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J&J Unit Creditors to Get Bankruptcy Review in Third Circuit (1)

May 11, 2022, 3:13 PMUpdated: May 11, 2022, 4:04 PM

A federal appeals court has agreed to hear appeals by asbestos victims who are trying to end a Johnson & Johnson spinoff’s bankruptcy that was filed to limit the healthcare giant’s tort liability from its talc products.

The four appeals that the U.S. Court of Appeals for the Third Circuit agreed Wednesday to consider will include review of a New Jersey bankruptcy court’s decision earlier this year that denied tort claimants’ motion to dismiss the Chapter 11 case that was filed by the J&J unit that was spun off, LTL Management LLC.

The tort claimants are arguing that LTL Management’s bankruptcy—which was created to house and address lawsuits from its talc product users who allege they developed cancer—was filed in bad faith.

The Third Circuit will also consider claimants’ appeals of a decision by Judge Michael B. Kaplan of the U.S. Bankruptcy Court for the District of New Jersey to allow a preliminary injunction prohibiting them from suing non-debtor defendants, including J&J.

Appeals of a bankruptcy judge’s ruling typically first go to a district court judge. But Kaplan said the issues surrounding LTL’s bankruptcy were important enough to certify directly to the circuit court.

J&J, a New Brunswick, N.J.-based health care giant, is facing a flurry of lawsuits from consumers who say they developed ovarian cancer or mesothelioma after using its baby powder and talc products that allegedly contain asbestos.

The case has faced pushback based on J&J’s use of the corporate strategy known as the Texas Two-Step, which involves a company spinning off a unit and transferring its tort liability to that entity.

J&J transferred its legal liability into LTL in October 2021 and the spinoff unit filed Chapter 11 within days the transfer. The move has come under fire from claimants, lawmakers and others who say that it was an abuse of the bankruptcy process.

The cases are In re: LTL Management LLC, 3d Cir. App., Nos. 22-8015, 22-8016, 22-8020, 22-8021, decisions 5/11/22.

(Story updated with additional background and case information )

To contact the reporter on this story: James Nani in New York at jnani@bloombergindustry.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com