J&J subsidiary ask bankruptcy judge to hault talc litigation

The subsidiary Johnson & Johnson created "to hold and manage" thousands of talc powder claims asked a bankruptcy judge in North Carolina Thursday to stay nearly 40,000 lawsuits nationwide, many in California.

"Without the requested declaration or injunction, claimants would be permitted to (and in fact, appear to be eager to) litigate, in other forums, the exact same talc claims that are being asserted against the Debtor in this Chapter 11 Case," the complaint reads.

J&J is facing billions of dollars in potential liabilities. Plaintiffs say its talc products contain asbestos that causes cancer.

Earlier this week, Bankruptcy Judge Craig D. Whitley told J&J attorneys that placing the holding company, LTL Management LLC, into Chapter 11 proceedings wasn't enough to halt the litigation. He said the company had to file the injunction request.

J&J's attorney, Gregory M. Gordon of Jones Day, said in Thursday's motion that Section 362(a) of the Bankruptcy Code, which governs automatic stays, prohibits the filing or continuation of any action seeking to hold other J&J entities liable for talc claims.

Allowed under a Texas divisive merger statute, J&J on Oct. 12, went through a corporate restructuring where an old J&J entity ceased to exist, and two new entities were formed: the debtor LTL and Johnson & Johnson Consumer Inc. Through this divisional merger, LTL received certain assets, and became solely responsible for the talc related liabilities, except for those related to workers' compensation.

J&J has agreed to fund LTL in amounts to be determined by the bankruptcy judge and said it would establish a $2 billion trust to settle current and future claims, including thousands consolidated into a federal multidistrict litigation in New Jersey and a Judicial Council Coordination Proceeding in California.

UCLA School of Law Professor Lynn M. LoPucki said there are two states, Delaware and Texas, that have a divisive merger statute like the one J&J used in its bankruptcy strategy.

"The way it works, is that if you are a corporation, and you owe debts, you can split in two and put your debts in the bad company and put what you say is enough money in the bad company to pay those debts and then the good company is free of the debts," Lopucki said. "Human beings can't do this. If this applied to human beings, you could get rid of your credit card debts. Just put your credit card debts in a separate entity with some money that you feel is sufficient to pay them and your debts would be gone! Then you could apply for new cards."

Brian Davidoff, a bankruptcy attorney at Greenberg Glusker Fields Claman & Machtinger LLP, said Whitley was clearly was correct in requiring that an adversary proceeding be commenced in order to request an injunction against a non debtor entity.

"The divisive merger allowed under Texas law is still a highly controversial question as to whether there is a fraudulent transfer under Bankruptcy Code Section 548," Davidoff said.

Whitley is expected to rule on the temporary restraining order Friday. In re: LTL Management LLC, 21-30589 (W.D. N. Carolina Bankruptcy Ct., filed Oct. 14, 2021).