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Johnson & Johnson should be blocked from using bankruptcy to force an end to 38,000 lawsuits by people who claim the company’s iconic baby powder gave them cancer because the consumer giant has a “perverse incentive” to avoid a deal, lawyers for victims said Thursday at the close of a trial on the company’s legal strategy, Bloomberg News reported. Lawyers for J&J and cancer victims wrapped up four days of testimony about whether the company abused federal chapter 11 rules by shunting all the claims into a new unit and putting it into bankruptcy in order to halt the suits and force a negotiated settlement. The company argued that bankruptcy is fairer to cancer victims because conducting 38,000 jury trials would take thousands of years at the current rate of 10 per year and cost as much as $190 billion. Instead, the company wants to set up a victims trust with at least $2 billion that would take responsibility for resolving all current and future claims. On Wednesday, Saul Burian, an expert who was hired by a committee representing people suing J&J to examine the LTL bankruptcy filing, told the court that J&J is trying to temporarily block the lawsuits without facing any of the stigma or court restrictions of filing for bankruptcy itself. The baby powder lawsuits have been halted while the new unit, LTL Management, seeks to use bankruptcy protection to settle all current and future claims. That gives J&J the upper hand because it can delay while cancer victims die, Burian said. Bankruptcy Judge Michael Kaplan has said he will try to decide by the end of February whether to dismiss the bankruptcy case. Tomorrow the two sides will be back in court for a related hearing on whether J&J should continue to be shielded from lawsuits if the bankruptcy is not dismissed. “LTL’s objective is to reach a fair and equitable resolution for claimants through a plan of reorganization and create a reasonable framework to address the unprecedented number of existing and future talc-related claims,” a representative for J&J said in an emailed statement. “We disagree completely with Mr. Burian’s testimony and stand ready to go to mediation immediately.”

A court-appointed mediator will soon shed fresh light on the status of talks between members of the Sackler family and states opposing Purdue Pharma LP’s sweeping opioid settlement, Bloomberg News reported. U.S. Bankruptcy Judge Shelley Chapman, who is overseeing the talks, will file a report no later than Friday providing her outlook on the mediation, a lawyer for Purdue said during a virtual court hearing Thursday. In two recent reports, Chapman said the Sacklers and states were making substantial progress toward a larger settlement. The court-ordered mediation was scheduled to expire yesterday. Judge Chapman might request additional time for talks, Purdue’s lawyer, Marshall Huebner, said in the hearing Thursday. Members of the Sackler family who own Purdue are said to have mulled adding an additional $1 billion to the existing settlement proposal, which would bring their total contribution to more than $5 billion, Bloomberg previously reported. In exchange, the handful of states that succeeding in overturning the current proposal on appeal would drop their opposition to the deal.

A health-care group is poised to become the new owner of bankrupt Watsonville Community Hospital after no other qualified bids for the facility were received, Bloomberg News reported. Pajaro Valley Healthcare District Project, a not-for-profit group that includes Santa Cruz County and the city of Watsonville, will take over the hospital if the sale is approved, according to court filings. An auction scheduled for Thursday was canceled. Watsonville filed for bankruptcy Dec. 5 after years of losses heightened by the pandemic. It’s one of thousands of facilities struggling to pay the bills as they treat some of America’s poorest patients. Watsonville lies in the midst of one of California’s vast produce farming areas, and most of its population is from Latin America. Gov. Gavin Newsom (D) signed a bill creating the Pajaro Valley Healthcare District earlier this month. California created health-care districts to provide care in under-served areas, and 54 of the state’s 77 districts are in rural areas, according to the Association of California Healthcare Districts. It has the authority to issue bonds. A sale hearing is scheduled for Feb. 23, with a Feb. 21 deadline for objections.

Johnson & Johnson adopted its controversial strategy for battling cancer claims tied to baby powder after a $2 billion court loss sparked concern that the company’s perfect credit rating could be damaged by the growing number of similar lawsuits, a retired J&J treasurer testified, Bloomberg News reported. Michelle Ryan exchanged emails with credit rating firms previewing the company’s bankruptcy options last year before the court strategy was implemented, according to records shown Tuesday in a federal trial on whether that tactic is legitimate. Through the maneuver, J&J shunted all its baby-powder liabilities into a separate unit and then put that entity in bankruptcy. Victims suing J&J have asked U.S. Bankruptcy Judge Michael Kaplan in Trenton, New Jersey to dismiss the chapter 11 filing of the unit, LTL Management, arguing that case wrongly manipulates the bankruptcy system. The legal strategy would force a negotiated end to more than 38,000 lawsuits alleging that the talc in baby powder causes cancer. Should J&J lose, victims would be free to resume jury trials, potentially exposing the company to billions in additional payouts. The consumer giant says that it filed bankruptcy to create a fair and efficient process for paying all current and future talc claims. Advocates for cancer victims say the bankruptcy is just a way for J&J to cap how much it has to pay out.

Banks led by Barclays Plc have lost millions of dollars of their own money plus wiped out fees from underwriting more than $1.2 billion of bonds and loans for Covis Pharmaceuticals Inc. that proved particularly hard to sell, Bloomberg News reported. The banks were already stuck with more than $300 million of loans to the company that they couldn’t sell, and have now sold another $945 million of loans at a steep discount to face value, according to people with knowledge of the matter. The weak demand for the company’s debt is enough to erase more than $20 million of underwriting fees that banks also including HSBC Holdings Plc and Mizuho Financial Group Inc. were due to receive on the deal, plus pile on additional losses for the banks beyond that. The loss is the latest sign that borrowing is getting a little harder for some companies as the Federal Reserve and other central banks globally prepare to tighten the money supply. Although banks have been minting money since 2020 from underwriting bonds and loans during a period of ultra-low interest rates, the easy money there may be coming to an end. A series of sales have been withdrawn recently, including two European offerings on Friday.

Private-equity firms have been buying hospitals in increasing numbers over the past decade. Several relied on an Alabama real-estate company to help pay for their purchases, the Wall Street Journal reported. Medical Properties Trust Inc. was willing to buy the bricks and mortar, and lease the facilities back to the hospital operators. That provided financing for the deals and helped some of the private-equity firms take money out of their investments. As a result, the Birmingham-based company became one of the nation’s biggest owners of hospital property. The real-estate investment trust, or REIT, offered investors an appealing story: It had long-term leases with tenants that provide essential services, and it paid a lucrative dividend. Yet as the company grew fast and bought more properties, it faced large losses at its biggest tenant, financial filings show. Steward Health Care System LLC accounted for 30% of the company’s revenue in 2020, according to a filing by MPT with the Securities and Exchange Commission. Steward lost more than $800 million between 2017 and 2020, its financial statements show, with COVID-19 adding to its financial challenges. Since the pandemic began, MPT has struck a series of deals involving Steward and its chief executive that together resulted in hundreds of millions of dollars flowing from MPT to Steward. Former MPT employees familiar with the company’s transactions said they saw deals with Steward as a way for MPT to provide it with cash as it notched losses, which in turn helped Steward make its rent payments and kept MPT growing. In response to questions for this article, MPT said that during the pandemic it collected almost 98% of rents and interest payments and that its financial results demonstrate the success of its strategy.

Members of the billionaire Sackler family that own Purdue Pharma LP are weighing whether to add $1 billion to the OxyContin-maker’s faltering opioid settlement bid in an effort to win over holdouts, Bloomberg News reported. The move would bring the family’s total contribution to $5.325 billion to get a handful of state attorneys general to drop their opposition to Purdue’s bankruptcy plan. In return, the states would abandon appeals of the Sacklers’ demands to be freed from liability in current and future opioid lawsuits. Purdue and other companies involved in the opioid industry face thousands of lawsuits by states and municipalities that allege they helped create a crisis that’s claimed hundreds of thousands of lives in the U.S. Most of the cases are still pending, though some companies, including Johnson & Johnson and McKesson Corp., have proposed broad settlements. The latest development is a result of court-ordered mediation that came after a judge in December threw out the original settlement deal over litigation releases granted to Sackler family members. That ruling came after some states appealed the deal, saying Purdue’s owners shouldn’t get lifetime immunity from suits targeting them for the company’s role in the U.S. opioid epidemic. U.S. Bankruptcy Judge Shelley Chapman — serving as mediator in the Purdue case — said earlier this week the family and states are “even closer” to a deal than before. Chapman asked Judge Robert Drain, who is overseeing Purdue’s bankruptcy, to extend the mediation to Feb. 16.

The Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action and Federal Rights held a hearing yesterday titled "Abusing Chapter 11: Corporate Efforts to Side-Step Accountability Through Bankruptcy." Witnesses testifying at the hearing yesterday included Hon. Judith K. Fitzgerald of Tucker Arensberg, P.C. (Pittsburgh), Prof. David Skeel of the University of Pennsylvania Law School, Kimberly Ann Naranjo of Sandy, Utah, Paul H. Zumbro of Cravath, Swaine & Moore LLP (New York) and Kevin C. Maclay of Caplin & Drysdale (Washington, D.C.). For prepared testimony and to watch a replay of the hearing, please click here. 

In related news, an article yesterday by WSJ Pro Bankruptcy was entered into the hearing record highlighting how a handful of large, profitable corporations are using the “Texas Two-Step” strategy to access U.S. bankruptcy courts, unlocking powerful legal tools for settling thousands of asbestos lawsuits for a fraction of what juries might force these companies to pay. The new legal tactic is shifting the balance of power toward corporate defendants Johnson & Johnson, Georgia-Pacific LLC as well as U.S. units of Ireland’s Trane Technologies PLC and France’s Compagnie de Saint-Gobain SA, which have corporate affiliates accused of previously selling products that contain asbestos, a cancer-causing mineral. J&J, Georgia-Pacific, Trane and Saint-Gobain haven’t filed for bankruptcy. But they have used a Texas law to shift at least 250,000 personal-injury cases to bankruptcy court through newly created subsidiaries with limited business operations, a strategy developed by law firm Jones Day, court records show. The legal strategy will be put on trial in a New Jersey bankruptcy court later this month as personal-injury lawyers seek to dismiss the bankruptcy case filed in October by a J&J subsidiary, LTL Management LLC, to drive a settlement of roughly 38,000 cancer lawsuits over its talc-based products. Read more.

Click here to read a letter submitted to the subcommittee by law professors concerned by the “Texas 2-Step” strategy, which was recently used by Johnson & Johnson to spin off its Talc-related liabilities from the rights of its assets and to file a new shell corporation, LTL Management LLC, for chapter 11 bankruptcy. 

Members of the billionaire Sackler family that own Purdue Pharma LP are “even closer” to a deal that would increase their contribution to the OxyContin maker’s embattled opioid settlement, a court-appointed mediator said in a report yesterday, Bloomberg News reported. The family and a handful of state attorneys general who have been fighting Purdue’s opioid settlement are closing in on a deal that would provide new money on top of the $4.325 billion the company’s owners already pledged as well as “certain material non-economic terms,” U.S. Bankruptcy Judge Shelley Chapman, who is overseeing the talks, said in her report. Judge Chapman asked U.S. Bankruptcy Judge Robert Drain, who is overseeing Purdue’s bankruptcy, to extend the mediation to February 16. Purdue’s settlement would let the company resolve trillions of dollars in claims against it over its role in the opioid crisis. The accord calls for handing nearly all of the drugmaker’s assets over to the states, cities and counties suing it for its handling of OxyContin and would provide billions of dollars to anti-addiction programs. But it would also protect Purdue’s owners from future opioid lawsuits, a dynamic that has drawn the ire of some state attorneys general, politicians and personal injury victims. Attorneys general from eight states and the District of Columbia, along with an arm of the U.S. Justice Department, succeeded in overturning the settlement on appeal after Purdue’s bankruptcy judge approved it last year.