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Court rejects Johnson & Johnson bankruptcy gambit over talc suits

By Chris Newmarker | July 31, 2023

Pixabay stock image of a gavel to go with Johnson & Johnson talc-related bankruptcy story.

[Image from Pixabay]

A U.S. bankruptcy judge in New Jersey has dismissed a Johnson & Johnson-created company’s bankruptcy filing to resolve talc-related lawsuits.

Judge Michael Kaplan’s ruling on July 28 was similar to a U.S. Court of Appeals for the Third Circuit ruling months ago, which failed to find immediate financial distress over the lawsuits. As recounted in media reports, Kaplan said: “In sum, this court smells smoke, but does not see the fire.”

Johnson & Johnson plans to appeal Kaplan’s ruling. It was previously seeking U.S. Supreme Court review of the Third Circuit ruling.

JNJ shares were down nearly 4%, at $167.58 apiece, by the afternoon today. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was down about 1%. The company’s financial performance has been somewhat volatile in recent years.

“The bankruptcy code does not require a business to be engulfed in ‘flames’ to seek a reorganization supported by the vast majority of claimants,” Erik Haas, worldwide VP of litigation at J&J, said in a company news release.

The cases involve a legal maneuver — dubbed a “Texas two-step” — that Johnson & Johnson turned to in order to shield itself from talc-related liability.

A New Yorker expose last year detailed how the Texas two-step worked for J&J. Johnson & Johnson created a new LLC called LTL Management and then moved the talc liability over to LTL. The new LLC then filed for Chapter 11 bankruptcy protection. Calling the bankruptcy a “shell game,” plaintiffs in the talc lawsuits appealed. (J&J is also spinning off its consumer business into a new company called Kenvue this year.)

J&J faces lawsuits from 60,000 people who claim J&J’s talc-based baby powder caused them to develop cancer.

Said Haas: “In the event we return to the tort system — where we have prevailed in the overwhelming majority of cases tried — we will vigorously litigate these meritless claims and bring our own actions to address the plaintiffs’ bar abuses that engendered this spurious litigation.”

About The Author

Chris Newmarker

Chris Newmarker is the executive editor of WTWH Media life science's news websites and publications including MassDevice, Medical Design & Outsourcing and more. A professional journalist of 18 years, he is a veteran of UBM (now Informa) and The Associated Press whose career has taken him from Ohio to Virginia, New Jersey and, most recently, Minnesota. He’s covered a wide variety of subjects, but his focus over the past decade has been business and technology. He holds bachelor’s degrees in journalism and political science from Ohio State University. Connect with him on LinkedIn or email at cnewmarker@wtwhmedia.com.

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