The Impact of LTL Management’s Bankruptcy Dismissal on Talcum Powder Litigation
The trajectory of talcum powder litigation has reached a pivotal juncture following the recent developments involving LTL Management LLC, a subsidiary formed by Johnson & Johnson (J&J) ostensibly to address the influx of lawsuits related to talcum powder. The second attempt by LTL to seek bankruptcy protection was dismissed by the Third Circuit Court of Appeals on grounds of insufficient “good faith,” since the entity was deemed not to be in genuine “financial distress,” particularly given its backing by J&J’s up to $61 billion funding agreement.
The subsequent bankruptcy petition by LTL, filed just two hours after further setbacks in the Third Circuit, was notable for its restructured financial support and an unexpected settlement offer to claimants. Despite this move, and a Chapter 11 plan supported by prominent law firms representing a substantial number of claimants, resistance remained from numerous law firms involved in the longstanding litigation, as well as from the U.S. Trustee’s Office, State Attorneys General, and other entities. The core argument against LTL’s actions emphasized that the subsidiary’s financial position had not deteriorated as claimed and that the entire filing appeared to be a tactical move to isolate liabilities.
The Honorable Judge Michael Kaplan of the New Jersey Bankruptcy Court, who had previously allowed LTL’s initial bankruptcy filing to proceed in February 2022, delivered a decisive ruling on July 28, 2023, rejecting LTL’s second bankruptcy petition. Despite acknowledging the potential merits of a Chapter 11 settlement plan for the resolution of claims en masse, Judge Kaplan ruled that LTL had not established the necessary financial distress to justify the filing.
J&J has indicated its intention to appeal Judge Kaplan’s decision, although prospects for a successful reversal appear uncertain given the strictures established by the Third Circuit’s prior ruling. Meanwhile, J&J could explore alternative resolutions, such as engaging directly with opposing law firms to negotiate a settlement, attempting to reach a global settlement despite the complexity of claimant numbers, or reverting to intensive litigation in both MDL and state courts.
The dismissal by Judge Kaplan also carries implications for law firms representing claimants. Under LTL’s proposed plan, compensation details were ambiguous, and the demarcation of claimants as “present” or “future” based on diagnosis dates could affect the timeliness and adequacy of payments. A more transparent and generous settlement, whether through bankruptcy or outside of it, could potentially increase payouts to claimants and provide a clearer pathway for those currently unrepresented.
Continued Developments in Talcum Powder Litigation
Post-dismissal, the focus shifts to accelerating the MDL process and initiating a series of state court trials for mesothelioma and ovarian cancer claims. The successor to Judge Freda Wolfson, Judge Michael Shipp, has encouraged ongoing settlement discussions, echoing Judge Kaplan’s sentiments. The impact of Kaplan’s dismissal has had substantial financial repercussions for J&J, with a significant decline in market capitalization, highlighting the potential benefits of reaching a comprehensive settlement.
Additionally, LTL has sought a direct appeal to the Third Circuit Court of Appeals, although the timeline for this process remains uncertain. Concurrently, J&J aims to challenge expert testimony through Daubert motions, a contention that is yet to be resolved by Judge Shipp.
Looking ahead, Judge Shipp has established deadlines for the submission of expert reports and dispositive motions, setting the stage for a series of crucial hearings that have yet to be scheduled. While exact trial dates remain unconfirmed, the groundwork has been laid for potential bellwether trials in the first half of 2025.
The litigation continues to evolve, with strategic moves on both sides shaping the path forward. The recent rulings and procedural developments suggest a dual approach: a push for advancement in court while simultaneously exploring settlement negotiations for a more favorable resolution for all parties involved.