In January we posted a summary review of the Johnson & Johnson (J&J) baby powder litigation. A striking new development warrants an update: Judge Christopher Lopez of the U.S. Bankruptcy Court for the Southern District of Texas has rejected J&J’s proposed $10 billion settlement plan. J&J’s previous efforts to achieve settlement through bankruptcy were rejected twice by other bankruptcy courts. The company says it will not appeal Judge Lopez’s ruling and will return to trying cases in the talcum powder multidistrict litigation.
All three settlement plans were adjudicated in bankruptcy courts because they “relied on the completion of a Texas Two-Step bankruptcy, in which a subsidiary company is formed, takes on the liabilities of the main company, and then files for bankruptcy in its place. J&J formed a subsidiary called Red River Talc for this purpose, and it filed for Chapter 11 in September [2024].” (It seems fitting that J&J’s final Texas Two-Step bankruptcy was filed in a Texas court.)
An article explains Judge Lopez’s reasons for rejecting the settlement:
Lopez criticized the votes that J&J collected from plaintiffs’ attorneys, saying there were serious flaws in votes cast both for and against the plan. J&J collected 90,000 votes, saying it had 83% of plaintiffs’ support, but Lopez said that “at least half should not be counted.” Some lawyers voted on their clients’ behalf without having clear authority to do so, and others said they had obtained their clients’ consent but did not present proof that they had spoken with them, Lopez said. J&J “unnecessarily rushed” the votes, and plaintiffs' lawyers testified that they were forced to cast votes on their clients' behalf instead of allowing them to vote directly, according to Lopez's opinion.
[T]he proposed settlement . . . also went too far in releasing legal claims against entities that had not filed for bankruptcy themselves, including retailers that sold J&J products and Kenvue, a consumer health business that J&J spun off in 2023. The proposal had too many problems to be fixed in bankruptcy, Lopez wrote.
It seems to me that the roughly 60,000 cases pending in the MDL will never be resolved with individual trials and that there must ultimately be a settlement. The plaintiff attorneys who opposed the Texas Two-Step bankruptcy proposals must believe that eventually they can force a larger settlement offer from J&J with its own money. We shall see.
