The Legal Landscape Post-LTL Bankruptcy Dismissal and Implications for Talcum Powder Litigation

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. 

J&J Proposes $8.9 Billion To Settle Talcum Powder Lawsuits

Johnson & Johnson Proposes $8.9 Billion To Settle Talcum Powder Lawsuits

On April 4, 2023, Johnson & Johnson announced that it has earmarked $8.9 billion as part of a plan to cover settlements to tens of thousands of plaintiffs who allege the company’s talcum powder products caused cancer. This amount is more than four times the $2 billion the company had originally set aside in October 2021.

The revised talc settlement amount is part of a proposed reorganization plan to resolve both current and future claims relating to the company’s talc-based products. The finalization of the plan rests on two conditions. First, the Court must accept the settlement as well as a bankruptcy refiling by a J&J subsidiary, LTL Management. Second, the settlement must have the approval of at least 75% of the claimants, as specified in section 524(g) of the U.S. Bankruptcy Code.

According to Mikal Watts, one of the lawyers for the plaintiffs, enough claimants now support the revised talc settlement to induce the Court’s approval.

If the deal goes through, plaintiffs diagnosed with cancer before April 1, 2023, would receive their settlement amounts within a year, while payouts to future plaintiffs would be payable over the next 25 years.

LTL Management and the Texas two-step

In October 2021, J&J created LTL Management in an attempt to reduce its legal exposure in a maneuver known as a Texas two-step, where a solvent company transfers its tort liabilities to a newly created corporate entity that subsequently declares bankruptcy.

After LTL Management filed for a Chapter 11 bankruptcy two days after its formation, plaintiffs’ lawyers challenged the effort as an abuse of the bankruptcy system. They argued the filing was not in good faith, as J&J’s capitalization of more than $400 billion did not indicate insolvency, a necessity for establishing a bankruptcy claim. In response, J&J claimed the bankruptcy filing would be a more equitable resolution because it would help to ensure fairer settlement payouts.

In January 2023, a U.S. Court of Appeals dismissed the bankruptcy filing on grounds of illegitimacy. The Court’s rejection of J&J’s maneuver effectively prompted the company to revise its settlement proposal.

Potential health concerns surrounding talc products

Talc is a naturally occurring mineral and an ingredient in baby powder, a product closely associated with J&J. Though talc itself is harmless, it commonly occurs in the earth in close proximity to asbestos, a cancer-causing agent. Because of the proximity, asbestos can be in talc products. If applied to the genital region or inhaled, contaminated talc could potentially cause ovarian cancer or mesothelioma.

Concerns about potential asbestos contamination in talc have existed since the 1970s, and the claimants in the J&J talcum powder lawsuit allege the company has known about the connection for decades.

In October 2019, the U.S. Food and Drug Administration (FDA) completed a study in which it detected traces of asbestos in several talc products and worked with manufacturers, including J&J, to issue recalls.

J&J ceased sales of its talc-based baby powder in the North American market in 2020 and discontinued it worldwide in 2023. The company attributes its decision to “misinformation” surrounding the product and maintains that its talc-containing offerings are safe to use.


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