J&J Talc Spinoff’s Ch. 11 Masquerading As Legit, Court Told

The Chapter 11 case of a Johnson & Johnson talc liability spinoff is “masquerading” as a legitimate bankruptcy in order to steer the personal care giant’s massive tort litigation away from the jury trial system, a law firm representing cancer patients told a New Jersey bankruptcy court.

LTL Management LLC’s Chapter 11 case came under attack again as Arnold & Itkin LLP, which represents more than 7,000 talc claimants, filed a brief supporting a tort committee’s motion to dismiss the matter as a “bad faith” bankruptcy.

The firm detailed a list of reasons for tossing LTL’s Chapter 11 case, including that the spinoff doesn’t even claim to be in financial distress and that the company itself has no other purpose than to “hinder and delay” talc creditors.

“This case is a litigation ploy masquerading as a legitimate Chapter 11 case” and J&J is a “corporate giant with a market capitalization of over $400 billion,” Arnold & Itkin said.

The firm, whose clients say their illnesses were caused by asbestos in J&J’s signature talcum powder, echoed the tort committee’s concerns that J&J created the spinoff and plunged it into Chapter 11 in order to cheaply resolve the claims through the bankruptcy resolution process. J&J, which denies any link between its talc products and cancer, has faced verdicts in the billions of dollars.

Under a divisional merger process, allowed by what Arnold & Itkin said Thursday is a “quirk” of Texas business law, J&J dissolved J&J Consumer Inc. and created two new entities, LTL and “new” JJCI, and divided assets and liabilities between them.

LTL assumed legacy talc liability, along with $6 million, certain royalty revenue streams and old JJCI’s rights under a funding agreement.

Under a funding agreement, J&J and new JJCI are obligated to cover administrative costs of the bankruptcy case and any trust established for the talc claimants, to the extent that LTL’s royalty revenues can’t meet the expenses.

Two days after the merger, LTL filed a Chapter 11 petition in North Carolina that was later transferred to New Jersey.

The creation of LTL, which has no employees, and its subsequent Chapter 11 filing created an “obvious question,” Arnold & Itkin’s brief said.

The firm went on to blast “conduct” it says exposes the Chapter 11 case as a mere litigation tactic to shield J&J and subsidiaries from the liability, noting that LTL is seeking confirmation of a bankruptcy plan that will “‘permanently protect'” the affiliates.

LTL has defended the Chapter 11 case as 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.”

LTL’s brief pointed to studies failing to show a link between J&J talc and cancer and also warned about the risk of “unpredictable and wildly divergent damages awards” if the litigation continued to be adjudicated in the jury system.

LAW360: https://www.law360.com/articles/1447689/j-j-talc-spinoff-s-ch-11-masquerading-as-legit-court-told

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