Johnson & Johnson’s attempt to escape tens of thousands of talc cancer lawsuits via Chapter 11 bankruptcy was derailed by a U.S. appeals court today. The Philadelphia-based 3rd Circuit Court of Appeals ruled that J&J improperly placed its subunit, LTL Management, into Chapter 11 proceedings even though the parent company did not face financial dire straits.

The ruling puts more than 38,000 lawsuits back in play. Plaintiffs allege that J&J’s talc products, including its discontinued talc baby powder, caused them to develop cancer because the company’s talc products were contaminated with asbestos.

In October 2022, LTL Management filed for Chapter 11 bankruptcy. The company was formed by J&J only to hold its talc liabilities, which include $3.5 billion in verdicts and settlements, including a Missouri jury trial that awarded 20 women more than $2 billion in damages. As soon as LTL Management was formed, the company filed for Chapter 11 bankruptcy, a move in the legal industry known as the “Texas Two-Step.”

Critics of the Texas two-step allege that the legal maneuver is an abuse of Chapter 11 proceedings.

J&J indicated that it would appeal the 3rd Circuit’s ruling. The company is worth over $400 billion and initially pledged $2 billion to resolve all extant talc claims through its LTL subsidiary.

A 2018 Reuters investigation revealed that J&J has known for many decades that its talcum powder could be contaminated with asbestos, a mineral that is found in close proximity to talc in the earth.