A U.S. appeals court recently rejected Johnson & Johnson’s third attempt to address thousands of cancer lawsuits by placing a shell company into bankruptcy. The 3rd U.S. Circuit Court of Appeals ruled that J&J’s tactic failed because the company did not demonstrate genuine “financial distress,” a key requirement for bankruptcy protection.
Despite J&J’s ongoing claims that their talc products, including the iconic Johnson’s Baby Powder, are safe and asbestos-free, the company is seeking to settle lawsuits from approximately 61,000 claimants. J&J’s strategy involves getting 75% of these claimants to agree to a settlement plan, after which the company plans to use a shell entity to file for bankruptcy.
The court’s decision highlighted that J&J’s earlier attempt to use bankruptcy to shield itself from lawsuits was rightfully dismissed. The company had argued that the potential financial impact of the lawsuits justified their bankruptcy approach, but the court found this reasoning speculative.
J&J plans to appeal the decision to the U.S. Supreme Court. Meanwhile, the company remains hopeful that it will secure enough votes to proceed with its latest settlement proposal. However, legal experts caution that even if J&J garners sufficient support, the plan may still face significant challenges. The recent Supreme Court ruling in Purdue Pharma’s bankruptcy case and proposed legislation targeting the “Texas two-step” maneuver J&J used could complicate their efforts.
The “Texas two-step” involves dividing a company into two entities, with one inheriting liabilities like lawsuits and then filing for bankruptcy, while the other retains assets. This strategy has come under scrutiny for potentially allowing companies to evade accountability for damages.
As J&J navigates these legal waters, the outcome of this complex case could set a precedent for how large corporations handle mass-tort litigations in the future.
