The New Jersey bankruptcy judge who declined to toss a Johnson & Johnson talcum powder liability unit’s Chapter 11 case hesitated to allow the litigants’ planned appeal to bypass district court review and go directly to the Third Circuit, saying he wasn’t sure he could certify an interlocutory order.
During a hearing on several matters in LTL Management LLC’s closely watched case, U.S. Bankruptcy Judge Michael B. Kaplan briefly addressed the motion filed by a committee representing mesothelioma patients to have his decision from last month declared a final judgment, so they can pursue a Third Circuit appeal.
In the challenged decision, the judge had rejected the talc claimants’ position that the Chapter 11 case amounted to a bad-faith maneuver meant to steer their lawsuits into the bankruptcy claims process and avert more lucrative recoveries through jury trials. The debtor is an entity created solely to assume more than 38,000 lawsuits brought by mesothelioma and ovarian cancer patients claiming their illnesses were caused by asbestos in J&J’s signature baby powder.
LTL Management filed for Chapter 11 protection in October 2021, just two days after it was created as a spinoff of J&J subsidiary Johnson & Johnson Consumer Inc. and saddled with billions of dollars in talc liability.
The restructuring took the form of a divisional merger process — endorsed by Texas law and dubbed the Texas Two-Step by critics — that has drawn fire from talc claimants and the Office of the U.S. Trustee.
In his Feb. 25 ruling rejecting the talc claimants’ motion to dismiss the bankruptcy, Judge Kaplan sided with LTL’s assertion that the Chapter 11 case served the valid purpose of addressing the massive talc liability pending in the court system.In defense of channeling the lawsuits through the bankruptcy claims process, LTL has pointed to the mixed bag of results delivered by juries. Some cases have generated billions of dollars in recoveries while others have left plaintiffs with nothing.
During this hearing, Judge Kaplan also addressed the U.S. trustee’s motion to appoint an examiner to probe the legitimacy of the divisional merger process and subsequent Chapter 11 filing. The U.S. trustee has questioned “whether prebankruptcy restructuring in which the debtor divests most of its assets to a related entity while retaining its tort liabilities is permissible under the Bankruptcy Code.”