Investing.com -- A U.S. bankruptcy judge has dismissed Johnson & Johnson’s third attempt to resolve its widespread talc-related lawsuits through Chapter 11, marking another setback in the company’s efforts to end the litigation.

Judge Christopher Lopez ruled that J&J’s latest bankruptcy filing, made through an affiliate, was flawed due to how it solicited votes from tens of thousands of personal-injury claimants.

Shares in Johnson & Johnson (NYSE:JNJ) fell 3.5% in premarket trading Tuesday.

The decision halts J&J’s years-long strategy to use bankruptcy to settle allegations linking its talc-based baby powder to cancer. Rather than appealing the ruling, the company said it would return to the civil courts “to litigate and defeat these meritless talc claims.”

J&J has consistently defended the safety of its products and argued that resolving the matter in bankruptcy would have benefited claimants.

“This case has always been about fairness,” said Adam Silverstein, an attorney representing firms opposing the bankruptcy.

“J&J tried to wear down victims through delay tactics, legal loopholes, and backroom deals. Today’s ruling shuts down that abuse and ensures that real people—not corporate executives—will decide what justice looks like.”

The ruling follows a trial earlier this year over J&J’s use of the Texas Two Step, a legal tactic allowing companies to spin off liabilities into a subsidiary that then files for bankruptcy.

The move aimed to shift talc lawsuits to bankruptcy court, where J&J hoped to secure a global settlement—something it hadn’t been able to achieve in civil court.

J&J's two prior bankruptcy attempts were dismissed in New Jersey in 2023, with courts concluding that its LTL Management unit didn’t meet the financial distress requirement for Chapter 11. The most recent filing in Houston was made using a newly formed unit, Red River Talc.

As a result of the ruling, Morgan Stanley analysts expect JNJ shares “to retrace some of the year-to-date outperformance.”

“It is difficult to project the size of any potential liability, but as points of reference, JNJ established a $9bn reserve for Red River talc bankruptcy and previously JNJ's market cap declined by ~$35bn between the unfavorable appeal ruling and filing for subsequent new bankruptcy protection,” analysts led by Terence C. Flynn added.

JNJ shares had gained nearly 15% year-to-date as of Monday’s close.

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