A U.S. appeals court on Monday rejected Johnson & Johnson’s attempt to transfer tens of thousands of lawsuits against its talcum powder products to bankruptcy court, Reuters writes.

J&J is among 4 large companies in the U.S. that have declared 2-stage bankruptcy to avoid potential massive lawsuits by creating subsidiaries to cover liabilities and immediately filing for bankruptcy protection.

The fact is that bankruptcy filings typically stay litigation in the trial courts, forcing plaintiffs to engage in lengthy and difficult settlement negotiations while denying them the ability to pursue their cases in the courts in which they originally filed.

According to the court’s verdict, J&J wrongfully bankrupted its subsidiary even though it had no financial problems. In doing so, J&J sought to avoid bringing to trial more than 38,000 lawsuits from plaintiffs alleging that talcum powder baby powder manufactured by that company causes cancer. The appeals court ruling will now reopen those lawsuits.

J&J shares closed down 3.7%, the biggest one-day percentage drop in 2 years. The company said in a statement that it will challenge the court’s ruling and that its talcum powder products are safe.

Attorneys for the plaintiffs believe that such a 2-step process could set a dangerous precedent, giving any company the ability to easily avoid unwanted litigation.

Previously, 2-stage bankruptcy has been defended as the best way to fairly settle claims. Plaintiffs’ attorneys objected that such a process was an improper manipulation of the bankruptcy system. The current strategy utilizes Texas law to split an existing company into 2 parts with the creation of a new subsidiary designed to take over the lawsuits.

Johnson & Johnson of New Jersey, a company valued at more than $400 billion, said the bankruptcy of its subsidiary was initiated in good faith. J&J initially promised the subsidiary $2 billion to settle the talc claims and entered into an agreement to fund a possible settlement approved by a bankruptcy judge.