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A Johnson & Johnson official testifying Wednesday in defense of its strategy to move litigation over its talc-based products to bankruptcy court indicated the company could increase a $2 billion settlement offer if the chapter 11 case is allowed to continue, WSJ Pro Bankruptcy reported. “The $2 billion is not the only thing, $2 billion is a start,” said John Kim, chief legal officer of bankrupt LTL Management LLC, the J&J subsidiary responsible for the talc litigation. He said the settlement offer “is just the beginning of the funding” and that, under an agreement with the subsidiary, J&J could increase its offer to reach an agreement in chapter 11 with injury claimants. “We hope to have a mediation, to come to a consensus and a plan, to get the appropriate amount put in to resolve these cases,” Mr. Kim testified during the third day of trial in the U.S. Bankruptcy Court in Trenton, N.J. Judge Michael Kaplan is considering injury claimants’ request to dismiss the J&J subsidiary from chapter 11 on the grounds that the bankruptcy was filed in bad faith to gain an unfair litigation advantage. J&J and its subsidiary have denied the allegation and said bankruptcy will provide plaintiffs a fairer forum for quickly resolving about 38,000 talc-injury lawsuits as well as future claims. Read more. 

In related news, Johnson & Johnson’s “perverse incentive” have tainted the company’s strategy to use bankruptcy to force a negotiated end to more than 38,000 lawsuits claiming the consumer giant’s iconic baby powder caused cancer, a restructuring expert testified in court yesterday, Bloomberg News reported. The company is using the chapter 11 case of a small unit J&J created last year to resolve billions of dollars in legal claims without facing any of the stigma or court restrictions of filing for bankruptcy itself, said Saul Burian, a managing director at investment bank Houlihan Lokey Howard & Zukin Inc. Burian has worked on some of the most recognized bankruptcy cases in recent decades, including Sears, Toys ‘R’ Us and Lehman Brothers. The baby powder lawsuits have been halted while the unit, LTL Management, seeks to settle all current and future claims. That gives J&J the upper hand because it can delay while cancer victims die, Burian said. “You have this perverse incentive where J&J can throw up their hands and say, ‘When you’re ready to settle, let me know,’” Burian told the federal judge overseeing the bankruptcy in Trenton, New Jersey, about 30 minutes away from J&J’s sprawling headquarters in New Brunswick. Johnson & Johnson denied that the talc in its baby powder causes cancer and that it is abusing the bankruptcy system by putting LTL into chapter 11. Read more. 

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 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.

Latam Airlines Group SA can send its $5.4 billion bankruptcy-exit plan to creditors for a vote, a judge said Tuesday, handing the airline a partial victory over debtholders who want to pursue alternatives, including a takeover by rival Azul SA, Bloomberg News reported. The decision means the company can seek final court approval for its reorganization plan in April and possibly exit bankruptcy several months after that, should it get support from securities regulators in Chile, where Latam is based. Bankruptcy Judge James Garrity rejected arguments that Latam’s proposal is so obviously flawed that it could never win final court approval. Judge Garrity’s decision still allows holdout creditors, including Avenue Capital Management and Pentwater Capital Management, to bring up their objections again when the reorganization comes back to the judge for a final decision. Several obstacles remain before Latam can ask Judge Garrity to bless the reorganization. Later this month, the judge has scheduled a hearing on whether to approve a restructuring support agreement. That deal would help Latam gets its plan approved by guaranteeing support from key creditors, but has drawn scrutiny because it calls for paying those creditors hefty fees. The company must also either refinance, or get an extension of a loan that it took out to help pay for its reorganization. That so-called debtor in possession loan matures in April, company attorney Lisa M. Schweitzer said during a virtual court hearing.