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A bankruptcy judge refused an initial bid to pause talc litigation against Johnson & Johnson, setting the stage for a November hearing that will likely scrutinize the corporate maneuvering the company undertook to try to settle thousands of personal-injury lawsuits through a subsidiary’s chapter 11, WSJ Pro Bankruptcy reported. Judge J. Craig Whitley of the U.S. Bankruptcy Court in Charlotte, N.C., on Friday refused to extend to J&J a temporary restraining order that would have halted lawsuits against the consumer-goods giant during the two-week period before next month’s hearing. Instead, the personal-injury lawsuits will only be paused against the newly formed J&J subsidiary that was put into chapter 11 earlier this month and its corporate predecessor, the judge said during a hearing. The ruling effectively limits, at least until early November, the scope of the J&J subsidiary’s bankruptcy stay, a powerful legal tool that immediately halts all lawsuits against a company when it files chapter 11. The J&J subsidiary, called LTL Management LLC, is arguing that its stay should also include its parent company—even though it is not in chapter 11 — because they both have coverage rights under shared insurance policies and because the two corporate entities, though distinct, are “inherently intertwined” by the same talc-injury claims.

USA Gymnastics cleared another hurdle in its bankruptcy plan that would pay $400 million to sexual abuse survivors of team doctor Larry Nassar and insurance companies, Courthouse News reported. Bankruptcy Judge Robyn Moberly approved the organization's disclosure statement yesterday in the third hearing this month on the matter, after all objections to the plan or the method of approval were either resolved or held to be brought forth at a later date. “Based on the fact that there are no objections at this point to the disclosure statement or the proposed procedures for solicitation, we will approve both of them as motions,” Judge Moberly said. The proposed plan is a joint effort between USA Gymnastics and a court-appointed committee that represents sexual abuse survivors and aims to settle current and future claims related to Nassar and others connected to the organization who abused young girls. Under the plan, the more than 500 abuse survivors would receive payments from the settlement fund, and a reserve fund would be created to set aside money for future claims that surface over the next five years. The $400 million figure is far greater than the previously rejected offer of $215 million and less than the $500 million Nassar’s former employer, Michigan State University, agreed to pay survivors. Besides monetary compensation, the proposed plan also offers a pathway for USA Gymnastics to make itself a safer organization going forward. This includes a new "safe sport policy" to establish safety standards and accountability for its gymnastics clubs. The plan also calls for a streamlined process for athletes to report violations of the organization's policies, which includes an online portal where reports of misconduct can be filed. Now that the disclosure statement has been approved, creditors of USA Gymnastics will begin voting on the plan, with ballots due by Nov. 29. A report on the vote would be issued on Dec. 2, with final confirmation hearings set for Dec. 13 and 14.

A federal bankruptcy judge has again blocked 36 people who say they were sexually abused from pressing ahead with Child Victims Act lawsuits against Catholic parishes and schools, the Buffalo (N.Y.) News reported. Chief Judge Carl L. Bucki of the U.S. Bankruptcy Court in the Western District said in a written ruling this week that allowing the state litigation to move forward “would become an inherent distraction that promises to complicate negotiations” among the parties involved in the Diocese of Buffalo bankruptcy reorganization. Judge Bucki agreed with the diocese’s request to extend an injunction prohibiting litigation by 36 plaintiffs against parishes and schools until next August. He also ruled that the plaintiffs were free to continue litigating against individuals who may have abused. The diocese’s lawyers had argued that if any CVA cases against parishes and schools advanced in the state courts, it would inevitably involve the diocese in costly litigation and drain assets that otherwise would be used in settling with childhood sex abuse victims. Judge Bucki acknowledged that the diocese’s bankruptcy case was “extremely complicated,” with more than 900 people seeking damages for abuse claims and continuing litigation within the proceedings over the scope of insurance coverage for more than 5,000 policies issued by at least 70 carriers.

Bankruptcy Judge Craig Whitley sided with lawyers for more than 38,000 people who have sued J&J over claims one of the company’s most recognized products caused cancer and other health problems. The ruling, over whether the lawsuits can continue during bankruptcy proceedings, is just the opening move in what is likely to be a long court fight, Bloomberg News reported. Judge Whitley rejected J&J’s request for a temporary pause in the cases. But he will consider giving J&J a longer-term shield early next month when the parties come back for a hearing in which the company may be able to offer more evidence to support its position. “It is troubling we can’t find agreements” that back up J&J’s claims, Judge Whitley said during a hearing in Charlotte, North Carolina, on Friday. J&J was unable to find key documents that could prove a corporate restructuring in late 1978 moved responsibility for older talc claims away from the parent. After the number of lawsuits claiming harm from J&J products rose, the company set up a new unit that is responsible for paying off the claims and then put that entity into bankruptcy. The unit, LTL Management, will try to negotiate a trust fund that would end all current and future lawsuits related to J&J’s talc products. Earlier this year, the company paid $2.5 billion to about 20 women who blamed J&J’s baby powder for their ovarian cancer. Both the Missouri Supreme Court and the U.S. Supreme Court refused to overturn the verdict.

A bankruptcy judge said that he is unsure whether his North Carolina courtroom is the right venue for a Johnson & Johnson subsidiary to potentially settle tens of thousands of talc-related injury claims and suggested that the case could be moved closer to the consumer goods giant’s New Jersey headquarters, WSJ Pro Bankruptcy reported. Judge J. Craig Whitley of the U.S. Bankruptcy Court in Charlotte, N.C. also on Wednesday scheduled a November hearing over whether the J&J subsidiary placed into chapter 11 last week should be moved to a bankruptcy court in Delaware or New Jersey, where thousands of talcum-related injury lawsuits have been litigated for years. J&J formed the subsidiary, LTL Management LLC, on Oct. 12, and it filed for bankruptcy on Oct. 14. Filing bankruptcies in states far from corporate headquarters is common practice in large corporate restructurings, but feeds public perception that chapter 11 rules tilt the playing field in favor of large institutions, according to some legal researchers. LTL Management’s chapter 11 filing effectively shifts to North Carolina the fate of nearly 40,000 pending lawsuits alleging talc used in Johnson’s Baby Powder caused ovarian cancer, asbestos poisoning and other illnesses. J&J maintains its talc-based products, which it stopped selling in the U.S. and Canada last year, don’t cause ovarian cancer and haven’t contained asbestos. The new J&J subsidiary’s only connections to North Carolina are a bank account and its having been created there, Judge Whitley said. Its chapter 11 filing also raises questions about the corporate reorganization J&J undertook before LTL Management sought bankruptcy protection, the judge said. LTL Management said in a court filing that it has a Bank of America N.A. account in Charlotte. Read more. 

In related news, Johnson & Johnson offered $4 billion to settle with victims of its talc-based powder months before putting one of its units into bankruptcy -- twice the amount it’s now proposing to pay through a forced resolution, Bloomberg News reported. The $4 billion offer was aimed at ending more than seven years of litigation over claims its iconic baby powder caused different types of cancers. J&J faces nearly 40,000 suits targeting its talc-based products, and has agreed to about $3.5 billion in settlements so far, according to court filings. The world’s largest maker of health care products reportedly wanted to split the $4 billion between trusts established to settle current and future suits. The trusts would have been created as part of the 2019 bankruptcy case filed by Imerys Talc America Inc., J&J’s talc miner. Lawyers representing a substantial number of talc plaintiffs rejected the $4 billion settlement offer as part of the Imerys case as too low. Plaintiffs would have each received about $40,000 for their cases on average. J&J last made the proposal in March. After it was rebuffed, the company’s attorneys told their counterparts to prepare for a bankruptcy filing by a J&J unit later in the year. Read more. 

Mexican steelmaker Altos Hornos de Mexico (AHMSA) confirmed on Thursday that it is exploring the possibility of filing for chapter 11 protection under U.S. law for its subsidiary Minera del Norte, Reuters reported. The unit had been hurt by state power utility Comision Federal de Electricidad (CFE)’s decision to cancel coal supply contracts for power stations, AHMSA said in a statement, adding that a third of the mining operations were in the U.S.

Manzo Lobster & Oyster Bar hasn’t had it easy since opening in Denver in September 2020. Like much of the food industry, the seafood restaurant has seen a slowdown in traffic as a result of the pandemic and is struggling with staffing shortages, the Denver Post reported. A month after opening, the business was sued by the former tenant in its space. And last week, the restaurant owned by Richard Manzo filed for chapter 11 protection — in large part to stop ongoing litigation. According to the filing, Manzo Lobster & Oyster Bar — technically Seafood Junkie LLC — owes $258,009 to about 20 creditors and has assets worth $57,500. The restaurant said it had gross revenue of $208,354 in 2020. As of the Oct. 14 filing date, the company’s 2021 revenue was $1.1 million. The lawsuit against the restaurant was filed in October 2020 by Marg’s Taco Bistro, which alleged the restaurant failed to pay $30,000 for the transfer of a liquor license after the two entered into an asset purchase agreement in 2019. Four days after the bankruptcy was filed, the case was closed. Manzo Lobster & Oyster Bar filed chapter 11 bankruptcy under the new subchapter V, which was introduced last March and is an abbreviated version of the usual process that’s designed for small businesses.

Sen. Elizabeth Warren (D-Mass.) has proposed a new measure that would empower creditors in chapter 11 cases to pursue allegations of self-dealing by private-equity owners, rights that currently lie with corporate directors selected by those investment firms, WSJ Pro Bankruptcy reported. The senator introduced a revised version of her Stop Wall Street Looting Act yesterday, modifying a two-year-old proposal to rein in the private-equity industry and including fresh provisions targeting perceived abuses of the chapter 11 system by investment firms. In the bill’s new form, creditors’ committees in bankruptcy cases would have the exclusive right to pursue company insiders who have stripped assets, siphoned value or otherwise elevated their interests over those of lenders, suppliers and employees. As the Bankruptcy Code currently stands, corporate boards themselves have those rights, often delegated to an independent director of their choosing. These independent directors can carry significant weight with bankruptcy courts, which tend to defer to their findings that a particular transaction was fair or not. But some researchers allege that independent directors have an inherent conflict of interest, as they are typically appointed by the shareholders responsible for the potential misconduct at issue. Creditors pay the price for this structural bias, according to legal researchers who examined 770 large chapter 11 filings between 2004 and 2019 and found that independent directors sometimes stifled investigations, rejected potential legal claims and rushed negotiations with private-equity firms. Under Sen. Warren’s bill, independent directors “won’t be able to just tidy-up claims against insiders,” said an author of that study, Jared Ellias, a professor at the University of California Hastings College of Law. The new legislation would also give creditors the right to compel directors and officers of a bankrupt business to sit for an examination, subject to a judge’s approval, for potential conflicts of interest. Sen. Warren also proposed other changes to chapter 11, such as lengthening the statute of limitations to eight years from two years on unwinding transactions that defraud creditors. Read more.

Click here to read the bill text. 

A bankruptcy judge in Richmond, Va., on Tuesday said he would "quickly" decide the fate of a lawsuit against alternative legal services provider UnitedLex Corp. and Gary LeClair, the co-founder and longtime leader of defunct law firm LeClairRyan, Reuters reported. Bankruptcy Judge Kevin Huennekens asked few questions during a two-hour hearing Tuesday to consider amended claims by chapter 7 trustee Lynn Tavenner, who is overseeing the dissolution of once-leading Richmond law firm LeClairRyan. "I won’t be keeping everyone in suspense," Judge Huennekens said of his plans to decide the case. Tavenner alleges that a 2018 joint venture between LeClairRyan and UnitedLex added more debt to the struggling law firm while improperly handing UnitedLex control over LeClairRyan's operations and its intellectual property. The trustee also accuses LeClair of enriching himself prior to his firm's 2019 collapse. The complaint described LeClairRyan as a "Ponzi scheme" that used capital contributions from new lateral hires to pay out legacy shareholders. Both UnitedLex and LeClair have denied Tavenner's claims. Thomas McKee, a Greenberg Traurig shareholder representing UnitedLex and its related entities, called the allegations "vague" and "conclusory" at Tuesday's hearing.