What happened
Shares of Johnson & Johnson (JNJ -0.46%) were sinking 4.2% lower as of 11:04 a.m. ET on Monday. The decline came after a U.S. judge ruled against the healthcare giant on Friday.
Judge Michael Kaplan with the U.S. Bankruptcy Court for the District of New Jersey dismissed a bankruptcy case filed by J&J subsidiary LTL Management. Johnson & Johnson created LTL Management in 2021 as a separate company to bear all of its talc liabilities. This was the second failed attempt to file for bankruptcy for the subsidiary.
So what
Johnson & Johnson had hoped to move past the dark cloud hanging over its head with litigation over its talc products. Its bankruptcy reorganization plan for LTL included an $8.9 billion settlement to resolve all talc claims.
However, Judge Kaplan dismissed the bankruptcy filing on Friday because he didn't feel that the talc lawsuits caused immediate financial distress for LTL. This ruling echoed the dismissal of LTL's first bankruptcy filing earlier this year.
J&J maintains that litigating the large number of talc cases "would take decades and waste billions of dollars -- mainly spent on lawyers' fees." The company believes that its talc products are safe and that the legal claims lack merit.
Now what
Perhaps the third time will be the charm. Johnson & Johnson stated in a press release that LTL will appeal the latest ruling by the U.S. Bankruptcy Court.
In the meantime, J&J said that it would continue to work with lawyers representing around 60,000 talc claimants in an effort to resolve the claims. However, the company stated that if it must go to court with the claimants, it "will vigorously litigate these meritless claims and bring our own actions to address the plaintiffs' bar abuses that engendered this spurious litigation."
The uncertainty surrounding the talc litigation could make the big healthcare stock more volatile than it would normally be. Income investors, though, shouldn't have anything to worry about with J&J's dividend.
