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Jones Day LLP’s help in creating Johnson & Johnson’s talc liability spinoff should disqualify the firm from serving as the unit’s lead bankruptcy counsel, the Justice Department and thousands of talc injury claimants said, Bloomberg Law reported. Jones Day “appears to be the architect” of J&J’s October corporate restructuring, the U.S. Trustee’s office said in a court filing on Wednesday. The move, known colloquially as the Texas Two-Step, allowed the manufacturing giant to isolate its exposure to more than 35,000 baby powder injury lawsuits and address those claims in chapter 11. By assisting J&J through the divisional merger and bankruptcy filing, Jones Day appears to lack the independence to be a fiduciary for the debtor, the U.S. Trustee told the U.S. Bankruptcy Court for the District of New Jersey. A law firm representing thousands of talc injury claimants also filed an objection Wednesday to Jones Day’s application to represent J&J unit LTL Management LLC. LTL Management filed for chapter 11 in October, seeking to use special federal rules that allow bankrupt companies to set up a trust fund to pay all current and future asbestos claims. The J&J unit faces consumer claims that its baby powder caused asbestos-related health problems, including ovarian cancer. It has proposed paying all alleged victims through a trust funded with at least $2 billion. The case was moved from North Carolina to New Jersey last month after a bankruptcy judge determined that the company lacked ties to the former state. A committee of talc injury claimants has called for a total dismissal of the bankruptcy.

A debate is raging in federal court over whether the owners of Purdue Pharma LP, members of the billionaire Sackler family, secured protection for themselves from future opioid lawsuits by abusing the U.S. bankruptcy system, Bloomberg News reported. U.S. District Judge Colleen McMahon is worried about the answer and its implications for her upcoming ruling on an appeal of the drugmaker’s opioid settlement. The deal would rout billions of dollars to opioid abatement efforts and see Purdue’s assets turned over to the states, cities and counties suing it over its role in the crisis. Particularly troubling to Judge McMahon is how aggressively Purdue’s owners siphoned cash out of the company after a 2007 guilty plea over the way it marketed OxyContin. Distributions skyrocketed to more than $10 billion -- though close to half went to taxes -- from 2008 to 2018, compared to about $1.3 billion in a more-than-10-year period preceding the plea. That’s important, because members of the family are receiving sweeping legal protection from future opioid lawsuits in exchange for a more-than-$4 billion contribution to the settlement. The releases would even bar people who don’t agree to them -- including a handful of state attorneys general -- from bringing civil suits against the family members over their role in the opioid crisis. Judge McMahon said Purdue’s owners may have “made themselves necessary” to the settlement by taking so much cash out of the company. The explanation for the uptick in cash transfers, according to lawyers for descendants of Mortimer Sackler and Raymond Sackler, is simple and in no way nefarious: Purdue started making a lot more money than it once did. Read more. 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

The judge overseeing the Boy Scouts of America’s chapter 11 case terminated a retired bankruptcy judge from his role mediating talks on the youth group’s sex-abuse compensation plan, saying that he had a stake in the outcome and was no longer impartial, WSJ Pro Bankruptcy reported. Kevin Carey, who entered private practice in 2019 after serving 19 years as a bankruptcy judge, can’t continue as a mediator in the Boy Scouts case, according to a ruling issued Tuesday by Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court in Wilmington, Del. Judge Silverstein said that she was concerned that Carey, while serving as one of two court-appointed mediators, had also been named as a special reviewer under the youth group’s chapter 11 plan, tasked with evaluating certain sex-abuse claims and their likely entitlement to insurance coverage after the Boy Scouts leave bankruptcy. 

Members of the Sackler family on Monday said billions of dollars they collected from Purdue Pharma before the company filed for chapter 11 was the result of extra cash, not part of a "secret plan" to abuse the bankruptcy system, Reuters reported. In court papers, lawyers for the Sackler family members, who controlled Purdue, rejected U.S. District Judge Colleen McMahon’s suggestion that the more than $10 billion Purdue paid out in the years leading up to the 2019 bankruptcy could amount to an abuse of the chapter 11 process. Around half of the money went to taxes or business investments, according to court documents. The Sacklers are alleged to have drained Purdue of cash over several years. When it eventually filed for bankruptcy in the face of lawsuits over the epidemic, the company needed Sacklers' money to settle the billions of dollars of legal claims. In return, the Sacklers were able to demand protection from the lawsuits. The Sacklers rejected the notion that there was any "scheme" to "deliberately weaken Purdue so it could not reorganize without" their financial contribution. There is no evidence to suggest the payments “were made as part of a secret plan” to abuse the bankruptcy system, the Sackler lawyers said. They called the idea “pure fiction.” McMahon is considering whether to overturn a bankruptcy court ruling that shields the Sacklers from liability over the opioid epidemic. If she finds that there is sufficient evidence of abuse, she could send the matter back to the bankruptcy court to reconsider the shield.

A bankruptcy judge cleared Mallinckrodt PLC of liability for allegedly charging anticompetitive prices to health insurers on its flagship product, rejecting their claims for $382 million in antitrust damages, WSJ Pro Bankruptcy reported. Judge John Dorsey of the U.S. Bankruptcy Court in Wilmington, Del., ruled yesterday that Humana Inc. and other health insurers had failed to prove that the high price charged by Mallinckrodt for its H.P. Acthar gel product after its chapter 11 filing last year stemmed from ongoing anticompetitive conduct. As a result, the insurers aren’t entitled to the $382 million in top-ranking administrative claims they had brought against Mallinckrodt in its chapter 11 proceedings, Judge Dorsey said. Humana and others had sued Mallinckrodt before its bankruptcy over price increases for Acthar, which is used to treat infantile spasms, multiple sclerosis and other ailments and costs roughly $38,000 a vial, up from about $50 in 2001. The insurer argued the cost of any wrongdoing should continue to accrue while Mallinckrodt is in bankruptcy and be treated as administrative expenses, which must be paid in full ahead of other creditors for the company to leave chapter 11. Humana has said it continues to pay about $7.5 million every month for the drug, a price it alleged is inflated by anticompetitive conduct.

The Archdiocese of Santa Fe, N.M., will hold another online auction beginning Jan. 31 to sell more parcels of land for a settlement with close to 400 victims of clergy abuse, the Santa Fe New Mexican reported. No settlement has been reached since the archdiocese filed for chapter 11 bankruptcy three years ago. The archdiocese hopes to raise enough money through property sales, donations, insurance and other methods to work out a group settlement, so each victim isn’t addressed in separate lawsuits. The online auction will conclude Feb. 7. The auction’s website, www.ASFbankruptcyauction.com, will be available on Jan. 3 and will list the parcels involved. SVN Auction Services of Florida and Louisiana will oversee the auction, as it did the first one in September. That auction generated about $1.4 million for the archdiocese, said Louis Fisher III of SVN, although officials are still closing on some of the transactions. Attorney Aaron Boland of Santa Fe, who represents one of the victims, said the archdiocese’s insurance policies — and how much insurance companies will pay out — are a much bigger matter than the auctions. Fisher said the second auction would include 427 properties packaged into 80 bundles in 16 New Mexico counties. He said he hoped the archdiocese could generate $2 million to $4 million, but that it was hard to estimate.

Johnson & Johnson is trying to figure out how to divide its supply chain and substantial financial holdings as part of a planned split into two publicly-traded businesses, the Wall Street Journal reported. The New Brunswick, N.J.-based healthcare and consumer-goods giant last month said it would split off its consumer-health business, which sells Tylenol medicines, Band-Aid bandages and Johnson’s Baby Powder, into a so-far unnamed company in 18 months to two years. The company is considering spinning out the unit and holding a stock offering. J&J’s consumer-health unit generated $14.1 billion in sales last year, compared with $45.6 billion for pharmaceuticals and $23 billion for medical devices, according to a filing with securities regulators. The company operated 90 manufacturing facilities globally at the end of 2020. J&J’s split won’t necessarily be more complex or challenging than those of other companies, but questions remain about how issues such as litigation will be handled, said Damien Conover, director of healthcare research at research firm Morningstar Inc. For example, it is unclear which business would handle future litigation relating to when the companies were one, he said. A spokeswoman for J&J declined to comment. The company in October placed into bankruptcy its liabilities for thousands of lawsuits tying talc-based products to cancer. “It’s pretty likely that litigation stays with the separate companies and the cash flows are strong enough to support that, but still, there’s a bit of uncertainty,” Mr. Conover said.

Regulators in California said on Thursday that they had fined Pacific Gas & Electric $125 million for its role in causing the Kincade fire, which injured four people and destroyed hundreds of buildings in 2019, the New York Times reported. As part of a settlement with the regulator, the California Public Utilities Commission, the company will pay the state $40 million and will forgo collecting $85 million it is entitled to from its customers in the state. The commission’s action followed a determination by investigators at the California Department of Forestry and Fire Protection that a PG&E transmission line caused the fire. PG&E said that it reached the settlement to more quickly compensate victims and so it could continue improving its systems, which have been responsible for many fires in recent years, including the deadliest one in state history, the 2018 Camp fire. Regulators and the courts have ordered PG&E to pay hundreds of millions of dollars in fines for starting wildfires. The utility filed bankruptcy in January 2019 after amassing $30 billion in liability related to fires. The Kincade fire burned almost 78,000 acres in Sonoma County over two weeks in October and November 2019.

A U.S. judge yesterday questioned whether members of the Sackler family that owned Purdue Pharma abused the bankruptcy system, as she considers whether to overturn a ruling that shielded the Sacklers from liability over the opioid epidemic, Reuters reported. U.S. District Judge Colleen McMahon in Manhattan said that she wanted more information about more than $10 billion that the Sacklers, according to court documents, received from Purdue between 2008 and 2018, when they left the company’s board. “I’m looking for whether there was abuse,” she said during a hearing. One Sackler family lawyer replied that there was no evidence to suggest abuse. The Sacklers have denied wrongdoing and did not themselves file for bankruptcy. They contributed $4.5 billion to the bankruptcy settlement in exchange for protection against future litigation. Judge McMahon's remarks came during arguments over appeals of a bankruptcy court’s approval in September of Purdue’s reorganization plan, which included releases of future opioid-related civil claims against the Sacklers. The U.S. Department of Justice’s bankruptcy watchdog and a small group of states are challenging the plan's approval, claiming the Sacklers should not receive the legal protections it provides. Judge McMahon suggested that the Sacklers may have protected their wealth by taking as much money from Purdue as they could in the years before the bankruptcy. “People were aware claims were going to be asserted. Advisors told them to take steps to protect the family,” she said.