- Legal costs of 14,000 claims are swamping J&J’s talc supplier
- Judge will oversee effort to use trust to settle talc suits
Imerys Talc America Inc., which supplies talc for products including Johnson & Johnson’s baby powder, filed for bankruptcy protection in an effort to end nearly a decade’s worth of lawsuits claiming its product causes cancer.
The unit of Paris-based Imerys SA and two other subsidiaries filed for Chapter 11 protection in Delaware Wednesday, citing the more than 14,000 claims the company faces in U.S. courts. Most have been brought by women alleging Imerys’s talc caused their ovarian cancer. Others say they have mesothelioma, brought on by asbestos in the talc.
Under Chapter 11 of the U.S. Bankruptcy Code, the units can set up a trust to deal with the current talc cases and any future claims. It will also corral the cases under a single judge and allow Imerys to pressure plaintiffs to accept lower settlements. Other companies, such as utility PG&E Corp. and building-products maker Johns Manville Corp., have used similar filings to shield the firms from billions of dollars in liabilities tied to lawsuits.
The filing comes as a California jury is hearing evidence in the case of a woman dying from mesothelioma who blames her disease on talc the Imerys units supplied for J&J’s baby powder. She’s sued both the miner and J&J, the world’s largest maker of health-care products. It’s just one of more than two-dozen trials the companies face in 2019 over their talc-based products.
J&J shares fell as much as 0.7 percent on the bankruptcy filing, but closed up 0.2 percent at $134.45 in New York. Imerys SA closed Wednesday down 0.34 euros (38 cents), or 0.75 percent, to 42.05 euros in Paris.
“After carefully evaluating all possible options, we determined pursuing Chapter 11 protection is the best course of action to address our historic talc-related liabilities and position the companies for continued growth,’’ Giorgio La Motta, Imerys Talc America’s president, said in a statement.
Company officials concluded it’s “simply not in the best interests of our stakeholders to litigate these claims in perpetuity and incur millions of dollars in projected legal costs to defend these cases,’’ La Motta said.
Mark Lanier, a veteran plaintiffs lawyer who won a $4.69 billion verdict against J&J last year in a talc case, said he wasn’t surprised the Imerys units decided to seek protection from their creditors. “They knew their product caused immense grief to thousands of women and they knew they couldn’t escape accountability in the courts any other way,” the Texas-based attorney said.
Imerys Talc Vermont and Imerys Talc Canada Inc. also sought Chapter 11 protection Wednesday. Imerys Talc America and Imerys Talc Vermont listed combined assets of as much as $500 million and liabilities of as much as $100 million, according to the bankruptcy filing.
Officials at the units said the companies will be “operating as usual throughout the Chapter 11 process,’’ which is expected to wrap up by 2020. The parent company isn’t seeking protection from creditors.
The bankruptcy will probably have a negative impact on Johnson & Johnson in thousands of talc lawsuits as Imerys won’t be able to contribute much capital to potential settlements, Bloomberg Intelligence litigation analyst Holly Froum said in an interview.
“It’s certainly relevant in terms of payment,” Froum said. “Logistics and timing of the cases could also be affected, but I don’t think that’s necessarily a negative for J&J. And it won’t have an impact on liability.”
J&J faces more than 11,000 claims linking its talc products to cancer, including suits alleging officials knew by the 1970s that some talc used in its baby powder contained asbestos and covered it up to protect its iconic brand, according court filings.
A J&J research scientist noted in a 1969 confidential memo — made public during a trial — that tests found asbestos in talc used in the baby powder. The scientist warned that the health-care company should ready itself for litigation if the information became public.
Both Imerys and J&J reject claims their talc products cause cancer. The talc miner said Wednesday its product’s safety has been “confirmed by dozens of peer-reviewed studies, as well as regulatory and scientific bodies.’’
Still, the Imerys units settled some talc cases as they came up for trial. In a prescient move, Imerys Talc America agreed to pay more than $5 million in June 2018 to resolve claims by 22 women who blamed their cancers on the company’s talc. A jury in St. Louis hit J&J with the $4.69 billion verdict in that same case.
The miner has been tagged with several sizable damage awards in other trials. In April 2018, a New Jersey jury awarded $117 millionto a man who said he developed mesothelioma by using J&J’s baby powder containing talc supplied by Imerys.
Ernie Knewitz, a J&J spokesman, declined to comment on the Imerys units’ bankruptcy filing.
“This announcement by Imerys speaks to the serious nature of this ongoing litigation and the negligence and culpability the company has in supplying a cancer-causing product to consumers around the world,’’ attorney Ted Meadows, who represents thousands of talc plaintiffs, said in an emailed statement. “This action is yet another defensive attempt to avoid responsibility and deny compensation to very sick women and their surviving families.’’
With the costs of the litigation mounting, executives of the Imerys units probably decided to use the bankruptcy process to put a fence around the company’s talc exposure, said Chuck Tatelbaum, a Florida-based bankruptcy lawyer who’s been involved in asbestos-trust cases in the past. He’s not working on the Imerys case.
The filing will allow the subsidiaries to set aside what they consider to be a “meaningful amount” to resolve all current suits and any future claims, he said. After reviewing the units’ cash flow and profitability projections, the bankruptcy judge will decide if that’s sufficient to resolve the cases while allowing the miner to operate profitably in the future, Tatelbaum said.
In many cases, companies facing waves of mass-tort litigation file for protection when disputes arise about expected insurance coverage, Tatelbaum said. Those disputes can be more quickly resolved through bankruptcy than through additional litigation, he said.
Imerys SA officials acknowledged in an earnings release Wednesday the U.S. units’ bankruptcy filing was driven, in part, by insurers balking at providing coverage for the talc cases. There has been a “growing reluctance by the filing entities’ insurers and third-party contractual indemnitors to provide coverage’’ for increasing settlement and defense costs, the company said.
Since the Imerys units have no debt, the bankruptcy case will pit current talc plaintiffs against those with future claims, Tatelbaum said. “Since cancers like mesothelioma can take years to develop, that fight over who gets what will be a tough one,” he said.
Independent trustees could be charged with deciding how the money is split among talc claimants, Tatelbaum said. While the companies may exit bankruptcy, the trust could continue to operate over a period of years to oversee negotiation and payments of settlements, he added.
In January, PG&E, the California-based utility facing $30 billion in liabilities over its role in causing wildfires in the state, filed for bankruptcy protection and set up a trust to deal with that litigation. More than 5,600 people have sued the San Francisco-based company over the blazes, and the utility’s officials say they expect claims from thousands more.
Johns Manville Corp., which makes insulation and roofing materials, sought bankruptcy protection in 1982 after being swamped by suits over asbestos, a carcinogen used in insulation. The company was one of the first to set up a trust to handle settlements of such cases. While Johns Manville emerged from Chapter 11 protection in 1988, the trust is still in operation and has paid out at least $3 billion in claims. Johns Manville became a unit of billionaire Warren Buffett’s Berkshire Hathaway Inc. in 2001.
The case is In Re Imerys Talc America Inc., 19-10289, U.S. Bankruptcy Court, District of Delaware (Wilmington).
— By Jef Feely with assistance by Rudy Ruitenberg, and Riley Griffin