Judge allows expedited appeal of J&J’s talc bankruptcy strategy

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A bottle of Johnson and Johnson Baby Powder is seen in a photo illustration taken in New York, February 24, 2016. REUTERS/Shannon Stapleton/Illustration

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A U.S. bankruptcy judge on Wednesday granted an expedited appeal of his order that allowed Johnson & Johnson to use the bankruptcy system to try to resolve multibillion-dollar litigation claiming its talc products cause cancer.

Last month, Judge Michael Kaplan ruled that the Chapter 11 filing by a J&J subsidiary was not an abuse of the bankruptcy system. On Wednesday, he allowed cancer plaintiffs to challenge that ruling directly in the 3rd U.S. Circuit Court of Appeals, fast-tracking a dispute that has drawn attention and criticism from lawmakers.

"Clearly, this impacts decisions and potential restructurings beyond what's being litigated in this court," Kaplan said Wednesday.

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J&J used a "Texas two-step," which allows companies to split valuable assets from liabilities through a so-called divisive merger. In October, J&J, which maintains its talc products are safe, put the claims into a newly created entity called LTL Management LLC, which filed for bankruptcy days later.

Kaplan said that the bankruptcy would provide a quicker and fair alternative to jury trials for resolving 38,000 individual lawsuits. But critics, like Senator Sheldon Whitehouse of Rhode Island, called the bankruptcy maneuver "a blot on our legal system" that allows wealthy companies to avoid facing victims in court.

LTL had opposed a fast-track appeal, and asked for the dispute to first be heard in a U.S. District Court. Kaplan rejected that, saying an interim appeal "doesn't serve any purpose" and would delay the ultimate resolution of the case.

Kaplan also ruled Wednesday that talc plaintiffs should be represented by just one official committee in the bankruptcy case. Attorneys representing mesothelioma patients had argued that there should be separate committees to represent ovarian cancer plaintiffs and mesothelioma plaintiffs.

In the 38,000 cases that drove J&J to place LTL into bankruptcy, plaintiffs had alleged that J&J's talc-based products contained asbestos and caused ovarian cancer and mesothelioma, a type of cancer linked to asbestos exposure.

J&J denies the allegations, saying decades of scientific testing and regulatory approvals have shown its talc to be safe and asbestos-free.

Before the bankruptcy filing, the company faced costs from $3.5 billion in verdicts and settlements, including one in which 22 women were awarded a judgment of more than $2 billion, according to bankruptcy court records.

The case is LTL Management LLC, U.S. Bankruptcy Court for the District of New Jersey, No. 21-30589.

For the LTL: Greg Gordon of Jones Day

For Talc Claimants Committee I: David Molton of Brown Rudnick; Melanie Cyganowski of Otterbourg; Daniel Stolz of Genova Burns; Brian Glasser of Bailey & Glasser; Lenard Parkins of Parkins Lee & Rubio; and Jonathan Massey of Massey & Gail

For Talc Claimants Committee II: Cullen Speckhart of Cooley

Read more:

Johnson & Johnson defends talc bankruptcy strategy called 'rotten' by cancer plaintiffs

Judge greenlights J&J strategy to resolve talc lawsuits in bankruptcy court

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