Johnson & Johnson $8.9B Talc Settlement In Jeopardy: Judge Dismisses Second Bankruptcy Attempt

A U.S. judge on Friday rejected Johnson & Johnson's JNJ second attempt to address tens of thousands of talc-related lawsuits through bankruptcy, threatening a proposed $8.9 billion settlement that would halt the filing of new lawsuits.

Judge Michael Kaplan, presiding over the U.S. Bankruptcy Court in Trenton, New Jersey, deemed that a second bankruptcy filing by J&J's subsidiary, like the first, should be dismissed as it didn't demonstrate immediate "financial distress" due to the talc lawsuits. 

Kaplan metaphorically stated, "This court smells smoke but does not see the fire," emphasizing the absence of immediate financial distress necessary for Chapter 11 protections.

Responding to the decision, Reuters reported, J&J pledged to appeal and defend against lawsuits it characterized as "specious and lack scientific merit."

J&J's first bankruptcy maneuver began in 2021 when it transferred its talc liabilities to a new company, LTL Management, and promptly filed for bankruptcy. The first filing was dismissed after a U.S. appeals court ruled in April that LTL was not in sufficient financial distress for bankruptcy protection.

In its second filing, LTL argued for more plaintiff support for a comprehensive settlement of current and future lawsuits alleging that J&J's talc products, including baby powder, contained asbestos and caused cancers.

However, J&J has insisted that its talc products are safe and asbestos-free.

LTL's bankruptcy proceedings have effectively paused the 38,000 lawsuits filed before October 2021. However, Kaplan allowed one case to go to trial during LTL's second bankruptcy, leading to a favorable $18.8 million verdict for a California man who claimed his cancer resulted from exposure to J&J's baby powder.

Price Action: JNJ shares are down 3.87% at $167.71 on the last check Monday.