Johnson & Johnson’s ongoing battle to address the mountain of talcum powder-related lawsuits it faces took a hit as its second attempt to seek bankruptcy protection was dismissed by a federal judge.
The pharmaceutical giant is grappling with a staggering 38,000 lawsuits, with plaintiffs and their survivors claiming that the talc-based powder manufactured by the company caused cancer. In a bid to settle these lawsuits collectively in bankruptcy court, Johnson & Johnson has persistently refuted the allegations lodged against it.
The recent development, in which U.S. Bankruptcy Judge Michael Kaplan of New Jersey ruled against the Chapter 11 filing of Johnson & Johnson’s subsidiary called LTL Management, signifies another setback for the company’s efforts to resolve the talcum powder liabilities.
The court found that the company’s financial situation didn’t warrant legal protection from its creditors since it wasn’t in any “immediate financial distress.”
In April, a U.S. appeals court rejected the initial bankruptcy attempt for the same reason.
Attorneys representing cancer victims, along with the U.S. Justice Department’s bankruptcy watchdog, had called for LTL’s second bankruptcy to be dismissed as an abuse of U.S. bankruptcy law.
This ruling effectively scuttled a proposed $8.9 billion settlement deal offered by Johnson & Johnson to certain talcum powder plaintiffs as part of a bankruptcy resolution.
Johnson & Johnson said in a statement that LTL Management plans to appeal the ruling.
“LTL commenced its bankruptcy case in good faith and in strict compliance with the Bankruptcy Code,” the company said in a statement.
Erik Haas, Johnson & Johnson’s worldwide vice president of litigation, asserted that the Bankruptcy Code “does not require a business to be engulfed in ‘flames’ to seek a reorganization supported by the vast majority of claimants.”
Ruling Welcomed by Claimants
The court-appointed committee representing the talcum powder claimants, who had previously argued that Johnson & Johnson’s settlement offer was insufficient, hailed the dismissal.The committee stated that the ruling now empowers tens of thousands of victims to seek justice through the tort system, either by pursuing trials before juries or exploring acceptable settlement terms.
This outcome now frees tens of thousands of victims to seek their justice through the tort system and, either before juries of their peers or by settlement on terms acceptable to them,” the committee said in a statement.
Cancer victims who oppose the bankruptcy settlement have said that the second bankruptcy attempt recycled a failed legal strategy to keep their cases from being heard by juries.
Opponents of Johnson & Johnson’s settlement offer argue that the company created a deceptive “illusion” of support by making agreements with plaintiffs’ attorneys who quickly enlisted numerous clients without filing any lawsuits against the company.
This is not the first time that Johnson & Johnson’s talcum powder-related bankruptcy filings have been thwarted. In January, the first LTL bankruptcy filing was dismissed by a Third Circuit Court of Appeals panel, which determined that the company couldn’t selectively place its talcum powder liabilities into bankruptcy, especially when the overall financial health of the company wasn’t at risk.
Undeterred, LTL Management filed for bankruptcy again in April, proposing a larger settlement for the claimants, among other changes. However, the latest ruling has forced Johnson & Johnson back to the drawing board, vowing to appeal the decision and continuing its legal fight against the claims made by alleged victims in court.
The company has argued in its defense that allowing these cases to be litigated “in the tort system would take decades and waste billions of dollars—mainly spent on lawyers’ fees.” Johnson & Johnson maintains that its proposed bankruptcy settlement represents “the most equitable resolution for all claimants.”
