Johnson & Johnson talc unit’s Chapter 11 case will not be dismissed

By Sarah Lizee

Olympia, Wash., Feb. 25 – Johnson & Johnson subsidiary LTL Management LLC’s Chapter 11 bankruptcy case will not be dismissed for now, according to court documents filed with the U.S. Bankruptcy Court for the District of New Jersey.

“The court is aware that its decision today will be met with much angst and concern,” judge Michael B. Kaplan said in an opinion filed Friday morning.

“Nonetheless, the matter before the court is so much more than an academic exercise or public policy debate. These issues impact real lives.”

Kaplan said the court remains steadfast in its belief that justice will best be served by expeditiously providing critical compensation through a court-supervised, fair and less costly settlement trust arrangement.

During closing arguments of a trial held Feb. 14 through Feb. 18, the U.S. trustee suggested that if the case were not dismissed, the court should consider the appointment of a Chapter 11 trustee.

Kaplan said the record does not support a finding of the debtor’s prepetition or post-petition malfeasance, or other cause warranting the appointment of a Chapter 11 trustee and the attendant costs. But, he agreed that there is a need for independent scrutiny of possible claims while the case progresses through the appointment of a future talc claims representative, mediation and towards the plan formulation process.

Kaplan said the court will take these issues up at an upcoming March 8 omnibus hearing.

As previously reported, a handful of dismissal motions were filed with the court since the company’s entry into Chapter 11, one of which came from an official committee of talc claimants.

The debtor responded to the motions, arguing that LTL’s filing will resolve financial distress without dragging thousands of unrelated parties into Chapter 11, saving costs and time and maximizing value of the estate.

Prior to the bankruptcy filing, Johnson & Johnson subsidiary Johnson & Johnson Consumer Inc. was facing tens of thousands of talc-related lawsuits and billions of dollars in indemnity and litigation costs.

“Defending so many suits was never possible, and the plaintiffs’ bar threatened tens of thousands more over the coming decades,” LTL said in its response.

Two days before the petition filing, Johnson & Johnson Consumer was divided into two separate entities through a divisive merger under Texas law, and all talc liabilities were placed into LTL.

Those seeking dismissal of the case claimed the filing was made in bad faith. The committee said LTL was only created to shield Johnson & Johnson from liability for the production, marketing and sale of carcinogenic products for decades, and to remove valuable operating assets from the reach of a single group of creditors, the talc claimants.

But LTL argued that it is not bad faith to “simplify” a bankruptcy filing in the face of 38,000 tort suits and tens of billions of dollars in alleged current and future potential liability.

“Old JJCI’s pre-bankruptcy corporate restructuring did not change the good-faith nature of its filing,” LTL said.

The company said its bankruptcy proceedings give the talc claimants access to the entirety of Johnson & Johnson Consumer’s value, on surer footing than Johnson & Johnson Consumer itself could have provided, through a funding agreement backed by Johnson & Johnson.

LTL also said that with it filing bankruptcy rather than Johnson & Johnson Consumer, the proceedings have been “dramatically simplified, saving administrative costs and very significant complexity and maximizing the value of the estate.”

Johnson & Johnson is a consumer products company based in New Brunswick, N.J. The LTL Management subsidiary filed Chapter 11 bankruptcy on Oct. 14 under case number 21-30589.

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