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Johnson & Johnson unit loses bid to stay in bankruptcy during Supreme Court appeal

By Dietrich Knauth

(Reuters) -A Johnson & Johnson company cannot delay a court order dismissing its bankruptcy, a U.S. court said on Friday, despite the company's planned Supreme Court appeal to use bankruptcy to resolve tens of thousands of lawsuits over its talc products.

J&J sought to use the bankruptcy of its subsidiary company, LTL Management, to halt more than 38,000 lawsuits alleging the company's Baby Powder and other talc products are contaminated with asbestos. J&J maintains its consumer talc products are safe and asbestos-free.

The bankruptcy strategy stumbled in January, when the 3rd U.S. Circuit Court of Appeals based in Philadelphia ruled that neither LTL nor J&J had a legitimate need for bankruptcy protection because they were not in "financial distress."

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LTL asked the 3rd Circuit to delay its ruling from taking effect and give the company time to pursue a U.S. Supreme Court appeal. The 3rd Circuit denied that request in a brief written order on Friday, instead directing a U.S. bankruptcy judge to dismiss LTL's Chapter 11 case.

LTL has not yet filed a formal petition to the U.S. Supreme Court.

The judge overseeing LTL's bankruptcy case, U.S. Bankruptcy Judge Michael Kaplan in Trenton, New Jersey, said in February that he was prepared to end the bankruptcy and allow talc lawsuits to resume once the 3rd Circuit issued a formal mandate of its January decision, which it has now done.

LTL's bankruptcy put a deluge of talc litigation on hold, including the approximately 38,000 cases that are consolidated in a New Jersey federal court proceeding. Those cases will be able to resume once LTL's bankruptcy is dismissed.

"Victims of J&J’s talc products are now closer to returning to courts and juries of their peers to seek justice and rightful compensation," said David Molton, an attorney for the official committee of talc plaintiffs in the bankruptcy case.

Kaplan had already allowed one case to resume while LTL fought to preserve its bankruptcy.

J&J did not immediately respond to a request for comment on Friday.

LTL said in a Thursday court filing that its bankruptcy offers a way to fairly and efficiently settle all talc claims, rather than subjecting the company and plaintiffs to the "lottery-like results" yielded by past trials.

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

J&J has prevailed in other cases, winning defense verdicts in 16 trials and succeeding in several appeals that either reversed or reduced plaintiffs' initial wins.

J&J announced in 2020 that it would stop selling its talc Baby Powder in the U.S. and Canada due to what it called "misinformation" about the product's safety and later announced its intent to discontinue the product worldwide in 2023.

(Reporting by Dietrich Knauth; editing by Giles Elgood, Alexia Garamfalvi and Josie Kao)