Johnson & Johnson can't use bankruptcy to resolve more than 40,000 cancer lawsuits over its baby powder, a federal appeals court ruled.
The three-judge panel in Philadelphia sided with cancer victims, who argued the company wrongly put its specially created unit, LTL Management, under court protection to block juries around the country from hearing the lawsuits.
The ruling means Johnson & Johnson will likely need to defend itself against claims that tainted talc in its baby powder causes cancer. The company has lost a number of such cases -- including one that was appealed all the way to the U.S. Supreme Court, before Johnson & Johnson was forced to pay more than $2 billion to one group of victims.
The judges found that only companies directly threatened with financial troubles can use bankruptcy. Since Johnson & Johnson never claimed to be in immediate danger, the company can't benefit from Chapter 11 of the bankruptcy code by putting a unit under court protection, the judges found.
"Good intentions -- such as to protect the Johnson & Johnson brand or comprehensively resolve litigation -- do not suffice alone," to file for bankruptcy, Judge Thomas Ambro wrote. "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."
Johnson & Johnson will challenge the ruling, the company said in a statement. Its bankruptcy was filed in good faith to "equitably resolve" talc claims, the company said.
The company can now ask that all judges on the Philadelphia appeals court hear their appeal of the three-judge panel's decision. If denied, the company can also ask the U.S. Supreme Court to hear its arguments.
"The doors to the courthouse, which had been slammed shut by J&J's cynical legal strategy, are once again open," said Leigh O'Dell, a lawyer representing thousands of talc users whose claims have been consolidated in New Jersey for pretrial information exchanges.
Plaintiff lawyers will be scrambling to get talc suits back on trial dockets across the United States in the wake of the appeals court's ruling, O'Dell said.