This post was originally published on this site
https://i-invdn-com.investing.com/trkd-images/LYNXMPEJ390HW_L.jpg
(Reuters) -Johnson & Johnson’s second attempt to resolve talc lawsuits in bankruptcy should be dismissed as an unprecedented fraud designed to deny plaintiffs just compensation, lawyers representing cancer victims argued in a Monday court filing.
The attorneys contend J&J defied a January appeals court rejection of its first attempt to settle the litigation, noting that a J&J subsidiary refiled for Chapter 11 just two hours after a court dismissed its first bankruptcy. The lawyers blasted the move as the “largest intentional fraudulent transfer in United States history.”
Johnson & Johnson (NYSE:JNJ) is offering to settle all claims for $8.9 billion, up from its original offer of $2 billion.
The legal broadside challenged the company’s latest gambit as an unlawful abuse of the Chapter 11 system, echoing earlier objections to its first effort to resolve the lawsuits.
In October 2021, J&J executed a controversial legal maneuver known as a Texas two-step. The tactic involved dividing its consumer business in two and then offloading tens of thousands of talc lawsuits onto a newly created subsidiary, which almost immediately declared bankruptcy.
The plaintiffs allege J&J’s talc-based Baby Powder and similar cosmetic products caused ovarian cancer and mesothelioma. Reuters last year detailed the secretive planning of Texas two-steps by J&J and three other major companies in a series of reports exploring corporate attempts to evade lawsuits through bankruptcies.
The plaintiffs’ attorneys filed their brief on the eve of a bankruptcy hearing that kicks off its attempt to revive the gambit after the appeals court rejection. The 3rd U.S. Circuit Court of Appeals in Philadelphia shot down the tactic on the grounds that J&J’s subsidiary, LTL Management, could not justify its need for bankruptcy protection because it had no financial distress. The court cited J&J’s promise to give the companies an unlimited amount of money to settle lawsuits.
In response, J&J reworked its agreements to avoid the kind of large guaranteed funding it previously provided the subsidiary. But the new arrangements amount to a fraudulent transfer because they put tens of billions of dollars out of plaintiffs’ reach, the cancer victims’ lawyers argued in the Monday filing.
The filing highlights the mounting opposition from some plaintiffs lawyers to the new proposed settlement. For J&J, the stiff resistance will add to the difficulty of prevailing against inevitable challenges almost certain to cite issues similar to the ones an appeals court already used to reject J&J’s first subsidiary bankruptcy.
The company said in a statement that it remained confident the settlement would win approval. Erik Haas, J&J’s worldwide vice president of litigation, cited “significant support from multiple law firms representing more than 60,000 claimants for LTL’s reorganization plan.”
Haas characterized the opposition to J&J’s settlement as coming “from a small number of plaintiff law firms” involved in a case consolidating lawsuits in a federal court in New Jersey. Their resistance, he said, “begs the question of why they would prefer the tort system, where their clients have not recovered anything in most of the cases tried and where it would take thousands of years to litigate the remaining cases.”
The company maintains its talc products are safe and do not cause cancer. It has won the vast majority of talc cases that have gone to trial, though has also suffered losses, including one judgment that eclipsed $2 billion.
J&J has argued that bankruptcy provides the only forum to permanently resolve current and future talc lawsuits. J&J and its subsidiary have argued bankruptcy serves the greater good for all parties, including plaintiffs, by delivering settlement payouts more fairly, efficiently and equitably than in trial courts, where some litigants get large awards and others get nothing.
New financing arrangements leave the subsidiary without the kind of guaranteed funding that ran afoul of the appeals court’s ruling while still providing money for plaintiffs, J&J said.
In their bankruptcy-court filing Monday, attorneys for cancer victims opposing the agreement alleged J&J had fraudulently transferred $50 billion of assets away from LTL Management to get around the appeals court’s earlier ruling.
Eliminating a previous funding agreement that guaranteed money to the J&J subsidiary and replacing it with different financing arrangements unlawfully harmed creditors, the cancer victims’ attorneys said.
The attorneys also took issue with the J&J subsidiary’s explanation that the financial rearranging left talc claimants unharmed in the end because the new agreements provided money necessary to compensate them. If so, they argued, LTL Management still lacked financial distress when declaring bankruptcy – the same problem that underpinned the appeals-court rejection.
The plaintiffs’ court filing also disputes J&J’s claimed level of support for its proposed settlement. The deal is opposed by more than 100 law firms representing 40,000 claimants, they argued. The company created the appearance of support by signing agreements with law firms that “have never filed a talc-related lawsuit against J&J,” the opposing cancer victims’ lawyers argued.
Jim Onder, who represents 21,000 talc claimants and supports J&J’s settlement offer, said that it is not unusual for law firms to represent many clients whose cases have not been filed. That’s especially true for J&J talc cases, because LTL’s first bankruptcy stopped new lawsuits from being filed after October 2021, he said.
J&J has not provided a firm estimate of the total number of talc claims it faces. The company is attempting to address future lawsuits in addition to cases already filed against it.
The ultimate level of support will be crucial, as LTL Management must obtain agreement from 75% of talc claimants for a judge to approve its bankruptcy settlement. That threshold is the one required in asbestos-related bankruptcies, a higher bar than in most traditional court restructurings.
Plaintiffs have alleged in some lawsuits that J&J’s talc contained cancer-causing asbestos. J&J maintains its talc is safe, asbestos-free and does not cause cancer.
