To sidestep a growing number of payouts, J&J had proposed leveraging a procedure colloquially called the Texas two-step strategy, thereby hiving some 40,000 lawsuits into its newly created subsidiary, LTL Management and declaring that entity bankrupt.

Only companies in “financial distress” can declare bankruptcy, the court said, noting that J&J had more than $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.

The baby powder maker said it plans to challenge the ruling. In a statement, it said it had initiated the process in good faith, and that its objective has always been to “equitably resolve” claims related to pending cases.

Up to now, Johnson & Johnson has had mixed results in its litigation. Its biggest ruling against it came in 2018, when a jury in the state of Missouri awarded a total of $4.69 billion to more than 20 women. This was later reduced to $2 billion after the company appealed.

Commenting on the current decision, lawyers for the talc case plaintiffs predicted it could have “far-reaching consequences that would affect other companies attempting to employ the same strategy to reduce the cost of personal-injury litigation and settlements.”

Promptly, Jeffrey Ubbens, one of the activist investors seeking to influence Bayer’s supervisory board’s choice of a new CEO to succeed Werner Baumann next year, proposed that the German pharmaceuticals and agrochemicals maker do much the same, namely file for Chapter 11 bankruptcy protection. In this way it could unload the burden of payouts to plaintiffs claiming that Monsanto’s glyphosate-based herbicide caused their non-Hodgkins lymphoma.

Bayer has not commented on the proposal, but analysts said this is a route the company is unlikely to take.

Author: Dede Williams, Freelance Journalist