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Having read the Matt Levine piece linked below (https://archive.is/KcL2P https://archive.is/KcL2P) I think that J&J did the right thing by attempting to use ban

by nl 3y ago

Having read the Matt Levine piece linked below (https://archive.is/KcL2P https://archive.is/KcL2P) I think that J&J did the right thing by attempting to use bankruptcy to organize payments. It was not avoiding liability at all. The court that dismissed the claim in general agreed with J&J's process, but said it was too early. Some key quote from Levine: > Juries in the US don’t like it when companies make products that kill people, and they tend to award enormous damages in cases like that. You multiply enormous damages by lots of cases, and you can easily end up with damages that exceed the value of the company. This can lead to unfair results, not for you — who cares about you — but for your victims: If a $1 billion company has killed 100 people, the first 10 who sue might get $100 million each of damages, leaving nothing for the remaining 90. > one pretty practical approach [to how to solve this problem] is bankruptcy. This, after all, is what bankruptcy is for: It is a system to make sure that creditors are all paid fairly out of the assets of a company, rather than paying some creditors a lot because they are early and others nothing because they are too late. > Bankruptcy courts are run by judges, who are bankruptcy professionals and who are used to dealing with companies that are, you know, bankrupt. They are used to not having enough money to go around; they are not temperamentally lavish with claims. > That is, LTL — the box where J&J put its talc claims — could draw at least $61.5 billion from J&J to pay off those claims. The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims. > But the Third Circuit disagreed, not because it thinks that the bankruptcy court is a bad place to resolve claims, and not because it thinks that J&J is avoiding liability with the Texas two-step, but because LTL isn’t bankrupt enough > In some ways this is a sensible reading of the bankruptcy code, but it is a little bit of a weird result. The point of doing any of this is to do it early, before you are out of money, so that you have plenty of money to pay all the claimants fairly. The court realizes this awkwardness > You don’t have to be insolvent to file for bankruptcy, and it is good to file early, but not prematurely. You want to file for bankruptcy while you still have plenty of money to pay claims, but not too much money. Read the whole article. It's good!

darth_avocado 3y ago
> This can lead to unfair results, not for you — who cares about you — but for your victims: If a $1 billion company has killed 100 people, the first 10 who sue might get $100 million each of damages, leaving nothing for the remaining 90. There is a valid point there, but one could argue it sets up unfair precedent for companies to act in bad faith if they can get off easy.
- nl 3y ago
  Yes, agreed.
- deleted 3y ago
  [deleted]
- bagacrap 3y ago
  How is the business getting off easy in this scenario. It's dissolving. What else can we do to it?
  - freetanga 3y ago
    Send execs and board who looked the other way or were negligent to jail? Impede them from similar roles for life? It is a reality in some licensed industries (eg banking)in Europe
    - bigfudge 3y ago
      Not really. Very few people ever go to prison or a censured in this way.
  - notimetorelax 3y ago
    The business limited its exposure through the spinoff. J&J as an entity may need to seize to exist to pay back for the damages.
    - sokoloff 3y ago
      Minor tip: “cease to exist” is the phrase you almost surely intended.
littlestymaar 3y ago
> one pretty practical approach [to how to solve this problem] is bankruptcy. This, after all, is what bankruptcy is for: It is a system to make sure that creditors are all paid fairly out of the assets of a company, rather than paying some creditors a lot because they are early and others nothing because they are too late. That's a legit argument in favor of bankruptcy of the entire company! There's no good justification for creating a shell company to control the damages on the main company (who did kill people).
- Panzer04 3y ago
  Given J&J has yet to actually incur these damages, declaring bankruptcy seems a bit over the top.
  - littlestymaar 3y ago
    When you factor in the fact that this company has (knowingly) killed multiple times more people than Osama Bin Laden, maybe it's not “over the top”…
    - Panzer04 3y ago
      In what way have they done that? I'm sure there.must be a massive lawsuit about it.
      - littlestymaar 3y ago
        Didn't you even skim the article? There's a short summary at the beginning: > J&J is facing more than 38,000 lawsuits alleging that the company's talc products, including its Baby Powder, were contaminated by asbestos and caused cancers including ovarian cancer and mesothelioma
        Panzer04 3y ago
        Right, but these judgements have yet to be levied. The problem they are solving with this maneuver is ensuring a common/fair result for the people suing, without the "unreasonable" step of declaring bankruptcy on the company as a whole without actual obligations. As other comments have mentioned, Matt Levine has an excellent article describing the logic behind their actions.
FireBeyond 3y ago
> The court that dismissed the claim in general agreed with J&J's process, but said it was too early. And yet as soon as it was dismissed, within hours J&J had refiled with different numbers. The court also said that trying to tie this new entity to North Carolina was also trying to maximize a "strained and very limited" connection to the state, and the administrator questioned why this entity had no relationship to the state of New Jersey, where J&J is headquartered and does business out of. The court far from signed off on J&J's process.
- haswell 3y ago
  Care to share some references? I’m not well informed on this subject, and the disagreement here makes me think it’s wise to just go read up on the details.
torginus 3y ago
Doesn't this mean that J&J can set the amount of damages to what they have to pay to what they think is fair? Imagine if the criminal justice system worked like that.
- teraflop 3y ago
  No, because as Levine said, and as the previous commenter quoted: > the entire value of J&J’s consumer business was still on the line for those claims.
KennyBlanken 3y ago
"Not running out of money to pay people fairly"? $65BN is almost exactly equal to one year's gross profits for the company, on top of which J&J has $24BN in cash and a market valuation of over $400BN. https://finance.yahoo.com/quote/JNJ/key-statistics/ https://finance.yahoo.com/quote/JNJ/key-statistics/ That $65BN is likely decades worth of claims, not one lump sum being demanded at once. Assuming the claims are spread out over just one decade, the settlement costs would amount to around 10% of their gross profits. Over multiple decades, it starts approaching "rounding error on the balance sheet." Framing this as "J&J might run out of money to pay people for this" is pretty disingenuous to the point of feeling like corporate apologism.
- andsoitis 3y ago
  You should base your projection on net profits, not gross, given that these would be additional expenses (not considering tax effect). Johnson & Johnson net income for the twelve months ending March 31, 2023 was $12.724B, a 35.83% decline year-over-year. Johnson & Johnson annual net income for 2022 was $17.941B, a 14.07% decline from 2021. Johnson & Johnson annual net income for 2021 was $20.878B, a 41.89% increase from 2020. https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnson/net-income https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnso...
  - ClumsyPilot 3y ago
    This does not really affect the overall picture - for decades of fraud, this is a paultry sum
    - andsoitis 3y ago
      It does affect the timeline of paying out victims.
kevinventullo 3y ago
So why bother with the spin-off at all? Why isn’t J&J just declaring bankruptcy?
- ankit219 3y ago
  They weren't capping the total payouts in damages. The bankruptcy filing itself said that parent company would cover the cost to ensure everyone gets the money. Bankruptcy was a process to ensure every victim gets equal amount. The term for this process is misleading, and the mental image is very much of a company which is getting out of paying their victims. In this case, filing for bankruptcy created fairness among victims, they did not have to be first or fifth to get the right damages, every victim was treated equal. > That is, LTL — the box where J&J put its talc claims — could draw at least $61.5 billion from J&J to pay off those claims. The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims. The point, rather, was to deal with those claims in an organized and efficient way, to treat all the claimants fairly. The only reason the court quashed it was because it wanted J&J to fight the individual or class action lawsuits, and it was too early for bankruptcy.
  - onlypositive 3y ago
    I'd rather see J&J go out of business entirely.
    - ankit219 3y ago
      Okay. I think I don't care about J&J as long as victims are fairly compensated. For this one, and for any future victims that are affected by this product or any other product created by J&J.
      - onlypositive 3y ago
        I'd rather there were no future victims.
    - 3y ago
autoexec 3y ago
> The basic idea of bankruptcy is that if you have a company with $1,000 of assets and $2,000 of liabilities, you can’t pay back everyone everything you owe them. You could just pay back the first creditors who show up and ask for their money back, until the $1,000 is gone, and then give the remaining creditors zero, but that seems unfair I'm entirely unconvinced that J&J couldn't pay back everything they owe, to everyone they owe it to, without bankruptcy and the fact that they were able to avoid all of those individual lawsuits is already J&J getting off the hook unfairly and avoiding their full liability. If I'm wrong about that and without bankruptcy J&J would be forced to go out of business before everyone could get paid, then no matter if they use bankruptcy or not, the end result of that bankruptcy should still mean that every penny they have goes to their victims and the families of their victims (evenly distributed or whatever) until J&J actually does go out of business. If J&J in, any form, survives because of this “Texas two-step" then the “Texas two-step" is an insult to victims and to justice and should be outlawed. Perhaps bankruptcy is a great way to divide up whatever is owed to everyone, but as long as J&J continues to exist it means that they got off the hook. Honestly, many of J&J's serial killers and mass poisoners should be locked up for the rest of their lives. Murder was extremely profitable for them. They'll do it again if they have the opportunity.
- mmusson 3y ago
  I was a juror on a very small case. A previous trial assigned guilt. Our trial was to determine damages. It was eye opening for me. We were not allowed to know things like medical bills and costs the victim incurred. We were forced to choose some number without having an basis for establishing the magnitude. I still don’t know if we were too high or too low.
  - somenits 3y ago
    If you weren't allowed to see medical bills and such, then you were probably tasked with determining other kinds of damages (e.g. emotional distress) that are totally unrelated to those.
    - harimau777 3y ago
M95D 3y ago
As I understand it, using this scheme, the company is avoiding punishment for their wrongdoings when it could be larger than they're willing to pay. They bankrupt some minor part of their budget instead of bankrupting the entire company. When a serial killer gets the electric chair, most people consider that a fair punishment. No? So tell me, if a judge wanted to apply capital punishment to a company, which is not even a living thing, it's just money and stamped papers. How could it do that, when the company can use this scheme to escape?
- Tyrek 3y ago
  Your understanding is wrong, which leads to a flawed analogy. > The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims.
  - shkkmo 3y ago
    The court did not conclude that, or anything about J&J's intentions. The court concluded that the subsidiary was not actually bankrupt and so couldn't justify J&J's attempt to consolidate all the lawsuits against it into a settlements from one bankruptcy judge. This attempted consolidation is pretty clearly an attempt to limit the judgement sizes that may come out of jury trials. Pretending otherwise is naive at best.
shkkmo 3y ago
> It was not avoiding liability at all. BS. So much stinking BS. This is even contradicted by your own quotes. >> they are not temperamentally lavish with claims. Which is just admitting that bankrupty courts are likely to awards lower judgements than the juries and judges who would otherwise be awarding damages. That is pretty clearly reducing liability. If J&J eas really about to run out of money to pay out liabilities due lawsuits and we need to split what money they do have fairly, then J&J itself should declare bankruptcy. What they are doing instead is a sham legal maneuver designed to reduce judgements sizes and remove the legal rights of their victims. Trying to couch that as "protecting the victims" is a farce. I wonder how much Matt got paid...
pmarreck 3y ago
This is a fascinating comment that will unfortunately get buried. Thank you for this interesting take on this. It really goes to show how the minimal details about a thing can be extremely misleading.

by nl 3y ago

darth_avocado 3y ago

> This can lead to unfair results, not for you — who cares about you — but for your victims: If a $1 billion company has killed 100 people, the first 10 who sue might get $100 million each of damages, leaving nothing for the remaining 90. There is a valid point there, but one could argue it sets up unfair precedent for companies to act in bad faith if they can get off easy.

nl 3y ago
Yes, agreed.
deleted 3y ago
[deleted]
bagacrap 3y ago
How is the business getting off easy in this scenario. It's dissolving. What else can we do to it?
- freetanga 3y ago
  Send execs and board who looked the other way or were negligent to jail? Impede them from similar roles for life? It is a reality in some licensed industries (eg banking)in Europe
  - bigfudge 3y ago
    Not really. Very few people ever go to prison or a censured in this way.
- notimetorelax 3y ago
  The business limited its exposure through the spinoff. J&J as an entity may need to seize to exist to pay back for the damages.
  - sokoloff 3y ago
    Minor tip: “cease to exist” is the phrase you almost surely intended.

littlestymaar 3y ago

> one pretty practical approach [to how to solve this problem] is bankruptcy. This, after all, is what bankruptcy is for: It is a system to make sure that creditors are all paid fairly out of the assets of a company, rather than paying some creditors a lot because they are early and others nothing because they are too late. That's a legit argument in favor of bankruptcy of the entire company! There's no good justification for creating a shell company to control the damages on the main company (who did kill people).

Panzer04 3y ago
Given J&J has yet to actually incur these damages, declaring bankruptcy seems a bit over the top.
- littlestymaar 3y ago
  When you factor in the fact that this company has (knowingly) killed multiple times more people than Osama Bin Laden, maybe it's not “over the top”…
  - Panzer04 3y ago
    In what way have they done that? I'm sure there.must be a massive lawsuit about it.
    - littlestymaar 3y ago
      Didn't you even skim the article? There's a short summary at the beginning: > J&J is facing more than 38,000 lawsuits alleging that the company's talc products, including its Baby Powder, were contaminated by asbestos and caused cancers including ovarian cancer and mesothelioma
      - Panzer04 3y ago
        Right, but these judgements have yet to be levied. The problem they are solving with this maneuver is ensuring a common/fair result for the people suing, without the "unreasonable" step of declaring bankruptcy on the company as a whole without actual obligations. As other comments have mentioned, Matt Levine has an excellent article describing the logic behind their actions.

FireBeyond 3y ago

> The court that dismissed the claim in general agreed with J&J's process, but said it was too early. And yet as soon as it was dismissed, within hours J&J had refiled with different numbers. The court also said that trying to tie this new entity to North Carolina was also trying to maximize a "strained and very limited" connection to the state, and the administrator questioned why this entity had no relationship to the state of New Jersey, where J&J is headquartered and does business out of. The court far from signed off on J&J's process.

haswell 3y ago
Care to share some references? I’m not well informed on this subject, and the disagreement here makes me think it’s wise to just go read up on the details.

torginus 3y ago

Doesn't this mean that J&J can set the amount of damages to what they have to pay to what they think is fair? Imagine if the criminal justice system worked like that.

teraflop 3y ago
No, because as Levine said, and as the previous commenter quoted: > the entire value of J&J’s consumer business was still on the line for those claims.

KennyBlanken 3y ago

"Not running out of money to pay people fairly"? $65BN is almost exactly equal to one year's gross profits for the company, on top of which J&J has $24BN in cash and a market valuation of over $400BN. https://finance.yahoo.com/quote/JNJ/key-statistics/ https://finance.yahoo.com/quote/JNJ/key-statistics/ That $65BN is likely decades worth of claims, not one lump sum being demanded at once. Assuming the claims are spread out over just one decade, the settlement costs would amount to around 10% of their gross profits. Over multiple decades, it starts approaching "rounding error on the balance sheet." Framing this as "J&J might run out of money to pay people for this" is pretty disingenuous to the point of feeling like corporate apologism.

andsoitis 3y ago
You should base your projection on net profits, not gross, given that these would be additional expenses (not considering tax effect). Johnson & Johnson net income for the twelve months ending March 31, 2023 was $12.724B, a 35.83% decline year-over-year. Johnson & Johnson annual net income for 2022 was $17.941B, a 14.07% decline from 2021. Johnson & Johnson annual net income for 2021 was $20.878B, a 41.89% increase from 2020. https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnson/net-income https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnso...
- ClumsyPilot 3y ago
  This does not really affect the overall picture - for decades of fraud, this is a paultry sum
  - andsoitis 3y ago
    It does affect the timeline of paying out victims.

kevinventullo 3y ago

So why bother with the spin-off at all? Why isn’t J&J just declaring bankruptcy?

ankit219 3y ago
They weren't capping the total payouts in damages. The bankruptcy filing itself said that parent company would cover the cost to ensure everyone gets the money. Bankruptcy was a process to ensure every victim gets equal amount. The term for this process is misleading, and the mental image is very much of a company which is getting out of paying their victims. In this case, filing for bankruptcy created fairness among victims, they did not have to be first or fifth to get the right damages, every victim was treated equal. > That is, LTL — the box where J&J put its talc claims — could draw at least $61.5 billion from J&J to pay off those claims. The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims. The point, rather, was to deal with those claims in an organized and efficient way, to treat all the claimants fairly. The only reason the court quashed it was because it wanted J&J to fight the individual or class action lawsuits, and it was too early for bankruptcy.
- onlypositive 3y ago
  I'd rather see J&J go out of business entirely.
  - ankit219 3y ago
    Okay. I think I don't care about J&J as long as victims are fairly compensated. For this one, and for any future victims that are affected by this product or any other product created by J&J.
    - onlypositive 3y ago
      I'd rather there were no future victims.
  - 3y ago

autoexec 3y ago

> The basic idea of bankruptcy is that if you have a company with $1,000 of assets and $2,000 of liabilities, you can’t pay back everyone everything you owe them. You could just pay back the first creditors who show up and ask for their money back, until the $1,000 is gone, and then give the remaining creditors zero, but that seems unfair I'm entirely unconvinced that J&J couldn't pay back everything they owe, to everyone they owe it to, without bankruptcy and the fact that they were able to avoid all of those individual lawsuits is already J&J getting off the hook unfairly and avoiding their full liability. If I'm wrong about that and without bankruptcy J&J would be forced to go out of business before everyone could get paid, then no matter if they use bankruptcy or not, the end result of that bankruptcy should still mean that every penny they have goes to their victims and the families of their victims (evenly distributed or whatever) until J&J actually does go out of business. If J&J in, any form, survives because of this “Texas two-step" then the “Texas two-step" is an insult to victims and to justice and should be outlawed. Perhaps bankruptcy is a great way to divide up whatever is owed to everyone, but as long as J&J continues to exist it means that they got off the hook. Honestly, many of J&J's serial killers and mass poisoners should be locked up for the rest of their lives. Murder was extremely profitable for them. They'll do it again if they have the opportunity.

mmusson 3y ago
I was a juror on a very small case. A previous trial assigned guilt. Our trial was to determine damages. It was eye opening for me. We were not allowed to know things like medical bills and costs the victim incurred. We were forced to choose some number without having an basis for establishing the magnitude. I still don’t know if we were too high or too low.
- somenits 3y ago
  If you weren't allowed to see medical bills and such, then you were probably tasked with determining other kinds of damages (e.g. emotional distress) that are totally unrelated to those.
  - harimau777 3y ago

M95D 3y ago

As I understand it, using this scheme, the company is avoiding punishment for their wrongdoings when it could be larger than they're willing to pay. They bankrupt some minor part of their budget instead of bankrupting the entire company. When a serial killer gets the electric chair, most people consider that a fair punishment. No? So tell me, if a judge wanted to apply capital punishment to a company, which is not even a living thing, it's just money and stamped papers. How could it do that, when the company can use this scheme to escape?

Tyrek 3y ago
Your understanding is wrong, which leads to a flawed analogy. > The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims.
- shkkmo 3y ago
  The court did not conclude that, or anything about J&J's intentions. The court concluded that the subsidiary was not actually bankrupt and so couldn't justify J&J's attempt to consolidate all the lawsuits against it into a settlements from one bankruptcy judge. This attempted consolidation is pretty clearly an attempt to limit the judgement sizes that may come out of jury trials. Pretending otherwise is naive at best.

shkkmo 3y ago

> It was not avoiding liability at all. BS. So much stinking BS. This is even contradicted by your own quotes. >> they are not temperamentally lavish with claims. Which is just admitting that bankrupty courts are likely to awards lower judgements than the juries and judges who would otherwise be awarding damages. That is pretty clearly reducing liability. If J&J eas really about to run out of money to pay out liabilities due lawsuits and we need to split what money they do have fairly, then J&J itself should declare bankruptcy. What they are doing instead is a sham legal maneuver designed to reduce judgements sizes and remove the legal rights of their victims. Trying to couch that as "protecting the victims" is a farce. I wonder how much Matt got paid...

pmarreck 3y ago

This is a fascinating comment that will unfortunately get buried. Thank you for this interesting take on this. It really goes to show how the minimal details about a thing can be extremely misleading.