U.S. Court of Appeals for 3rd Circuit latest to reject unprecedented bankruptcy strategy

Lawyers on behalf of tens of thousands of ovarian cancer victims are calling on Johnson & Johnson (NYSE: JNJ) to end its “war of attrition against cancer victims.”

“The third time will not be the charm for J&J,” says Andy Birchfield, head of the Mass Torts Litigation Section at the Beasley Allen Law Firm, who has been instrumental in helping to foil the first two attempts at bankruptcy by the half-trillion-dollar company. “Recent developments in the courts and in Congress should convince J&J to abandon its strategy and act as a responsible corporation by providing truly fair and reasonable compensation in a non-coercive resolution.”

On Thursday, the U.S. Court of Appeals for the 3^rd Circuit reinforced an earlier ruling that J&J could not stash its talc liabilities in a shell subsidiary and then plunge it into bankruptcy to stymie thousands of lawsuits alleging that its talc products caused ovarian cancer and mesothelioma. The court found the bankruptcy was filed in bad faith because the subsidiary, LTL Management, LLC, was not in financial distress.

Earlier this week, a bipartisan group of congressional lawmakers led by Sen. Josh Hawley (R-MO) and Sen. Sheldon Whitehouse (D-RI) introduced legislation to ban the Texas Two-Step. The Ending Corporate Bankruptcy Abuse Act (ECBA) of 2024 would deter the Texas Two-Step and ensure injury victims have a chance to be heard in court. The ECBA would instruct courts to presume a bankruptcy has been filed in bad faith if it is a Texas Two-Step bankruptcy.

“Johnson & Johnson has brought this legislative action upon itself by flouting the law and arrogantly pushing a failed strategy,” says Leigh O’Dell, co-lead counsel for consolidated multidistrict litigation. “The courts and Congress are saying that J&J is not entitled to use the powerful tools of bankruptcy to strip away the rights of cancer victims.”

Friday July 26 is the deadline for talc claimants to approve or reject a third J&J bankruptcy attempt. A settlement plan aimed at ending the litigation must receive 75% of all votes before the company can proceed with another Texas Two-Step maneuver and bankruptcy filing, this time in Texas. Opponents of the plan say that proposed compensation unfairly shortchanges victims and their families, many who have died or suffered for a decade or more.

“For J&J to lose this vote would be akin to Vladimir Putin losing a Russian election,” says Mr. Birchfield. “J&J controls the ballot. J&J determines who can vote and all the rules for voting. J&J controls the agent that counts the ballots and determines which votes will be counted and which ones will be discarded. And this is all done without court supervision.

“However, there is a vast difference between winning the vote through ballot stuffing and succeeding with a bankruptcy plan. This will be J&J’s third attempt to use bankruptcy to shirk its responsibility for its asbestos-laden talc-based baby powder. The egregiousness of J&J’s scheme to use bankruptcy to evade accountability and cap its liability has prompted bipartisan congressional action with a bill that would curb the abuse of J&J’s Texas Two Step.”

Beasley Allen is one of the country’s leading civil litigation firms, holding several national records for verdicts and settlements.

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