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A federal appeals court rejected Johnson & Johnson’s plan to use bankruptcy to end the massive legal battle over accusations that its talc products cause cancer on Monday, but the healthcare behemoth said it will appeal the decision.
The company’s LTL Management arm, which was dealing with more than 38,000 legal claims related to goods including its Johnson’s baby powder, was extricated from bankruptcy by the 3rd Circuit Court of Appeals’s ruling in Philadelphia.
During lunchtime trading on the New York Stock Exchange, J&J shares fell 2.7%.
J&J established and spun out LTL, transferred its talc liabilities to the business, then declared bankruptcy on it in 2021 despite maintaining that its talc products are safe.
J&J had maintained that filing for bankruptcy offered a more expeditious and equitable approach to settle tens of thousands of litigation claims than having each case tried separately. To guarantee that LTL could compensate talc plaintiffs, the business promised a financing “backstop.”
The entity was established exclusively to access the bankruptcy system, not because it was in financial hardship, the appeals court claimed in dismissing the LTL Chapter 11 case.
The 56-page judgment by the three judges stated that while though LTL anticipates a substantial future talc liability, its finance backstop “plainly mitigates any financial difficulties predicted on its petition date.”
J&J declared that it will appeal the Third Circuit’s decision and keep trying to settle the cases in bankruptcy court.
According to J&J spokesperson Allison Fennell, “We have emphasized from the outset of this process that resolving this case as fast and effectively as possible is in the best interests of claimants and all parties.” We still support Johnson’s Baby Powder since it is risk-free, does not contain asbestos, and does not cause cancer.
Legislators and scholars questioned J&J’s adoption of the “Texas two-step,” a restructuring technique that has been utilized by other large corporations to avoid jury trials in mass tort litigation.
According to bankruptcy court papers, J&J faced liabilities from $3.5 billion in judgements and settlements before to filing for bankruptcy, including one in which 22 women were granted a judgment of more than $2 billion.
The bulk of cases that have gone to trial have ended in defense verdicts, mistrials, or judgements for the business on appeal, according to LTL’s court filings, while more than 1,500 talc claims have been dismissed without J&J having to pay anything.
Plaintiffs suing over the talc goods requested the appeals court to reject the bankruptcy petition. They contended that one of the biggest healthcare organizations in the world shouldn’t use bankruptcy as a defense against legal action.
The cancer sufferers requested that the appeals court overturn a bankruptcy judge in New Jersey who had let LTL’s bankruptcy to proceed. When LTL filed for bankruptcy, litigation against it were immediately stayed, and US Bankruptcy Judge Michael Kaplan in Trenton, New Jersey, decided in February that LTL’s bankruptcy should also halt talc cases against parent firm J&J.
According to Kaplan, the bankruptcy court is more positioned than other courts to deal with large tort lawsuits.
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