By Jonathan Randles
Johnson & Johnson will seek the Supreme Court's review after a federal appeals court declined to revive the company's bid to use chapter 11 bankruptcy to freeze nearly 40,000 lawsuits linking its talc products to cancer.
J&J said it would turn to the nation's highest court after judges on the Third U.S. Circuit Court of Appeals in Philadelphia voted Wednesday against having the entire appellate court reconsider a January ruling by a panel of judges dismissing the chapter 11 case of J&J subsidiary LTL Management LLC.
J&J created the LTL subsidiary in 2021 and placed it in chapter 11 to move mass talc-injury lawsuits the business faced to bankruptcy court for resolution. While the parent company didn't file for chapter 11, LTL's bankruptcy filing opened a path to freezing the talc lawsuits against its affiliates, including J&J itself. Other profitable companies have used the same strategy, known in legal circles as the Texas Two-Step, to try to address mass cancer litigation.
Wednesday's ruling means J&J's hopes for reviving its talc subsidiary's chapter 11 case now depend on the U.S. Supreme Court, which takes only a small fraction of the petitions it receives.
Without intervention from the Supreme Court, J&J would have to defend personal injury claims pending across the country alleging its talc products contained asbestos and caused ovarian cancer.
J&J, which has denied that its talc products are unsafe, has spent roughly $4.5 billion in recent years defending and settling talc-related claims. The company stopped selling talc-based baby powder in the U.S. and Canada in 2020 and said last year that it would cease selling it worldwide in 2023.
A spokeswoman said J&J would seek to keep talc-related litigation on pause pending any Supreme Court review. The company has said it created LTL and initiated the bankruptcy in 2021 to fairly and equitably resolve current and future talc-injury lawsuits for claimants.
Lawyers representing consumers who have sued J&J over its talc products said Wednesday they were preparing to resume tort lawsuits in state courts.
"This unanimous ruling by the Third Circuit is another step in closing the door on the attempted abuse of the bankruptcy system by Johnson & Johnson, and reopening the doors of courthouses across the nation for thousands of victims of the company's negligence and greed," plaintiffs' lawyer Leigh O'Dell said.
In the January decision, a three-judge panel on the Third Circuit found that LTL wasn't eligible for bankruptcy because its parent company J&J had agreed to fund the expenses of the chapter 11 case and any potential settlement with injury claimants.
Judge Thomas Ambro, a noted bankruptcy scholar who wrote January's ruling, said the funding agreement gave LTL access to as much as $61.5 billion when it filed for chapter 11 in 2021, as well as direct access to J&J's "exceptionally strong balance sheet." LTL would likely never exhaust that financial support, according to the ruling.
J&J has argued in court papers that January's decision would make it more difficult for troubled companies to seek relief from their debts by denying them access to the protections of bankruptcy unless they are facing an imminent financial collapse.
The J&J spokeswoman said Wednesday the company raised with the Third Circuit significant concerns about the January decision and how the appeals panel applied earlier findings by Judge Michael Kaplan of the U.S. Bankruptcy Court in Trenton, N.J., who last year had permitted LTL's bankruptcy case to move forward.
