Judge intends to move J&J bankruptcy to New Jersey

Johnson & Johnson's $2 billion bankruptcy strategy to end its liabilities in the nationwide talcum powder litigation hit another roadblock Tuesday after a North Carolina bankruptcy judge signaled his intentions to move the case to New Jersey.

U.S. Bankruptcy Judge Craig Whitley, who appears to be one of only two to rule in a bankruptcy case involving the corporate restructuring model J&J is using, said a seldom used rule allowed him to transfer the case.

"It is unusual for the court to invoke this rule on its own motion; however, this is a highly unusual case," Whitley said in an order to show cause as to why the case shouldn't be transferred.

Johnson & Johnson is facing 38,000 lawsuits in California and New Jersey claiming the company's baby powder contains asbestos and causes cancer. In an effort to limit liability using a Texas divisive-merger statute, J&J, which is headquartered in New Jersey, dissolved one of its baby powder-making subsidiaries this month and created two new companies: Johnson & Johnson Consumer Inc. and a North Carolina company called LTL Management LLC.

Johnson & Johnson Consumer Inc. will hold the company's business operations while LTL Management will "hold and manage" the talc litigation liabilities. Two days after its creation, LTL Management filed for Chapter 11 protection in the Western District of North Carolina. In re: LTL Management LLC, 21-30589 (W.D. N. Carolina Bankruptcy Ct., filed Oct. 14, 2021).

After reviewing the case, bankruptcy administrator Shelley K. Abel filed a motion Monday to move the case to New Jersey, calling J & J's choice of venue "manufactured."

"While venue may be (barely) proper in this district because the debtor is a North Carolina entity, nothing requires the court to give deference to the debtor's choice of venue when it is entirely manufactured," the administrator said.

Plaintiffs' attorneys objecting to the bankruptcy plan that would have J&J pay $2 billion into a fund in exchange for a shield against liability in the talc litigation, called the strategy the "Texas Two-Step."

Whitley said he believed only he and one other North Carolina bankruptcy judge had ever ruled on the propriety of the strategy and that an appellate court would eventually need to weigh in.

Commenting Tuesday, UCLA School of Law Professor Lynn M. LoPucki said a change in venue "would be potentially disastrous," for J&J, which clearly intended to file in North Carolina.

"The way the bankruptcy system works is that the debtor gets to pick its court," LoPucki said. "The debtor can file anywhere in the country and if there's a judge who wants the case, the debtor can file there. There's a huge strategic advantage for the debtor in this kind of system. If its case is transferred, J&J has lost that advantage. They won't be in a court that's trying to get cases and please the case placers -- the people who brought them the cases. They're in a court they tried to avoid, and the new judge will know that."

Also commenting Tuesday, David S. Kupetz of SulmeyerKupetz PC said courts may be taking a closer look at forum shopping in bankruptcy cases after Purdue Pharma founders, the Sackler family, convinced the only bankruptcy judge in White Plains, New York, to allow it to pay $4.5 billion to shield it from all current and future opioid lawsuits.

"At least politically speaking, the concept of forum shopping in bankruptcy in the mass tort claim context, is pretty controversial in light of the Purdue Pharma bankruptcy case," Kupetz said. "I think courts may, whether consciously or not, be more sensitive to the issue, when they know there's been a lot of press and attention and legislation now proposed, as a result of the Purdue pharma case."

Despite J&J winning a fair amount of cases since thousands of mesothelioma and ovarian cancer patients began filing suits in 2016, juries have returned billions of dollars in plaintiff verdicts, and lawsuits continue to pour in. Many of the settlements have been with individual plaintiffs for undisclosed amounts. Litigants claim J&J's talcum powder products contain asbestos and cause ovarian cancer and mesothelioma. J&J points to several studies that found no evidence its talc products cause cancer.

J&J's attorney, Gregory M. Gordon of Jones Day, did not respond to a request for comment Tuesday.