Facing Potential JUUL Lawsuit Payouts and Vape Pen Recall, Manufacturer Is Now Considering Chapter 11 Bankruptcy: Reports

With thousands of JUUL nicotine addiction lawsuits moving forward in the federal court system, and U.S. regulators pushing to ban the sale of its vaping products nationwide, JUUL Labs, Inc. appears to be taking steps toward declaring Chapter 11 Bankruptcy.

JUUL vape pens were introduced in 2015, with a design that appeared similar to USB drives, allowing teens to hide their vaping habit from parents and school officials. After the manufacturer aggressively marketed a variety of fruity and sweet JUUL flavors through social media influencers, the e-cigarette quickly became the most widely used among teens through the U.S. over the past decade, and fueled a vaping epidemic in the U.S., which has resulted in costs for states nationwide.

As a result, the company faces the prospect of millions in JUUL lawsuit payouts being awarded, and the U.S. Food and Drug Administration (FDA) announced earlier this year that it intends to remove all JUUL products from the U.S. market, after the manufacturer failed to demonstrate that they could be marketed in a way that would avoid the risk of teens vaping.

According to a report by Bloomberg News published this week, JUUL Labs has begun talking with bankruptcy lawyers regarding debtor-in-possession financing, which is a step in preparing for a bankruptcy filing. The report also indicates JUUL Labs will begin formal talks with potential lenders in the coming days.

JUUL reportedly hired bankruptcy advisors in June, after the U.S. Food and Drug Administration (FDA) decision appeared likely to result in a JUUL recall, and weeks after a federal judge cleared a JUUL vaping addiction lawsuit to go to trial.

JUUL Bankruptcy Ramifications

JUUL officials have cautioned that bankruptcy is just one option the company is exploring, indicating no final decision has been made. However, if the company does declare bankruptcy, it could have a significant impact on potential JUUL nicotine addiction lawsuit payouts, potentially preventing plaintiffs from being adequately compensated for their injuries.

Over the past year, a number of large companies facing massive litigation have turned to Chapter 11 bankruptcy, as part of an attempt to shift liability to a subsidiary, placing a small amount of assets into that subsidiary, and declaring it to be liable for the litigation. Johnson & Johnson has been the most prominent company to engage in the scheme, which has been referred to as a “Texas Two-Step” since the reorganized company is taking advantage of Texas law to avoid paying settlements that the parent company has sufficient assets to cover.

3M Company also recently attempted the move to avoid liability in Combat Arms earplug lawsuits, by having its Aearo subsidiary. However, the Court rejected an attempt to prevent the litigation from moving forward against 3M, and the parties are currently engaged in settlement negotiations.

Unlike Johnson & Johnson and 3M Company, JUUL Labs does not have as diverse a business model or revenue stream. However, the e-cigarette manufacturer is largely owned by the tobacco cigarette manufacturer Altria, which has a market cap in excess of $77 billion.

October 2022 JUUL Lawsuit Update

Last month, JUUL reached a $438.5 million settlement agreement with 34 states to resolve claims the company engaged in illegal marketing and sales practices, which have been blamed for causing teen nicotine addiction rates to skyrocket. However, that lawsuit payout did not resolve the thousands of individual claims filed against the company.

In the federal court system, all individual JUUL addiction lawsuits filed against the company are currently consolidated before U.S. District Judge William H. Orrick III in the U.S. District Court for the Northern District of California, for coordinated discovery and pretrial proceedings.

According to a pretrial schedule issued by the Court, the the first JUUL trials are expected to begin this year, to help gauge how juries are likely to respond to certain evidence and testimony that will be raised throughout the litigation over the company’s role in causing individual vaping addictions.

If JUUL addiction lawsuit payouts are not reached to resolve those claims, a process may be established to start remanding hundreds of claims back to U.S. District Courts nationwide for individual trial dates in the future.