J&J Bankruptcy Ploy Upheld By NJ Court

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A New Jersey bankruptcy court has upheld Johnson & Johnson's (JNJ) bankruptcy claim to handle the infamous talcum powder fiasco. The company is currently battling around 40 thousand lawsuits against its now-discontinued talcum powder which has allegedly caused ovarian cancers to thousand of women during its decades of production.

Judge Michael Kaplan of the U.S. Bankruptcy Court in Trenton, N.J., has ruled that LTL Management, a subsidiary of the mother company created to handle the lawsuit alone, is right in the chapter 11 filing and deems that this is the only way the company can get out of the mud. This type of legal maneuver is called the "Texas two-step" strategy where a bigger entity creates a smaller subsidiary to be the metaphorical scapegoat of a large mishandling and then files for bankruptcy to evade a huge payout.

However, the claimants had argued that the strategy is an unjust move pulled off by the company to strip the sufferers of their legal rights. The judge ruled that the claimants' legal team has failed to show that the move was made in "bad faith", therefore legitimizing the bankruptcy ploy.

J&J has proposed a $2 billion settlement for the case, much less than what the company would've had to pay if the strategy were not granted by the court. The company, claiming that the talc is not harmful, said that the litigation of the deluge of cases would cost the company $190 billion. "We continue to stand behind the safety of Johnson's Baby Powder, which is safe, does not contain asbestos and does not cause cancer," said J&J.

"Given that this determination is limited to the unique facts of the case presently before the court, this ruling will not open the floodgates to an unchecked, unregulated, or inherently abusive method of addressing liability," Judge Kaplan said in the ruling.

The original verdict of $4.7 billion was awarded by a Missouri jury in 2018 after 22 women blamed Johnson and Johnson for using asbestos in their talcum powders and baby products, which has led to their ovarian cancer.

While the amount of the verdict was reduced to $2.14 billion, the present amount is going to stay unchanged as the company is entangled in 21,800 cases regarding the same issue. The company said that it has already rolled back the baby-powders due to the allegations and has been facing a drop in demand due to the filings.

Earlier last year, the SC rejected to even consider the company's argument and just turned over the file with other cases it didn't want to talk about.

"The bankruptcy code was never intended to be abused in this way by massively profitable corporations as a means to delay or prevent cancer victims from having their day in court," said Jon Ruckdeschel, an attorney for the complainants.

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