Plaintiffs with claims against Johnson & Johnson’s talc products may get their day in court after all.
On Wednesday, the Third U.S. Circuit Court of Appeals said it will revisit Johnson & Johnson’s controversial tactic of creating a company in which to funnel talc claims and then declare it bankrupt. Previously, a judge had paused the pending talc litigation during the company's bankrupcty proceedings.
The ploy, known as a Texas Two-Step, has been used by other companies to protect assets and avoid the costs of litigation and settlements. In the case of J&J and the roughly 38,000 claims it faces, the strategy could save the company billions.
The appeal will review a ruling in federal bankruptcy court in February by Trenton, New Jersey, Judge Michael Kaplan who affirmed J&J’s ability to use Chapter 11 to hasten a settlement.
“The court is aware that its decision today will be met with much angst and concern,” Kaplan wrote in his opinion. “The court remains steadfast in its belief that justice will best be served by expeditiously providing critical compensation through a court-supervised, fair and less-costly settlement.”
A month after his ruling, Kaplan asked the federal appeals court to weigh in on the case, circumventing the traditional district court appeal process.
LTL Management LLC, the company created by J&J, told the court this week that its bankruptcy tactic was similar to those used by other firms. Meanwhile, claimants say that the company’s bankruptcy filing was done in bad faith.
J&J has "agreed to provide funding to LTL for the payment of amounts the New Jersey Bankruptcy Court determines are owed by LTL and the establishment of a $2 billion trust in furtherance of this purpose," the company said in its quarterly report last month.
All along, J&J has disputed claims that its iconic Baby Powder caused ovarian cancer or mesothelioma. J&J has stopped selling the product in the United States and Canada but has resisted calls to stop worldwide sales.