Law360 (November 22, 2021, 6:59 PM EST) — Cancer patients seeking to hold Johnson & Johnson liable for asbestos-tainted talcum powder plan to fight a “bad faith” Chapter 11 case they say was launched solely to stave off about 38,000 lawsuits, a New Jersey bankruptcy court heard Monday.
During a conference in the Chapter 11 case of a J&J spinoff created to shoulder the company’s billions of dollars in mass tort liability, attorney David J. Molton of Brown Rudnick LLP indicated that the talc claimants committee intends to file a motion to dismiss the bankruptcy.
The spinoff, LTL Management LLC, and its subsequent bankruptcy petition were “engineered” for the “very purpose of shutting down the pending litigation,” said Molton, whose firm has applied to serve as co-counsel to the official committee of talc claimants.
Calling the spinoff the “elephant in the room,” Molton echoed talc claimants’ criticisms that LTL was formed through a bankruptcy maneuver known in legal circles as the “Texas Two-Step” in order to shield its abundant assets from mounting product liability litigation. The claimants have said the adjudication of their lawsuits in a bankruptcy court proceeding would substantially reduce their payouts.
Molton’s sentiments came in response to LTL attorney Gregory M. Gordon’s statement that the company wants to mediate “right away.” Gordon, of Jones Day, cited the “good progress” made in settlement talks in the Chapter 11 case of former J&J supplier Imerys Talc America.
But mediation would validate J&J’s “machinations and abuses of the bankruptcy system and its code,” Molton said.
U.S. Bankruptcy Judge Michael B. Kaplan said during the conference that he’s an advocate for mediation.
“To the extent we move forward in this case, it’s going to be a long haul to convince me that mediation won’t be critical,” the judge said.
“However, if parties aren’t aligned in their thoughts as to what they want to achieve in mediation, it’s a waste of their time,” the judge added.
Earlier in the hearing, Judge Kaplan said he intended “move the case forward effectively, efficiently and expeditiously.”
The management conference was LTL’s first in the Garden State, where the Chapter 11 case was transferred earlier this month from North Carolina.
LTL was formed last month when J&J subsidiary Johnson & Johnson Consumer Inc. divided itself into two new entities and assigned one with its talc assets — New JJCI, or the GoodCo — and the other with its billions in talc liability — LTL Management, or the BadCo.
The BadCo was then converted into a North Carolina corporation and filed for Chapter 11 in Charlotte two days later.
The corporate division process, dubbed the Texas Two-Step, derives from Lone Star State law that allows companies with substantial assets and liabilities to undergo divisive mergers and allocate assets and liabilities to successive entities. LTL said in its informational brief that the talc claims will be supported through funding agreements between J&J and New JJCI and J&J.
LTL defended its Chapter 11 case in an informational brief filed Oct. 14, calling it an “efficient and certain pathway to resolve all current and future cosmetic talc claims” while allowing J&J to continue operations and distribute “lifesaving therapies and devices.”
The lengthy brief said studies have failed to link talc and cancer, and said decades of examination by regulatory and health authorities have demonstrated the product’s safety.
LTL described the mixed bag of rulings courts have handed down in talc litigation, noting that J&J was hit with a $4.69 billion plaintiffs’ verdict in Missouri in 2018, yet went on to score six victories in asbestos lawsuits the past year. J&J warned that “unpredictable and wildly divergent damages awards remain a constant and overwhelming threat in the current tort system.”
“The global and equitable resolution of similarly situated claimants is a hallmark of the Chapter 11 process,” the informational brief said, noting that LTL is willing to explore mediation.
The tort claimants’ committee blasted the informational brief Friday in its own filing, saying it failed to describe the “devastating” nature of mesothelioma and ovarian cancer. “There are 38,000 stories,” the committee’s brief said, citing as an example a 50-year-old single mother who was diagnosed with both diseases and given six months to live.
The committee said documents revealed that J&J knew its products “sometimes tested positive for carcinogens” and had concerns as far back as the early 1970s, yet intentionally failed to warn regulators or consumers. LTL’s bankruptcy case is “untethered to any legitimate Chapter 11 purpose,” the committee said, stating its intention to move to dismiss the case as a bad faith bankruptcy filing and lodge other procedural challenges.
LTL is represented by Gregory M. Gordon, Dan B. Prieto, Amanda Rush, Brad B. Erens and Caitlin K. Cahow of Jones Day, C. Richard Rayburn Jr. and John R. Miller Jr. of Rayburn Cooper & Durham PA, Kristen R. Fournier of King & Spalding LLP and Kathleen A. Frazier of Shook Hardy & Bacon LLP.
The talc claimants committee is represented by Daniel M. Stolz, Donald W. Clarke and Matthew I.W. Baker of Genova Burns LLC, David J. Molton, Robert J. Stark, Michael Winograd, Sunni P. Beville and Jeffrey L. Jonas of Brown Rudnick LLP, Brian A. Glasser and Thomas B. Bennett of Bailey Glasser LLP, Melanie L. Cyganowski, Adam C. Silverstein and Jennifer S. Feeney of Otterbourg PC, Leonard M. Parkins and Charles M. Rubio of Parkins Lee & Rubio LLP and Jonathan S. Massey of Massey & Gail LLP.
The case is In re: LTL Management LLC, case number 21-30589, in New Jersey Bankruptcy Court.