Court says Johnson & Johnson can’t use bankruptcy to resolve talc lawsuits

Kimberly Redmond//January 30, 2023//

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Johnson & Johnson’s strategy to transfer its baby powder liabilities to a subsidiary and then place that unit in bankruptcy was rejected by a federal appeals court.

In a Jan. 30 ruling, the Third Circuit Court of Appeals in Philadelphia ruled that LTL Management – a subsidiary created by the New Brunswick health conglomerate for the purposes of housing the liabilities – is not eligible for Chapter 11 bankruptcy protection, The Wall Street Journal reported.

LTL Management was formed in October 2021 to handle liabilities for the more than 38,000 legal claims linking Johnson & Johnson’s talc-based products to cancer. J&J, which has maintained the products are safe, also placed LTL in bankruptcy, arguing that it believed it was a way to resolve all claims in a manner that was equitable to all parties, including current and future claimants.

Johnson & Johnson's baby powder — LTL Management was formed in October 2021 to handle liabilities for the more than 38,000 legal claims linking Johnson & Johnson’s talc-based products to cancer. – JOHNSON & JOHNSON

In a 56-page opinion, the three-judge panel said it dismissed the Chapter 11 petition because the unit was not created out of financial distress, but rather to use bankruptcy to shield the company from talc lawsuits.

A representative for J&J told NJBIZ that the company plans to challenge the ruling and continue to seek a resolution of the lawsuits in bankruptcy court.

“We will challenge the Third Circuit’s ruling,” the spokesperson said. “LTL Management LLC (LTL) initiated this process in good faith and our objective has always been to equitably resolve claims related to the company’s talc litigation.”

“Today’s ruling does not reflect the facts established during the Bankruptcy Court’s trial regarding the appropriateness of LTL’s formation and filing, nor the company’s intention to efficiently resolve the cosmetic talc litigation for the benefit of all parties, including current and future claimants,” the spokesperson said. “As we have said from the beginning of this process, resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders. We continue to stand behind the safety of Johnson’s Baby Powder, which is safe, does not contain asbestos and does not cause cancer.”

Prior to the bankruptcy filing, J&J faced $3.5 billion in verdicts and settlements stemming from talc lawsuits. However, Reuters noted, more than 1,500 complaints have been dismissed and most cases that went to trial resulted in defense verdicts, mistrials or judgements for the company on appeal.