After Johnson & Johnson loses again in bankruptcy case, it's game on for talc lawsuits

After Johnson & Johnson’s initial victory in its attempt to resolve talc lawsuits through a bankruptcy ploy, little has gone the way of the pharma giant.

Friday, J&J took another courtroom defeat as the U.S. Court of Appeals for the 3rd Circuit rejected its bid to delay an order dismissing the bankruptcy. The company had hoped for a stay, pending an appeal with the Supreme Court. The decision allows more than 38,000 cases pending against J&J to proceed in court.

J&J is attempting to use the so-called Texas two-step strategy, in which a company facing a mountain of personal-injury asbestos lawsuits creates a firm to funnel the claims and declares it bankrupt.

“Our decision dismisses the bankruptcy filing of a company created to file for bankruptcy,” Judge Thomas Ambro wrote in his decision Friday. “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.'"

J&J faces claims that its talcum products—including its iconic baby power—cause cancer. The company has maintained that the products are safe and free of asbestos. J&J removed its baby powder from shelves in North America in 2020 and is stopping its sales worldwide this year. Instead, the company has shifted to a cornstarch version.

After assigning the lawsuits to a subsidiary called LTL Management and filing for bankruptcy protection, a judge affirmed J&J’s ability to use the Chapter 11 strategy in February of last year.

But in January of this year, the U.S. Court of Appeals for the 3rd Circuit overturned the ruling. Two weeks ago, after an unsuccessful attempt to get the appeal reheard, J&J said it would take the case to the Supreme Court and asked the court to delay the order.

A $61.5 billion funding agreement was cited by the appeals court in denying LTL’s bankruptcy claim, saying the subsidiary was not in “financial distress.”

“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 in his decision on Friday.

J&J has lost nine talc trials which are either on appeal or have been resolved.  The most damaging defeat came in Missouri in 2018, as more than 20 women were awarded $4.69 billion, a result which was later reduced to $2.1 billion after appeals. J&J took that case to the Supreme Court as well, getting its final rejection in 2021.

Out of 41 trials, 32 have ended in a win by J&J, a mistrial or plaintiff verdicts that were reversec on appeal.