Federal Appeals Court Rejects J&J Texas Two-Step Maneuver In Huge Victory For Plaintiffs Harmed By J&J Baby Powder

 In a huge victory for individuals grievously harmed by Johnson & Johnson baby powder, the Circuit Court of Appeals for the Third Circuit roundly rejected Johnson & Johnson’s attempt to shovel all 38,000 cases into a brand-new subsidiary which then, within hours of creation, declared bankruptcy.  In strong language, the federal appeals court found that the JNJ/LTL petition “has no valid bankruptcy purpose” and dismissed the bankruptcy in its entirety, reversing a ruling by a lower bankruptcy court. 

The dismissal of the LTL bankruptcy now allows plaintiffs harmed by J&J’s consumer products to continue pursuing justice before a jury trial of their peers, a right afforded them by the United States Constitution.

Brian A. Glasser, founding partner of the national law firm Bailey & Glasser, LLP, was co-lead counsel to the trial team vindicated by the appeals court.  Mr. Glasser states today: “J&J has no special right to put talc victims in a bankruptcy box. It now has to face these claims in front of juries around the nation.

Specifically, Mr. Glasser argued at trial that Johnson & Johnson’s choice of bankruptcy as means to control its liabilities costs was invalid because “LTL was never in financial distress during its brief existence” because the phantom subsidiary was “eminently solvent” as it enjoyed access to more than $60 billion in  Johnson & Johnson funds. 

The Third Circuit agreed with Mr. Glasser in its opinion, finding that “we cannot agree LTL was in financial distress when it filed its Chapter 11 petition. The value and quality of its assets, which include a roughly $61.5 billion payment against J&J and New Consumer, makes this holding untenable.” (Emphasis added).

The Court also noted what the plaintiffs argued was bad faith in this bankruptcy filing, writing pointedly in a footnote (emphasis added):

“[b]ecause we conclude LTL’s petition has no valid bankruptcy purpose, we need not ask whether it was filed “merely to obtain a tactical litigation advantage.” BEPCO, 589 F.3d at 618. Yet it is clear LTL’s bankruptcy filing aimed to beat back talc litigation in trial courts. Still “[i]t is not bad faith to seek to gain an advantage from declaring bankruptcy—why else would one declare it?” James Wilson Assoc., 965 F.2d at 170. While we ultimately leave the question unaddressed, a filing to change the forum of litigation where there is no financial distress raises, as it did in SGL Carbon, the specter of “abuse which must be guarded against to protect the integrity of the bankruptcy system.” 200 F.3d at 169.

“Justice was served today,” added Brian Glasser. “These injured consumers are entitled to their day in court and do not deserve to have a multi-billion-dollar company attempt to crush them by manipulating the bankruptcy code. We are grateful the Third Circuit saw through these sham litigation tactics that, unfortunately, are being used by additional corporate behemoths like 3M and others.”

The Bailey Glasser JNJ/LTL trial team included Brian Glasser, and partners Cary Joshi, Kevin Barrett, The Hon. Tom Bennett (Ret.), David Selby, D. Todd Mathews, John Turner, Robert Bell, and Katherine Charonko, as well as associate Elliott McGraw.

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