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J&J Talc bankruptcy case: events leading to potential layoff battle


Background

Johnson & Johnson’s newly formed subsidiary, LTL Management LLC (“LTL“), filed for bankruptcy in the Western District of North Carolina on Oct. 14, 2021, with the primary purpose of resolving thousands of tort claims (and nearly 40,000 pending lawsuits) related to company talcum powder – LTL’s sole liability. LTL was formed two days before filing under a Texas law that allowed Johnson & Johnson’s subsidiary Johnson & Johnson Consumer Inc. to split into two new entities: one (LTL) attributed its billions of responsibility to talc and the other (“New JJCI”) Affected with its remaining assets. As part of the transaction, LTL also received certain assets, including approximately $ 6 million in cash and certain royalty streams, which the debtor believes will generate approximately $ 50 million in revenue per year over the next five years. . In addition, Johnson & Johnson and New JJCI have committed to: (a) fund a trust totaling $ 2 billion to pay current and future tac-related claims against LTL; and (b) pay all costs and expenses of LTL in the ordinary course of business (up to the full value of New JJCI).

Place

Almost immediately after filing, LTL came under scrutiny by multiple parties for filing in North Carolina versus New Jersey, where Johnson & Johnson is headquartered and where more than 35,000 cases talc-related issues are pending against Johnson & Johnson and its various subsidiaries. On November 10, 2021, Judge Craig Whitley of the Western District of North Carolina released a bench ruling bringing the LTL case to New Jersey District Bankruptcy Court. The judge noted that moving the case to New Jersey was the “natural decision” given “all the connections there” including the fact that this is the location of Johnson’s corporate headquarters. & Johnson, the principal place of business for other related Johnson & Johnson entities, thousands of Johnson & Johnson employees, and ongoing multidistrict talc claims litigation.

Third party stay

Immediately after his decision on the venue, Whitley J. granted LTL the request for a temporary extension of the automatic stay and a preliminary injunction prohibiting a 60-day talc dispute against not only the debtor, LTL, but also the non- debtor Johnson & Johnson and certain other “protected”. parties ”(which include certain subsidiaries and retailers of Johnson & Johnson). The judge noted that the 60-day extension would give New Jersey bankruptcy court time to consider the suitability of a new injunction under applicable Third Circuit law. In deciding the matter, Justice Whitley concluded that the claims against Johnson & Johnson and the other protected parties were “in fact claims against [LTL]”, Which“ would likely have an effect on the estate ”.

Dismissal

Once the case officially transferred to New Jersey, the official Committee of Talc Claimants (the “CCT“), who represents people who sued Johnson & Johnson alleging that its talcum products cause mesothelioma and ovarian cancer, filed a scathing initial statement, alleging, among other things, that the bankruptcy filing of LTL was “unrelated to a legitimate Chapter 11 purpose.” On December 1, 2021, the TCC then filed its first formal motion in the case, asking the court to dismiss LTL’s bankruptcy on “cause” under the Bankruptcy Code Article 1112 (b). The Third Circuit (and most other courts) hold that this cause exists if a case is not filed in good faith. In the Third Circuit, once a petition for Inadmissibility for lack of good faith is filed, the onus is on the debtor to establish that the filing was in good faith. This contrasts with the Fourth Circuit – which includes North Carolina where LTL originally filed – where the party seeking termination for valid reason a the burden of showing both the “objective futility” of the attempted reorganization and the “subjective bad faith” of the debtor, each by a preponderance of the evidence. In other words, the standard for dismissal is much higher in the Fourth Circuit, which is one of the reasons LTL argued the case should have remained in North Carolina.

In its motion to dismiss, the ICC makes several allegations in support of its argument that LTL did not file its bankruptcy case in good faith. The general theme of the TCC motion is that the debtor did not file for a legitimate purpose under the Bankruptcy Code, and LTL is a “mere instrument” of Johnson & Johnson, which created, owns and controls the debtor. The purpose of bankruptcy, TCC argues, is not to allow LTL to reorganize or make a fresh start, but to protect Johnson & Johnson and its assets. The TCC goes so far as to assert that the creation and split of LTL violated applicable law, as the sole purpose of the transaction was “to hinder and delay the talc claimants in pursuing their claims by separating liability of those claims of the assets supporting such claims.

Judge Michael Kaplan, who now oversees the LTL case in New Jersey, said he would set aside four days from February 15, 2022 for a hearing on whether to dismiss the debtor’s bankruptcy case. If the case is not closed, LTL noted its intention at the original case conference before Judge Kaplan to seek talcum liability mediation during the bankruptcy case, which Judge Kaplan said ‘he usually argued under the right circumstances.