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.”
The personal care goliath will transition to an all cornstarch-based powder portfolio instead.