BREAKING NEWS! The United States Third Circuit Court of Appeals dismissed Johnson &Johnson’s (“J&J”) controversial bankruptcy petition, finding that the company was not a debtor in “financial distress when it sought Chapter 11 protection.”
As you will recall from previous correspondence, in October 2021, J&J utilized a controversial bankruptcy maneuver to create a new entity, LTL Management, LLC, to house all liability associated with its talcum powders. LTL Management then filed for Chapter 11 bankruptcy, which is a form of bankruptcy that involves the reorganization of the business affairs, debts, and assets. J&J employed this maneuver in an attempt to minimize the amount they will pay claimants.
The Talc Claimants’ Committee (the “Committee”) moved to dismiss this bankruptcy case as a bad faith filing that served only to shield the assets of J&J from recovery. The Committee represents the interests of individuals, like you, who have sued J&J alleging that their talc-based products cause cancer. The dismissal motions were heard in February, 2022 and the bankruptcy court denied the committees’ Motion to Dismiss, which allowed LTL Management’s bankruptcy to proceed. The Committee then appealed this ruling to the Third Circuit Court of Appeals, which ultimately instructed the lower court to dismiss LTL Management’s bankruptcy petition. As you will recall, while these appeals have been pending, the talcum powder litigation was stayed, meaning no new cases could be filed and existing cases were put on hold.
In dismissing J&J’s petition, the Third Circuit emphasized the irony of LTL Management’s petition for bankruptcy, finding that J&J’s triple A-rated payment obligation for LTL Management’s liabilities weakened its bankruptcy case. In other words, the Third Circuit found that “the bigger a backstop a parent company provides a subsidiary, the less fit that subsidiary is to file [for bankruptcy]. But when the backstop provides ample financial support to a debtor who then seeks shelter in a system designed to protect those without it, we see this perceived incongruity dispelled.”
This long-awaited decision comes after many months of J&J’s attempt to bypass the court system in order to gain a financial and litigation advantage. Fortunately, J&J’s attempt to slam the courthouse doors shut on victims of talcum powder users was stopped. When this news broke, J&J’s stock dropped 3.7%, which is the biggest one-day percentage decline in two years for the company.
WHAT’S NEXT? J&J has stated that the company will appeal the Third Circuit’s decision. While this appeal is pending, all litigation against J&J and LTL Management remains stayed. This appeals process will likely take several months. Once the appeals process is exhausted, assuming the company loses on appeal and the bankruptcy is ultimately dismissed, the stay will be lifted. This means that cases can resume being filed and the talcum powder litigation will proceed. Again, however, the stay will remain in place, halting all talcum powder litigation, pending the outcome of J&J’s appeal.
In the meantime, The Smith Law Firm is prepared to proceed with its talcum powder litigation once the stay is lifted, assuming J&J’s appeal is unsuccessful. We stand ready to fight for you and will continue working towards resolving your claim. We ask that you remain responsive to our requests for information so that we can put your case in the best position possible for success. Thank you for your patience throughout this process and for trusting The Smith Law Firm with your case. We appreciate the opportunity to represent you!