Federal Circuit dismisses Johnson & Johnson’s bankruptcy strategy for baby powder lawsuits

On January 30, the 3rd Circuit Court of Appeals in Philadelphia made a pivotal decision for Johnson & Johnson and thousands of people living with cancer when a three-judge panel ruled that LTL Management, a Johnson & Johnson subsidiary, should not file for bankruptcy could .

The court denied LTL Management’s Chapter 11 motion, saying in the 56-page opinion that the dismissal was because LTL Management was formed solely to gain access to the bankruptcy system.

“As applied here, while LTL faces significant future talc liability, its funding backstop clearly mitigates any financial hardship foreseeable at the filing date,” it said.

The lawyers at Johnson & Johnson had sought a different result with a legal maneuver called the “Texas Two-Step”.

When Johnson & Johnson formed LTL Management in 2021, they faced talc baby powder lawsuits. People claim Johnson & Johnson’s talc baby powder made them seriously ill because the product was contaminated with asbestos, a known carcinogen.

The Texas two-step maneuver came about when conglomerate officials formed LTL Management last March and transferred legal liability for baby powder under its umbrella. LTL management was then moved to North Carolina and declared Chapter 11 protection. At the time, a bankruptcy judge gave LTL Management the green light to file for bankruptcy and the baby powder lawsuits were stayed. An appeal by plaintiffs against Johnson & Johnson quickly followed.

While those who have appealed are now celebrating the court’s latest decision, there is no doubt that other powerful companies, including Purdue Pharma, are watching the bankruptcy case. Several federal judges are currently reviewing Purdue Pharma’s bankruptcy proceedings, which would result in the company’s founding family, the Sacklers (who are not bankrupt), participating in a settlement and paying $6 billion into a fund for victims of the opioid crisis . In exchange, they would receive immunity from any lawsuits related to their private company’s sale of opioids, including OxyContin.

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Toxic History of Johnson & Johnson Talk Baby Powder

The well-known product Johnson Baby Powder has been sold with talc as the main ingredient for 50 years. Though the company stopped using talc in the product in North America as of 2020, it only sells baby powder made with cornstarch instead.

According to the American Cancer Society, talc collected from mines containing asbestos is a carcinogen that has been linked to several types of cancer — ovarian cancer, lung cancer, uterine cancer, stomach cancer, and pleural mesothelioma.

By 2019, after various media reports circulated that Johnson & Johnson executives had known about the asbestos in baby powder for more than 40 years but continued to market and sell the baby powder, droves of people living with cancer sought legal action against the company.

More than 38,000 lawsuits have been filed alleging that Johnson & Johnson attributed the cancer to the plaintiffs because they knew of the dangers associated with baby powder.

As previously mentioned, Johnson & Johnson stopped selling baby powder with talc in the United States in 2020. However, the company recently announced that it would stop selling talc-based baby powder in other parts of the world.

LTL Management’s bankruptcy case is expected to be dismissed, but the ruling is stayed pending Johnson & Johnson’s appeal.