Talc Claimants Committee Prevails in Third Circuit Against J&J’s Bid to Revive ‘Texas Two-Step’ Bankruptcy Case

In another victory for the Official Committee of Talc Claimants (the TCC), the U.S. Court of Appeals for the Third Circuit Court denied Johnson & Johnson (J&J) subsidiary LTL Management's bid to revive its controversial bankruptcy case.

On March 22, the Third Circuit, in a two-page ruling, unanimously rejected LTL's request for another three-judge panel hearing or a rehearing by the entire court. The denial upholds the court's Jan. 30 groundbreaking decision granting the TCC's motion to dismiss the Chapter 11 case for its "lack of good faith."

Brown Rudnick acts as co-lead counsel to the TCC, which represents more than 38,000 mesothelioma and ovarian cancer victims who sued J&J over its talc-related products, including baby powder, for allegedly causing sickness and death from one or more ingredients, including asbestos.

"The Talc Claimants Committee is pleased with the Third Circuit's order denying debtor's petition for rehearing and rehearing en banc," said Partner David Molton, who leads the Brown Rudnick team. "We view it as no surprise that the thorough and well-reasoned unanimous panel decision authored by Third Circuit Judge Ambro, who is known to have expertise in bankruptcy matters, was sustained by a unanimous vote of the Third Circuit Judges. The Third Circuit's order brings victims of J&J's talc products one step closer to getting justice and having their day in court before juries of their peers."

J&J said it would take its appeal to the Supreme Court in a last attempt to legitimize its "Texas two-step" strategy that attempted to funnel more than 38,000 talc lawsuits into a company it created with the intent to declare it bankrupt.

After years of defending against those lawsuits, J&J was forced in 2017 to disclose internal documents revealing that it knew all along that its products contained asbestos. Since then, juries have awarded plaintiffs massive judgements against J&J, including one award for billions in punitive damages. Jury verdicts against J&J exceed $3 billion.

In February 2022, Brown Rudnick led the trial team's effort to have the LTL bankruptcy case dismissed for bad faith. After the TCC's motion was denied by a New Jersey bankruptcy court, Brown Rudnick led the application pursuant to which the Third Circuit granted the TCC's request for direct appeal from the bankruptcy court's dismissal decision and then played a key role in the appellate team that earned the reversal.

In the Jan. 30 decision reversing the bankruptcy court's approval of J&J's Chapter 11 filing, a three-judge panel of the Third Circuit held that in Chapter 11 filings, financial distress must not only be apparent, but it must be immediate enough to justify a filing, because absent financial distress, there is no reason for Chapter 11 and no valid bankruptcy purpose.

Brown Rudnick's success in this matter helped the Firm win Law360's 2022 "Practice Group of the Year" awards in the Bankruptcy and Trials categories.

In addition to Molton, the Brown Rudnick team also includes Robert Stark, Sunni Beville, Shari Dwoskin, Andrew Carty, Cathrine Castaldi, Ronald Rus, Eric Goodman, Gerard Cicero, Susan Sieger-Grimm, Matt Sawyer and Michael Reining. Jeff Jonas and Mike Winograd led the trial team, which included Ken Aulet and W. Lydell Benson. Mike Winograd and Marek Krzyzowski co-led and Michael Reining played a key role on the appellate team.