An appeals court halted Johnson & Johnson (J&J)’s talc bankruptcy maneuver on Monday. The decision revived thousands of lawsuits against J&J offshoot LTL Management, LLC (LTL). J&J created LTL as a way to offload potential costs related to talc lawsuits. This strategy depends on the ability to successfully declare bankruptcy for LTL. The ruling may give talc plaintiffs hope while dashing J&J’s financial plans.
Prior to forming LTL, J&J faced more than 38,000 lawsuits claiming its baby powder caused cancers, including mesothelioma. J&J officials executed a controversial legal maneuver (the Texas Two-Step) to minimize costs from these cases. They:
- Created LTL with limited funding: J&J formed LTL, then transferred the talc business and liabilities to it. J&J funded LTL with an initial advance of $2 billion. This is the same amount of money awarded to a group of plaintiffs in a single talc lawsuit.
- Declared bankruptcy to shut down lawsuits: LTL declared bankruptcy. This effectively stopped pending talc lawsuits.
If LTL’s initial funding had been equally divided between all talc litigants, it would have provided each with about $50,000. This is less than the cost of common mesothelioma surgeries.
Judges Rule Bankruptcy Filing Invalid
A panel of three judges handed down a lengthy invalidation of LTL’s bankruptcy declaration. The decision focused on financial distress, a requirement for valid Chapter 11 bankruptcy. The panel undertook a thorough examination of LTL’s finances and found them without distress. In fact, the decision notes LTL had access to enough cash to comfortably cover its liabilities.
The judges went on to describe LTL as a shell company created only to defend against talc claims while protecting financial assets. The panel closed with a statement that seems to convey the decision and the panel’s opinion of the situation.
– United States Court of Appeals for the Third Circuit
J&J plans to challenge the ruling and claims its talc products are safe.
Understanding Talc and Cancer
J&J baby powder was classically talc-based. Talc occurs naturally alongside asbestos, which can cause several types of cancer. Malignant mesothelioma, lung cancer, ovarian cancer and others have been linked to asbestos. These cancers may take decades to develop after asbestos exposure. So new cancer cases caused by asbestos-contaminated talc could continue appearing for years to come.
J&J maintains its baby powder is safe. Internal documents show officials knew about asbestos in J&J talc as early as the 1970s. J&J announced plans to stop all global sales of talc-based baby powder by 2023. It is unclear whether the company followed through with that plan.
What Does This Mean for Talc Plaintiffs?
The ruling effectively revives pending talc lawsuits. It may also open the door for new plaintiffs to file. If J&J appeals the decision, it may take some time for plaintiffs to see a resolution.