Johnson & Johnson subsidiary loses US bankruptcy bid
A US federal appeals court in Philadelphia has denied pharma giant Johnson & Johnson’s (J&J) subsidiary’s bankruptcy petition, which aimed to transfer thousands of legal claims against its subsidiary LTL management regarding the claim that its talcum powder causes cancer.
The three-judge panel ruled in favour of the cancer victims who stated that J&J wrongly put LTL management into bankruptcy, allowing it court protection, so courts were unable to hear the 40,000 claims against it.
This method has been called the ‘Texas Two-Step Bankruptcies’, where companies create a subsidiary to absorb the liabilities then file under Chapter 11 for bankruptcy. J&J is one of four giant companies to try to use this method.
J&J has already lost a number of similar cases, including one that was escalated to the Supreme Court and ended with J&J paying more that $2bn to one group of victims. Following this most recent loss, J&J will potentially have to pay further huge sums in court fees and payouts to claimants.
Judge Thomas Ambro wrote, ‘Good intentions ‒ such as to protect the Johnson & Johnson brand or comprehensively resolve litigation ‒ do not suffice alone [to file for bankruptcy]. What counts to access the Bankruptcy Code’s safe harbour is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus, we dismiss its petition.’
J&J has said it will appeal the ruling, and that its bankruptcy was filed in good faith to “equitably resolve” the talcum powder claims. This appeal will first go to a full panel at the Philadelphia appeals court, and will then be escalated to the Supreme Court if an agreement cannot be reached.
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