A US appeals court has blocked Johnson & Johnson’s attempt to offload into bankruptcy tens of thousands of lawsuits related to its talc products.
The Third U.S. Circuit Court of Appeals in Philadelphia dismissed a Chapter 11 petition filed by J&J subsidiary LTL Management, recently created to address the 38,000-plus lawsuits from plaintiffs alleging J&J’s talc products caused cancer.
On Monday, it ruled that the healthcare and personal care giant improperly placed a subsidiary into Chapter 11 proceedings even though it did not face financial distress.
The three-judge panel, in a 56-page opinion, wrote: “Good intentions – such as to protect the J&J brand or comprehensively resolve litigation – do not suffice alone.
“What counts to access the Bankruptcy Code’s safe harbor [sic] is to meet its intended purposes.
“Only a putative debtor in financial distress can do so. LTL was not. Thus we dismiss its petition.”
The manoeuvre attempted by J&J is called a Texas two-step, named after a state law used to create a subsidiary that shoulders litigation and then declares bankruptcy.
The Third Circuit’s opinion allows talc litigation to resume against the company; all cosmetic talc cases had been stayed pending the outcome of the Chapter 11 proceedings.
J&J in a statement said it would challenge the ruling.
It added: “We continue to stand behind the safety of Johnson’s Baby Powder, which is safe, does not contain asbestos and does not cause cancer.”
J&J announced its intention in 2022 to stop sales of its talc-based Baby Powder globally this year, following an earlier halt in North America sales.
The personal care goliath will transition to an all cornstarch-based powder portfolio instead.
