By Dietrich Knauth and Brendan Pierson
(Reuters) -A U.S. bankruptcy judge has blocked New Mexico and Mississippi from pursuing lawsuits accusing Johnson & Johnson (NYSE:JNJ) of misleading consumers about the safety of its talc products, such as its baby powder, for now.
U.S. Bankruptcy Judge Michael Kaplan in Trenton, New Jersey on Tuesday said the litigation must be paused while an appellate court reviews whether J&J can use the bankruptcy of subsidiary LTL Management to resolve claims it is facing alleging that its talc products caused cancer. He said he would revisit allowing the states' lawsuits to proceed at a hearing in December.
J&J, which maintains its talc products are safe, created and spun off LTL in October, assigned its talc liabilities to the unit and placed it in bankruptcy a few days later.
That restructuring strategy, known as the "Texas two-step," paused about 38,000 individual lawsuits J&J was facing alleging that its baby powder and other talc-based products contain trace amounts of asbestos and caused mesothelioma and ovarian cancer.
"We disagree with Judge Kaplan's ruling and remain committed to ensuring that those companies that have knowingly harmed consumers for decades do not hide behind bankruptcy laws," New Mexico Attorney General Hector Balderas said in a statement.
The office Mississippi Attorney General Lynn Fitch and J&J did not respond to requests for comment.
LTL sued New Mexico and Mississippi in July after learning that the states intended to proceed with their lawsuits, despite the bankruptcy court's order in February pausing other talc litigation.
New Mexico and Mississippi had argued that the February order only blocked lawsuits by private plaintiffs and that Kaplan does not have the authority to block states from enforcing their consumer protection laws.
An ad hoc group of 41 states and the District of Columbia backed New Mexico and Mississippi in a written brief. Unlike with the private plaintiffs, allowing states to litigate would not risk opening the doors to copycat lawsuits that could disrupt LTL's bankruptcy restructuring, according to the states.
Attorneys representing private plaintiffs also supported the New Mexico and Mississippi lawsuits, saying they could provide clarity about the value of states' claims and aid in settlement negotiations.
The private plaintiffs have asked the Philadelphia-based 3rd U.S. Circuit Court of Appeals to dismiss LTL's bankruptcy, saying that LTL is a "concocted" corporation set up solely to stop them from getting their day in court.