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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