Third Circuit’s Choice Of Huge Disparities For Similarly Situated Claimants Is Inexplicable (Johnson & Johnson)

By: Donald L Swanson

Johnson & Johnson (“J&J”) has, for a very long time, produced and sold a baby powder product containing talc—a mineral milled into fine powder that includes traces of asbestos.

In recent years, that baby powder product has spawned a torrent of lawsuits alleging that it causes ovarian cancer and mesothelioma.

Currently, over 38,000 ovarian cancer actions and over 400 mesothelioma actions are pending against J&J.  Expectations are for thousands more to be filed in decades to come.

To address its mounting payouts and litigation costs, J&J engages in corporate machinations with a stated goal of creating a new subsidiary to file Chapter 11 without subjecting J&J’s entire operating enterprise to bankruptcy. 

J&J’s bankruptcy appears as In re LTL Management, LLC, Case No. 21-30589 in the New Jersey Bankruptcy Court.

Bankruptcy Court Denies Dismissal Motion

Various tort claimants move to dismiss J&J’s bankruptcy.

The Bankruptcy Court denies their motion, saying that bankruptcy provides the best way to address the many tort claims.

Third Circuit Reverses

A direct appeal is taken to the Third Circuit Court of Appeal, which reverses.[Fn. 1]

The Third Circuit finds that J&J has substantial value—estimated at $61.5 billion (excluding future talc liabilities), with many profitable products and brands—and can pay judgments against it as they are incurred.

In its reversal, the Third Circuit emphasizes disparate results achieved by the many similarly situated claimants.  It highlights, for example, these contrasting results:

• Huge recoveries for some:
  • One jury awards $4.69 billion to 22 ovarian cancer plaintiffs, reduced on appeal to $2.24 billion to the 20 plaintiffs who are not dismissed on appeal (in Ingham v. Johnson & Johnson)—that’s  $112 million per successful claimant; and
  • Since 2018, damages in all other jury awards for plaintiffs that withstand appeal average $39.7 million per claimant.
• Small recoveries for others: J&J settles 6,800 claims for $1 billion in total (that averages $147,060 per claimant).
• No recoveries for many:
  • of 15 completed ovarian cancer trials, only Ingham results in a monetary award for plaintiffs that is not reversed;
  • of 28 completed mesothelioma trials, fewer than half result in monetary awards for plaintiffs that are not reversed; and
  • J&J obtains dismissals, without any payment whatsoever, of 1,300 ovarian cancer actions and over 250 mesothelioma actions.

Regarding such hugely disparate results, it’s important to note that all claimants:

• used the same baby powder with the same talc product;
• suffer from the same types of disease—ovarian cancer or mesothelioma; and
• hold the same types of claims.

An Inexplicable Value Judgment

Despite such huge disparities in results for similarly situated claimants, the Third Circuit makes these value judgments:

• This is bad: “a bankruptcy court estimating claims on a great scale”; and
• This is good: “a longer history of litigation outside of bankruptcy may provide a court with better guideposts when tackling these issues.”

Translation.  The Third Circuit is saying this:

• ‘Tis a far, far better thing that huge disparities (ranging from $0 per claimant to $112 million per claimant) among similarly situated claimants continue to prevail in a “longer history of litigation”—instead of utilizing a claims estimation process, now, based on results in many thousands of cases to date.

With all due respect, I find that value judgment to be . . . let’s go with “inexplicable.” 

How can the Third Circuit possibly prefer hugely disparate results for similarly situated claimants, especially when the disparities are based on such volatile factors as:

• the luck of the juror draws; or
• the luck of the judicial draws; or
• the luck of the appellate draws; or
• the luck of the governing state laws; or
• the quality of the legal professionals involved; or
• the quality of the expert professionals who testify.

Take for example the two defendants denied their $112 million share of the judgment in the Ingham v. Johnson & Johnson case:

• They won at trial but lost on appeal, based on this technicality: because they “failed to meet their burden to show specific jurisdiction” over J&J.[Fn. 3] 

Yeah. That’s what the Third Circuit likes: winners and losers . . . based on technicalities instead of the actual merits of their claims . . . which the jury found to exist. Yeah. A longer history of such hugely disparate results. That’s what we need!!!

At least the bankruptcy process would even-out results for similarly situated defendants (like the 2 vs. the 20 in Ingham). Some will get less than a rare or run-away jury might award, but others would get meaningful money instead of nothing.  And that’s even before considering the possibility of an opt-out for those who really, really want to take their chances in front of a jury.

Legalese

The Third Circuit, of course, clothes its decision in bankruptcy-esque legalese.

The Third Circuit declares, for example:

• “We start, and stay, with good faith”;
• “resort to Chapter 11 is appropriate only for entities facing financial distress”; and
• “For here the debtor was in no financial distress when it sought Chapter 11 protection.”  

Notably, the Third Circuit’s opinion isn’t truly opposed to a process of “estimating claims on a great scale.”  What the Third Circuit opposes is having the claims estimation process happen (i) now (instead of having “a longer history” to evaluate), and (ii) in the Bankruptcy Court.

Given the long history of J&J’s baby powder litigation and the failure of the mass tort process to produce an overall result, the Third Circuit’s opposition is difficult to understand.

The Reversed Opinion

An open and fair reading of the Bankruptcy Court opinion, that the Third Circuit now reverses, makes good sense.[Fn. 2]

The Bankruptcy Court opinion points out, for example, these mass-tort inefficiencies in the J&J case:

• In nearly six years of mass-tort litigation, there has been no progress toward a global resolution; and
• Given the pace of litigation and new lawsuit filings, the vast majority of plaintiffs will not see a penny of recovery for years to come.

The Bankruptcy opinion also describes as “folly” the contention that the tort system is the only fair and just pathway for claimants—to the exclusion of bankruptcy.  Here’s why:

• Congress rejects that contention, by its authorization of asbestos trusts in §524(g);
• Chapter 11 provides justice to injured parties—producing comprehensive, equitable, and timely recoveries;
• Bankruptcy courts can compel participation by all interested parties (insurers, retailers, distributors, claimants, and debtors) to reach a fair settlement;
• Bankruptcy provides for global resolution of liabilities by using current assets and future earnings to compensate all tort claimants equitably; and
• many past cases show that bankruptcy can effectively address mass-tort problems.

In the J&J case, a bankruptcy trust would establish a simpler and more streamlined process than what is available in the tort system.  Such a trust would:

• establish fixed criteria and common parameters for payments to claimants;
• ensure a level playing field for all present and future victims; and
• preserve due process rights.

Additionally, the bankruptcy system provides all present and future claimants an efficient way to equitably resolve their claims. A settlement trust in bankruptcy, with proper oversight and funding, can best serve the needs of J&J and cancer claimants, alike.

The Bankruptcy Court finds from the evidence:

• This Chapter 11 case is being used to bring about accountability and certainty—not to escape liability;
• Assets are not being ring-fenced, concealed, removed, limited or undervalued;
• No J&J affiliate is being released, or its assets placed out of creditors’ reach, absent a negotiated plan; and
• Limitations on payments by J&J are from the overwhelming nature of cancer liabilities, which far exceed J&J’s capacity to satisfy from current assets.

Then, the Bankruptcy Court adds that it must and will ensure justice for all the tens of thousands of current claimants, and for all future claimants (yet to be identified), who face years in litigation. 

Further, the Bankruptcy Court discusses risk and leverage between J&J and the claimants like this:

• The true leverage in this bankruptcy remains where Congress allocated it: with the tort claimants who must approve any plan employing a § 524(g) trust by a 75% super majority;
• In filing this bankruptcy, J&J faces a risk: that its good-faith negotiations will fail to produce the consensus necessary to confirm a plan; and
• Notwithstanding such risk, the Court hopes and expects the parties to undertake a sensible, pragmatic and reasonable approach to negotiations.

Conclusion

The Third Circuit’s opinion doesn’t bother to even address, let alone dispute, the Bankruptcy Court’s analysis. The Third Circuit opts instead to reverse on a technicality . . . because that’s what it likes best when billions of dollars and the quality of many peoples’ lives are at stake!

The Third Circuit’s opinion controls, of course, over the Bankruptcy Court’s—despite the relative wisdom and justice of each.  

The Third Circuit has made its choice.  Down the road, its choice will make some claimant winners-and-joyous but will make other claimants losers-and-wretched. Winners in the Third Circuit’s scheme will ultimately applaud.  Losers will curse.

So it is.

——————

Footnote 1.  The opinion of the Third Circuit Court of Appeals issued on January 30, 2023, in Third Circuit’s Case No. 22-2003 through -2011.

Footnote 2.  The Bankruptcy Court’s opinion issued on February 25, 2022, in the case of In re LTL Management, LLC, Case No. 21-30589 in the New Jersey Bankruptcy Court, and it appears at Doc. 1572.

Footnote 3. See, Ingham v. Johnson & Johnson, 608 S.W.3d 663, 693 (Mo. Ct. App. 2020), cert. denied, 141 S. Ct. 2716 (2021).

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