Johnson & Johnson defends bankruptcy play in appeals court, but plaintiffs call it a 'bad faith' move

When a plaintiff's lawyer in the Johnson & Johnson talc litigation became flustered in a federal appeals hearing on Monday, presiding Judge Thomas Ambro stepped in.

“I think that was a softball (question),” Ambro said, drawing laughs and momentarily decompressing an intense hearing.

Levity was in short supply when a three-judge panel heard arguments in the third circuit court, where plaintiffs are trying to overturn a ruling that would allow J&J to use a controversial Texas Two Step—creating a company called LTL Limited in which to funnel talc litigation and then declaring it bankrupt.

On Monday, plaintiffs argued that a powerhouse company such as J&J—which generated more revenue than any other firm in the biopharma sector last year at $93.8 billion—should not be afforded the protections provided by Chapter 11. In a statement, attorney Leigh O’Dell of Beasley Allen, who represents thousands of plaintiffs, said the filing "was built on a foundation of bad faith."

With more than 38,000 cases outstanding, J&J faces what lawyer Neal Katyal called a “tsunami of litigation,” from those who claim the company’s iconic baby powder contains asbestos and causes cancer. J&J took the product off the market in the U.S. and Canada in 2020 and recently said it would do the same worldwide in 2023.

J&J argued on Monday that it’s not practical to litigate all the cases and that the traditional tort system has produced what Katyal called “wild, lottery-style judgements.”

More than 1,500 cases have been dismissed by courts. But others have produced outsized judgements, such as a $2.1 billion award in Missouri to 20 women who blamed J&J for their ovarian cancer. When the U.S. Supreme Court declined to review the case last year, J&J turned to its bankruptcy ploy.

“Our argument is each of their tort lawsuits has tunnel vision that examines only their individual case and delays future ones,” Katyal said. “It’s a home run or a strikeout and precious few get up to bat.”

Katyal said that the only way to get a resolution that’s comprehensive, expedient and “protects” claimants is through bankruptcy.

J&J has pointed to other companies—such as Johns Manville and Combustion Engineering—which used bankruptcy to successfully resolve asbestos claims. But plaintiffs say that those companies bore no resemblance to J&J.

“The difference between a Texas Two Step case and a real bankruptcy is that the companies in Texas two-step cases are not bankrupt, are not in financial distress and aren’t entitled to the benefits of a Chapter 11 litigation stay,” Clay Thompson, an attorney from Maune Raichle Hartley French & Mudd, LLC, which represents some of the plaintiffs, said in an interview last week.  

Thompson added that the appeal will go to the Supreme Court if the ruling doesn’t go their way. It is expected to come down next month.