favorable courts.
Imerys filed for bankruptcy in February, citing the mounting cost of talc litigation. The company, which reported about $175 million in revenue last year, once was a division of J&J but has passed through a series of owners since J&J sold it in 1989. The two companies remained linked by an exclusive supply contract, cross-indemnification agreements and insurance policies that either company may tap, J&J said in its filing.
In a separate filing in bankruptcy court on March 29 the proposed representative of future claimants said Imerys, former owner Cypress Amax Minerals, J&J and other companies exposed to talc litigation possess a combined $2.7 billion in insurance that may be tapped to pay claims.
By seeking to pull all the talc lawsuits into federal court, J&J is hoping to complete a process that began with the consolidation of talc suits alleging ovarian cancer, which have largely been consolidated in a federal multidistrict litigation in New Jersey. That MDL is still in pretrial discovery stage.
Plaintiff lawyers have had mixed results with claims Johnson’s Baby Powder causes mesothelioma, a rare cancer of the pleural lining that is usually associated with industrial asbestos exposure. Houston lawyer Mark Lanier last month lost a talc-mesothelioma case in J&J’s home state of New Jersey, but won a $4.7 billion verdict in St. Louis last year in a case involving 22 women from around the country alleging their ovarian cancer was caused by talc.
A state-court jury in California earlier this year awarded $29 million in a mesothelioma case while another jury on April 4 ruled for J&J.
Dow Corning was an important early example of using bankruptcy to channel tort lawsuits – especially unpredictable state-court litigation – into federal court, where rules of evidence and procedural safeguards are considered by defendant companies to be stricter.
After Dow Corning filed for bankruptcy in 1995, Dow Chemical sought to move implant cases against it to federal court but the district judge refused. The Sixth Circuit reversed the lower court in a landmark 1996 decision, which the U.S. Supreme Court refused to overturn. Years later and after many trips to appellate court, Dow Corning and its parent companies managed to resolve most of the lawsuits with a $2.4 billion settlement plan funded largely by insurance.
Section 157(b)(5) of the U.S. Bankruptcy Code requires “personal injury tort and wrongful death claims” to be tried in federal court, either in the district where the bankruptcy was filed or where the tort claim arose. Individual judges have discretion to abstain from hearing lawsuits “related to” the bankruptcy, but J&J, in its filing, said that would be a mistake.
Allowing the state-court lawsuits to proceed outside of federal court could drain insurance assets Imerys needs to pay its creditors and delay its plan of reorganization. The company and J&J are also linked by agreements to indemnify each other for product liability claims, complicating any effort to restructure while large jury verdicts are rolling in.
Despite its firm statements that there is no asbestos in its talcum powder, J&J has settled some mesothelioma cases before or during trial. One likely outcome of consolidating the litigation with the Imerys bankruptcy would be a global settlement of claims, which J&J would probably have to fund with insurance proceeds and corporate cash. Plaintiffs must file their response to J&J’s request early next month.
A statement from the company said: “Our position that Johnson’s Baby Powder is safe and does not cause cancer has not changed. This step would streamline the process for reviewing the cases that remain outside the thousands of cases that have already been consolidated, creating greater consistency on the rules of law and increasing overall efficiency for all parties involved.”