J&J Bankruptcy Plan To Avoid Cancer Claims Lawsuits Rejected By Court

A federal appellate court on Monday rejected Johnson & Johnson’s attempt to shed its baby powder liabilities by transferring them to a subsidiary and placing that subsidiary in bankruptcy.

Why it matters: J&J faces some 38,000 lawsuits from people and their survivors claiming that the company’s talc-based powder caused cancer -- an allegation that J&J has repeatedly denied.

Driving the news: The Third Circuit Court of Appeals ruled Monday that LTL Management -- the subsidiary J&J created for the purposes of housing the liabilities and filing for bankruptcy -- is not eligible for Chapter 11 bankruptcy protection.

That means J&J will have to find an alternative way to deal with its liabilities -- which may total in the billions of dollars -- unless this ruling is reversed by the Supreme Court.

The big picture: The plan was controversial because it would have protected the bulk of the financially healthy J&J’s corporate assets from the legal claims. Critics said the company can afford to pay off alleged victims.