The Johnson & Johnson logo is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 29, 2019. REUTERS/Brendan McDermid

(Reuters) – U.S. states that say Johnson & Johnson violated consumer protection laws should arbitrate their dispute with a unit of the drugmaker separately from people who claim Johnson & Johnson’s talc products cause cancer, a federal judge ruled Wednesday.

The subsidiary, LTL Management LLC, was formed in October to resolve thousands of lawsuits against J&J in bankruptcy court. New Jersey Bankruptcy Judge Michael Kaplan approved the controversial strategy in February, allowing J&J to assign the lawsuits to LTL and then place LTL in bankruptcy.

J&J maintains that its baby powders and talc products are safe and asbestos-free, and it has argued that filing for bankruptcy is the fairest and most effective way to resolve the 38,000 lawsuits alleging the products cause cancer.

In March, Kaplan ordered the LTL and talc plaintiffs to begin mediation on a possible settlement of the cancer claims.

Attorneys general from 40 states have sought to join the mediation, saying no settlement can be achieved without state input.

The states asserted claims well in excess of the $2 billion that J&J originally set aside for a future bankruptcy settlement. The magnitude of these claims could allow states to crowd out other stakeholders in negotiations to resolve LTL’s bankruptcy.

Kaplan said in a hearing on Wednesday that the states’ claims should be dealt with separately and that he intended to appoint a mediator for those claims by May 24. The new mediator will be able to work with mediators for talc victims toward a comprehensive settlement of the bankruptcy, Kaplan said.

Talc’s plaintiffs argued the bankruptcy filing was an abuse of the legal system and they are appealing Kaplan’s decision to allow the case to continue in bankruptcy court.

The case is In re LTL Management LLC, US Bankruptcy Court, District of New Jersey, No. 21-30589.

For LTL Management: Gregory Gordon, Dan Prieto, Amanda Rush and Brad Erens of Jones Day

For the Talc Committee: David Molton of Brown Rudnick; Melanie Cyganowski from Otterbourg; Genova Burns’ Daniel Stolz; Brian Glasser of Bailey Glasser; Lenard Parkins by Parkins Lee & Rubio; and Jonathan Massey of Massey & Gail

For the Committee of State Attorneys General: Ericka Johnson of Womble Bond Dickinson

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