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After appeals loss, Johnson & Johnson will take Texas two-step case to the US Supreme Court

Johnson & Johnson will do the two-step all the way to the U.S. Supreme Court.

After an unsuccessful bid to get its appeal reheard in the Third Circuit Court on Wednesday, the company said it will make one last appeal to the Supreme Court to legitimize its strategy to funnel more than 38,000 talc lawsuits into a company it created with the intent to declare it bankrupt.

J&J faces claims that its talcum products—including its iconic baby powder—cause cancer. After assigning the lawsuits to a subsidiary called LTL Management and filing for bankruptcy protection, J&J earmarked corporate funds for LTL to resolve the claims en masse.

“Today’s ruling ignores the facts established during the Bankruptcy Court’s trial regarding the appropriateness of LTL Management’s (LTL) formation and filing, as well as the company’s intention to efficiently resolve the cosmetic talc litigation for the benefit of all parties, including current and future claimants,” J&J said in a statement. “We will immediately move for a stay of this opinion so we can seek review directly from the U.S. Supreme Court.”

The company has maintained throughout the process that its talc products are safe and free of asbestos. J&J removed its baby powder from shelves in North America in 2020 and is stopping its sales worldwide this year. Instead, the company has shifted to a cornstarch version.

The legal ploy, known as the Texas two-step, has been used by companies to resolve asbestos lawsuits. J&J set up LTL in Texas in 2021 and moved it to North Carolina before making its bankruptcy claim. The tactic has frozen the lawsuits for 17 months.

In 2022, J&J made a $2 billion offer to resolve the cases, but a company lawyer at the time said the drugmaker could raise its offer.

More recently, the two-step maneuver began to unravel in January when the U.S. Circuit Court of Appeals in Philadelphia dismissed the case, ruling that J&J and LTL were not in “financial distress.”

Wednesday’s unanimous decision from a three-judge panel rejected LTL’s en banc appeal to rehear the case.

The court “rejected J&J’s greed-fueled attempt at abusing the bankruptcy system to trample of the rights of its victims,” Clay Thompson, a mesothelioma lawyer with the firm Maune Raichle Hartley French & Mudd, said in an emailed statement.

In the January ruling, Judge Thomas Ambro noted that J&J had over $400 billion in equity value, an AAA credit rating and $31 billion in cash and marketable securities. It also distributed more than $13 billion to shareholders in both 2020 and 2021.

“Our review petition raised significant concerns with the Third Circuit’s decision, both in how it applied the law to the facts of Judge [Michael] Kaplan’s ruling, as well as the impracticality of the Third Circuit’s new legal standard,” J&J said Wednesday. 

J&J has had mixed results in its talc litigation—winning some court battles, losing some and settling others. The most damaging loss came in Missouri in 2018, as more than 20 women were awarded $4.69 billion, a result which was later reduced to $2.1 billion after appeals. J&J took that case to the Supreme Court as well, getting its final rejection in 2021.