Johnson & Johnson (NYSE:JNJ) is facing a setback in its talc-related lawsuits, as U.S. Bankruptcy Judge Michael Kaplan has indicated he intends to dismiss the company’s Chapter 11 case if the U.S appeals court does not agree to reconsider its decision to reject the company’s strategic Texas two-step attempt. This news may cause Johnson & Johnson’s bankruptcy proceedings to cease, potentially leading to more talcum powder lawsuits pouring in.

Fast Facts About JNJ & Its Talcum Powder Lawsuit

1.  Johnson & Johnson’s subsidiary, LTL Management, filed for bankruptcy in October 2021 in an attempt to offload talc-related lawsuits.
2. The bankruptcy case is currently on hold, pending a decision from the 3rd U.S. Circuit Court of Appeals on whether it should be dismissed.
3. If the 3rd Circuit denies the request to reconsider its decision, U.S. Bankruptcy Judge Michael Kaplan intends to dismiss the case within days.
4. The talc-related lawsuits allege that Johnson & Johnson’s Baby Powder and other cosmetic products containing talc cause cancer.
5. Johnson & Johnson maintains that its talc products are safe.
6. The 3rd Circuit’s ruling has cast a cloud over J&J’s use of a maneuver known as the Texas two-step, which was used to carve its consumer business into two new subsidiaries.
7. A 2018 Reuters investigation found that J&J knew for decades that asbestos, a known carcinogen, was present in its Baby Powder and other cosmetic talc products.
8. Johnson & Johnson has decided to stop selling talc-based Baby Powder globally starting this year.
9. The company has denied its talc contains asbestos.
10. U.S. Bankruptcy Judge Michael Kaplan has granted a 24-year-old plaintiff’s request to allow his case to proceed in California in the wake of the 3rd Circuit’s decision.

Johnson & Johnson’s LTL Management Asks For Reconsideration

The 3rd Circuit panel ruled that LTL Management had no legitimate claim to Chapter 11 protection because it did not face financial distress, as JNJ has a market capitalization well into the hundreds of billions. LTL asked the full 3rd Circuit late on Monday to reconsider the panel’s decision. If the 3rd Circuit denies that request, Kaplan could dismiss the case within days.

During Tuesday’s hearing, Kaplan granted a 24-year-old plaintiff’s request to allow his case to proceed in California, saying that the pendulum had swung and that a trial for the terminally ill plaintiff should no longer be indefinitely halted because it could threaten JNJ’s bankruptcy reorganization.

The dismissal of LTL’s bankruptcy case would force J&J back into trial courts to defend against nearly 40,000 lawsuits alleging the company’s Baby Powder and Shower to Shower products cause cancer. JNJ maintains its talc products are safe.

The decision more broadly can pump the breaks on JNJ’s use of the Texas two-step strategy, which involved offloading tens of thousands of talc cases onto one of its newly created unit which then declared bankruptcy.

A Reuters investigation found that J&J knew that asbestos was present in its talcum powder products for decades. The company said in May 2020 it would stop selling talc-based Baby Powder in the United States and Canada and later decided to stop selling talc-based Baby Powder globally in 2023.

It remains to be seen what will happen in this case, but Judge Kaplan has indicated he intends to dismiss the case unless a U.S appeals court agrees to reconsider its decision.