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Investing.com -- U.S. Bankruptcy Court Judge Christopher Lopez in the Southern District of Texas rejected a request from Johnson&Johnson's (NYSE:JNJ) subsidiary, Red River Talc, to approve its prepackaged bankruptcy plan.

In his decision, Lopez pointed to issues with the voting process and called a third-party release for Kenvue (NYSE:KVUE) “impermissible.”

The ruling marked J&J’s third failed attempt to resolve talc-related claims through bankruptcy, following previous efforts in 2021 and 2023.

The surprise dismissal weighed on investor sentiment, sending J&J shares tumbling 7.6% on Tuesday.

Following the court’s decision, J&J said it would return to defending cases in the tort system.

The company issued a press release late Monday outlining its next steps and held an investor call Tuesday morning to expand on that message.

During the call, executives emphasized their readiness to continue the legal fight, stating that plaintiffs had their chance for “an unprecedented resolution but ‘squandered the moment.’”

J&J also said it would reverse roughly $7 billion in reserves previously set aside for the bankruptcy strategy.

Bernstein analysts said they had hoped JNJ’s Red River Talc “prepackaged” bankruptcy plan would offer a near-term solution to its talc liabilities, and noted that Judge Lopez’s decision to dismiss the case was unexpected.

“We could debate Judge Lopez’s rationale for dismissal—issues with the voting process and third-party releases—but there’s no point. JNJ has made it clear that they do not intend to appeal, meaning the bankruptcy path is off the table for now,” analysts led by Lee Hambright said.

When JNJ pursued bankruptcy in 2021 to manage talc litigation, the downside risk was always a return to the tort system.

Now, three and a half years later, that outcome has materialized. However, the analysts pointed out that recent changes to federal rules on expert testimony could potentially benefit J&J in the upcoming litigation.

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