J&J Loses Latest Legal Bid to Revive Talc Bankruptcy Strategy

Johnson & Johnson lost its bid in a federal appeals court to revive a plan to settle tens of thousands of talc cancer lawsuits by placing a subsidiary into bankruptcy.

The ruling Thursday upheld a bankruptcy judge’s dismissal last year of the Chapter 11 case of J&J subsidiary LTL Management LLC. J&J created LTL to carry into bankruptcy all health claims related to baby powder and other J&J products made with talc allegedly tainted with toxic substances. Last year, the Philadelphia-based appeals court rejected a similar bankruptcy plan.

The decision came on the eve of a Friday deadline for women with ovarian cancer and other gynecological cancers to vote on whether to support a third LTL Management bankruptcy. The company seeks to set aside $6.5 billion to resolve ovarian cancer claims as part of a total $11 billion settlement of J&J’s current and future baby powder suits.

In their opinion, the appellate panel rejected J&J’s claim that the bankruptcy judge erred in ruling that the company’s liability was not greater than $21 billion. The judges also rejected J&J’s arguments that it faced insolvency and cash-flow difficulties.

“No doubt that solvent companies, confronted by mass-tort litigation, can encounter significant financial distress that warrants bankruptcy,” Judge Thomas Ambro wrote for the panel. “When future insolvency is a realistic possibility based on meaningful evidence — not just the result of a highly speculative ‘worst-case’ scenario — a mass-tort defendant has a viable case for bankruptcy.”

J&J will seek US Supreme Court review of Thursday’s decision, said Erik Haas, worldwide vice president of litigation. The company has denied liability in the lawsuits and has maintained that its talc-based products are safe. The ruling doesn’t impact J&J’s plan to resolve all current and future ovarian claims through a third LTL Management bankruptcy, Haas said.

The appeals court also rejected an argument that the second bankruptcy was legitimate because a significant number of talc victims support the effort. That case had divided talc victims, with some backing J&J’s offer to set up a trust fund as part of an insolvency case, and others opposing it.

Some victims argued the second bankruptcy was “in the best interest of creditors.” The appeals court rejected that view.

J&J has said it is trying to round up a super-majority of plaintiffs for the third bankruptcy attempt.

Last year, the same appeals court threw out the first LTL Management bankruptcy, ruling the subsidiary essentially had a blank check from J&J. Soon after that, J&J increased its settlement offer to cancer victims to $8.9 billion. But a federal bankruptcy judge in New Jersey dismissed the case, prompting the latest appeal.

“I hope the message is loud and clear,” plaintiffs lawyer Andy Birchfield, who opposes the bankruptcy plan, said in a statement. “Now is the time for J&J to change course and act as a responsible company by offering truly reasonable compensation to its customers who have suffered serious injuries.”

Top photo: Johnson & Johnson baby powder for sale at a pharmacy in New York, US, on Wednesday, March 27, 2024. Johnson & Johnson is scheduled to release earnings figures on April 16. Photographer: Gabby Jones/Bloomberg.