US court rejects J&J's talc bankruptcy deal

Shares in Johnson & Johnson have come under pressure amid reports that an appeals court in the US has rejected the bankruptcy petition filed by a new company it formed in 2021 to take over its talc-related liabilities.

A report in the Wall Street Journal says that the talc bankruptcy case was dismissed by the court because the company – called LTL Management LLC – was not in financial distress.

The creation of a company to absorb liability and file for bankruptcy – a move sometimes referred to as a 'Texas Two-Step' – is a controversial facet of US law as it can shield the original company from any claims or pay-outs.

Critics say it can allow them to sidestep legal and financial obligations, and could be adopted on a widespread basis by other large companies facing large-scale liability litigation.

J&J's talc liability has arisen from claims that its talc products – including the iconic Johnson's Baby Powder brand – contained asbestos and had caused cases of cancer. The company is facing around 40,000 legal cases claiming harm from the products, with the numbers both in and outside the US continuing to increase.

Last year, it said it will stop selling talc-based products globally in 2023, around two years after halting sales in the US and Canada, and move its worldwide production entirely to cornstarch-based versions.

J&J has claimed that the formation of LTL Management was a shortcut to resolving the litigation through the creation of a $2 billion trust to fund settlement of claims against it. It has pledged to challenge the appeals court ruling, but the decision weighed on its share price, which was down just under 4% at the time of writing.

The company has had a mixed record in defending itself in these lawsuits, winning some and losing others. In one notable case, the Missouri Court of Appeals awarded plaintiffs $2.1 billion in damages, albeit reduced from the $4.7 billion imposed by a lower court.

Efforts to take the complaint to the Missouri Supreme Court were blocked, and in June 2021 J&J paid the damages, which with interest, amounted to $2.5 billion.

"As we have said from the beginning of this process, resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders," J&J spokeswoman Allison Fennell told Reuters.

"We continue to stand behind the safety of Johnson's Baby Powder, which is safe, does not contain asbestos and does not cause cancer."