Will The Subsidiary Bankruptcy Strategy Work
The immediate effect of J& J shifting talc claims liability to a subsidiary and then filing for bankruptcy for that sub was to freeze all the lawsuits for months or years. Lawsuits to stop or alter J& Js talc claims strategy will tie things up as courts rule on challenges and appeals.
J& J got an initial boost in late February 2022. The bankruptcy court did not agree with the plaintiffs view that J& J made the bankruptcy filing in bad faith. The judge asserted that Johnson & Johnson has a fiduciary duty to shareholders to minimize liabilities from the lawsuit. Therefore, J& J acted in good faith when it took steps to do so under available bankruptcy law.
The judge that recent uses of bankruptcy proceedings in mass tort litigations show that laims reconciliation through these bankruptcy trusts place reduced evidentiary and causation burdens on the injured and their families, and resolution of claims and payments to victims can be achieved at a far more expeditious pace than through uncertain litigation in the tort system.
The plaintiffs will likely appeal this ruling. In addition, the judge pointed out that J& J still runs the risk that any negotiated plan under this scenario may not be approved by a supermajority of tort claimants as the law requires.
Herrick Files Amicus Brief In Third Circuit Appeal Arising From Johnson & Johnson Spin
Amici Law Professors Support the Direct Appeal from the Bankruptcy Courts Denial of a Motion to Dismiss Debtors Chapter 11 Case
Herrick, Feinstein LLP authored and filed an amicus brief on behalf of a group of well-renowned bankruptcy law professors. The debtor, LTL Management LLC , which is the entity created by Johnson & Johnson to hold its talc liabilities, filed for Chapter 11 protection in October 2021. The professors filed this brief in support of the Official Committee of Talc Claimants appeal from the Bankruptcy Courts denial of its motion to dismiss LTLs chapter 11 case, which the Third Circuit Court of Appeals agreed to hear on an expedited basis after the Bankruptcy Court agreed to certify the appeal to be heard directly by the Third Circuit. Herrick previously filed an amicus brief with the Bankruptcy Court, as discussed here. The Talc Claimants Committee represents the individuals who have sued J& J alleging that its talc products caused them to develop cancer.
The amicus brief argues that J& Js creation of LTL using a divisive merger mechanism referred to as the Texas Two-Step to funnel all of its talc liabilities into a non-operating entity only for that entity to file for bankruptcy usurps the right of creditors and undermines the bankruptcy system.
A copy of the brief is available here.
Media Coverage:
Department Of Justice Challenging Bankruptcy Ruling
Attorneys for claimants have argued that the bankruptcy court ruling violates the constitutional right to due process and a jury trial. They also believe bankruptcy should be reserved for companies in financial distress.
J& J is using this bankruptcy as a tactic to force an agreement an attempt to remove the jury trial, said attorney Jonathan Ruckdeschel of Ruckdeschel Law Firm LLC, who was present at the hearing.
Personal injury attorneys across the country believe the bankruptcy filing was done in bad faith, denying those harmed from being fairly compensated.
J& J attorneys have previously said the $2 billion set aside by LTL Management for a trust was just a starting point, and the amount was negotiable. Katyl, representing J& J at the hearing, said the trust fund could be worth as much as $60 billion.
The U.S. Department of Justice also has challenged the bankruptcy maneuver of Johnson & Johnson. At the Sept. 26 hearing, an attorney from the DOJ said if approved by the U.S. Court of Appeals, it will lead to other nonbankrupt companies, and even wealthy individuals, using similar strategies to avoid liabilities.
If Johnson & Johnson can get away with this bankruptcy, whats to stop any other company in America from doing the same thing? attorney Sean Janda, an attorney with U.S. Trustee, a division of the Department of Justice that oversees bankruptcy cases.
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How Does Johnson & Johnsons Bankruptcy Affect Talcum Powder Lawsuit Cases
Johnson & Johnsons bankruptcy move could mean several things for those bringing liability claims against the company:
LTL Could Now Be Liable for Talcum Powder Suits
LTL inherited liability during the divisional merger processand LTL has only $2 billion in trust to pay out potential liability claims, per Johnson & Johnson. Plaintiffs are now bringing a case against a much smaller entity than the original defendant, Johnson & Johnson, which has over $25 billion in cash, per National Public Radio. In turn, this could mean that plaintiffs could be left with smaller settlement payouts.
Compensation Could Be Fulfilled Through LTLs Bankruptcy Process
Some call Johnson & Johnsons move a clear attempt to escape the jury trial system and instead pay out liability claims through bankruptcy proceedings. Again, this could allow Johnson & Johnson to settle these cases cheaply.
Lawsuit Proceedings Are Currently Paused
As of November 10, 2021, the federal judge overseeing the bankruptcy case granted a two-month pause on liability litigation as a result of J& Js Chapter 11 filing.
Lawyers For Women Pursuing Talcum Powder Cancer Lawsuits Tell 3rd Circuit J& j Bankruptcy Built On A Foundation Of Bad Faith
Plaintiffs are urging the court to allow talcum powder cancer lawsuits to proceed despite the bankruptcy filing.
A federal appeals court heard oral arguments this week from lawyers for women pursuing talcum powder cancer lawsuits, who are challenging a controversial bankruptcy filing by Johnson & Johnson, which they indicate was conducted in bad faith to derail the litigation and avoid liability costs the company could easily cover.
Johnson & Johnson faces more than 38,000 Baby Powder lawsuits and Shower-to-Shower lawsuits filed by women diagnosed with ovarian cancer, mesothelioma and other injuries, which they claim was caused by asbestos in the talc-based products.
Following massive jury awards in a number of early trials, Johnson & Johnson decided to pursue a controversial Texas Two-Step bankruptcy plan in February, attempting to spin off all liability it faces for failing to warn consumers about the cancer risks from talcum powder into a separate company, LTL Management, LLC, which was created solely for the purpose of placing it into bankruptcy.
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J& j Business Argues Bankruptcy Is Only Option In Talc Lawsuits
A subsidiary of pharmaceutical company Johnson & Johnson, LTL Management, said in court documents that bankruptcy is the only option to settle the thousands of lawsuits lodged against J& J’s talc-based baby powder, The Wall Street Journal reported Aug. 16.
J& J created LTL Management in 2021 to handle the lawsuits, which hover at about 40,000, that allege its talc-based baby powder posed a cancer risk but didn’t inform customers of it. LTL’s strategy is to bankrupt itself under Chapter 11, which would then protect J& J at large, but the case’s Texas judges are expected to dissect this plan, according to the Journal.
Chapter 11 is a bankruptcy code that lets debtors who can’t pay off debts reorganize its business and debt structure, according to Cornell Law School’s Legal Information Institute.
Without LTL acting as a shield, the business said legal costs would surpass $1 billion, which would stack on top of the billions it already shelled out in other talc lawsuits, according to the Journal. One of its biggest payments happened in 2020 when a different appellate court ordered the pharmaceutical company to award more than $2 billion to women with ovarian cancer.
The Texas appellate court decision on whether to allow the subsidiary to use Chapter 11 could act as a precedent for future similar cases between drug companies and consumers.
Editor’s note: The headline was revised 12:00 p.m. CT to specify LTL Management, not J& J, is planning on bankruptcy.
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Johnson & Johnsons Bad Faith Bankruptcy Attempts To Circumvent Jury Trial In Talc Cases
Lawyers connected to the Johnson & Johnson talcum-based baby powder lawsuits are calling the companys filing for Chapter 11 bankruptcy a masquerade, according to Law360. Attorneys are criticizing J& J for its transparent attempt to shield itself from liability claims. The move has several potential consequences for plaintiffs in these lawsuits, including a delay in litigation.
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Johnson & Johnson is weighing whether to spin off liabilities from the numerous lawsuits brought against it over the companys iconic baby powder into a new business that would then seek bankruptcy protection.
The plan could allow the company to pay out lower amounts for cases that dont settle before the move, Reuters reported Sunday, citing people familiar with the discussions.
Lawyers for those suing the company would not be able to immediately stop Johnson & Johnson from making the move, though they could challenge it later.
Johnson & Johnson has not yet decided whether to pursue the bankruptcy plan and could abandon the idea, Reuters added, citing some of the seven people who spoke on the matter.
Johnson & Johnson Consumer Inc. has not decided on any particular course of action in this litigation other than to continue to defend the safety of talc and litigate these cases in the tort system, as the pending trials demonstrate, J& Js consumer unit said in a statement to Reuters.
The news comes as Johnson & Johnson faces thousands of lawsuits filed in recent years alleging that its iconic talc-based baby powder is laced with asbestos and can cause cancer or mesothelioma.
Last month, the US Supreme Court rejected Johnson & Johnsons bid to overturn a $2.1 billion verdict against it in favor of women who said the companys talc products played a role in their developing ovarian cancer.
The company has repeatedly denied that its products can be linked to cancer.
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J& js Strategy Big Picture Impacts
Purdue Pharma, Georgia Pacific, and others have also pursued this strategy of offloading lawsuit liabilities to an entity in bankruptcy. As such, law professors, members of congress, and plaintiffs have sounded the alarm about the implications and repercussions.
A University of North Carolina law school professor worries that the J& J precedent opens the door for companies to routinely escape jury trial accountabilities by pulling the related-party bankruptcy escape hatch. The legal maneuver sets up an alternative justice system in the bankruptcy courts for gigantic corporations. Another law professor suggests that its not at all clear that these bankruptcy grifters tactics are permitted under bankruptcy law. He believes theres a realistic chance that at some point a court will say its not allowed.
The House Committee on the Judiciary Subcommittee on Antitrust, Commercial and Administrative Law is considering legislation. The act, the Nondebtor Release Prohibition Act of 2021 , would largely prohibit the use of nonconsensual third-party releases. Some experts argue that this bill ignores the possibility that in some cases a respite from litigation and an eventual third-party release may in certain instances be in the interest of creditors and could even have overwhelming creditor support.
No doubt, all claimants and the larger legal community will closely watch the Johnson & Johnson legal bankruptcy strategy to limit liability for the talc powder lawsuits.
How To Cite Asbestoscoms Article
APA
Povtak, T. . U.S. Court of Appeals Hears Challenge to J& Js Bankruptcy Plan. Asbestos.com. Retrieved October 31, 2022, from https://www.asbestos.com/news/2022/09/28/johnson-johnson-appeal-talc-bankruptcy/
MLA
Povtak, Tim. “U.S. Court of Appeals Hears Challenge to J& Js Bankruptcy Plan.” Asbestos.com, 3 Oct 2022, https://www.asbestos.com/news/2022/09/28/johnson-johnson-appeal-talc-bankruptcy/.
Chicago
Povtak, Tim. “U.S. Court of Appeals Hears Challenge to J& Js Bankruptcy Plan.” Asbestos.com. Last modified October 3, 2022. https://www.asbestos.com/news/2022/09/28/johnson-johnson-appeal-talc-bankruptcy/.
Johnson & Johnsons controversial bankruptcy filing, designed to limit its soaring talc liabilities, was challenged Sept. 26 before the United States Court of Appeals for the Third Circuit in Philadelphia.
A three-judge panel heard oral arguments on whether Johnson & Johnson should be permitted to shift billions of dollars in mass tort liabilities to a newly created entity, which immediately filed for bankruptcy.
The courts decision is not expected until later in 2022. Regardless of the outcome, several legal experts believe yet another appeal will be filed with the U.S. Supreme Court.
Attorneys representing a handful of almost 40,000 plaintiffs had asked the appeals court in Philadelphia to overturn a ruling earlier this year by a New Jersey judge who allowed the bankruptcy filing to proceed.
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Loss In Missouri Leads To First Global Settlement
It was not very long after the Missouri Court of Appeals rejected J& Js various arguments and affirmed $2 billion of the jury award, that J& J announced the first major global settlement in the talcum powder lawsuits. Last month, J& J announced that it agreed to pay a total of $100 million to settle a group of roughly 1,000 claims pending in the talcum powder MDL.
This marked the first time that J& J gave any indication that was willing to consider the mass settlement of the talcum powder cases. Before this announcement, J& J and its lawyers had been very defiant in their posture. It seems very obvious that the crushing $2 billion loss in Missouri was the final blow that may have broken the companys resolve in this litigation.
Even after the 1,000 cases that are part of the recent settlement, there are still almost 2,000 currently pending federal court cases in the MDL and hundreds more in state courts. At this point, everyone is expecting another mass global settlement announcement in the talcum powder litigation.
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Cancer Victims Urge Court To End J& j Bankruptcy Roadblock To Lawsuits
The Johnson & Johnson logo is displayed on a screen on the floor of the New York Stock Exchange in New York, U.S., May 29, 2019. REUTERS/Brendan McDermid/File Photo/File Photo
They asked a panel of the Philadelphia-based 3rd U.S. Circuit Court of Appeals to dismiss the bankruptcy of J& J’s subsidiary LTL Management, saying that LTL is a “concocted” corporation set up solely to stop them from getting their day in court.
J& J , which maintains its talc products are safe, spun off LTL in October, assigned its talc liabilities to it and placed the newly created subsidiary into bankruptcy days later.
That restructuring strategy, known as the “Texas two-step,” paused about 38,000 lawsuits J& J was facing alleging that its baby powder and other talc-based products contain asbestos and caused mesothelioma and ovarian cancer.
Critics, including lawmakers and legal experts, say J& J’s bankruptcy maneuver could provide a blueprint for other big companies to avoid juries in mass tort lawsuits.
Circuit Judge Julio Fuentes at Monday’s arguments asked the cancer victims’ attorney Jeffrey Lamken whether the bankruptcy court could provide a more efficient resolution of the claims than trying cases one at a time in other courts.
Lamken said the court should not make a general ruling about whether bankruptcy is “better” because its protections should be reserved for companies that are in financial distress and need to reorganize.
Missouri Court Of Appeals Reduces The Verdict To $2 Billion
J& J immediately appealed the 2018 trial verdict claiming that it was the result of a fundamentally flawed trial. J& J argued 16 separate points of law in its appeal, ranging from lack of personal jurisdiction to insufficiency of expert testimony. Almost all of these arguments were rejected in a . However, the Missouri Court of Appeals did agree that J& J was not subject to personal jurisdiction in Missouri concerning 17 of the 22 plaintiffs in the case.
Based on its finding that the trial court lacked jurisdiction concerning ¾ of the plaintiffs claims, the appellate court proportionally reduced the amount of the punitive damages award. The punitive damages were reduced from $4.14 billion to $1.6 billion.
The compensatory damages were reduced from $550 million to $500 million. The total amount of the verdict from the 2018 trial was therefore reduced from $4 billion to $2.1 billion.
After the opinion in this appeal was issued, J& J remained defiant and immediately appealed to the Missouri Supreme Court. Missouris high court declined to even hear the appeal.
Our lawyers will keep you informed in this space of any further updates.
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