J&J’s Attempt to Force Baby Powder Cancer Settlements Through U.S. Bankruptcy System Rejected For Second Time

For the second time this year, a federal court has dismissed the bankruptcy filing of a Johnson & Johnson subsidiary, which was created solely for the purpose of forcing plaintiffs to accept Baby Power cancer settlements that would only pay a small portion of the damages a jury may award at trial.

Over the last several years, Johnson & Johnson has faced tens of thousands of Johnson’s Baby Powder lawsuit and Shower-to-Shower lawsuit, each involving similar allegations that asbestos particles in the talcum powder products caused users to develop ovarian cancer, mesothelioma and other injuries.

Following a series of massive jury verdicts returned in early trials, the company attempted to pursue a controversial bankruptcy scheme last year, by transferring all liability it faced in the litigation to a newly created subsidiary, LTL Management, LLC, which then immediately filed for bankruptcy.

The Third Circuit Court of Appeals rejected that bankruptcy filing in March 2023, finding that Johnson & Johnson has sufficient assets to cover the liability faced by its newly created subsidiary. However, Johnson & Johnson then immediately initiated a second bankruptcy filing as part of a proposed $8.9 billion Baby Powder cancer settlement fund, which would require all current and future claims to be pursued through the U.S. bankruptcy system.

The proposed bankruptcy settlement was widely criticized by plaintiffs who had been litigating their claims for years, indicating it failed to provide adequate compensation for injuries caused by Johnson & Johnson’s failure to warn about the talcum powder cancer risks, and was an improper use of the bankruptcy process.

Federal Judge Rejects Second J&J Baby Powder Bankruptcy Filing

In a memorandum opinion (PDF), U.S. Bankruptcy Judge Michael B. Kaplan rejected the second filing, and dismissed the bankruptcy proceeding once again, indicating that it was “filed in bad faith.”

Judge Kaplan determined that the wholly owned Johnson & Johnson subsidiary LTL Management still does not face any imminent or immediate financial distress, and failed meet the criteria set forth by the Third Circuit’s previous ruling, since Johnson & Johnson has enough financial resources to fairly resolve the litigation without restricting compensation to plaintiffs through a bankruptcy filing.

“The Third Circuit mandated that [LTL Management’s] financial distress must be ‘immediate’, ‘imminent’ and ‘apparent’; the Circuit further advanced that ‘an attenuated possibility of standing alone’ regarding a bankruptcy filing does not establish good faith,” wrote Judge Kaplan in the order. “One can view the Third Circuit’s ruling as being somewhat at odds with a pro-active approach to trouble. When one smells smoke, the wise course of action is to get out of the house and call for help. However, as it stands now, in gauging financial distress, observing smoke may not be enough – one must see flames.”

While Judge Kaplan outlined the substantial jury verdicts that have been returned in cases that have reached trial, he determined that any notion of current financial distress for LTL Management is eliminated by the “funding backstop” contractually provided by Johnson & Johnson, which has significant cash holdings, anticipated annual dividends and equity interests that have a value approaching $30 billion.

“In sum, this Court smells smoke, but does not see the fire,” Judge Kaplan concluded, in deciding to dismiss the latest bankruptcy filing. However, the Court urged the parties to continue to work on reaching a global Baby Powder cancer settlement that may resolve cases outside of the bankruptcy system, which would likely be one of the largest settlements of personal injury claims in U.S. hostory.

Johnson & Johnson has already pledged to appeal the decision in a press release issued on the same day as Judge Kaplan’s ruling, which may further delay resolution to the long-running litigation yet again.