US government agencies file objection to J&J's $9B talc bankruptcy settlement

Two attempts by Johnson & Johnson to resolve approximately 60,000 talcum powder lawsuits through bankruptcy courts have crumbled because the company could not show that the subsidiaries it erected to handle the claims were in financial distress.

As the company's third try works its way through another Chapter 11 procedure, the U.S. government has stepped in, objecting to the planned $9 billion settlement and making the same claim—that bankruptcy procedures are reserved for companies that are in financial trouble.

The Department of Health and Human Services and the Department of Veterans Affairs filed the objection Friday in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division. The agencies argue that J&J’s plan is in “violation of the Bankruptcy Code and federal law.”

In the objection, the agencies claimed they would lose their right to reimbursement for care provided through government health programs—such as Medicare and Medicaid—to those who would be compensated in the settlement.

The agencies cited the Federal Medical Care Recovery Act, which “empowers the United States to recover from a third party or its insurer the reasonable value of medical care furnished through or paid by federal programs in circumstances where the third party would be liable.”

J&J litigation chief Erik Haas said in an email that the company is “confident that the filed Bankruptcy Plan—which has the overwhelming support of law firms and claimants—satisfies all the requirements of the Bankruptcy Code."

Also on Friday, lawyers for claimants who have not signed on to the settlement agreement urged Judge Christopher Lopez to reject the plan, saying they have the right to pursue their cases separately.

The holdouts—who claim that the use of J&J’s baby powder caused their ovarian cancer—are challenging the company’s claim that more than 80% of those involved in the multi-district class action lawsuit have signed on to the settlement agreement. The case is set to go before Judge Lopez next month.

J&J's Haas added that the settlement plan is "in the best interests of the ovarian claimants."

"It constitutes one of the largest settlements ever reached in a mass tort bankruptcy case," Haas said. "The support far exceeds the 75% approval threshold required by the U.S. Bankruptcy Code and is supported by the Future Claims Representative, an attorney representing the future claimants. The plan affords claimants a far better recovery than they stand to recover at trial." 

This is not the first time the government has challenged J&J's bankruptcy effort. Three months ago, the U.S. Trustee program—the Department of Justice unit that oversees bankruptcy cases—filed a motion (PDF) to dismiss the Chapter 11 bid, calling the company's strategy “a textbook example of bad faith.”

As the case has lingered for four years, two groups of claimants have emerged—those anxious to accept a settlement and those who are holding out, hoping to take their cases to jury trials and potentially score a huge award, such as the $2.1 billion that 22 women from 12 states secured from a Missouri court in 2018.

Last year, an Illinois jury ordered J&J to pay the family of a woman who died of mesothelioma $45 million.

But of the cases that have gone to trial, J&J has won a majority. The company has stuck to its claim there is no conclusive evidence that its talc products contained asbestos or caused cancer.

J&J has taken the products off the market, first in North America in 2020 and then the rest of the world in 2023. The company now sells a cornstarch version of its baby powder.