For the second time this year, a court has ruled against Johnson & Johnson’s effort to use a bankruptcy case to limit its exposure to tens of thousands of lawsuits that claim its talcum powder products caused cancer.
The plaintiffs claim that the company knew for decades about the risks linked to its talc products, including its signature baby powder.
The company created a subsidiary, LTL Management, in 2021 as a maneuver to shield itself from the talc litigation. It proposed that the subsidiary, which had filed for bankruptcy, pay $8.9 billion to resolve all the claims against it.
But on Friday, Judge Michael Kaplan of the U.S. Bankruptcy Court for the District of New Jersey, said LTL’s bankruptcy case must be dismissed because the lawsuits did not put the company in “imminent or immediate financial distress.” Earlier this year, the U.S. Court of Appeals for the Third Circuit in Philadelphia dismissed the first bankruptcy effort for the same reason.
“In sum, this Court smells smoke, but does not see the fire,” Judge Kaplan wrote in his opinion, referring to LTL’s financial status. “Therefore, the emphasis on certainty and immediacy of financial distress closes the door of chapter 11 to LTL at this juncture.”
The company’s shares dropped close to 2 percent in after-hours trading.
J&J said its subsidiary planned to appeal Judge Kaplan’s ruling. In a statement on Friday, Erik Haas, J&J’s worldwide vice president of litigation, said, “We respectfully disagree with the bankruptcy court’s conclusion that the ‘substantial liability’ that LTL faces from the massive volume of talc claims asserted against it does not establish ‘immediate’ financial distress under the standard imposed by the Third Circuit, which itself is found nowhere in the bankruptcy code and is contrary to the persuasive authority from other Circuit Courts and directives of the Supreme Court of the United States.”
He added, “As the bankruptcy court urged in its decision, we will continue to work with counsel representing about 60,000 claimants to pursue a resolution of the talc claims.”
Johnson & Johnson stopped selling talc-based baby powder globally this year, after switching to cornstarch as the primary ingredient of the product.