(Bloomberg) — Johnson & Johnson can no longer use bankruptcy to block a trial in California over claims its baby powder caused the deadly cancer of a 24-year-old man, a federal judge ruled Tuesday.
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The ruling is the first of its kind since an appeals court ordered the dismissal of a Chapter 11 bankruptcy case that the health-care giant had been using to stall about 40,000 cancer lawsuits. The appeals court ruling is temporarily on hold while J&J appeals, which means cancer victims must still get special permission to bring their cases to trial.
“The pendulum has swung” against J&J and its bankrupt unit, LTL Management, US Bankruptcy Judge Michael Kaplan, said during a hearing in Trenton, New Jersey. Previously, Kaplan had ruled that no trials should go forward because LTL had a reasonable chance of using bankruptcy to resolve all of the lawsuits at once, instead of fighting them one at a time around the country.
J&J had been using the Chapter 11 case of LTL to block the lawsuits while it tries to negotiate a settlement. People suing J&J allege that baby powder tainted with asbestos causes cancer, a claim the company has long denied.
Anthony Hernandez Valadez sued J&J last year after doctors discovered he had a malignant tumor. In June, Kaplan allowed Hernandez Valadez to file his lawsuit, but blocked him from moving forward with a trial while the bankruptcy case was still going on. On Tuesday, Kaplan ruled the suit can go to a jury once a judge in California says it is ready.
Hernandez Valadez’s illness “is terminal and he lives on borrowed time,” his lawyers said in a court filing.
On Monday, LTL asked the federal appeals court in Philadelphia to reconsider the decision by a three-judge panel to dismiss the bankruptcy case. LTL argued in court papers Monday that the entire bank of judges should consider letting the Chapter 11 case continue, along with the protection it grants J&J.
Should the appeals court refuse to reconsider the ruling to throw out the bankruptcy, LTL and J&J would have the option to ask the US Supreme Court to intervene. Once LTL and J&J run out of appeals, the bankruptcy would be dismissed and all 40,000 cases would begin to go to trial.
The companies are preparing a contingency plan in case they are forced to fight the lawsuits in court, LTL attorney Greg Gordon said in court Tuesday.
Last year, J&J used a legal maneuver to funnel about 40,000 cancer suits into LTL Management, which immediately filed for bankruptcy to block the litigation while trying to negotiate settlements. The strategy is known as the Texas Two Step because it involves setting up special units under Texas law, or similar statutes in states like Delaware, and then putting those entities into bankruptcy, where all lawsuits are typically put on hold.
The J&J bankruptcy case is LTL Management LLC, 21-30589, U.S. Bankruptcy Court, District of New Jersey (Trenton)
(Updates with details about the cancer lawsuit in fifth paragraph.)
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