Johnson & Johnson faced tough questions from federal appellate judges about whether placing a unit in bankruptcy to deal with more than 40,000 cancer lawsuits over its baby powder was legitimate, Bloomberg News reported. The three-judge panel in Philadelphia heard arguments about LTL Management’s chapter 11 case Monday and will decide later whether the case was filed in good faith, or should be thrown out because J&J and its units don’t face immediate financial distress. Should J&J and LTL lose, juries would once again hear talc cancer claims, leaving J&J facing legal and financial uncertainties as it fights individual cases around the country. Last year, the health care giant used a legal maneuver, known as the Texas Two-Step, to funnel the suits into a new unit without any operations. That unit, LTL, immediately filed for bankruptcy to block the litigation while trying to negotiate settlements. Cancer victims claim tainted talc in J&J’s iconic baby powder made them sick and want the federal appeals court to let their lawsuits go forward instead of being resolved as part of LTL’s chapter 11 case. The judges asked LTL’s lawyers whether the case was really filed to project J&J from the lawsuits, or to give the company an advantage in negotiating a deal to end them all, as cancer victims claim.“The timing really suggests you did this for litigation advantage,” Judge Luis Felipe Restrepo asked during an unusual, three-hour hearing on Monday. “You concede there is a litigation advantage?” If there is an advantage to bankruptcy, it’s incidental, LTL lawyer Neal Katyal said. “I think it’s a byproduct, but that it isn’t the reason” for the bankruptcy. Katyal was a former acting solicitor general in the Obama administration, meaning he argued cases before the U.S. Supreme Court. J&J, which denies its baby powder products cause cancer, argues LTL’s chapter 11 case is the only way of corralling talc litigation costs and ensuring victims get a fair payment. Bankruptcy Judge Michael Kaplan, who is based in Trenton, New Jersey ruled in February LTL’s bankruptcy was legitimate and a better solution than continuing to have juries weigh claims nationwide. Read more.
The propriety of settling mass torts through bankruptcy is the topic of one of the “Great Debates” at Bankruptcy 2022: Views from the Bench, on Friday, September 23, happening in person at Hogan Lovell’s US LLP in Washington, D.C., and also available virtually. For more information and to register, click here.
