What happened
News of a legal defeat drove Johnson & Johnson's (JNJ 0.29%) share price down on the first trading day of the week. The ruling from a federal appeals court not only went against the company, it produced headlines about one of the worst scandals in its history. As a result, the stock lost 3.7% of its value across the day, which compares unfavorably to the 1.3% decline of the S&P 500 index.
So what
That morning, the Third U.S. Circuit Court of Appeals quashed Johnson & Johnson's strategy of essentially moving around 38,000 individual lawsuits into bankruptcy court. In 2021 the healthcare giant formed a subsidiary, LTL Management, to effect such a move. LTL Management contains its baby powder business.
This tactic has been used successfully in other legal proceedings by name companies. Johnson & Johnson's effort fell well short, however, as the decision against the company by the court was unanimous.
The lawsuits concern mass allegations that its baby powder products caused cancer. Such goods were a long-standing staple in the product lineup of Johnson & Johnson, which for years straddled the line between the healthcare and consumer goods sectors.
Johnson & Johnson continues to maintain that its baby powder is safe. On Monday, an unnamed company spokeswoman told The Wall Street Journal that it intended to contest the ruling. She added that its intention in forming the subsidiary and having it enter bankruptcy was to equitably resolve all current, and potentially future, cancer lawsuits.
Now what
The Nachawati Law Group, a firm representing numerous women who allege they were stricken with ovarian cancer following repeated use of Johnson & Johnson's baby powder products, issued a statement on Monday.
It quoted its founder Majed Nachawati as saying that "Our clients are grateful that the appellate court saw through this cynical attempt by J&J to avoid responsibility."
"We will press forward to ensure that jury trials resume, and these women can have the opportunity for [the] justice they deserve," he added.
