J&J’s Latest Attempt at Chapter 11 Bankruptcy Case Is Rejected by Texas Court
April 2, 2025
In a 57-page decision filed on April 1, U.S. Bankruptcy Judge for the Southern District of Texas Christopher M. Lopez rejected pharmaceutical giant Johnson & Johnson’s latest attempt to file for Chapter 11 bankruptcy and effect a $9 billion settlement of thousands of ovarian and gynecological cancer cases caused the use of contaminated talc in its products. This marks the third time J&J has unsuccessfully attempted to use the bankruptcy system to resolve the nearly 90,000 claims; the first two times J&J also utilized the divisional merger technique known as the “Texas two-step”. In this third attempt J&J created a separate unit, Red River Talc, LLC. that would assume the asbestos talc liabilities of the parent company and establish the Red River Trust. Like other asbestos trusts created through Section 524(g) of the Bankruptcy Code, J&J was hoping to get enough support for the plan to invoke a “channeling injunction” that would funnel all liability, present and future, for talc personal injury claims to the Trust. The decision follows a two-week trial that was held to “approve the disclosure statement, confirm the plan, dismiss the case, and/or allow some claimants to switch their votes from a no to a yes”.
Judge Lopez pointed to voting irregularities caused by Red River’s rushing into bankruptcy and failing to abide by its own vote-counting procedures. In order to win approval and hold nonconsenting parties to the proposed settlement, J&J needed support from 75% of the voting class. Instead, the court determined voters were given an unreasonably short time within which to cast their votes; in addition, the judge ruled that votes were switched in a way that violated J&J’s own tabulation procedures, raising doubts that the company had achieved the 75% threshold needed to certify the vote and create the channeling injunction.
He also ruled that the releases J&J was seeking were too broad and failed to establish sufficient connection between the third party and the debtor to be released. In his conclusion Judge Lopez wrote:
“Based on the record, the Court finds it is in the best interest of Red River, its estate, its primary plan proponent J&J, and creditors to dismiss this case for cause. The prepetition voting and solicitation irregularities, including the unreasonably short voting time for thousands of creditors, was all done to get to 75% at any cost. There is also not any present likelihood of rehabilitation of Red River and creditors have been stayed from litigating in the tort system during the pendency of three bankruptcy cases. Appointment of a trustee or conversion does not make sense in this case. And there are no unusual circumstances establishing that dismissal is not in the best interests of creditors and the estate. There is not any one individual factor that requires this result. It is all of them together that require the Court to dismiss this case. While the Court’s decision is not an easy one, it is the right one. The Plan references a potential out-of-court deal if the Fifth Circuit would have overturned plan confirmation. The Court hopes something gets done for J&J, Red River, and claimants who also want finality on their cases.”
J&J stated that it would opt to return to the tort system and litigate the thousands of talc claims rather than attempt to seek the protection of the bankruptcy system again.
J&J’s Third Bankruptcy Filing for Talc Claims- October 9th, 2024
On September 20, pharmaceutical giant Johnson and Johnson (J&J) made its third attempt to resolve its talc liability by filing for Chapter 11 bankruptcy, this time in Texas. Red River Talc, a newly created J&J spinoff filed a pre-packaged plan that the company states is supported by 83% of the current plaintiffs who claim they have developed ovarian and gynecological cancers as a result of exposure to J&J’s asbestos-contaminated talc products. The company is creating an $8 billion settlement fund, designed to settle the current and future ovarian claims, to be paid out over the next 25 years. The company claims that this filing will resolve 99.75% of the over 62,000 existing talc-related cancer claims against J&J. Red River will be contributing $1.1 billion with an additional $650 million to be provided by J&J. The remaining mesothelioma lawsuits will be handled separately by another newly created subsidiary, Pecos River Talc LLC.
This filing is the latest in a series of bankruptcy filings by J&J. The first, in 2021, was filed in North Carolina on behalf of LTL Management, a subsidiary created in North Carolina to which Red River is a successor. LTL was created specifically to handle J&J’s talc-related liability. The case was quickly transferred from North Carolina to New Jersey, where J&J is headquartered and a multidistrict litigation created to address these claims had already been venued. That case was then dismissed in 2023 by the Third Circuit who pointed to the $400 billion net worth of the parent company and questioned whether the requisite financial distress existed to justify LTL’s bankruptcy filing.
J&J tried again, filing for bankruptcy immediately after the court’s dismissal of the first filing; this was also dismissed on the same grounds. The technique used by the company in creating LTL, known as the “Texas two-step” has been questioned by lawyers and lawmakers who argue that the practice of transferring a solvent company’s liability into a new spinoff that subsequently files for Chapter 11 is a misuse of the bankruptcy provisions and gives a company an unfair advantage by protecting the solvent parent, in this case J&J, from liability.
After this latest filing on September 20, the Texas judge, U.S. Bankruptcy Judge Christopher Lopez instituted a three-week administrative stay for the talc litigation to allow the court to hammer out a number of jurisdictional issues, primarily whether the case should be heard in Texas or whether it should be moved back to New Jersey where the parent J&J is headquartered and where the prior two cases involving LTL were dismissed for lack of good faith filing.
The latest filing is opposed by a coalition of six law firms, the Coalition of Counsel for Justice for Talc Claimants, who maintains that the latest filing continues to reflect the same bad faith as the earlier two filings; the coalition is comprised of the firms Ashcraft & Gerel LLP, Beasley Allen Crow Methvin Portis & Miles PC, Golomb Legal PC, Levin Sedran & Berman LLP, Levin Papantonio Rafferty Proctor Buchanan O’Brien Barr & Mougey PA and Robinson Calcagnie Inc.
The filing is also opposed by the Office of the U.S Trustee, Kevin M. Epstein, who has asked the court to send the bankruptcy case back to New Jersey, arguing that the filing in Texas amounts to forum shopping and reflects an effort to evade the prior rulings on venue that had already been decided in the case.
In a motion filed on September 26, the Trustee writes:
J&J’s tactics are an assault on the very integrity of the bankruptcy system. Red River is for all practical purposes the same shell company as LTL, with which it shares substantially the same assets and tort liabilities. And its proposed chapter 11 plan is based on the same structure and funding mechanism as LTL’s was in the two dismissed cases. J&J may not evade the New Jersey bankruptcy court’s authority by shopping what is essentially the same case to a new forum in search of a different outcome.
In a statement made on the company website, Erik Haas, Worldwide Vice President of Litigation for Johnson and Johnson announced the Red River filing and stated:
“The overwhelming support for the Plan demonstrates the Company’s extensive, good-faith efforts to resolve this litigation for the benefit of all stakeholders. This Plan is fair and equitable to all parties and, therefore, should be expeditiously confirmed by the Bankruptcy Court.”
In the statement J&J also “reiterates that none of the talc-related claims against it have merit. The claims are premised on allegations that have been rejected by independent experts, as well as governmental and regulatory bodies, for decades.”
Resources
https://www.law360.com/articles/1881520/j-j-talc-claims-paused-in-latest-spinoff-ch-11-
https://www.law360.com/articles/1881744/nj-judge-leaves-j-j-ch-11-venue-change-to-texas-judge
https://www.law360.com/articles/1883038/j-j-is-forum-shopping-in-new-spinoff-ch-11-trustee-says
https://www.njd.uscourts.gov/johnson-johnson-talcum-powder-litigation
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