The Third Circuit Court of Appeals has blocked Johnson & Johnson’s attempt to use bankruptcy proceedings to shield itself from talc litigation, allowing over 67,000 pending lawsuits to move forward in federal court. In its July 2024 ruling, the 3rd Circuit determined that J&J’s subsidiary—LTL Management—was not in genuine financial distress when it filed for bankruptcy, meaning the “Texas Two-Step” strategy lacked legal merit.
This decision reinstates the multidistrict litigation (MDL 2738) in New Jersey federal court and strengthens the hands of talc plaintiffs who allege that Johnson & Johnson’s baby powder and other talc products caused ovarian cancer and mesothelioma. The courts have now rejected all three of J&J’s bankruptcy attempts, with the most recent dismissal in March 2026 affecting the Red River Talc LLC filing in Texas. This article explains what the 3rd Circuit ruling means, why J&J pursued bankruptcy in the first place, and what the thousands of pending plaintiffs can expect next.
Table of Contents
- What Was J&J’s “Texas Two-Step” Bankruptcy Strategy?
- The Third Circuit’s July 2024 Decision and Its Legal Reasoning
- The Scope of Litigation—Over 67,000 Pending Claims
- Major Jury Verdicts Signal Growing Liability Risk for J&J
- The $8 Billion Settlement Proposal and Its Rejection
- What Happens on April 13, 2026? The Next Settlement Meeting
- The Broader Implications for Asbestos-Contaminated Talc and Corporate Accountability
What Was J&J’s “Texas Two-Step” Bankruptcy Strategy?
For years, J&J pursued an aggressive legal strategy to resolve talc claims by creating a subsidiary company and flooding it with talc liabilities, then filing that subsidiary for bankruptcy protection. This tactic—known as the “Texas Two-Step”—is designed to freeze ongoing litigation and force all claims into a bankruptcy court, where they can be resolved for pennies on the dollar. The strategy works like this: first, J&J spins off a new subsidiary and transfers talc lawsuits to it; second, that subsidiary immediately files for Chapter 11 bankruptcy, which triggers an automatic stay that pauses all litigation. Once in bankruptcy court, plaintiffs have limited use and often must accept massive discounts on their claims to get any recovery at all. J&J attempted this maneuver three separate times.
The first bankruptcy filing was rejected by courts in 2022. A second attempt followed, also blocked by courts. The third attempt involved Red River Talc LLC filing in the Southern District of Texas, and Judge Christopher Lopez dismissed it on March 31, 2026. In each case, the courts found that the subsidiary was not genuinely insolvent—J&J maintained a funding backstop that kept the subsidiary artificially solvent, defeating the entire purpose of Chapter 11. The 3rd circuit explained the fundamental problem: “absent financial distress, there is no reason for Chapter 11 and no valid bankruptcy purpose.” Because J&J could always prop up its subsidiary with cash, the courts ruled that bankruptcy protection was being abused as a litigation shield rather than used for legitimate insolvency purposes.
The Third Circuit’s July 2024 Decision and Its Legal Reasoning
On July 26, 2024, the Third Circuit court of Appeals issued a decisive ruling that rejected J&J’s bankruptcy strategy on substantive grounds. The court found that LTL Management, the subsidiary J&J created to hold talc liabilities, was not in good faith when it filed for bankruptcy. Instead of struggling under the weight of actual talc claims, LTL was propped up by J&J’s financial backstop, meaning it could theoretically pay any judgment or settlement demand. This distinction is critical: bankruptcy law allows insolvent companies to reorganize, but it does not permit solvent companies to abuse Chapter 11 filing as a litigation tactic. The court’s reasoning addresses a common misconception about bankruptcy protection.
Many people assume that once a company files for bankruptcy, litigation automatically stops and plaintiffs lose their claims. However, bankruptcy courts have discretion to dismiss filings that lack legitimacy, and judges are increasingly skeptical of strategies that weaponize bankruptcy to avoid accountability. The 3rd Circuit’s decision set a high bar: a company cannot simply declare itself insolvent on paper while maintaining hidden financial resources. This ruling directly strengthens the position of talc plaintiffs because it means J&J cannot use a legal technicality to avoid facing a jury. For plaintiffs, this means their cases remain in the MDL, where they can be tried before judges and juries who can assess the evidence of harm.
The Scope of Litigation—Over 67,000 Pending Claims
As of March 2026, the MDL 2738 in New Jersey federal court consolidates at least 67,115 talc-related claims. These cases represent people from across the United States who allege that regular use of J&J talc products—primarily baby powder and other cosmetic talc products—caused serious illness. The overwhelming majority of claims involve allegations of ovarian cancer in women who applied talc powder to their genital area or used talc-containing body products. A smaller but growing segment involves mesothelioma claims from individuals exposed to talc’s asbestos contamination, particularly among talc miners and industrial workers.
The sheer volume of pending claims underscores why J&J pursued bankruptcy protection in the first place: the company faced existential financial exposure if even a fraction of these cases resulted in substantial jury verdicts. The 3rd Circuit’s refusal to allow bankruptcy protection means that J&J must now defend itself in open court against tens of thousands of plaintiffs. However, it’s important to understand that having a claim in the MDL is not the same as automatically winning compensation. Each case must still be litigated, evidence must be presented, and juries must find that J&J knowingly sold a dangerous product. The MDL process helps consolidate similar cases to avoid duplicative trials and to create pressure for global settlement discussions, but individual outcomes can vary significantly based on factors like the quality of medical evidence, the plaintiff’s exposure history, and the specific product used.
Major Jury Verdicts Signal Growing Liability Risk for J&J
In recent months, juries have returned substantial verdicts against J&J in talc cases, sending a clear signal about the company’s liability exposure. In December 2025, a Maryland jury awarded $1.5 billion in a peritoneal mesothelioma case—one of the largest talc verdicts on record. In February 2026, a California jury awarded $966 million to Mae Moore, a woman with mesothelioma. A December 2025 California case resulted in a $40 million verdict for two women with ovarian cancer. Even modest verdicts, like a $250,000 Pennsylvania award in February 2026, demonstrate that juries in different jurisdictions are consistently finding J&J liable.
These verdicts are significant because they show the financial risk J&J faces if the talc litigation goes to trial across thousands of pending cases. If the Maryland mesothelioma verdict of $1.5 billion is extrapolated even conservatively across the 67,000+ pending claims, the financial exposure becomes staggering. This is the practical reason why J&J pursued bankruptcy protection—the company was facing the possibility of cumulative damages that could exceed its market capitalization. However, large verdicts also demonstrate why plaintiffs’ attorneys remain confident in their cases: juries are evaluating the evidence and finding for plaintiffs in major cases. The contrast is striking: J&J wanted bankruptcy protection to reduce liability to cents on the dollar, but juries in open court are awarding substantial damages when presented with evidence of harm.
The $8 Billion Settlement Proposal and Its Rejection
In an attempt to resolve the talc litigation without further jury trials, J&J proposed an $8 billion settlement to resolve all pending and future ovarian cancer claims. This proposal was contingent on bankruptcy court approval—in other words, J&J’s offer was tied directly to its ability to use Chapter 11 to reduce plaintiff use. When Judge Christopher Lopez rejected the third bankruptcy attempt, he effectively rejected the settlement proposal as well. An $8 billion figure might sound substantial, but plaintiffs’ attorneys and talc advocacy groups argued it was grossly inadequate given the scale of illness, the number of claimants, and the size of recent jury verdicts. Dividing $8 billion among 67,000+ claimants yields an average of roughly $120,000 per person—far below the millions that some juries have awarded in individual cases. It’s crucial to understand why the settlement offer was rejected: Judge Lopez determined that J&J was using settlement negotiations as use within a fraudulent bankruptcy scheme.
If bankruptcy protection had been granted, plaintiffs would have had little negotiating power and likely would have been forced to accept pennies on the dollar. By rejecting the bankruptcy filing, the court reset the negotiating table. Now, J&J must face the prospect of ongoing jury trials with significant verdict risks, which creates genuine incentive for a more generous settlement. However, a warning: even with bankruptcy rejected, settling a dispute of this magnitude is extraordinarily complex. Settlements must account for future claims, unknown plaintiffs, state law variations, and medical evidence that may evolve over years. A new settlement proposal, if one emerges, will likely be more generous than the rejected $8 billion offer, but it could still take months or years to finalize.
What Happens on April 13, 2026? The Next Settlement Meeting
Parties in the talc MDL are scheduled to meet on April 13, 2026, to discuss settlement options. This meeting represents a critical juncture in the litigation. With bankruptcy protection off the table and jury verdicts continuing to favor plaintiffs, J&J has lost its primary bargaining chip—the ability to force claims into an insolvent subsidiary and slash damages. At the April 13 meeting, plaintiffs’ attorneys will present their case for a substantial settlement that reflects both the scale of the harm and the financial risk J&J faces in continued litigation.
J&J will likely signal its willingness to settle for a larger amount than the rejected $8 billion proposal, though the company will still seek to cap its total liability. settlement meetings in MDL litigation often include cautious optimism followed by disappointment. According to reports on the April 13 meeting, there is “optimism in the air but we have said this before”—meaning the talc litigation community has seen settlement negotiations repeatedly stall or collapse over the years. A settlement could emerge quickly, or the parties could deadlock and move into a new phase of trial litigation. If a settlement does not materialize at the April 13 meeting, the MDL will likely proceed with additional trial bellwethers—test cases selected to go to jury trial before the full class—which could produce more verdicts and further shift negotiating use toward plaintiffs.
The Broader Implications for Asbestos-Contaminated Talc and Corporate Accountability
The 3rd Circuit’s rejection of J&J’s bankruptcy strategy has implications far beyond talc litigation. The decision affirms that courts will not tolerate transparent attempts to abuse bankruptcy law as a litigation shield. For decades, corporations have used creative bankruptcy strategies to avoid accountability for mass torts—cases in which a single product causes harm to thousands or millions of people. The talc ruling signals that judges are watching these tactics closely and will apply rigorous scrutiny to bankruptcies that appear designed to limit liability rather than address genuine insolvency.
The talc litigation also raises an important public health question: how long will talc-contaminated products remain on store shelves? J&J stopped selling talc baby powder in North America in 2020, but talc-based cosmetics remain widely available from other manufacturers. The pending litigation may accelerate industry-wide changes in how talc is sourced, tested, and marketed. Regulatory agencies in various countries have launched investigations into talc’s asbestos contamination risk. The fact that courts are now allowing 67,000+ cases to proceed against J&J sends a message that regulators, juries, and the public take these risks seriously.