Johnson & Johnson’s latest attempt to get a handle on its talc litigation using the controversial Texas two-step bankruptcy strategy has once again fallen flat after a federal appeals court ruled to uphold a prior dismissal.
J&J put its Texas two-step legal maneuver in motion in 2021 when it moved to dump all its talc liability onto a newly formed subsidiary called LTL Management then declare bankruptcy for LTL while pursuing a large-scale settlement with plaintiffs.
Based on the funding agreement between J&J and LTL, which Circuit Judge Thomas Ambro last year called “an ATM disguised as a contract" in a ruling, the appeals court overturned a bankruptcy court’s prior green light for the strategy.
Now, the same court has once again ruled that LTL’s bankruptcy can’t stand.
“No doubt that solvent companies, confronted by mass-tort litigation, can encounter significant financial distress that warrants bankruptcy,” Ambro explained in the new ruling. “And 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.”
In reviewing the case, the court apparently did not find that J&J's financial situation meets the criteria for a "viable" bankruptcy case.
The ruling came the night before the July 26 deadline set for thousands of claimants to vote on J&J’s proposed settlement of $6.48 billion over 25 years, which would cover more than 50,000 lawsuits and resolve 99.75% of the company’s ongoing U.S. talc litigation. While J&J argued that the settlement was in claimants' best interests, a coalition of lawyers representing the plaintiffs called the bankruptcy and planned vote a bad-faith settlement attempt.
One of the law firms, Beasley Allen, hopes that the new ruling “be a warning for J&J and other companies bathing in huge profits,” attorney Andy Birchfield said in an emailed statement.
“All J&J lacks in this case is the will and the accountability to make right the serious damage it’s caused with its talc products,” Birchfield added.
J&J, however, has no plans to give up its legal strategy and plans to head straight to the U.S. Supreme Court.
“We view the novel standard adopted by the Third Circuit as irreconcilable with the Bankruptcy Code and the recent Supreme Court rulings mandating the strict adherence to the text and context of the Code,” J&J’s worldwide vice president of litigation Erik Haas said in an emailed statement. “We will now proceed as planned with the contemplated writ for review before the United States Supreme Court.”