Johnson & Johnson’s (J&J’s) attempt to delay an order dismissing the bankruptcy of its subsidiary LTL Management has been rejected by a US appeals court, allowing thousands of pending lawsuits alleging that its talc-based products cause cancer to proceed in court.
J&J has been attempting to use a move sometimes referred to as a ‘Texas Two-Step’, assigning LTL to manage the more than 38,000 lawsuits claiming that its Baby Powder and other talc products contain asbestos, before filing a bankruptcy petition.
A bankruptcy judge had initially ruled in favour of the move back in February 2022, but the strategy faltered earlier this year when LTL’s petition was rejected on the grounds that neither LTL nor J&J had a legitimate need for bankruptcy protection because they were not in ‘financial distress’.
According to court documents, J&J had earmarked $61.5bn in corporate funds for LTL to resolve the claims and fund bankruptcy costs.
“Our decision dismisses the bankruptcy filing of a company created to file for bankruptcy,” Judge Thomas Ambro wrote in his decision to reverse the original order. “It restricts J&J’s ability to move thousands of claims out of trial courts and into bankruptcy court so they may be resolved, in J&J’s words, ‘equitably’ and ‘efficiently.'”
“We do not duck an apparent irony: that J&J’s triple A-rated payment obligation for LTL’s liabilities, which it views as a generous protection it was never required to provide to claimants, weakened LTL’s case to be in bankruptcy,” Ambro wrote.
LTL had attempted to delay the final ruling to keep the company in bankruptcy while it pursued a US Supreme Court appeal, a request which was denied last week by the Court of Appeals for the Third Circuit.
The subsidiary argued that ‘financial distress’ was not a statutory requirement for bankruptcy, and that blocking its restructuring would hinder its efforts to bring the litigation to a conclusion and delay any pay-outs due to claimants.
J&J has maintained that the products are safe and free of asbestos, but has said it will stop selling talc-based products worldwide this year and shift production to cornstarch versions. The announcement came around two years after the company discontinued sales of its talc-based products in the US and Canada.