Attorneys representing the bankrupt talc unit of Johnson & Johnson summed up their case in defense of its Chapter 11 filing, telling a New Jersey bankruptcy judge that if the proceedings are dismissed, most talc claimants will face unacceptable delay and risk in the tort system.
The arguments came at the close of the evidentiary record in the trial over motions to dismiss LTL’s Chapter 11 case on bad faith grounds made by the two committees representing the talc claimants. The movants made their closing arguments before U.S. Bankruptcy Judge Michael B. Kaplan.
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 split subsidiary Johnson & Johnson Consumer Inc. 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 under which J&J would provide at least $2 billion in settlement funding in the initial stages of its bankruptcy.
During the trial, witnesses for LTL Management said it could take centuries for all the cases to work their way through the tort system at the rate the 49 already-completed trials took to reach conclusions in recent years.
The talc committees — representing claimants with ovarian cancer and mesothelioma they argue was caused by exposure to J&J talc products — argued that original JJCI had ample resources to make a settlement offer without resorting to bankruptcy, and that it could have done so without incurring any financial distress due to its $60 billion value and the $450 billion value of parent company J&J.
Cullen Speckhart of Cooley LLP, representing the mesothelioma committee, said extending the automatic stay of litigation to J&J, New JJCI and dozens of other parties is not allowed under the bankruptcy code because talc claimants have causes of action against all those parties independent of their claims against LTL.
Judge Kaplan committed earlier this year to issuing a ruling on the dismissal and the injunction motions by the end of February and took the matters under advisement.
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. 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 Judge Kaplan time to get up to speed in the case and make his own ruling on the matter.