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J&J can't use bankruptcy to settle 100,000 baby powder cancer claims: Judge

J&J shares dropped as much as 3.4% in post-market trading following the ruling. The company vowed to appeal Judge Kaplan's ruling

Johnson & Johnson

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By Steven Church, Jonathan Randles and Jef Feeley


Johnson & Johnson cannot use a unit’s bankruptcy case to press tens of thousands of cancer victims to drop their lawsuits and accept an $8.9 billion settlement, a judge ruled.
 
For the second time in about six months, federal courts dismissed the bankruptcy case of LTL Management. J&J created the unit to end all current and future health claims related to baby powder and other products made with talc that was allegedly tainted with a toxic substance.

US Bankruptcy Judge Michael Kaplan in a written decision Friday said an appeals court set a higher standard for using bankruptcy than the judge had considered when J&J first put LTL into bankruptcy.

“As it stands now, in gauging financial distress, observing smoke may not be enough — one must see flames,” Kaplan wrote.

J&J shares dropped as much as 3.4% in post-market trading following the ruling. The company vowed to appeal Judge Kaplan’s ruling.

“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,” Erik Haas, J&J’s worldwide vice president of litigation, said in a statement.

J&J faces as many as 100,000 talc-related claims, many of which have not yet been filed as lawsuits, company lawyers say. Some of the most successful product liability lawyers in the US have sued the company in state and federal courts around the US, winning billions of dollars in damages after jury trials. 

‘Corporate Bully’
 
“It’s a credit to the independence and integrity of our courts that a half-trillion-dollar corporate bully like J&J cannot escape to the bankruptcy court so as to avoid juries,” Moshe Maimon, a lawyer representing talc victims, said Friday in an emailed statement.

J&J has maintained its bankruptcy strategy is designed to fairly and equitably compensate injury claimants, many of whom have lost at trial or will have to wait years before having an opportunity to present their cases to a jury. J&J has denied liability in the lawsuits and has maintained that its talc based products are safe.

Last year Judge Kaplan had agreed to let J&J use special rules only available in bankruptcy to shed all current and future talc claims against it. That first attempt was thrown out earlier this year after a federal appeals court ruled that LTL Management was not eligible for bankruptcy because it essentially had a blank check from J&J, one of the world’s most profitable corporations. That meant Kaplan had to dismiss the case. 

This time, lawyers for victims argued that J&J reduced the maximum amount of money it devoted to settling the cancer claims. Potential payouts in the first bankruptcy would have been backed by a J&J unit was worth about $61.5 billion at the time. After a federal appeals court ordered Kaplan to dismiss the first bankruptcy, the company filed a new case in which it said the maximum it would pay out was $8.9 billion.

J&J “sought the bankruptcy court’s assistance in cramming that bad deal down on cancer victims,” said Andy Birchfield, who was among the lawyers fighting to have the second bankruptcy dismissed. “Thankfully with today’s order that ploy is dead.”

Legal Strategy
 
To try to keep the second bankruptcy alive, J&J tweaked its legal strategy, watered down its support for LTL and cut a deal worth $8.9 billion with some of the lawyers suing the company. That settlement offer has split the law firms into dueling camps, with holdouts arguing that J&J’s new bankruptcy strategy should be thrown out just as the original was.

Although he believed he was compelled to dismiss the Chapter 11 case, Judge Kaplan said he remains troubled by the backlog of lawsuits in the court system that means only a handful of consumers are able to present their cases to juries each year.

“This glacial pace coupled with the undeniable surge in the number of new actions means that the vast majority of claimants will not get the opportunity to seek recovery for years to come, if ever,” Judge Kaplan said.

But the appeals court made it clear that to justify a bankruptcy, a company must face “immediate, imminent and apparent” financial distress, Kaplan said.   

Because of that standard, Kaplan, whose courtroom is near J&J’s headquarters in New Brunswick, New Jersey, sided with the holdouts this time. 

The new bankruptcy filing is LTL Management LLC, 23-12825, U.S. Bankruptcy Court for the District of New Jersey (Trenton).

(Adds reaction from cancer victim lawyer in the seventh paragraph, additional details beginning in eighth.)
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First Published: Jul 29 2023 | 7:28 AM IST

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