Posted by : Ed Lott, Ph.D., M.B.A.

On February 25, after a five day trial, U.S. Bankruptcy Judge Michael Kaplan of the U.S. Bankruptcy Court for the District of New Jersey, affirmed Johnson and Johnson’s use of a divisive merger known as the “Texas two-step” to resolve the talc-based litigation pending against it. In his 56-page opinion, Judge Kaplan rejected the argument that the move was an abuse of the Chapter 11 bankruptcy system, stating:

“Determining whether Debtor is pursuing a valid bankruptcy purpose through this chapter 11 proceeding also requires the Court to examine a far more difficult issue—whether there is available to Debtor and the tort claimants a more beneficial and equitable path toward resolving Debtor’s ongoing talc-related liabilities. For the reasons which follow, this Court holds a strong conviction that the bankruptcy court is the optimal venue for redressing the harms of both present and future talc claimants in this case—ensuring a meaningful, timely, and equitable recovery.”

Judge Kaplan noted that “defending just the over 38,000 pending ovarian cancer claims through trial would cost up to $190 billion”. He added further that “the Court simply cannot accept the premise that continued litigation in state and federal courts serves best the interest of their constituency” pointing to the “substantial risks” faced by plaintiffs in the tort system who have been denied any recovery at all or whose verdicts have been reversed on appeal.

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