J&J Talc Unit Refiles For Ch. 11 With $8.9B Deal

J&J Talc Unit Refiles For Ch. 11 With $8.9B Deal

Written By: Vince Sullivan

Re-print from Law360 (April 4, 2023, 4:48 PM EDT) — Johnson & Johnson‘s talc unit commenced a new Chapter 11 bankruptcy case Tuesday afternoon, just hours after an order dismissed its first restructuring attempt that leaned heavily on the so-called Texas Two-Step corporate maneuver, this time coming to court with an $8.9 billion settlement with a group of talc injury claimants whose litigation led to its original insolvency case.

In court filings, LTL Management LLC said it has commitments from 60,000 talc injury claimants to support the plan, which the company claims is a marked improvement over the $2 billion pledge from J&J in the earlier Chapter 11 case.

“The company continues to believe that these claims are specious and lack scientific merit,” Erik Haas, Johnson & Johnson’s worldwide vice president of litigation, said in a statement. “However, as the bankruptcy court recognized, resolving these cases in the tort system would take decades and impose significant costs on LTL and the system, with most claimants never receiving any compensation.”

LTL was formed in October 2021 in a controversial tactic known as a Texas Two-Step, which employs a state court law in the Lone Star State that enables divisional mergers. Johnson & Johnson split its consumer products division into two new entities: LTL, saddled with the billions of dollars of legacy talc liability; and New Johnson & Johnson Consumer Inc., which emerged from the transaction with the assets previously held by a similarly named corporate entity.

The strategy has been deployed by other companies in a handful of cases to deal with asbestos liability in a way that insulates the parent company from ongoing liability. LTL filed its first Chapter 11 case in North Carolina bankruptcy court, where the other cases are pending.

But shortly after the filing, a judge there transferred the proceedings to New Jersey, where J&J is headquartered and where multidistrict litigation involving tens of thousands of talc injury claims is pending in federal court.

U.S. Bankruptcy Judge Michael B. Kaplan issued an injunction against pursuing litigation against J&J and dozens of other entities that was paired with the automatic stay of litigation that protected LTL from the lawsuits when it filed for bankruptcy. He also ordered the parties to mediation last year after he denied motions to dismiss the case from talc claimants and the official committee that represented them in the initial Chapter 11.

The order denying the dismissal was appealed directly to the Third Circuit, which overturned the bankruptcy court’s decision in January and remanded the case for dismissal, ruling that LTL lacked good faith when filing for bankruptcy because it wasn’t facing any financial distress. Despite facing billions in liability in connection with the talc claims, the circuit court determined that J&J’s pledge of support for LTL would ensure the debtor’s viability for years to come.

Judge Kaplan issued the order dismissing the original Chapter 11 case at about 1:45 p.m. Tuesday, and the new petition was filed at 4 p.m.

In the intervening hours, the plaintiffs steering committee in the MDL asked the judge overseeing those proceedings to resume the cases since the stay and injunction had been terminated along with the dismissal order. The filing of the new case triggers a new automatic stay that bars litigation against LTL.

The committee said that since the MDL began in 2016, about 2,700 plaintiffs have died, including 600 who died during LTL’s original bankruptcy case. In a letter to U.S. District Court Judge Michael A. Shipp, the committee said it is ready to start an expedited bellwether trial as soon as possible, and also asked for claims to be sent back to their originating jurisdictions so trials can commence at the earliest opportunity.

Attorneys representing plaintiffs in underlying talc litigation who haven’t signed on to the new settlement agreement say the amount being offered is not enough to compensate victims, mostly women, who are suffering from ovarian cancer and mesothelioma as a result of using J&J’s ubiquitous talc products, including baby powder and Shower to Shower.

“J&J is seeking an extremely deep discount on justice and is not really offering anything other than another bankruptcy and more delay tactics,” Andy Birchfield of Beasley Allen Law Firm said in a statement after the second petition hit the docket. “An $8.9 billion amount is woefully inadequate to cover even the current ovarian cancer and mesothelioma claims, much less any future claims.”

In addition to more than 50,000 filed talc injury suits, Birchfield said there are likely to be another 20,000 claims in the future by people whose injuries have not yet manifested.

“This sham deal does not even pay for most victims’ medical bills,” said Jason Itkin of Arnold & Itkin LLP, which represents thousands of talc claimants. “Medical costs alone can range from $140,000 to more than $1.4 million per victim for ovarian cancer cases. The costs for mesothelioma are even higher.”

More than a dozen firms representing more than 60,000 claimants support the proposed settlement plan, saying it represents the best option for compensation.

“This is the largest products liability settlement ever achieved after a bankruptcy filing,” Mikal Watts of Watts Guerra LLC said in a statement. “J&J committed $2 billion when it filed 18 months ago. Today, it committed $8.9 billion to fairly compensate these deserving women. Our job is to get our clients fairly paid for their injuries, and this settlement is the culmination of a job well done.”

J&J said Tuesday the settlement does not represent an admission of wrongdoing or liability, and it continues to deny its products have led to the asserted injuries.

Along with its petition, LTL filed a motion seeking to extend the automatic stay to various non-debtor parties, including J&J and retailers that sold the talc products at issue.

The new case has been assigned to Judge Kaplan.

LTL’s renewed Chapter 11 petition came after the Third Circuit declined to issue a stay of the dismissal order on March 31, which LTL had requested to prepare a potential appeal to the Supreme Court. As of Tuesday evening, no filings had been made by LTL with the high court, and the company did not respond to questions about its intent to continue the appeals beyond the Third Circuit.

The case is In re: LTL Management LLC, case number 3:23-bk-12825, in the U.S. Bankruptcy Court for the District of New Jersey.

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