A judge has ruled that Johnson & Johnson (J&J) cannot use a unit’s bankruptcy case to pressure cancer victims into dropping their lawsuits and accepting an $8.9 billion settlement. This is the second time in about six months that federal courts have dismissed the bankruptcy case of LTL Management, a unit created by J&J to address health claims related to baby powder and talc products allegedly tainted with a toxic substance.
US Bankruptcy Judge Michael Kaplan stated that an appeals court had set a higher standard for using bankruptcy than he initially considered when J&J first put LTL into bankruptcy. He emphasized that observing financial distress requires more than just “smoke,” implying that there must be tangible evidence of severe financial problems or “flames.”
Following the ruling, Johnson & Johnson shares dropped up to 3.4% in post-market trading, and the company announced its intention to appeal the judge’s decision. The company’s worldwide vice president of litigation, Erik Haas, stated that they would continue working with claimants’ counsel to resolve the talc claims.
J&J is facing potentially 100,000 talc-related claims, and some of the most successful product liability lawyers in the US have filed lawsuits against the company, winning billions of dollars in damages after jury trials. The attempt to use bankruptcy as a strategy to handle the talc claims was rejected for the second time, with lawyers representing talc victims praising the courts’ independence and integrity.
In the past, J&J maintained that its bankruptcy strategy aimed to compensate injury claimants fairly and equitably, denying liability in the lawsuits and asserting the safety of its talc-based products. However, both attempts at bankruptcy were thrown out by the courts, with the second bankruptcy being dismissed after J&J reduced the maximum amount it would pay out to $8.9 billion.
Despite dismissing the case, Judge Kaplan expressed concern over the backlog of lawsuits, which results in only a few consumers being able to present their cases to juries each year. Nevertheless, the appeals court’s standard for justifying bankruptcy, requiring “immediate, imminent, and apparent” financial distress, led Kaplan to side with the holdouts opposing the second bankruptcy.
The new bankruptcy filing is LTL Management LLC, case number 23-12825, U.S. Bankruptcy Court for the District of New Jersey (Trenton).