Johnson & Johnson’s attempt to end its talc litigation with a sweeping $8.9 billion settlement didn’t pass muster at the bankruptcy court, which instead dismissed the company's latest bankruptcy attempt.
Friday, U.S. Bankruptcy Judge Michael Kaplan decided that J&J’s subsidiary LTL Management didn’t meet certain requirements to qualify as a good faith bankruptcy attempt.
A company must demonstrate that it is suffering from financial distress, which has to be “immediate and apparent” at the time of the bankruptcy filing, the judge wrote. In determining financial distress, “observing smoke may not be enough—one must see flames,” Kaplan wrote in the court’s ruling.
In this case, the court “smells smoke, but does not see the fire," Judge Kaplan added.
For its part, J&J maintains that its LTL subsidiary sought bankruptcy protections in good faith, the company said in a statement. LTL will appeal the ruling, J&J said.
The company previously established the subsidiary to house talc litigation, and LTL has sought bankruptcy protections on two occasions to freeze the lawsuits. Both attempts have now been shot down.
J&J still believes its proposed $8.9 billion settlement is the “most equitable solution” for all talc claimants. Litigating the cases individually would “take decades and waste billions of dollars, mainly spent on lawyers’ fees," the company said in a statement.
Amid the legal and procedural arguments, J&J also reiterated its belief that the tens of thousands of talc claims nationwide are “specious” and “lack scientific merit.”
Meanwhile, attorneys at Otterbourg, a firm that represents some talc plaintiffs, called the latest ruling “incredibly powerful” as it allows the thousands of plaintiffs to seek trials or individual settlements.
The talc litigation has largely been frozen while the bankruptcy case proceeded in court, with Kaplan allowing one case to go through. That plaintiff, Anthony Hernandez Valadez, was recently awarded $18.8 million in damages.
J&J said it would appeal that case. With that verdict, the company has so far lost 10 cases out of 42 to reach trials.