A federal appeals court has agreed to review Johnson & Johnson’s use of a bankruptcy tactic to shift into chapter 11 mass litigation that alleges the company’s talc-based baby powder caused cancer, the Wall Street Journal reported. The U.S. Court of Appeals for the Third Circuit yesterday granted requests by talc injury claimants for an immediate review of an emerging strategy used by J&J and a handful of other large, solvent companies to freeze roughly a quarter of a million injury lawsuits through bankruptcy. The appeal stems from a February ruling by Judge Michael Kaplan of the U.S. Bankruptcy Court in Trenton, N.J., declining to throw out the chapter 11 case of LTL Management LLC, a newly formed J&J subsidiary created to carry talc-related liabilities into chapter 11. Judge Kaplan agreed with J&J that the bankruptcy case was filed for a valid purpose, saying that chapter 11 provides cancer victims with a fairer and more efficient forum to receive compensation than the civil jury system. Injury claimants argued that J&J’s strategy isn’t permitted by the bankruptcy code and have sought to overturn Judge Kaplan’s ruling through an appeal. The ruling kept roughly 38,000 talc injury lawsuits paused in bankruptcy, aiding J&J’s efforts to settle current and future claims alleging its talc-based baby powder caused cancer, which the company denies. Despite allowing the bankruptcy case to proceed, Judge Kaplan said in March that the Third Circuit should review his decision as soon as possible. To access bankruptcy, J&J used a Texas law to fill the LTL subsidiary with talc-related liabilities and limited business operations before it filed chapter 11.
