
[Image from Pixabay]
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.”
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