In talc case, reorg ruling goes Johnson & Johnson's way, keeping bankruptcy in play

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Johnson & Johnson said in court this week that it has yet to decide whether it will try to use a legal maneuver known as the Texas two-step to get relief from talc litigation. The ruling of a U.S. court judge on Thursday allows the tactic to remain in play. (Pixabay)

With 25,000 unresolved lawsuits alleging that its talcum products cause cancer, Johnson & Johnson is considering a legal maneuver sometimes referred to as the Texas two-step.  

Thursday, a U.S. judge declined to block the move, giving the pharmaceutical giant the option to create a new business to absorb liabilities associated with the litigation and then seek bankruptcy protection.

U.S. bankruptcy judge Laurie Selber Silverstein denied a plaintiffs' request to issue a restraining order against J&J to prevent the company from employing the tactic, first used by firms decades ago to mitigate the costs associated with asbestos claims.

RELATED: Johnson & Johnson weighs talc bankruptcy as billions in legal costs pile up: report

Last month, citing sources familiar with the talks, Reuters reported that J&J was considering the move. The company provided a statement on Friday.

"Johnson & Johnson Consumer Inc. has not decided on any particular course of action in this litigation other than to continue to defend the safety of talc and litigate these cases in the tort system, as the pending trials demonstrate," J&J wrote in an email.

Judge Silverstein ruled that it would be improper to rule on a hypothetical restructuring by J&J, which would separate its talc liabilities.

“Make no mistake: If Johnson & Johnson believes it can dance away from its responsibility to ovarian cancer victims—many of them African American women—by doing a Texas two-step, it’s sadly mistaken,” lead attorney, Andy Birchfield, said in an emailed statement.

A Missouri court will next consider the plaintiffs’ emergency request to prevent the bankruptcy move.

Dianne Sullivan, an attorney representing J&J, provided the following: “The court rightly denied the plaintiffs’ motion aimed at preventing J&J from engaging in legitimate business transactions in the event that it chooses so," Sullivan wrote. "This was yet another frivolous attempt by plaintiff contingency lawyers to try and compel J&J to settle their cases as J&J continues to defend the safety of its products in the court system."

RELATED: Johnson & Johnson’s last-ditch appeal of $2B talc verdict falls short at Supreme Court

The bankruptcy case Silverstein is handling involves Imerys Talc America, a former supplier for J&J which has been crippled by its own litigation and has filed for Chapter 11. The company also is battling J&J over associated legal costs.

Earlier this year, in an annual filing with the Securities and Exchange Commission, J&J estimated that its talc liabilities were worth around $3.9 billion.

After years of defending its baby powder and other talc products, J&J's legal efforts faced a major setback last month when the U.S. Supreme Court rejected the company's appeal of a $2.11 billion Missouri court verdict for women who developed ovarian cancer.

In that case, J&J had argued that a trial combining the claims of 22 cancer patients from 12 states was unfair. The company said the process added undue emotional weight to the proceedings and stripped the company of its right to address claims on a case-by-case basis.

J&J also has been in court for years over opioids. In June, the company inked a $230 million settlement to remove itself as a defendant in New York from an opioid trial. The company ceased its manufacture and sale of opioids last year.