Will Mass Tort Bankruptcies Eat into Your Firm’s Bottom Line?

December 3, 2021

Chapter 11 bankruptcy
December 3, 2021

Will Mass Tort Bankruptcies Eat into Your Firm’s Bottom Line?

If you handle product liability cases, you’re familiar with mass tort bankruptcy. Beginning with asbestos litigation in the 1980s, defendant companies confronting vast financial losses from mass tort actions have increasingly turned to Chapter 11 bankruptcy protection. While under a Chapter 11 filing, the company can reorganize and continue operations. Litigation arising before the filing date is stayed, so the company can estimate its current and future tort debt and develop a plan to pay claimants from a litigation trust. Claims agents administer the trust and identify and inform claimants, and claims arising after the bankruptcy are channeled to the trust.  

In theory, both plaintiffs and defendants benefit from a procedure that facilitates compensation to under a fair and uniform structure. But plaintiffs’ representatives whose cases have fallen inside this rubric beg to differ, since it effectively caps payouts and increases pressure on plaintiffs to settle.

In the Purdue Pharma bankruptcy resulting from the company’s role in the opioid crisis, families that lost their loved ones to overdoses had to compete with the interests of insurance companies, hospitals, and state governments. Ultimately, though billions of dollars were at play, the 130,000 claimants got $750 million (7.5% of the total settlement), about $5,000 per family on average. In addition, states attorneys general reneging on bargained-for promises not to pursue criminal charges against the company’s owners may jeopardize payment of the owners’ contribution to the settlement amount, potentially leaving claimants with nothing.

Recently, Johnson & Johnson made headlines for a “Texas two-step” maneuver to manage its liability in claims that its talc-based baby powder contained asbestos and caused cancer. Through a divisive merger, a mechanism only available in Texas and Delaware, J&J created a subsidiary (LTL Management) to whom it transferred its talc liabilities and $2.3 billion to settle future talc claims. LTL then filed under Chapter 11 in Charlotte, North Carolina, where the bankruptcy court has housed other large asbestos-related bankruptcies and is known for scrutinizing claims to ensure plaintiffs do not try to collect using evidence from unrelated asbestos exposure. In November, the case was transferred to bankruptcy court in New Jersey, where the company is based and where most of the talc products litigation was filed.

J&J has spent about $4.5 billion in relation to nearly 40,000 talc-related claims, between litigation costs and paying out settlements and awards, though it has won some cases. It claims that if even a few of the pending cases result in “excessive” awards, the costs could become “unsustainable.” But the company’s talc liability seems unlikely to starkly affect its bottom line, considering its rising share prices, $94 billion in annual sales and $20 billion in annual cash flow, among other indicators of financial strength. It seems unfair that such a solvent company can benefit from bankruptcy protections and derail upcoming trials.

As a product liability practitioner, you need to both substantiate your clients’ claims and head off evasive maneuvers like shifty bankruptcies by big defendants. This can seem impossible if you’re also concerned with funding your litigation costs at every turn. Let LevelEsq alleviate some of that burden by financing these costs with our best-in-class Lawsuit Cost Financing (LCF). LCF features low rates, an easy-to-use portal, and funds available as needed. With easy access to the litigation funds you need, you can keep your focus on your fight for justice. Find out more about the solutions that LevelEsq offers at Litigation Cost Protection (LCP) and Lawsuit Cost Financing (LCF).

U.S. judge temporarily halts Johnson & Johnson talc cases, moves them to New Jersey; What Americans Don’t Know About the Purdue Pharma Bankruptcy Hurts All of Us; Johnson & Johnson’s ‘Texas-two-step’ sparks outcry over US bankruptcy regime

How can we help your firm?

Lawsuit Cost Financing

Quick and seamless access to capital to fund your case expenses.

Litigation Cost Protection

Protect the downside with insurance coverage for litigation costs.