Talc Claimants Argue Bad Faith In J&J Unit’s Ch. 11 Trial

Talc injury claimants in the Chapter 11 case of Johnson & Johnson‘s talc unit told a New Jersey bankruptcy judge Monday that the company filed for bankruptcy as a litigation strategy after getting hit with more than 38,000 personal injury suits, and that the case should be tossed on bad faith grounds. During the opening day of a planned weeklong trial, an attorney for the ovarian cancer claimants committee, Jeffrey L. Jonas of Brown Rudnick LLP, said J&J executed a series of corporate moves in October to create a new entity — the debtor LTL Management LLC — and saddle it with the corporation’s talc liability, then move it into bankruptcy as a way to shield assets from recovery. “There’s no effort to maximize the value of the debtor’s estate,” Jonas said. “It’s quite the opposite. Johnson & Johnson filed this case to cap, or minimize, its talc liability and the amount they have to pay talc claimants.” To bolster the committee’s case that the bankruptcy was filed in bad faith, Jonas questioned LTL President Robert Wuesthoff about the consideration given by the new entity’s leadership about the kind of liability it was facing before deciding to file for Chapter 11 about two days after LTL was formed through a Texas merger transaction. Asked whether the board of LTL had asked J&J about how talc cases had been handled by the parent company prior to LTL’s formation, Wuesthoff said he and the rest of the board did not know how many cases had been settled or for how much, and never asked for that information before voting to commence the Chapter 11 case in October. Brian A. Glasser of Bailey Glasser LLP, representing the mesothelioma claimants committee, said during opening arguments that J&J had settled more than 6,800 talc suits before the LTL transactions and bankruptcy filing, paying out $966 million in those deals. If those settlement amounts were extrapolated to the entire body of talc claims J&J was facing, Glasser said, the company’s total talc liability would have been less than $6 billion. With a market capitalization of $450 billion and about $31 billion in cash on hand, there is no way J&J was insolvent, he said. J&J had provided a $60 billion funding pledge to the newly formed company, which would have been more than enough to cover those liabilities, Glasser told the court. Once the bankruptcy was filed, however, LTL only had immediate access to $2 billion in funding from its parent. “This bankruptcy is ridiculous on financial distress grounds,” Glasser said. “There was no near, medium or even foreseeable financial distress.” During his testimony, Wuesthoff said he was aware that 49 talc claims had been tried by the time LTL was formed and that some verdicts had been adverse for J&J, with one jury initially awarding nearly $4.7 billion to a group of 22 plaintiffs. That award was later reduced on appeal to $2.2 billion. Those 49 cases took eight years to adjudicate, Wuesthoof testified, meaning it would take thousands of years at that rate to get through all the talc claims in the tort system. “We decided this was the most equitable, efficient and fair way,” he said of handling the thousands of claims in an effort to avoid the lottery-like results seen in the tort system. LTL filed for bankruptcy in October, two days after it was created through a so-called Texas two-step executed under that state’s divisive merger laws. The transactions effected in the Lone Star State split Johnson & Johnson Consumer Inc. — Old JJCI — into two new entities called New JJCI and LTL. New JJCI retained the operating assets of J&J’s consumer products business, while LTL retained the talc liability and was subject to a funding agreement where J&J would provide $2 billion in settlement funding in the initial stages of its bankruptcy. LTL attorney Greg Gordon of Jones Day said during his argument that defense costs alone were forcing J&J to spend $250 million per year, and that if the company were forced to continue dealing with the claims in the tort system, those costs could surpass $100 billion without factoring in any adverse judgments. He said there wouldn’t be any evidence shown during the trial that J&J and LTL were not facing significant financial distress. “In contrast, you’re going to hear considerable evidence that Old JJCI and, as a result, the debtor were in significant financial distress based on the number of claims they were facing, the cost of defending those claims, the average verdict and the extended uncertainty,” Gordon argued. “You’re going to hear the situation in the tort system was untenable.” The Chapter 11 case was originally filed in North Carolina bankruptcy court, but a judge there ruled that it should be transferred to New Jersey, where J&J’s corporate headquarters and most of LTL’s principals are located. Before transferring the case, U.S. Bankruptcy Judge J. Craig Whitley enacted a preliminary injunction requested by LTL that paused the talc litigation against nondebtors J&J and other related entities. The injunction was designed to give U.S. Bankruptcy Judge Michael B. Kaplan in Trenton time to get up to speed in the case and make his own ruling on the matter. He will hear evidence on the injunction extension later this week. The talc claimants committees and other groups of talc plaintiffs have sought a dismissal of the Chapter 11 case, saying it was filed in bad faith. The trial is scheduled to resume at 9 a.m. Tuesday before Judge Kaplan. The ovarian cancer 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, Jeffrey L. Jonas, Michael Winograd and Sunni P. Beville of Brown Rudnick LLP, Melanie L. Cyganowski, Adam C. Silverstein and Jennifer S. Feeney of Otterbourg PC and Lenard M. Parkins and Charles M. Rubio of Parkins Lee & Rubio LLP. The mesothelioma talc claimants committee is represented by Cullen D. Speckhart, Michael Klein, Erica J. Richards, Lauren A. Reichardt and Evan M. Lazerowitz of Cooley LLP, Brian A. Glasser, Thomas B. Bennett, Kevin W. Barrett and Maggie B. Burrus of Bailey Glasser LLP, Jonathan S. Massey of Massey & Gail LLP and Arthur J. Abramowitz, Alan I. Moldoff and Ross J. Switkes of Sherman Silverstein Kohl Rose & Podolsky PA. LTL is represented by Gregory M. Gordon, Dan B. Prieto, Amanda Rush and Brad B. Erens of Jones Day and Paul R. DeFilippo, James N. Lawlor, Brad J. Axelrod, Lyndon M. Tretter and Joseph F. Pacelli of Wollmuth Maher & Deutsch LLP. The case is In re: LTL Management LLC, case number 3:21-bk-30589, in the U.S. Bankruptcy Court for the District of New Jersey.

By Vince Sullivan