J&J's Bankruptcy Case Tossed By US Appeals Court

A US appeals court has found that Johnson & Johnson's use of bankruptcy to deal with growing talc litigation would create a legal blind zone.

The Third Circuit Court of Appeals overturned an earlier bankruptcy court ruling, ordering the dismissal of J&J's subsidiary LTL Management's Chapter 11 case.

Faced with more than 38,000 lawsuits alleging that its talc-based products caused cancer, J&J split off its talc liabilities into a new business called LTL Management and filed for bankruptcy in October 2021, a contentious process is known informally as a "Texas two-step" bankruptcy. Claimants claimed that the technique violated the US bankruptcy code.

Because the debtor in this case was not in financial hardship when it sought Chapter 11 protection. Ignoring a parent's (and grandparent's) safety net, which shields them from any culpability, would allow tunnel vision to create a legal blind spot. We will not do so, the court rules.

J&J's baby powder products were initially released in 1984, and hundreds of millions of people have used them. Although J&J asserts that it has never developed a product that contains asbestos, questions regarding whether the powder contained asbestos initially surfaced in the 1970s. According to court records, there were a limited number of isolated allegations up to 2010 that the talc products caused diseases such as mesothelioma and rashes.

However, two jury judgments in favor of plaintiffs in 2013 and 2016 triggered a flood of lawsuits alleging that the goods caused mesothelioma and ovarian cancer. By the time LTL Management declared bankruptcy, it had received almost 38,000 ovarian cancer claims.

J&J ceased producing talc goods in the United States in 2020, claiming decreased sales due to changes in customer behavior and exacerbated by misconceptions about the product's safety. The firm said in August that it will update the composition of its baby powder products while maintaining that its talc-based powder is safe, does not contain asbestos, and does not cause cancer.

In May, an appeals court decided to hear the bankruptcy case again. J&J previously said that all talc products will be phased out worldwide by 2023.

According to a lawyer representing mesothelioma plaintiffs in a class action suit, the Third Circuit's judgment is a point-by-point rejection of J&J's attempt to distort the bankruptcy system and violate all Americans' constitutional right to a jury trial. The Third Circuit's ruling reaffirms that the bankruptcy system is not a tool for the rich, no matter how much money they are willing to spend on lawyers.

Meanwhile, J&J defended its policy, noting in a statement that LTL began this process in good faith and that the company's goal has always been to equitably address claims connected to cosmetic talc litigation.

Today's verdict does not reflect the facts established at the Bankruptcy Court's trial regarding the validity of LTL's establishment and filing, the firm said, adding that it will contest the new ruling.

If the complete panel of judges rejects J&J's case, the business has the option of petitioning the Supreme Court. In October 2021, the pharma titan said that it had spent roughly $1 billion in defense expenditures and $3.5 billion on settlements and verdicts. J&J said that those expenditures were unsustainable and that Chapter 11 was required to analyze, settle, and manage these claims efficiently and equitably.

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