Thousands of women and family members whose talc-related legal cases against healthcare giant Johnson & Johnson (J&J) have been on hold for more than a year can move forward now, following a ruling on Jan. 30, 2023, by the U.S. Court of Appeals for the Third Circuit. The controversial J&J bankruptcy ploy was returned to the lower court with the instruction to dismiss.
In its ruling, a tremendous victory for victims seeking fairness and justice, the court found that the bankruptcy of J&J’s shell subsidiary, LTL, was not filed in good faith, that LTL was not in financial distress deserving bankruptcy protection, and that the bankruptcy petition should be dismissed. This decision, requiring dismissal of the bankruptcy case, will void the injunctive stay that had put some 38,000 legal cases on hold while the healthcare giant pursued a strategy centered around bankruptcy.
The opinion dismantles the federal bankruptcy court rulings supporting the injunction and will allow plaintiffs to move forward with lawsuits alleging that the company knew for years that its Johnson’s Baby Powder and Shower to Shower products were contaminated with carcinogenic asbestos. Evidence produced during years of trials shows the company repeatedly denied or covered up the scientific evidence of the association of the product to ovarian cancer.
The injunction, issued in November 2021, had stopped all litigation based on J&J’s use of a bankruptcy strategy known as the “Texas Two-step” to consolidate all talc litigation liabilities in a shell corporation, protecting billions of dollars in assets of its consumer division and corporate parent. While today’s ruling was critical of the strategy, the court remanded the case to federal bankruptcy court in New Jersey for dismissal.
Leigh O’Dell, Co-Lead Counsel in the talcum powder MDL and a member of the Beasley Allen team, had this to say:
This ruling clearly upholds the Seventh Amendment’s right to a jury trial and confirms that every individual has the right to pursue a claim through the tort system.
Ted Meadows, another Beasley Allen team member who has tried more talcum powder-ovarian cancer cases than anyone in the country, remarked:
With the bankruptcy to be dismissed and the resulting stay lifted, we will immediately seek to efficiently schedule and conduct trials in state and federal courts and establish the liability of Johnson & Johnson for the deaths and disease suffered by thousands of women.
In addition to removing the litigation stay, the bankruptcy’s dismissal is expected to thwart J&J’s latest attempts to discredit plaintiffs’ expert witnesses. In December and January, LTL utilized bankruptcy procedures to file complaints in adversary proceedings against four plaintiffs’ expert witnesses who testified in support of claims against J&J’s cosmetic talc products. These experts all withstood Daubert challenges where courts validated their scientific methodology, and all have an extensive number of peer-reviewed scientific publications. Generally, experts are protected against civil and criminal liability with a few carve-outs by state laws. In part, this immunity is to prevent intimidation by the opposing party that would result in a chilling effect on the willingness of experts to testify.
The “Texas Two-Step” strategy has raised eyebrows in Congress, where representatives have begun discussing potential changes to the bankruptcy laws that would prevent this sort of legal strategy and the associated consumer harm in future cases.
Earlier this year, Johnson & Johnson announced a halt to future sales and distribution of talc-based products worldwide, citing the legal claims brought by ovarian cancer and mesothelioma victims. Numerous scientific studies spanning decades have established the carcinogenic effects of cosmetic talc, while U.S. and Canadian governmental regulators have called for enhanced testing techniques for products containing the mineral, particularly after independent testing by the U.S. Food & Drug Administration revealed asbestos in consumer samples of talc-based powders.