Johnson & Johnson’s Bankruptcy Filing Thwarted by the U.S. Third Circuit Court 

In a landmark decision, the U.S. Third Circuit Court of Appeals has dealt a major blow to Johnson & Johnson’s controversial attempt to shield itself from thousands of talcum powder lawsuits. On January 30, the Third Circuit Court rejected Johnson & Johnson’s years-long effort to file for Chapter 11 bankruptcy protection through its newly created subsidiary, LTL Management.

In 2021, J&J used its new subsidiary to file for bankruptcy, aiming to pause proceedings for over 40,000 talcum powder lawsuits, settle the remaining cases collectively through bankruptcy court, and prevent future lawsuits from being filed. U.S. Bankruptcy Judge Michael Kaplan is expected to dismiss the case once the Third Circuit panel gives the signal to move forward. Shortly after the announcement, J&J released a statement declaring its intention to appeal the decision.

To successfully file for bankruptcy, J&J used a legally controversial strategy known as the “Texas-Two Step” to split itself into two companies and then file LTL Management for Chapter 11. Under Texas state law, businesses based in Texas can divide themselves into separate entities through a divisional merger. This strategy has been criticized for allowing companies to avoid accountability for their liabilities.

By completing a divisional merger in Texas, Johnson & Johnson formed LTL Management, transferred its liabilities (including thousands of talcum powder lawsuits) to the new subsidiary, and then filed LTL Management for bankruptcy to take advantage of the automatic stay provided by bankruptcy law.

Once the automatic stay for LTL Management took effect, anyone to whom J&J still owed money became blocked from collecting any further debts from LTL Management, effectively halting J&J’s remaining talcum powder lawsuits. After successfully freezing its ongoing lawsuits, J&J sought to utilize bankruptcy law to establish a settlement trust, which would allow it to resolve all remaining talcum powder lawsuits with one large settlement and prevent new claims from being filed.

Although major companies have attempted the “Texas-Two Step” before, this was the first time the strategy was rejected in such a high-stakes case. The three-judge panel emphasized the importance of good faith in its decision, asserting that only individuals or companies in genuine financial distress could benefit from the protections offered by bankruptcy law.

“We start, and stay, with good faith,” the Third Circuit said in its court opinion. “Good intentions— such as to protect the J&J brand or comprehensively resolve litigation—do not suffice alone. What counts to access the Bankruptcy Code’s safe harbor is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus we dismiss its petition.”

The Third Circuit Court’s decision is a victory for the tens of thousands of plaintiffs seeking justice in the talcum powder lawsuits. It ensures that their claims can proceed through the legal system, and that Johnson & Johnson will have to face the music and pay up when it comes to settling cases.

With the remaining talcum powder lawsuits able to resume, now’s the time to join the lawsuit against Johnson & Johnson. If you or an immediate family member developed ovarian cancer after using Johnson & Johnson’s talcum powder, see if you qualify to receive compensation today.