Johnson & Johnson’s Second Talc Bankruptcy Case Thrown Out

A New Jersey bankruptcy judge threw out the second chapter 11 case that Johnson & Johnson filed to resolve its mass talc liabilities, again shutting down the healthcare-product company’s plan to achieve an $8.9 billion settlement.

Judge Michael Kaplan of the U.S. Bankruptcy Court in Trenton, N.J., said that J&J affiliate LTL Management LLC, created to carry the company’s talc-related liabilities into bankruptcy, wasn’t in sufficient financial distress to warrant granting it the legal protections of chapter 11.

Friday’s ruling sets back J&J’s efforts to use the bankruptcy case to drive a settlement of mass claims alleging that its talcum-based baby powder caused cancer and contained asbestos, which the company denies.

J&J said it disagreed with the decision and would appeal. Outside of bankruptcy, J&J faces a tough road to resolving the talc litigation because of the large number of claims and the expectation that more talc users will sue for compensation in the future.

In his ruling, Judge Kaplan cited a recent appeals court decision that threw out a prior bankruptcy case filed by LTL in 2021 to try to drive a settlement. A federal appeals court dismissed that chapter 11 case in January, but LTL filed for bankruptcy again in April, this time with a settlement offer supported by some plaintiffs’ law firms. That offer, valued at $8.9 billion, would rank among the largest tort settlements ever if accepted.

Judge Kaplan said Friday that under criteria laid out in the January ruling, he was “constrained” to find that LTL’s second bankruptcy case should fail like the first because of its generous financial backing from its parent company, J&J.

Without the bankruptcy case, J&J will be left to face roughly 40,000 pending lawsuits that have been on hold since 2021 alleging its talc caused ovarian cancer and contained asbestos. J&J has denied that its talc is unsafe and said that it needed the tools of chapter 11 to resolve all current and future injury claims.

Friday’s ruling was a victory for the injury claimants who rejected the $8.9 billion offer and argued that J&J shouldn’t get to dodge jury trials because of LTL’s chapter 11.

LTL entered bankruptcy with a commitment from J&J to cover the costs of resolving all talc claims. When evaluating financial distress, “observing smoke may not be enough—one must see flames,” Judge Kaplan wrote Friday.

He said that with support from its parent, LTL can afford to cover the costs of defending and settling talc lawsuits as those obligations come due.

An official committee of talc claimants in LTL’s case said Friday that victims are now free “to seek their justice through the tort system, either through juries of their peers or by settlement on terms acceptable to them.” 

After LTL’s first case was thrown out, it refiled for chapter 11 with a more limited financial backstop from J&J. Lawyers for claimants who haven’t accepted the settlement offer sought to dismiss the repeat case on the grounds that LTL “manufactured its own distress” through the modified agreement.

But those claimants who’ve supported the company’s settlement said they were disappointed with the ruling, “which undermines the best chance at an expedient and fair resolution for the vast majority of the plaintiffs in this litigation,” said the ad hoc committee of supporting talc claimants. 

Bankruptcy opens a path for companies facing mass lawsuits to settle claims against themselves and their affiliates with the support of 75% of voting claimants. J&J, Georgia-Pacific and other solvent companies have sought in recent years to access those protections with a new tactic to ferry their legal liabilities into chapter 11.

In 2021, J&J separated its assets and liabilities using a corporate reorganization under Texas law and placed LTL in bankruptcy, also pausing talc lawsuits against J&J. Courts around the country are divided on the tactic, known as the Texas Two-Step. It offers businesses some of the legal protections of bankruptcy without the loss of equity value that would come from filing chapter 11 themselves.

Plaintiffs’ lawyers and other critics have argued the Texas Two-Step amounts to an abuse of chapter 11, meant to pressure tort plaintiffs into accepting lowballed offers. Businesses that have used the Two-Step argue that mass lawsuits are resolved more fairly and efficiently in bankruptcy compared with fighting or settling claims one-by-one.

J&J has won most of the talc lawsuits that have gone to trial, but some juries have returned big verdicts, including a $2.1 billion award in 2021. If talc lawsuits against J&J resume, the company said Friday it will “vigorously litigate these meritless claims and bring our own actions to address the plaintiffs’ bar abuses that engendered this spurious litigation.”

Write to Akiko Matsuda at [email protected] and Andrew Scurria at [email protected]