(Bloomberg) — The controversial Johnson & Johnson bankruptcy strategy that’s drawn the ire of Congress faces a fresh trial this week, with the consumer products giant arguing that settling billions of dollars of talc liabilities in a single case is better for cancer victims than fighting thousands of individual claims.
J&J begins a week-long court hearing Monday to decide whether it wrongly maniipulated the bankruptcy system by putting a unit into Chapter 11 solely to force a negotiated end to more than 38,000 lawsuits. The case has come under fire from advocates for people harmed by corporate malfeasance and in Congress, where legislation is being considered that would ban the company’s tactics.
“This model of Chapter 11 cannot be what Congress had in mind when it enacted” the federal bankruptcy code, bankruptcy attorney Laura Davis Jones told the judge overseeing the hearing as it began in Trenton, New Jersey, a 25-mile drive from J&J’s corporate headquarters in New Brunswick.
The core of J&J’s argument is that bankruptcy was a legitimate option because traditional jury trials are unfair to both victims and corporations. Nearly all of J&J’s alleged cancer victims disagree and their lawyers have filed motions seeking to dismiss the bankruptcy case. One group in Canada, however, took the company’s side.
“The motions raise the ultimate question of when a stampede to the courthouse, and piecemeal litigation, has ever led to a better result for all creditors than that which could be obtained before a bankruptcy court,” wrote lawyers for a class-action lawsuit against J&J in Canada.
Should J&J lose, victims would be free to resume jury trials, potentially exposing the company to billions in additional payouts. In the last five years, J&J spent $4.5 billion to resolve talc claims, according to court papers. Although the company won many trials, there have been spectacular losses. Last year, about 20 people split $2.24 billion after a jury agreed that their cancers were causedby J&J’s talc products, including its iconic baby powder.