A US appeals court has dismissed a bankruptcy petition filed by a unit of Johnson & Johnson, upending the healthcare company’s attempt to resolve billions of dollars of legal claims from customers alleging its talcum powder caused cancer.
The Third US Circuit Court of Appeals on Monday said it had dismissed the bankruptcy filing of J&J’s division LTL management, preventing the company from shifting thousands of legal claims out of trial courts and into the bankruptcy system.
J&J had deployed a legal manoeuvre called the “Texas two-step” to divide the company into two separate businesses before placing one of them, which is facing more than 40,000 cancer claims, into bankruptcy. The company said this would lead to a more “efficient” and “equitable” resolution.
But the court ruled that only companies facing financial stress can call on the bankruptcy system to help with restructuring. “While LTL faces substantial future talc liability, its funding backstop plainly mitigates any financial distress,” said the court ruling.
Shares of J&J, which has a market valuation of more than $425bn, fell 3 per cent after the ruling, while 3M, which is pursuing a similar strategy to resolve lawsuits related to its earplugs, lost 1.5 per cent.
J&J said it would appeal against the decision.
“Resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders,” J&J said. “We continue to stand behind the safety of Johnson’s Baby Powder, which is safe, does not contain asbestos and does not cause cancer.”
Source: Financial Times