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Johnson & Johnson Bankruptcy Settlement Faces Latest Test in New Jersey Court

Johnson & Johnson’s latest talcum powder litigation challenge exists in a New Jersey bankruptcy court where oral arguments concerning its proposed $8.9 billion settlement occurred during the final week of June 2023. Previously in the year, J&J subsidiary LTL Management attempted to file for bankruptcy in the effort to resolve J&J’s thousands of talcum powder lawsuits. This initial attempt proved fruitless, as the Third U.S. Circuit Court of Appeals ruled LTL Management was not in sufficient financial distress to be eligible for bankruptcy protection.

As a result, LTL filed for bankruptcy a second time on April 4, 2023. This second filing included agreements on the material terms of a proposed plan of reorganization that garnered the support of a substantial number of talc plaintiffs. This second attempt proposed for J&J to pay up to $8.9 billion net present value, over a 25-year period, to fund a trust to fully and finally resolve all current and future talc claims. This was a substantial departure from the $2 billion trust proposed in the initial bankruptcy filing. Notably, the plaintiffs’ firms representing over 60,000 current talc litigants voiced their support of the revised plan.

This second proposal has divided the plaintiffs’ bar. While it is clear that substantial support exists among some firms representing cancer patients, opponents claim J&J has created an illusion of widespread support that does not truly exist. One such opponent emphasized that, while supportive firms represent a majority of the current litigants, they do not have a single client who has agreed to support the deal. In response, proponents countered they would recommend the deal to their clients but would ultimately allow said clients to make their own decisions.

Counsel for J&J has defended its prior statements claiming additional support exists among unnamed plaintiffs’ firms. U.S. Bankruptcy Judge Michael Kaplan, who is presiding over the matter, ordered counsel to stop making certain statements about alleged support for the settlement. These included claims that LTL has the support of the “majority” of claimants or that the plaintiffs’ firms face retaliation for publicly supporting the settlement. Judge Kaplan also presided over the initial bankruptcy filing. There, the Philadelphia-based federal appellate court ordered him to dismiss LTL’s filing. It determined the entity was never in financial distress thanks to its agreement with J&J to backstop any settlement shortfall. In doing so, it reasoned LTL could pay claimants approximately $61.5 billion outside of bankruptcy and, as such, its Chapter 11 filing was not in good faith.

Judge Kaplan must now determine if LTL has fixed the legal flaws that doomed its first attempt. He again must examine whether the entity truly faces any real financial distress, whether it filed for bankruptcy in good faith, and whether J&J conspired to strip LTL of a valuable funding agreement in order to qualify for a new bankruptcy filing.

Nevertheless, J&J’s counsel purports that its proposed bankruptcy settlement offers a fairer and faster resolution for plaintiffs versus traditional litigation. It also emphasizes that J&J and LTL canceled the previous funding agreement and have replaced it with one backed by a J&J holding company worth $30 billion. In addition, J&J states it will only provide LTL with funding to pay cancer plaintiffs as part of the bankruptcy case. Meanwhile the cosmetic giant continues to state its talc products are safe and do not contain asbestos.

The hearing lasted all week and featured testimony on behalf of LTL and numerous plaintiff positions. Judge Kaplan stated he expects to rule on whether to dismiss LTL’s second action by early August. Stay tuned to Asbestos Case Tracker for updates.