A federal appeals court on Monday rejected a legal strategy by Johnson & Johnson to remove itself from its talc-based baby powder liabilities by transferring them to a subsidiary and filing that subsidiary for Chapter 11 bankruptcy.
J&J is facing around 38,000 lawsuits from people and alleged victims who say the company’s talc-based powder causes cancer, which the company vehemently and repeatedly denies. On Monday, the U.S. Court of Appeals for the 3rd Circuit ruled that LTL Management, a subsidiary J&J formed to hold its liabilities and file for bankruptcy, is not eligible for protections that come with filing Chapter 11 bankruptcy.
“Only a putative debtor in financial distress can” get bankruptcy protection, the court ruled. “LTL was not. Thus we dismiss its petition.”
JOHNSON & JOHNSON ANNOUNCES END TO TALCUM POWDER GLOBALLY
Filing for bankruptcy allows companies inundated with lawsuits to temporarily pause litigation and send settlements of their legal liabilities via a Chapter 11 plan. The strategy of moving litigation over to bankruptcy prevents injured claimants from presenting their cases to juries with the ability to render consequential judgments against major companies, such as J&J.
The company’s plan aimed to shield a large percentage of its financially healthy corporate assets from the legal claims, though critics of the strategy say the $400 billion company can afford to pay the alleged victims.
J&J said in a statement it plans to appeal the ruling, and the company can still request the full circuit court to weigh on its strategy before appealing to the Supreme Court.
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“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,” J&J said in a statement. “We continue to stand behind the safety of Johnson’s Baby Powder, which is safe, does not contain asbestos and does not cause cancer.”
J&J pulled Johnson’s baby powder from store shelves in 2020 and announced an end to distribution in August last year, though the company contends it only stopped selling the product because allegations against it caused sales to tank.
