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Judge Dismisses J&J Texas Two-Step Bankruptcy

Asbestos contaminated talc
Judge dismisses J&J Bankruptcy

On July 28, 2023 we posted on the Texas Two-Step (20 State Attorneys General Object to Georgia Pacific's Texas Two-Step to Avoid Asbestos Liabilities). We also briefly discussed Johnson and Johnson's ("J&J") latest, second, bankruptcy attempt in New Jersey. Shortly after that blog post, we learned Judge Kaplan of the Bankruptcy Court for the District of New Jersey dismissed that bankruptcy, thus again defeating J&J's attempt to abuse the bankruptcy system for a second time.

By way of a quick refresher, J&J did the so-called Texas Two-Step 2021 to use the bankruptcy system to avoid facing asbestos cancer and mesothelioma victims in court for their asbestos containing talc products. First, on October 12, 2021 J&J used Texas law to do a so-called "divisional merger" through which it created two new companies, LTL Management LLC ("LTL")and Johnson & Johnson Consumer Inc. (“New JJCI”). J&J then loaded New JJCI with all of its assets and it loaded LTL with all of its asbestos-related liabilities. J&J then reincorporated LTL in the Western District of North Carolina and, two days later on October 14, 2021, J&J caused LTL to file for bankruptcy protection.

The bankruptcy was subsequently transferred to the District of New Jersey, where the mesothelioma victim's attorneys attempted to get the bankruptcy dismissed. After losing their motion in the bankruptcy court, the mesothelioma victims were able to appeal to the U.S. Third Circuit Court of Appeals, which issued a landmark decision on March 31, 2023, dismissing J&J/LTL's bankruptcy. According to the Court of Appeals,

At base level, LTL, whose employees are all J&J employees, is essentially a shell company “formed,” almost exclusively, “to manage and defend thousands of talc-related claims” while insulating at least the assets now in New Consumer [J&J's new entity].

In re LTL Mgmt., LLC, 64 F.4th 84, 109 (3d Cir. 2023). The Court of Appeals then concluded, "Because LTL was not in financial distress, it cannot show its petition served a valid bankruptcy purpose and was filed in good faith under Code § 1112(b)." Id. at 110. As a result, the Third Circuit Court of Appeals dismissed the bankruptcy as a bad faith filing.

What did J&J/LTL do with this decision? They immediately shuffled some paper and refiled yet another bankruptcy petition, thus, again, needlessly delaying the law suits of thousands of cancer victims for another four months. But after more briefing and arguments in the bankruptcy court, Judge Kaplan finally found that J&J/LTL's second attempted bankruptcy was, likewise, filed in bad faith and dismissed the bankruptcy on July 28, 2023. In re LTL Mgmt., LLC, 652 B.R. 433, 436 (Bankr. D.N.J. 2023). Now, hopefully, the thousands of mesothelioma and cancer victims who have been patiently waiting (and dying) during the pendency of this Texas Two-Step debacle will finally have their day in court--or at least their families will.

Our hats are off to our very good friends at Levy Konigsberg, and at Kazan, McClain, Satterley & Greenwood, among many others, for their monumental work obtaining justice for countless J&J cancer and mesothelioma victims and for their persistent pursuit of justice.

Individuals who used talcum powder and talc-based products are at risk for asbestos exposure. Talc is mined, and those mines also contain the mineral asbestos that is mixed in with, and inseparable from, the talc. The presence of asbestos in talcum powder and talc products puts people who use these products, mainly women, at risk for developing mesothelioma as well as ovarian cancer. Harty Jewell, PLLC is committed to helping talc asbestos victims seek justice. If you or a loved one have been diagnosed with mesothelioma or ovarian cancer and have a history of talcum powder use, contact us. We can help.

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