Steven Church, Jonathan Randles, Jef Feeley and Damian Garde (Bloomberg) — Johnson & Johnson shares fell the most in five years after the company’s plan to settle thousands of talc-related lawsuits through bankruptcy was shot down in court. The ruling means J&J will have to fight roughly 60,000 claims brought by women who say the company’s hallmark baby powder caused ovarian cancer and other, similar gynecological diseases in courts across the country. It may also have to set aside far more than the $9 billion it had earmarked for victims. J&J’s shares dropped as much as 5.6% in New York on Tuesday, marking the biggest intraday loss since March 2020. “Nobody saw this coming,” said Samir Parikh, a law professor at Wake Forest University who has been tracking J&J’s baby powder litigation. “This is not good news for the company and its investors.” The number of outstanding claims could balloon to more than 90,000, Bloomberg Intelligence analyst Holly Froum wrote. About 70% of the plaintiffs are likely to settle, according to Froum, which could cost J&J about $11 billion, she said. “The issue is that it’s difficult today to really draw a line in the sand as to what the downside in dollars is,” Mizuho Securities analyst Jared Holz said. “And the fact that this now is going to be dealt with on a case-by-case basis means it’s just a huge distraction for the company, if nothing else.” US Bankruptcy Judge Christopher Lopez on Monday dismissed the bankruptcy of a small J&J unit called Red River Talc following a two-week trial in Houston, finding that a vote of cancer victims on the proposal was flawed. J&J was trying for the third time to use a small unit to resolve all talc-related lawsuits at once instead of facing trials around the country in different courts. Voting on the settlement included irregularities, among them was “an unreasonably short voting time for thousands of creditors, was all done to get to 75% at any cost,” Lopez said. Erik Haas, the company’s worldwide vice president of litigation, said in a statement that J&J will return to fighting talc cancer claims in trials. “As we have repeatedly stated, in the absence of plan confirmation, we will vigorously present our case in the tort system,” he said. “In view of the learnings from the bankruptcy case, we are more confident than ever in our position in the tort system.” Since J&J launched its strategy in 2021, critics have complained that the company, one of the most profitable in the world, is trying to use special federal rules only available to bankrupt businesses to shield itself from the lawsuits. The company’s first two attempts to pay claims through a bankruptcy trust were dismissed by a federal appeals court in Philadelphia. By moving the case to Texas, the company came under the jurisdiction of the appeals court in New Orleans, which has issued decisions more in line with J&J’s legal arguments. J&J could now ask the appeals court to review the case. While most of the prominent personal-injury lawyers handling tens of thousands of baby powder cases favor the deal offered by the health care giant, a handful wanted Lopez to reject it. The Justice Department’s bankruptcy watchdog also opposed it. Opponents have said J&J shouldn’t be allowed to use Chapter 11 to resolve the cases and questioned the company’s tactics in rounding up pre-bankruptcy support from victims. “This decision affirms what we have argued all along — J&J’s bankruptcy strategy was nothing more than a bad-faith maneuver to avoid full accountability,” said Andy Birchfield of the Beasley Allen law firm, a lead attorney for talc plaintiffs objecting to the bankruptcy. “With this ruling, we are now moving forward without delay to trial, where our clients will finally have the chance to present their cases before a jury and obtain the justice they deserve.” The women who sued allege J&J sold baby powder and similar products made from talc contaminated with the cancerous substance asbestos. The company denies that the powder is harmful, but it stopped selling talc-based baby powder in the US in 2020. At the trial, which took place in February in Houston, Lopez was asked to navigate the intricacies of bankruptcy law, including whether J&J manipulated a vote on the settlement among 93,000 claimants. If a company with asbestos liabilities obtains 75% approval from plaintiffs voting on a bankruptcy settlement plan, the firm is allowed to resolve all current and future liabilities via a trust, according to the ruling. Under the rejected proposal, a bankrupt unit of J&J would have established a trust to determine how much each cancer victim would get based on a set of detailed criteria. All lawsuits related to allegations that baby powder causes ovarian cancer and other gynecological diseases would have been halted and instead resolved by the trust. For its latest bankruptcy, J&J organized a vote of claimants before filing the Chapter 11 case. After the company increased its settlement offer, more claimants were in favor of a deal, giving the company enough support to meet a 75% threshold set by the bankruptcy code. Red River has denied that voting was flawed and contends that lawyers opposed to the bankruptcy settlement were motivated by their own financial interests to defeat the deal. The bankruptcy case is Red River Talc LLC, 24-90505, US Bankruptcy Court for the Southern District of Texas (Houston). –With assistance from Boris Korby. ...read more read less