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U.S. states that claim that Johnson & Johnson violated consumer protection laws should mediate their dispute with a unit of the drugmaker separately from individuals who claim that Johnson & Johnson talc products cause cancer, a Bankruptcy Judge Michael Kaplan said yesterday, Reuters reported. The subsidiary, LTL Management LLC, was formed in October to resolve thousands of lawsuits against J&J in bankruptcy court. Judge Kaplan approved the controversial strategy in February, allowing J&J to assign the lawsuits to LTL and then place LTL in bankruptcy. J&J maintains that its baby powder and talc products are safe and asbestos-free, and it has argued that the bankruptcy case is the fairest and most efficient way to resolve the 38,000 lawsuits alleging that the products cause cancer. In March, Judge Kaplan ordered LTL and talc plaintiffs to begin mediation on a potential settlement of the cancer claims. The attorneys general of 40 states sought to join the mediation, saying that no settlement can succeed without the states' input. The states have asserted claims far in excess of the $2 billion that J&J initially set aside for a future bankruptcy settlement. The magnitude of those claims could allow the states to crowd out other stakeholders during negotiations to resolve LTL's bankruptcy. Judge Kaplan said during a court hearing yesterday that the states' claims should be mediated separately and that he intends to appoint a mediator for those claims by May 24. The new mediator will be able to work with the talc victim mediators toward a comprehensive bankruptcy settlement, Kaplan said. Talc plaintiffs have argued that the bankruptcy filing was an abuse of the legal system, and they are appealing Kaplan's decision to allow the case to remain in bankruptcy court.

Junior creditors of LATAM Airlines Group SA are challenging its proposed reorganization plan, saying it improperly benefits the carrier's existing shareholders, such as Delta Air Lines, at their expense, Reuters reported. Objections were filed on Monday in Manhattan bankruptcy court ahead of a May 17 hearing at which LATAM’s lawyers will ask U.S. Bankruptcy Judge James Garrity to approve the proposal. The airline is seeking to raise $5.4 billion through its plan to exit chapter 11, which it filed two years ago as world travel halted amid the COVID-19 pandemic. If approved, the plan would put a group of creditors including Sixth Street Partners in control of the company. The committee representing unsecured creditors in the case has long opposed the airline’s restructuring strategy and has frequently urged it to consider alternative sources of financing. In an objection filed on Monday, the committee accused LATAM of conducting “a fundamentally flawed process” that violates bankruptcy law by elevating the rights of shareholders. It argued that the plan offers shareholders, including Delta and Qatar Airways, overly beneficial treatment in the form of discounted equity options and an "outsized role" in LATAM's corporate governance.

Washington has reached a $518 million settlement with drug distributors McKesson Corp, AmerisourceBergen Corp and Cardinal Health, ending a months-long trial over the companies' alleged role in fueling the opioid epidemic in the state, McKesson announced yesterday, Reuters reported. Washington opted out of a $26 billion nationwide opioid settlement involving the three drug distributors and Johnson & Johnson. It would have received up to $417.9 million from McKesson, Cardinal Health and AmerisourceBergen under that settlement, which was finalized in February. The state had accused the drug distributors of failing to prevent prescription pills from being diverted for illegal use. It had sought $38.2 billion to fund treatment. The distributors, who deny wrongdoing, said the settlement would provide meaningful relief to communities impacted by the opioid epidemic in the United States. Opioid overdoses have caused more than 500,000 deaths in the United States over the past two decades, according to the U.S. Centers for Disease Control and Prevention.

A San Antonio bankruptcy judge has dismissed two former Alliance of American Football players’ remaining claims in a lawsuit against the defunct league’s majority owner, the San Antonio Express-News reported. U.S. Bankruptcy Judge Craig Gargotta dropped the claims on Monday at the request of all of the parties. Their motion to dismiss stated the two plaintiffs — Reggie Northrup and Colton Schmidt — “no longer desire to pursue” any of their remaining claims against league majority owner Thomas Dundon of Dallas. Dundon, owner of the National Hockey League’s Carolina Panthers, agreed to the dismissal, which doesn’t affect a settlement — reached earlier this year — involving unpaid wages for the players. The Alliance of American Football, or AAF, started in 2019 but its inaugural season came to a halt after eight games when Dundon suspended operations. The league filed for bankruptcy liquidation about two weeks later in San Antonio. The San Antonio Commanders, one of the teams in the league, played its games at the Alamodome. Northrup and Schmidt sued the league, Dundon and AAF co-founder and CEO Charlie Ebersol for fraud, breach of contract and other claims stemming from the league’s collapse. The lawsuit, which the former players filed in a California court as a proposed class action, later became part of the bankruptcy case. The players alleged in their complaint that Ebersol launched the AAF as a technology business rather than as a football league. The league was developing gambling technology intended to allow viewers to bet on each player during a game using their mobile devices. It planned to license the technology to other leagues, the suit said. The AAF was established to use the players as “lab rats” to test the technology, the players said. MGM Resorts International, which invested $7 million to finance development of the technology, ended up with it under a 2019 sale approved by the judge.

Creditors of bankrupt Sears Holdings Corp. have run out of money to continue litigating billion-dollar claims against former chairman Eddie Lampert and a host of other defendants who they say stripped the company of valuable brands and real estate assets as the retailer spiraled into insolvency, Reuters reported. The Sears bankruptcy plan called for the estate to set aside $25 million to pursue the claims, but that money is gone, along with another $7.1 million owed to Akin Gump Strauss Hauer & Feld, lead counsel for the liquidating trust. Billions in claims and no money to litigate? That’s what litigation finance is for, according to an April 21 motion by the Sears creditors committee. The motion asks U.S. Bankruptcy Court Judge Robert Drain of White Plains, New York, to approve an agreement between Sears, the creditors’ committee and the litigation funder Bench Walk Advisors LLC for up to $35 million in financing to continue prosecuting two adversarial proceedings, one against Lampert and his alleged allies, the other against 139 former Sears shareholders. The deal would put Bench Walk first in line to collect from any recovery from the cases but limits the litigation funder’s initial entitlement to its principal plus 15% annualized interest. Bench Walk will only receive additional returns on its investment if the recovery is enough to pay off administrative, priority and secured claims against the Sears estate.

Medley Management Inc. is accusing law firm Lowenstein Sandler LLP of malpractice and professional negligence, alleging the investment business was poorly served when a subsidiary filed for bankruptcy and its longtime attorneys became “intoxicated” by fees, WSJ Pro Bankruptcy reported. Lowenstein had been representing Medley Management in corporate and securities matters for years, and said the law firm could also counsel subsidiary Medley LLC on its 2021 bankruptcy, according to a complaint filed Friday in New York state court. Medley Management said the potential conflicts “should have been apparent to any reasonable and prudent lawyer.” The lawsuit said Lowenstein should have told Medley Management that the parent and its bankrupt subsidiary needed separate independent directors and counsel, not just a restructuring subcommittee of the Medley Management board. The restructuring subcommittee’s fiduciary duties were to Medley Management shareholders, whose interests conflicted with those of Medley LLC creditors, according to the complaint. Lowenstein said yesterday that the lawsuit is without merit.

Lenders to KKR & Co.’s Envision Healthcare are considering litigation after the physician-staffing company moved roughly half its value beyond their grasp to secure a fresh source of financing, WSJ Pro Bankruptcy reported. Centerbridge Partners LP and Angelo Gordon & Co. led the first-lien financing deal, which moved an estimated $2.5 billion in collateral away from most of Envision’s existing lenders, the people familiar said. The term lenders, which met to consider legal options on Monday, said the deal came at their expense as the first-lien debt was mostly provided by third-party financial institutions that had little existing credit exposure to Envision. Envision said on Friday that it would borrow up to $1.3 billion in first-lien loans and $1.3 billion in second-lien loans that would help repurchase existing debt and reduce the company’s total indebtedness by roughly $600 million. The new borrowing is backed by AmSurg Corp., an ambulatory services unit that made up around half of Envision’s earnings in 2021, according to people familiar with the matter. Lenders to the company previously had collateral rights on AmSurg as part of their collateral package before the liens were released and roughly 80% of the subsidiary moved to a new affiliate. Lenders yesterday explored potential legal remedies against the company with law firm Kasowitz Benson Torres LLP. The original lenders allege that the transaction may not be allowed under the company’s debt documents. The lenders also questioned whether the company is still allowed to carry the same amount of outstanding debt in the remaining company after the assets are moved.

A federal appeals court on Friday weighed a multibillion-dollar settlement offer by the Sackler family members who own Purdue Pharma LP, questioning whether Congress has authorized a key feature of the drugmaker’s bankruptcy plan that would end civil opioid litigation against them, WSJ Pro Bankruptcy reported. A three-judge panel for the Second U.S. Circuit Court of Appeals questioned lawyers who crafted the proposed settlement, which offers the Sacklers broad legal protections through Purdue’s chapter 11 plan even though they haven’t filed personal bankruptcy. The deal is broadly supported by state attorneys general, opioid victims and other Purdue creditors but is being challenged by the Justice Department’s bankruptcy watchdog. The appeals court could cement the bankruptcy plan or scuttle it. In December, a federal judge in Manhattan threw out the proposed deal that would have extinguished civil suits against the Sacklers in exchange for roughly $4.5 billion from the family, which was opposed at the time by a handful of state attorneys general. While the appeal was pending, the Sacklers won unanimous support from state authorities for a revised settlement worth up to $6 billion.

Honeywell International Inc.’s fight with an asbestos bankruptcy trust has shifted into more than a financial dispute as plaintiffs’ lawyers request to seal from public view the names of law firms that filed claims against a Honeywell-backed trust, WSJ Pro Bankruptcy reported. The U.S. Bankruptcy Court in Erie, Pa., is scheduled next week to consider whether to bar disclosure of the names of law firms that Honeywell might link to alleged misuse of the compensation system for a Honeywell unit’s asbestos trust. A committee of asbestos plaintiffs’ firms is requesting the secrecy order ahead of a trial on the industrial conglomerate’s allegations of mismanagement against the compensation trust established by former subsidiary North American Refractories Co., bankrupted in 2002 by mass asbestos claims. While the trial is technically between the Narco trust and Honeywell, the company has put the conduct of asbestos law firms at issue, detailing alleged instances in which claimants’ lawyers submitted questionable affidavits to win compensation. The trust allegedly waved through payments for years that weren’t supported by competent and credible evidence of exposure to a Narco product, according to Honeywell’s complaint. Honeywell said in court papers on Thursday that the law firm names should remain public because the conduct of those law firms is relevant to the company’s case.