%1

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.

Crypto exchanges FTX and Binance have made the leading bids for the assets of bankrupt crypto-lender Voyager Digital Ltd., but neither bid has been accepted yet, the Wall Street Journal reported. The current bid from Binance is about $50 million, slightly higher than the competing bid from FTX. Voyager, founded in 2019, operated a crypto lending platform that took in customer deposits, paid them interest and lent out the assets to other parties. It went public via a reverse merger in 2019. At the stock’s peak in 2021, the company’s market capitalization was $3.9 billion. At the time of its bankruptcy filing in July 2022, Voyager said it had total assets of $5 billion and total liabilities of $4.9 billion. FTX and Binance have emerged among the few winners in the crypto meltdown. Both have managed to increase their share of the trading market. FTX, owned by Sam Bankman-Fried, has been aggressively acquiring distressed assets during the downturn.

People suing Johnson & Johnson over the company's talc products urged an appeals court on Monday to revive their claims, saying that the profitable company should not be allowed to use a bankrupt subsidiary to block lawsuits alleging the products cause cancer, Reuters reported. They asked a panel of the Philadelphia-based U.S. Court of Appeals for the Third Circuit to dismiss the bankruptcy of J&J's subsidiary LTL Management, saying that LTL is a "concocted" corporation set up solely to stop them from getting their day in court. J&J, which maintains its talc products are safe, spun off LTL in October, assigned its talc liabilities to it and placed the newly created subsidiary into bankruptcy days later. That restructuring strategy, known as the "Texas two-step," paused about 38,000 lawsuits J&J was facing alleging that its baby powder and other talc-based products contain asbestos and caused mesothelioma and ovarian cancer. Critics, including lawmakers and legal experts, say J&J's bankruptcy maneuver could provide a blueprint for other big companies to avoid juries in mass tort lawsuits. Circuit Judge Julio Fuentes at Monday's arguments asked the cancer victims' attorney Jeffrey Lamken whether the bankruptcy court could provide a more efficient resolution of the claims than trying cases one at a time in other courts. 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, at Hogan Lovell’s US LLP in Washington, D.C. For more information and to register, click here.

Puerto Rican officials are re-examining a controversial deal to put private operators in charge of electricity service as the island territory’s power system faces another costly reconstruction and renewed fights with investors, WSJ Pro Bankruptcy reported. Hurricane Fiona’s damage to the electrical grid in Puerto Rico puts new pressure on Luma Energy LLC, the private venture hired last year to take over energy distribution from the government’s bankrupt, mismanaged power authority. The storm, which caused an islandwide blackout before even making landfall, comes at a perilous moment for Luma and the public officials who hired it, following a series of earlier outages, price hikes and missteps. Utility brigades were working across Puerto Rico on Monday to respond to Hurricane Fiona, Luma said. However, public support for the venture and its privatization of power service has been flagging for months, while Gov. Pedro Pierluisi and other officials who backed its hiring turn increasingly critical of its performance. Puerto Rico also called off mediated debt-restructuring talks last week with banks and bondholders, sparking a fresh legal battle about the energy system’s $9 billion in debt ahead of likely negotiations between the government and Luma, a joint venture between Quanta Services Inc. and Atco Ltd. Luma’s initial contract term expires in November and has been expected to be extended for another 15 years to give the company time to improve service and bring down costs. Government officials have considered options for seeking concessions from Luma along with an extension and are making contingency plans for the possibility that the contract is canceled early or negotiations for an extension break down.

Crypto billionaire Sam Bankman-Fried’s Alameda Research will return about $200 million worth of Bitcoin and Ether it had borrowed from insolvent Voyager Digital Ltd., according to a court filing from Voyager, Bloomberg News reported. The agreement to return the crypto was unveiled after Voyager’s request to have the loan to Alameda repaid was granted by a New York bankruptcy court, according to a separate filing late Monday. Alameda, the trading firm co-founded by Bankman-Fried, will pay about 6,553 Bitcoins toward principal and accrued fees and about 51,000 Ether by Sept. 30, the filing showed. Voyager, which is in the process of auctioning off its assets, will return the collateral tied to the loan, including 4.65 million FTT and 63.75 million SRM tokens, the filing showed. Alameda had tweeted in July that it was “happy to return the Voyager loan” and get its collateral back. Crypto exchange FTX, also run by Bankman-Fried, and Alameda in July announced plans to buy Voyager, but the embattled crypto broker dismissed it as a “low-ball” offer.

Troubled EV startup Mullen Automotive Inc. has emerged as the leading bidder for the assets of bankrupt competitor Electric Last Mile Solutions Inc., including a now-idle former Hummer SUV factory in Indiana, Bloomberg News reported. Mullen agreed to a stalking-horse bid of “almost $100 million in total consideration,” according to a Sept. 16 filing by the trustee in Electric Last Mile’s chapter 7 case. Competing bids are due by Oct. 3, and an auction will be held Oct. 7. Details of the offer come after Mullen, which aims to bring electric vehicles to market including a compact SUV and a sports car, announced it was acquiring a majority stake in rival Bollinger Motors in a cash-and-stock transaction. Mullen didn’t immediately respond to a request for comment. The firms are among a number of EV startups struggling to break through in a market dominated by Tesla Inc. at a time of overstretched supply chains and high costs. One day after the Bollinger deal was announced, Mullen, whose stock has declined about 90% this year, revealed it had fallen out of compliance with Nasdaq’s minimum share price requirements. The trustee has said that as many as 245 potential strategic or financial parties were solicited for the assets of Electric Last Mile, which filed for bankruptcy in June, and that 39 of those have executed non-disclosure agreements to perform due diligence and potentially make a bid. Securing Mullen as a stalking horse bidder “represents a tremendous benefit to the debtors’ estates and creditors,” he wrote in Friday’s filing.

Puerto Rico ended talks with power revenue bondholders without a negotiated deal on $9 billion in debt, leaving its bankrupt electric utility once again without a clear path out of court protection, WSJ Pro Bankruptcy reported. The mediated talks are expected to expire Friday, people familiar with the matter said. Puerto Rico’s financial oversight board, which steers its financial restructuring, has been in private negotiations with bondholders and other creditors of the Puerto Rico Electric Power Authority, known as Prepa. Puerto Rico has restructured most of its public debt, but the power utility remains in bankruptcy. Litigation between Prepa and its bondholders has been largely paused for months to allow for negotiations. Earlier restructuring agreements covering Prepa have also fallen through since 2017, when it followed other public agencies in Puerto Rico into bankruptcy. The latest round of talks came after Gov. Pedro Pierluisi in March canceled a prior deal covering Prepa and called for a renegotiation, reflecting the political sensitivity of raising electricity rates to repay bondholders. Prepa has turned over management of its energy grid to private operators but still owns a fleet of generators and has liability for bond and pension debts stemming from the decadelong recession that drove Puerto Rico to bankruptcy.

Johnson & Johnson’s use of bankruptcy to shift mass talc lawsuits against the company to chapter 11 will meet its most serious test yet before a federal appeals judge whose influential bankruptcy rulings shape one of the nation’s top corporate restructuring hubs, WSJ Pro Bankruptcy reported. Judge Thomas Ambro sits on the three-judge panel that will hear arguments Monday in a Philadelphia courtroom over an emerging corporate restructuring strategy where companies facing mass personal-injury litigation use a Texas law to create a new subsidiary with minimal business operations and make it responsible for tort liabilities before filing for bankruptcy. The chapter 11 filings by Johnson & Johnson subsidiary LTL Management LLC and others have carried more than a quarter-million personal-injury claims nationwide into bankruptcy court in recent years, stopping further trials on those claims in the civil justice system. J&J’s case has divided bankruptcy specialists and the appeal’s outcome could determine whether the consumer-health giant’s legal strategy could potentially be used more widely by other businesses facing expansive, and costly, personal-injury litigation. Judge Ambro spent more than 20 years practicing bankruptcy law in Wilmington, Del., before assuming his judgeship on the Third U.S. Circuit Court of Appeals in 2000. His background as a bankruptcy practitioner is a rarity among judges in the federal appeals courts, making him an authoritative voice on thorny legal problems arising from complex chapter 11 cases.