The Lever - The Cover Up Coverup

In today’s Lever Report, attached in full below, Warren Buffett’s conglomerate profited off a makeup ingredient linked to cancer. Now its subsidiary is trying to create a legal precedent — and deny victims remuneration.

(Flickr Creative Commons 2.0 / Casey Fleser)

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Juliet Gray never thought her makeup could harm her. But after years of regularly applying powders, eye shadow, and blush, Gray was diagnosed with peritoneal mesothelioma, an aggressive, incurable form of cancer. She can’t be certain what led to the disease, but for decades, scientists have known the cancer’s primary cause is long-term exposure to asbestos — a common contaminant in talc, one of the main ingredients in well-known cosmetic brands. 

Like thousands of others, Gray is suing Whittaker, Clark, & Daniels, a longtime talc supplier for cosmetic companies like Revlon, Maybelline, and L’Oréal, alleging it exposed her to harmful levels of asbestos without her knowledge. But two years ago, the company filed for bankruptcy, placing all these lawsuits on hold. Company executives claimed in a filing they had “dissipating finite assets,” with only $80 million “cash-on-hand” and did “not have access to any other funding.” 

But these claims ignore the fact that Whittaker, Clark, & Daniels’ assets and liabilities are owned by a subsidiary of Berkshire Hathaway, billionaire Warren Buffett’s multinational conglomerate which holds trillions of dollars in assets.

In 2007, three years after Whittaker, Clark, & Daniels ceased talc operations amid mounting health concerns, a Berkshire Hathaway subsidiary purchased the company’s equity with the goal of profiting from its remaining assets, which included cash and insurance policies. But in 2023, as the “deluge” of asbestos lawsuits continued to climb, the former talc supplier filed for bankruptcy — a legal maneuver known as the Texas Two-Step in which giant corporations use bankruptcy courts to shield themselves from legal liabilities.

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Last August, a New Jersey bankruptcy judge upheld Whittaker, Clark, & Daniels’ bankruptcy. This decision is now being appealed to the Third Circuit, but if sustained, critics say it could set a precedent allowing financially stable companies to evade personal injury lawsuits by turning to bankruptcy court and avoiding full accountability for the harm they cause. 

Meanwhile, the former talc supplier, asbestos lawsuit claimants, and other parties are engaged in settlement negotiations. During a recent court hearing on the matter, Berkshire Hathaway representatives claimed bankruptcy was never part of the plan when they purchased the talc supplier. But it turns out executives were working for years to downplay connections between the trillion-dollar company and Whittaker, Clark, & Daniels’ asbestos liabilities.

“For obvious reasons, various litigations, I try not to let people know of Berkshire’s involvement and would appreciate if you could do the same,” the president of Whittaker, Clark, & Daniels noted to a colleague in a 2008 email, according to court transcripts from the bankruptcy case reviewed by The Lever. 

Despite these maneuvers, mesothelioma victims and their lawyers say that just like Berkshire Hathaway was able to profit from these toxic talc assets, they are also liable for their damage.

“Berkshire Hathaway’s massively wealthy insurance affiliates are obligated to pay claims in the tort system brought by people poisoned to death by Whitaker, Clark, & Daniels’ asbestos-contaminated talc,” said Clay Thompson, Gray’s attorney and a partner at Maune Raichle Hartley French & Mudd, the largest law firm dedicated to representing mesothelioma victims. “This is wrong, [it] is plainly unconstitutional.” 

Berkshire Hathaway and Whittaker, Clark, & Daniels did not respond to requests for comment. As part of its bankruptcy proceedings, Whittaker, Clark, & Daniels proposed a $535 million settlement to pay for all current and future talc claims — an amount that one attorney representing talc claimants described as “a smack in the face” to the 1,000-plus plaintiffs who have suits pending against the company over the alleged health risks of its talc.

That includes Gray — who had no idea of the potential risks of the products she was putting on her skin or breathing in the air.

“I just wish that I had known — that the science hadn’t been hidden from me,” said Gray, who lives in St. Louis, Missouri with her husband and 10-year-old son. “It was known that [these products] were contaminated. I just feel really betrayed by that realization.” 

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Decades Of Concealment

By the time Gray was born in 1974, the dangers of asbestos-contaminated talc were well documented. 

Talc is a moisture-absorbing mineral mined from clay deposits, ground into a powder, and used in many personal care products like baby powder, blush, and eye shadow. When mined, it is often found in very close proximity to asbestos — a mineral made up of microscopic fibers that once inhaled can get stuck in the lungs and lead to inflammation, scarring, and cancer. 

Suspicions that asbestos was present in mined talc dates back to 1898, and by the mid-1960s, talc miners were identified as being at a higher risk for lung cancer. In the following decade, researchers confirmed both the common presence of asbestos in talc and an association between talc and ovarian and uterine cancers. 

Regardless of the evidence, companies including Whittaker, Clark, & Daniels continued to distribute talc to a wide swath of industries, asserting since 1976 that their talc is asbestos-free. 

In actuality, talc mining and manufacturing companies spent years cherry-picking which asbestos data they sent to regulators at the Food and Drug Administration and disputing how the agency measured asbestos, said Sam Iola, a partner with Texas-based Iola Gross Forbes-King & Bollinger who specializes in asbestos litigation. 

The Cosmetic, Toiletry, and Fragrance Association, today known as the Personal Care Products Council, which represents major companies in the cosmetic industry, went as far as to implement their own test in 1976 for measuring asbestos in talc that was far less stringent than government standards. The industry group also pressured the government to redefine asbestos minerals, deliberately excluding those found in cosmetic talc products. 

A Long-Term Investment Strategy

Regardless of these wins by the cosmetic industry, asbestos lawsuits continued to mount, and in 2004, after 114 years in business, Whittaker, Clark, & Daniels ceased distributing talc. That year, another chemical manufacturer, Brenntag North America, absorbed the company’s operational assets into its various umbrella companies. Three years later, a subsidiary of Berkshire Hathaway purchased the defunct company’s equity, which included its legal liabilities for the asbestos lawsuits — part of the corporation’s acquisition of billions of dollars worth of asbestos liabilities. 

Taking on these liabilities may appear like a risky endeavor, but it was part of an investment strategy. The plan was to carefully invest Whittaker, Clark, & Daniels’ assets, including its cash on hand and insurance policies, so that the resulting profits “exceeded the liabilities” Berkshire Hathaway expected the company “would incur over the coming decades,” according to a bankruptcy court filing. 

Apparently, part of this plan involved limiting the cost of asbestos lawsuits whenever possible. Such operations were “driven by the target numbers,” a former claims executive of a Berkshire subsidiary said under oath during a lawsuit over the company’s activities. The executive was told by higher-ups to “find a way to avoid paying [asbestos claims].”

Over the years, Berkshire Hathaway has faced dozens of lawsuits alleging that “Berkshire-owned companies wrongfully delay or deny compensation to cancer victims and others to boost Berkshire’s profits,” according to a 2013 investigation by Scripps News. 

But by 2011, the company found itself facing an increasing number of lawsuits alleging tainted cosmetic talc had caused mesothelioma, eventually racking up $300 million in claim bills. In 2023, following a $29 million verdict in South Carolina for a woman who claimed she developed cancer at 35 from contaminated talc products, Whittaker, Clark, & Daniels filed for bankruptcy.

Berkshire Hathaway’s subsidiary “did not foresee the emergence of mass tort litigation over cosmetic talc,” according to a corporate court filing. “No one did.” 

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“They Just Don’t Want To” 

However, Clay Thompson and other attorneys argue that Whittaker, Clark, & Daniels, and by extension Berkshire Hathaway, are using bankruptcy court and the Texas Two-Step strategy to avoid paying victims their fair due. The controversial legal tactic allows financially sound corporations facing significant lawsuits to reincorporate in Texas and use a state law to create subsidiaries into which they dump their liabilities. This new company then quickly files for bankruptcy, shielding the original company from legal responsibilities. 

Thompson called Berkshire Hathaway’s version of the maneuver with Whittaker, Clark, & Daniels a “time release” Texas Two-Step, since it acquired the talc supplier and its liabilities years ago and the company filed for bankruptcy once the cost of those liabilities eclipsed the profits Berkshire Hathaway was gleaning from the company. 

In a recent hearing, Thompson argued the move was a misuse of bankruptcy law, which is meant for companies in actual financial distress. 

“When [Whittaker, Clark, & Daniels] files for bankruptcy in April 2023, they come into your courtroom and what they tell you is that [Whittaker, Clark, & Daniels] is a melting ice cube,” Thompson said. “They’re trying to resolve the claims the best they can, but… they don’t have any money.” 

Due to a complicated chain of legal protections built into its ownership contracts, the Berkshire Hathaway subsidiary that acquired Whittaker, Clark, & Daniels’ equity in 2007 is ultimately responsible for covering the former talc supplier’s liabilities. 

This subsidiary is not in financial distress and can pay all of Whittaker, Clark, & Daniels’ liabilities “for the foreseeable future,” Thompson said. “They certainly can, they just don’t want to.”

Instead, as part of its bankruptcy proceedings, the former talc distributor has proposed a $535 million settlement to cover payments for all current and future talc injury claimants. 

Plaintiff lawyers have balked at the proposal — but attorneys for Whittaker, Clark, & Daniels say it’s the plaintiffs’ best option. Otherwise, plaintiffs would be left to “pursue [claims] individually in state court actions for years,” said Jeffrey Zeiger, a lawyer at Kirkland & Ellis who represented Whittaker, Clark, & Daniels. “Some will win, but many will lose.” 

Left unsaid is the fact that plaintiffs would lose their chance to tell their stories to a jury of their peers and possibly receive a larger pot of money. Additionally, according to court transcripts, these settlement negotiations did not include any advocates representing the talc victims and instead took place solely between Whittaker, Clark, & Daniels, and Berkshire Hathaway. 

“What we have here is… [Whittaker, Clark, & Daniels] and its insurance company parent getting together and deciding amongst themselves how much they should pay their tort victims,” said Matthew Kutcher, a partner at Cooley law firm who represented talc claimants. “That’s extraordinary.”

“You Have Killed People”

Berkshire Hathaway isn’t the only company using the Texas Two-Step strategy to avoid claim payouts to victims. 

Other corporations accused of manipulating the bankruptcy system include the Atlanta-based manufacturer Georgia-Pacific, which used asbestos in its products like drywall and joint compound for decades and has subsequently faced more than 60,000 legal claims. The company created a subsidiary called Bestwall, LLC, which was then saddled with all of Georgia-Pacific’s asbestos liabilities and filed for bankruptcy in 2017. 

Lori Knapp’s father, Ed Chapman, was diagnosed with mesothelioma in 2018 after years of working with products sold by Georgia-Pacific as a drywall contractor in Florida. Chapman was unable to sue over his asbestos exposure because of the bankruptcy. 

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“So many of his friends in this industry died from the same disease,” said Knapp. “Georgia-Pacific — and they can call it Bestwall, LLC all they want, it’s Georgia-Pacific — is not a bankrupt company… You have killed people and need to be held accountable for your actions.” 

Chapman died two years after his diagnosis. Last year, Georgia-Pacific paid about $1.8 billion in dividends to its parent company, the oil and gas conglomerate Koch Industries, according to court filings. 

Stories like these make lawsuits against these companies so vital, said Gray, one of the plaintiffs suing Whittaker, Clark, & Daniels over her mesothelioma diagnosis. 

Gray is waiting to hear the bankruptcy judge’s ruling on the company’s proposed settlement, with the hopes that it will be shot down so that plaintiffs can proceed to a jury trial. All parties involved in this litigation are awaiting the decision by the Third Circuit Court of Appeals regarding the company’s bankruptcy status — anticipating what message that will send to companies interested in offloading their legal liabilities.  

“I hope the Third Circuit dismisses this bankruptcy after the hearing in April," Thompson said. 

Gray is also waiting to learn what her future holds. “If I had not pushed it and just said these are just menopausal symptoms or premenopausal symptoms and pushed it off for 10 more years, the cancer would have grown,” said Gray. “I don’t know if I found it soon enough.”

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