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In Momentous Win For Plaintiffs, Third Circuit Dismisses J&J Talc Bankruptcy

  • March 5, 2023

In a big win for plaintiffs suing over Johnson & Johnson’s baby powder, an appeals court dismissed a Chapter 11 talc case that had halted trials across the country.

On Monday, the U.S. Court of Appeals for the Third Circuit found that the subsidiary, LTL Management, which had a $61 billion funding agreement with Johnson & Johnson, was not in financial distress when it filed for bankruptcy in 2021. The ruling reverses a Feb. 25 decision by U.S. Bankruptcy Chief Judge Michael Kaplan of the District of New Jersey.

Federal Judge Thomas Ambro of the U.S. Third Circuit. Federal Judge Thomas Ambro of the Third Circuit.

“Good intentions—such as to protect the J&J brand or comprehensively resolve litigation—do not suffice alone,” Judge Thomas Ambro wrote in the unanimous opinion. “What counts to access the bankruptcy code’s safe harbor is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not.”

The ruling is a big win for plaintiffs alleging in nearly 40,000 talcum powder cases that Johnson & Johnson’s baby powder caused ovarian cancer or mesothelioma.

“The doors to the courthouse, which had been slammed shut by J&J’s cynical legal strategy, are once again open, as they should be,” wrote Leigh O’Dell, a partner at Montgomery, Alabama’s Beasley Allen who is co-lead plaintiffs counsel in the talc multidistrict litigation. “Given that, we will immediately seek to return these cases to their rightful venues in federal and state district courts, efficiently schedule and conduct trials, and establish the liability of Johnson & Johnson for the deaths and disease suffered by thousands of women.”

Chris Placitella of Cohen, Placitella & Roth in Red Bank, New Jersey, is liaison counsel in talc multidistrict litigation and represents mesothelioma clients. Placitella said he expected filing new complaints immediately, saying, “it’s over.”

“With all due respect to

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Military personnel in 3M earplug suit ask judge to dismiss company subsidiary’s bankruptcy claim

  • March 3, 2023

Current and former U.S. military members suing 3M over allegedly defective military earplugs have asked a U.S. judge to dismiss 3M subsidiary Aearo Technologies’ bankruptcy, accusing the company of using bankruptcy to shield itself from litigation, which has grown into the largest mass tort in U.S. history.

The servicemembers’ group said late on Thursday that Aearo’s Chapter 11 bankruptcy should face the same fate as the bankruptcy of a Johnson & Johnson-created subsidiary, which was used to settle lawsuits alleging J&J baby powder and other talc products caused cancer. A federal appeals court dismissed the bankruptcy strategy this week.

3M Co faces more than 230,000 lawsuits accusing it of selling defective earplugs that caused hearing loss for U.S. military members. The company has sought to settle those lawsuits through Aearo’s bankruptcy.

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3M’s plan faltered when U.S. Bankruptcy Judge Jeffrey Graham in Indianapolis ruled that Aearo’s bankruptcy did not stop earplug lawsuits from proceeding against parent company 3M, which is not bankrupt. 3M is appealing that ruling.

Now the servicemembers suing want Graham to go a step further and end Aearo’s bankruptcy entirely. In a Thursday court filing, they cited a Monday ruling by the U.S. 3rd Circuit Court of Appeals in Philadelphia dismissing a bankruptcy case filed by J&J subsidiary LTL Management because neither J&J nor LTL were in “financial distress.”

J&J denies the cancer claims and is challenging the 3rd Circuit ruling.

U.S. military personnel suing 3M for allegedly <a href=defective earplugs have requested a judge dismiss a company subsidiary’s bankruptcy claim.”/

U.S. military personnel suing 3M for allegedly defective earplugs have requested a judge dismiss a company subsidiary’s bankruptcy claim. (REUTERS/Nicholas Pfosi/File Photo)

LTL, like Aearo, entered bankruptcy with an agreement that its non-bankrupt parent would fund a settlement of the lawsuits in bankruptcy.

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Must be broke, court says

  • February 21, 2023
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Johnson & Johnson’s baby powder. Photo: Justin Sullivan/Getty Images

You have to actually be broke to file for bankruptcy protection — at least that’s what a federal appellate court ruled Monday.

Driving the news: The court dismissed the bankruptcy filing by a subsidiary of corporate giant Johnson & Johnson. J&J created the unit — dubbed LTL Management — for the express purpose of holding legal liabilities and then filing for Chapter 11.

Why it matters: The ruling undercuts the emerging corporate strategy of using bankruptcy to excise costly liabilities when the organization itself is perfectly solvent.

  • “Because LTL was not in financial distress, it cannot show its petition served a valid bankruptcy purpose and was filed in good faith,” a three-judge panel said in its unanimous ruling.

Catch up quick: J&J faces some 38,000 lawsuits from people and their survivors claiming that the company’s talc-based powder caused cancer. J&J has repeatedly denied the allegation.

  • Critics say that transferring the litigation claims to the new subsidiary and placing that unit in bankruptcy was a tactic to cap J&J’s exposure to the liabilities.

State of play: At the time it put newly formed subsidiary LTL Management into bankruptcy in October 2021, J&J had an equity value of more than $400 billion, a AAA credit rating, and $31 billion in cash and marketable securities.

  • That means it almost surely had ample liquidity to pay LTL’s obligations — and can’t instead use the bankruptcy process, the court ruled. When LTL filed for bankruptcy, J&J was worth at least 25 times more than its estimated total product liabilities over
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INSIGHT-Corporate lawsuit dodge imperiled after court rejects J&J bankruptcy tactic

  • February 14, 2023

Attorney Greg Gordon, a partner at the Jones Day law firm, offered an innovative solution to Johnson & Johnson and other major companies that faced mountains of lawsuits alleging their products sickened or killed people: They could use the bankruptcy system to force all plaintiffs into one settlement.

It required fancy legal footwork — creating a subsidiary to shoulder all the liability, then putting that new company into Chapter 11. Plaintiffs’ lawyers attacked the gambit, known as the “Texas two-step,” charging it amounted to a bad-faith bankruptcy filing and a fraudulent ploy to shield the parent companies’ assets. Not so, Gordon told judges overseeing bankruptcies testing the novel strategy. The parent firms, he said, would give these subsidiaries plenty of money — billions of dollars — to compensate plaintiffs.

It turns out that Gordon’s play to reassure bankruptcy judges created a new legal problem. The 3rd Circuit Court of Appeals on Monday stopped the music on J&J’s two-step, ruling that its cash-flush subsidiary had no legitimate claim to bankruptcy protection because it wasn’t in “financial distress.” The ruling forces J&J back into trial courts to battle nearly 40,000 lawsuits and casts a cloud over the legality of the Texas two-step strategy. The plaintiffs allege J&J’s talc products, including Baby Powder, caused cancer, which the company denies.

The appeal court judges’ reasoning underscored what some legal experts call an inherent contradiction: bankruptcies being executed by multinational firms worth billions of dollars that were in little danger of running out of money to pay plaintiff-creditors. The panel dismissed the main argument underpinning Gordon’s and the companies’ primary defense of the strategy. The companies had contended the bankruptcies served the greater good of all parties, including plaintiffs, by delivering fair payouts more efficiently and equitably than the “lottery” offered

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