Over the past decade, Johnson & Johnson has faced thousands of lawsuits over its well-known baby powder. The liability risk the company faces is so large, it is using the bankruptcy system to protect itself. However, the Bandaid maker is not going out of business. And it is not close to running out of money. Instead, it is using the bankruptcy system to resolve all the baby powder lawsuits filed against it. The Hanson & Payne team is keeping a close eye on this legal maneuver because it could have an impact on the broader business bankruptcy system.
Bankruptcy As A Bandaid
Johnson & Johnson is one of the largest and most successful pharmaceutical companies in the world. It has a market cap of $430 billion, and $25 billion cash on hand. It is nowhere close to bankruptcy. And yet, it has filed for it.
J&J is spinning off a new company that is built to go bankrupt. It is doing so in order to deal with the 38,000+ lawsuits filed against it by people, mostly women, claiming the company’s baby powder causes cancer. J&J already paid $2.5 billion to about 20 women making similar claims earlier this year. It is uncertain how much the additional 38,000+ lawsuits could cost. That’s where bankruptcy comes in.
All of J&J’s baby powder assets and liabilities, plus a large chunk of cash have been dumped into a company called LTL Management. Almost immediately after its creation, LTL filed for Chapter 11 bankruptcy. Under bankruptcy rules, LTL can temporarily pause all the lawsuits filed against it, and work on a way to settle them by setting up a bankruptcy trust. This is a tactic that has been used by other companies, but this is on a much larger scale.
Bankruptcy Is A Tool, Not A Weapon
The Hanson & Payne team is watching the J&J/LTL bankruptcy case to see what happens. If the courts approve this legal maneuver, we may be seeing more cases where bankruptcy is used to forge large-scale settlements in the future.
This case has the benefit of showing businesses how useful bankruptcy can be, and perhaps helping to destigmatize it, which would be a good thing. On the other hand, if lots of cases like this are filed going forward, it could bog down bankruptcy courts that already struggle under a hefty caseload.
Milwaukee area businesses who are looking at this case, looking at lawsuits pending against them, and wondering if bankruptcy may be a way out, should proceed with caution. As the Hanson & Payne team frequently reminds everyone, bankruptcy is a tool, not a weapon or a magic wand. Bankruptcy is not something that businesses can rely on to resolve every lawsuit, no matter what happens in the J&J case.
Business owners in the Milwaukee area who are facing unknown liability, or mounting legal debt, are welcome to reach out to Hanson & Payne’s experienced team of bankruptcy attorneys for advice. Typically, the sooner an issue is addressed, the more options are available for resolving it, so please contact us today.