J&J Could Use Texas Law To Cut Payments To Ovarian Cancer Victims

Greg and Sally Schmoll

After Sally Schmoll was diagnosed with ovarian cancer in 2016, she learned that Johnson & Johnson’s baby powder was a cause of the disease known as “the silent killer.”

Growing up without central air conditioning in the sweltering heat of St. Louis before moving to Indianapolis, she had used the powder for her personal hygiene until early adulthood.

She later joined the more than 34,000 women with ovarian cancer who sued J&J before succumbing to the disease in late 2020 at the age of 58. Her husband, Greg, continues his fight.

“His loss to me is like the Grand Canyon,” he said. “It’s a huge chasm. And all you can do is get into the court system and try to get some kind of compensation for families. “

Houston attorney Mark Lanier won the biggest jury verdict yet on behalf of J&J victims with a record $ 4.69 billion for 22 women and their families in 2018. Earlier this year, J&J, valued at $ 435 billion, lost its attempt to overturn the verdict. , but the payment was reduced to $ 2.2 billion.

For other victims, they can watch pennies on the dollar compared to Lanier customers.

There are indications that J&J is likely to use a Texas law to make a divisive merger and create a new company to cover its responsibilities, while the main company continues to operate as normal. J&J can then give the new company a name not associated with J&J, house it in a state with favorable bankruptcy judges, and declare bankruptcy, allowing it to pay much less.

It is known in legal circles like Two-Step Texas, a way for a business to allocate assets and liabilities as it wishes and to obtain the benefits of bankruptcy on the cheap.

J&J, who has denied a link between his talcum powder use and ovarian cancer, has reportedly retained the law firm Jones Day in Dallas to explore the option. Jones Day, who did not respond to an interview request, addressed previous two-step cases in Texas.

In a statement to The morning news from Dallas, J&J said it has yet to decide on legal action “other than to continue to defend the safety of talc and to litigate these cases in the tort system, as evidenced by the ongoing lawsuits.”

Sally Schmoll's grave
Sally Schmoll’s grave

A skeptical view

Lawyers fighting the company aren’t convinced, said Andy Birchfield, a lawyer at Beasley Allen, a law firm handling 800 cases against J&J.

“Every way J&J has responded to the press or to bankruptcy court or other courts suggests that it is taking serious steps to file its own bankruptcy,” Birchfield said. “And that will probably happen in the weeks to come, not the months, as he faces more and more jury trials.”

Texas is the only state where this option is possible. Delaware allows divisive mergers, but only for limited liability companies. In Texas, any business is allowed.

As J&J has faced talcum powder lawsuits for about seven years, he suddenly feels the pressure after Lanier’s $ 2.2 billion win and a marked increase in on-schedule testing. More than 34,000 cases are consolidated in the US District Court of New Jersey and hundreds more are pending in state courts.

“J&J has fought hard to escape liability in the tort system and it doesn’t really work,” Birchfield said. “Now there is a different dynamic as more and more cases are being adjudicated. “

If J&J creates a separate company to file for bankruptcy, all litigation will stop and be suspended for years, leaving victims and families to figure out how to pay for ovarian cancer treatment, which costs an average of 500. $ 000.

For J&J, two-step Texas is a win-win solution, said Adam Levitin, a professor at Georgetown University who teaches bankruptcy. He advises Beasley Allen on the J&J affair.

Even if both steps don’t work, it will definitely delay litigation, he said. This gives J&J additional leverage to encourage cancer victims to agree to discounted settlements, rather than wait until the bankruptcy process is complete.

“Meanwhile, the victims die, swearing to testify in their final hours to hold J&J to account,” Levitin said.

Without the benefit of the merger that splits Texas into two stages, lawyers estimate J&J would have to set aside $ 25 billion for payments. But in a annual deposit, J&J says it has set aside around $ 4 billion for litigation, an indicator it does not intend to pay even nearly $ 25 billion. Last year, J&J reported annual revenue of $ 82 billion.

Ultimately, a bankruptcy judge would decide how much J&J should pay. J&J could propose to put $ 4 billion in a new company and the judge would decide if that is enough. That’s why J&J would like to locate a separate company in a state with lenient bankruptcy judges, possibly in North Carolina, according to the attorneys.

The physical and mental assessment

For ovarian cancer survivors, whatever J&J ends up paying will not start to cover their physical and mental suffering.

Mary Ann Binghieri, 72, a resident of Montgomery, Texas, who has suffered two cycles of ovarian cancer since 2008, said she was fired from her job as an office manager at a medical practice in Atlanta after needing time off for chemotherapy. Without health insurance, she had to go through COBRA, which allows people leaving their jobs to remain in the company’s insurance plan at a significant cost.

Mary Ann Binghieri and her grandson Carter Scherwin
Mary Ann Binghieri and her grandson Carter Scherwin

Binghieri said she was paying more than $ 2,000 a month in savings for the treatment.

“What about people with no savings? How do they pay? ” she asked.

The American Cancer Society estimated that 21,750 new cases of ovarian cancer were diagnosed in the United States last year and 13,940 women died from it. It is called “the silent killer” because its symptoms are often confused with other minor ailments. The five-year survival rate for ovarian cancer is 48%, with 70 being the average age of death from disease.

Dallas attorney Matthew Haynie of Forester Haynie, who has been arguing talcum powder cases for two years and has about 100 clients, said he was surprised J&J seemed to be going down that road.

“Most avoid this because it gives bad press,” he said.

He cited Georgia-Pacific LLC of Koch Industries Inc., which merged in 2017 to consolidate its asbestos-related liabilities. He moved to Texas for less than a day to use the Texas two-step strategy. Its bankruptcy is pending in the Western District of North Carolina.

Two-stage Texas is not common. According to lawyers, there have only been four or five examples of companies employing this tactic. It’s not something you do for $ 100,000. It’s something reserved for companies trapped for billions, like the Koch brothers.

A potentially huge retarder is looming for J&J, however.

US Senator Elizabeth Warren, D-Mass., Has introduced legislation that would reject some controversial merger cases. If that is successful, it would prevent J&J from the two-step Texas process, Birchfield said.

“A lot of things are at stake,” he said. “I am concerned that Congress does not find the courage to pass the legislation and that this abusive process continues.”

There are legitimate reasons for a merger that divides, such as a business that grows and diversifies and reaches a point where it makes sense to split into two companies. But Texas’ first two-stage case happened in 2017 and is still pending approval, so no one knows how it’s going to play out.

J&J announced in May 2020 that it would stop selling its talc-based baby powder in the United States and Canada.

Victims like Binghieri provide evidence that J&J had known since the 1970s that his talcum powder was sometimes stained with asbestos but did not tell customers. For that, she said, the company has to pay.

“Sneaking through bankruptcy is absurd. It is offensive to us who have had cancer because of it, ”she said. “Money would be nice, but that’s the principle of it.”

Binghieri’s oncologist declared her cancer a month ago, but her concerns are not over.

“I have two daughters and I used baby powder on them when they were babies. So now it’s in my head.

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