U.S. Bankruptcy Judge Dismisses LTL Management Case

On Friday, July 28, U.S. Bankruptcy Judge Michael Kaplan of the U.S. Bankruptcy Court for the District of New Jersey dismissed the Chapter 11 case filed by Johnson & Johnson’s talc unit, LTL Management LLC, stating that the debtor did not meet the requirements that LTL be in “imminent or immediate financial distress” and was therefore not entitled to legal protection from its creditors. This was J&J’s second attempt to use LTL’s bankruptcy to resolve over 60,000 lawsuits alleging that J&J’s talc products caused cancer, the first having been dismissed by the Third Circuit on similar grounds.

In 2021, J&J, using a controversial divisive merger strategy known as the “Texas two-step”, transferred all its talc-related liability to a new subsidiary – LTL Management LLC- and then immediately placed that company into bankruptcy. This first bankruptcy was initially approved by Judge Kaplan in February 2022 but was later dismissed in January 2023 after the U.S. Court of Appeals for the Third Circuit Court rejected J&J’s arguments that bankruptcy was the fairest way to resolve the talc claims, finding that LTL faced no financial distress. In support of its ruling, the Third Circuit pointed to the hundreds of billions of assets held by parent J&J and the funding agreement promised to LTL by its parent designed to settle all current and future talc claims.

The dismissal forces J&J to return to the trial courts and scuttles the proposed $8.9 billion settlement J&J had offered as part of the bankruptcy case.

The company has stated it will seek permission to appeal the dismissal directly to the Third Circuit, maintaining that LTL commenced its bankruptcy case in good faith and arguing that “litigating these cases in the tort system would take decades and waste billions of dollars”. Counsel for the talc claimants has indicated they would stipulate such a direct appeal.

In the wake of Judge Kaplan’s decision, the company further stated that “by affording timely compensation for all claimants, the proposed reorganization plan offered the most equitable resolution for all claimants. LTL will appeal to the Bankruptcy Court’s ruling to preserve claimants’ ability to avail themselves of that offer”. Ina statement on J&J’s website, Erik Haas, Worldwide Vice President of Litigation for Johnson & Johnson stated “We respectfully disagree with the Bankruptcy Court’s conclusion that the ‘substantial liability’ that LTL faces from the massive volume of talc claims asserted against it does not establish ‘immediate’ financial distress under the standard imposed by the Third Circuit, which itself is found nowhere in the Bankruptcy Code and is contrary to the persuasive authority from other Circuit Courts and directives of the Supreme Court of the United States. The Bankruptcy Code does not require a business to be engulfed in ‘flames’ to seek a reorganization supported by the vast majority of claimants.”

Several counsel for talc claimants applauded the decision, noting that barring a successful appeal, J&J would be forced to return to civil court to resolve the tens of thousands of cases against it.  In addition, on Thursday, August 2, counsel for talc claimants submitted a proposed dismissal order to the New Jersey bankruptcy court seeking to add a provision that would bar LTL from filing a third bankruptcy petition for at least six months.  Judge Kaplan requested short briefs from the parties outlining their positions on the proposed order, noting that he would not be inclined to place any restrictions on any subsequent filing by LTL.

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