J&J Talc Creditors Look to Sue Over Terminated Bankruptcy Funding

A cancer victim group asked for standing to sue Johnson & Johnson over the company’s termination of a $61.5 billion funding agreement with its bankrupt talc liability unit, calling it “an attempt to manufacture financial distress” to justify the Chapter 11 case.

After its first Chapter 11 case was tossed, LTL Management LLC filed its second bankruptcy to resolve several thousand lawsuits over allegedly tainted baby powder. The decision to withdraw the funding agreement in LTL’s second bankruptcy case amounts to a fraudulent transfer of the victims’ rights to the money for their compensation, an official committee of talc claimants said in a bankruptcy court filing Thursday.

“All roads lead to the same place—if LTL can somehow establish financial distress, then it necessarily follows that J&J orchestrated the largest fraudulent transfer in United States history, it is just a question of when,” according to the filing at the US Bankruptcy Court for the District of New Jersey.

The committee has already sought to dismiss the company’s Chapter 11 case as an “abuse of the bankruptcy system.” But it added in the latest filing that it should be given the right to sue J&J because “LTL is incapable of acting contrary to J&J’s demands.”

The victim group’s proposed lawsuit would focus on the steps taken by J&J and its specially-created subsidiary after the US Court of Appeals for the Third Circuit dismissed LTL’s first Chapter 11 case in late January for failing to demonstrate financial distress.

LTL’s $61.5 billion backstop funding deal with its parent company was “not unlike an ATM disguised as a contract,” the Third Circuit said.

LTL refiled for bankruptcy in April and declared the original funding agreement was voided. The second Chapter 11 proceeding is premised on an $8.9 billion settlement LTL reached with a handful of plaintiff law firms purportedly representing up to 80,000 claimants.

In entering into a new funding deal, LTL gave away up to $30 billion that should have remained in place for victims even outside of LTL’s bankruptcy, the committee said.

In a statement Friday, J&J Worldwide Vice President of Litigation Erik Haas called the motion “another desperate attempt by a small group of plaintiff’s law firms—whose financial interests conflict with, diverge from and contravene those of their clients—to deprive all claimants of the right to vote and decide for themselves whether to accept the proposed plan, which a growing and significant majority of claimants already support.”

The Justice Department’s bankruptcy watchdog has also sought to have LTL’s second bankruptcy case dismissed.

Judge Michael Kaplan, who is overseeing LTL’s bankruptcy, has allowed new suits to be filed against J&J and related entities, but temporarily blocked civil trials from taking place. Kaplan has also ordered the parties into mediation.

The case is In re LTL Management LLC, Bankr. D.N.J., No. 23-12825, motion filed 5/11/23.