Federal judge knocks down J&J’s second attempt to use bankruptcy claim in billion-dollar talc case

Highly regarded bankruptcy attorney Stolz of Genova Burns help bring latest legal victory

Johnson & Johnson’s second attempt to resolve tens of thousands of lawsuits over its talc products in bankruptcy was shot down by U.S. Bankruptcy Judge Michael Kaplan in Trenton – blocking a proposed $8.9 billion settlement that would stop new lawsuits from being filed.

J&J said it will appeal the decision.

It is the latest ruling against J&J in the case. In 2021, it offloaded its talc liabilities into a new company, LTL Management, and immediately placed that company into bankruptcy. LTL’s first bankruptcy was dismissed in April after a U.S. appeals court ruled that it was not in sufficient financial distress to be eligible for bankruptcy protection.

LTL quickly filed for bankruptcy again, arguing that its second effort has won more support from plaintiffs for a comprehensive settlement of current and future lawsuits alleging that J&J’s baby powder and other talc products sometimes contained asbestos and caused mesothelioma, ovarian cancer and other cancers. J&J has said its talc products are safe and do not contain asbestos.

The Official Committee of Talc Claimants, which includes Daniel Stolz of Genova Burns, said it was thrilled the court dismissed the second bankruptcy attempt.

“We believe the decision of the Honorable Chief Judge Kaplan was thoughtful, well-reasoned, and well-supported by the facts and law,” they said in a statement. “This outcome now frees tens of thousands of victims to seek their justice through the tort system and, either before juries of their peers or by settlement on terms acceptable to them.”

Erik Haas, worldwide VP of litigation for J&J, said the company disagreed with the decision.

“We respectfully disagree with the bankruptcy court’s conclusion that the ‘substantial liability’ that LTL faces from the massive volume of talc claims asserted against it does not establish ‘immediate’ financial distress under the standard imposed by the Third Circuit, which itself is found nowhere in the Bankruptcy Code and is contrary to the persuasive authority from other Circuit Courts and directives of the Supreme Court of the United States,” he said.

“The bankruptcy code does not require a business to be engulfed in ‘flames’ to seek a reorganization supported by the vast majority of claimants. As the bankruptcy court urged in its decision, we will continue to work with counsel representing about 60,0000 claimants to pursue a resolution of the talc claims. 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.”

The Official Committee of Talc Claimants has consistently contended the tort system is the rightful place for these claims to be resolved.

“Today’s ruling validates the committee’s belief that J&J manipulated the bankruptcy system by using the ‘Texas Two-Step’ legal maneuver and wrongfully sought to manufacture financial distress in its Legacy Talc Liabilities management subsidiary, solely to carry out a bad faith bankruptcy case. The company will now face the full weight of its conduct in the appropriate judicial forums.”

Brown Rudnick’s David Molton, one of the co-counsels representing the committee, put it this way.

“This ruling sends a clear message: multibillion-dollar, wholly solvent companies like J&J should not be allowed to use and in fact abuse bankruptcy laws to avoid accountability,” he said. “We are reassured by the Bankruptcy Court’s reaffirmation that it will not allow solvent corporations to abuse the system and impose coercive, low-value and cram-down solutions on nonconsenting claimants. Justice should and now will triumph over corporate greed and legal chicanery.”

“The claimants have waited long enough. Untold numbers of cancer victims have died while Johnson & Johnson attempted to manipulate the bankruptcy system to limit its liabilities,” added Molton. “Now victims and their families can seek justice through the tort system – by presenting their case before a jury of their peers in courts of their own choosing.”

The Official Committee of Talc Claimants, appointed by the Office of the United States Trustee, an arm of the U.S. Department of Justice, represents and acts as a fiduciary for all mesothelioma and ovarian cancer victims, as well as all subrogation claimants who have claims based on or derivative to the victims’ talcum powder claims.

The TCC is advised by counsel, an investment banker, a financial advisor, and claims estimation experts well-versed in mass tort, asbestos, talc, bankruptcy, and victim advocacy. These entities include Genova Burns, Brown Rudnick, Otterbourg, Massey & Gail, Miller Thomson, MoloLamken, Compass Lexecon, FTI Consulting and Houlihan Lokey.