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A Johnson & Johnson subsidiary today will urge a judge to allow it to use the bankruptcy process to resolve tens of thousands of claims that the company's baby powder and other talc-based products caused cancer, Reuters reported. More than 38,000 plaintiffs have alleged the company's talc products caused ovarian cancer and mesothelioma, a deadly cancer linked to asbestos exposure. J&J maintains that its consumer talc products are safe and confirmed through thousands of tests to be asbestos-free. The company in October placed the talc claims into a newly-created entity called LTL Management LLC, which filed for bankruptcy protection in North Carolina. J&J used a legal maneuver known as the "Texas two-step," which allows companies to split in two through a so-called "divisive merger," with one part of the company keeping valuable assets while the other is saddled with liabilities. Bankruptcy Judge Michael Kaplan in New Jersey, who took over the LTL case in November when it was transferred from North Carolina, has scheduled a five-day trial to consider a bid by committees representing the plaintiffs to dismiss the bankruptcy case. The plaintiffs argue that allowing the LTL bankruptcy to proceed would unfairly cap the payout that could be available for people who have been harmed. The bankruptcy proceeding “makes dying cancer victims, even those with a judgment, scratch, claw, and fight, potentially for years, to be compensated from funds that would have been available" before LTL was split off, the plaintiffs’ lawyers wrote in December court papers. LTL countered in court filings that bankruptcy is a legal and appropriate response to an unpredictable and "potentially financially ruinous" wave of lawsuits. J&J has proposed giving the subsidiary $2 billion to put into a trust to compensate the 38,000 current plaintiffs and future claimaints. The company has said in court filings and in public statements that LTL could also tap a stream of royalty revenue valued at more than $350 million at the time of the bankruptcy filing. Before J&J split off LTL, it faced $3.5 billion in verdicts and settlements, including one in which 22 women were awarded a judgment of more than $2 billion, according to bankruptcy-court records. The talc lawsuits have been temporarily halted while J&J, which has a market value exceeding $446 billion, awaits the outcome of the LTL bankruptcy proceedings. Judge Kaplan has said he intends to decide whether or not to dismiss the bankruptcy case before the end of the month.

The judge presiding over the Boy Scouts of America bankruptcy has delayed the start of a trial to determine whether the BSA’s reorganization plan should be confirmed after an agreement with the official committee representing more than 80,000 men who say they were molested as children by Scout leaders and others resulted in several new plan provisions, the Associated Press reported. During a three-hour hearing Friday, Judge Laura Selber Silverstein pushed back the start of the confirmation hearing from Feb. 22 to March 9. The Boy Scouts had asked for only a one week delay, while plan opponents said they would need several weeks to analyze and respond to changes in the plan. The move follows Thursday’s announcement of a tentative agreement between the BSA and the official abuse claimants committee, known as the tort claimants committee or TCC. The committee was appointed by the U.S. bankruptcy trustee to represent and act in the best interests of all sexual abuse survivors. It had long maintained that the BSA’s plan to compensate child sex abuse victims was “grossly unfair,” representing only a fraction of the potential liabilities of insurers and local Boy Scout councils, and a fraction of their ability to pay.

The Archdiocese of Santa Fe made close to $1.7 million from its second online auction, an auctioneer’s representative said on Friday, the Santa Fe New Mexican reported. Money from the auction will go to a potential settlement agreement with more than 400 victims of child sexual abuse perpetrated over decades by clergy members with ties to the archdiocese. No agreement has been reached and a third mediator has been brought in for negotiations. The archdiocese filed for chapter 11 bankruptcy more than three years ago. Insurance companies are expected to pay a big chunk of any settlement reached. The archdiocese also is selling other properties and seeking contributions. Louis B. Fisher III of SVN Auction Services said that his company offered 86 packages of small properties. The auction ended Monday. SVN also held an online for the archdiocese last year, resulting in about $1.4 million.

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 Boy Scouts of America won pivotal support from a committee representing sexual abuse victims for a $2.7 billion settlement of their claims against the youth organization as it seeks to emerge from bankruptcy, according to a court filing, Reuters reported. Ahead of a Feb. 22 hearing before a U.S. bankruptcy judge, the official committee representing victims in Boy Scouts' chapter 11 case has agreed to drop its long-standing objections to the settlement, the filing showed. The Boy Scouts, founded in 1910, previously has apologized for the abuse and committed itself to equitably compensate people who were abused as children. More than 82,000 abuse claims have been filed against the Boy Scouts, which has called the deal the largest sexual abuse settlement in history. The Irving, Texas-headquartered nonprofit organization, which had earlier secured separate backing from tens of thousands of abuse victims, will still need to get the approval of U.S. Bankruptcy Judge Laurie Selber Silverstein to sign off on the settlement. In a vote tally announced in January, 73.57% of claimants supported the settlement plan, short of the 75% threshold the organization had been seeking. BSA has been in mediation with holdouts in recent weeks, working to bring in more support. Under the deal, the Boy Scouts would establish a $2.7 billion trust to compensate men who have said they were sexually abused as children by troop leaders. In 2020, the Boy Scouts filed for chapter 11 protection — allowing for reorganization under U.S. bankruptcy laws — in Delaware to resolve decades of abuse allegations.

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.

The Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action and Federal Rights to hold hearing today at 3 p.m. ET titled "Abusing Chapter 11: Corporate Efforts to Side-Step Accountability Through Bankruptcy." The witness list includes 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 more information and to watch a live webcast of the hearing, please click here. 

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. 

The U.S. Department of Justice's bankruptcy watchdog objected on Monday to the Boy Scouts of America's proposed reorganization plan and underlying $2.7 billion sex-abuse settlement, saying it provides impermissible legal protections to insurers and the bankrupt youth organization's local councils, among others, Reuters reported. The U.S. Trustee said in a court filing that the nondebtor releases provided to insurers and others, which have not filed for chapter 11, in exchange for contributions to the settlement are not authorized by bankruptcy law. "The plan lacks even a cursory discussion of why the non-debtor releases are necessary," the U.S. Trustee said yesterday's filing, while also noting the releases were so broadly written it was not clear who was covered by them. BSA filed for bankruptcy in February 2020 to resolve allegations by former Scouts spanning decades that they were abused by troop leaders as children. Since then, more than 82,000 abuse claims have been filed in the bankruptcy. The plan aims to resolve all of those claims through the $2.7 billion settlement, which will be funded by insurers, local councils (which are independent legal entities), and BSA itself, among others. Insurers, local councils, committees that represent abuse survivors, current and former BSA officers and employees, and organizations that chartered Scouting units and activities will be among those covered by the nondebtor releases. Anyone who personally committed or was alleged to have committed abuse is not protected.

The opposing sides in the Archdiocese of Santa Fe bankruptcy case are battling over whether certain insurance records should be sealed from public view, the Santa Fe New Mexican reported. Insurance coverage for the archdiocese is a key issue in the effort by victims and the church to reach an agreement in the case that involves more than 400 victims of clergy sexual abuse, most of them children. The chapter 11 bankruptcy case has dragged on for more than three years, and insurance coverage is expected to pay a big chunk of the undisclosed amount of money needed to settle. A Santa Fe attorney who represents several victims objected to confidentiality and sealing of records, contending in an interview yesterday that secrecy is what led to the tragedy of widespread priest abuse of children in the first place. “We’re here because of secrets that have been kept for years and years,” said attorney Merit Bennett. He said the request to seal documents amounts to “going backward in time. It needs to all be transparent.” He said that priests got away with molesting children for decades in part because they held community members’ secrets from the confessional and people were afraid to challenge them. Besides insurance coverage, the archdiocese has sought donations, sold some properties and held an online auction of small properties that ended yesterday. It was the second such auction. The first brought in about $1.4 million, likely a small fraction of the amount needed for a settlement.