A federal bankruptcy watchdog’s unusual push to create two asbestos-related cancer victim groups in a Johnson & Johnson spinoff’s Chapter 11 case reveals tensions on how they would get paid.
The U.S. Trustee, a Justice Department unit overseeing bankruptcies, tried to set up one official committee representing mesothelioma victims’ interests and another for ovarian cancer claimants.
The two types of cancer—allegedly brought on by asbestos in J&J’s baby powder products—are sufficiently different to warrant separate representation, the U.S. Trustee said. The health care giant and its spinoff LTL Management LLC oppose having to deal with two official committees, whose expenses are paid by the debtor.
The drama over committees could affect victims’ recovery in the highly controversial bankruptcy expected to pay out billions. It also could have ripple effects in other mass tort bankruptcies.
Having two tort committees “will slow down, complicate negotiations,” Greg Gordon, an attorney at Jones Day representing LTL, said at a hearing in January. It could also “impede efforts to build a consensus.”
It’s fairly common in bankruptcy to have more than one committee representing different types of creditors in matters ranging from payouts to examining possible wrongdoing by the debtor.
Tort victims in general want their own committee apart from unsecured creditors because they’re often looking to get different information from the debtor, said Pamela Foohey, a bankruptcy law professor at Cardozo School of Law.
A negligence claim, for instance, may depend on whether the company knew a product was faulty before selling it. Unsecured claims from vendors focus simply on whether they were paid adequately for their product or service.
Mass tort bankruptcies typically deal with only one official committee representing tort victims. But the issue of dual tort committees has surfaced in this case as J&J is dealing with victims with different diseases. In a court filing, J&J said it was facing some 430 mesothelioma lawsuits and about 38,000 ovarian cancer cases.
“Under these circumstances, having these two different constituencies represented by separate committees is critical to maintaining fairness,” said Jon Ruckdeschel, an attorney who’s represented mesothelioma claimants in other cases.
Representatives for J&J didn’t reply to a request for comment.
LTL was spun off from Johnson & Johnson to house liabilities from J&J’s talc products. The new company then filed Chapter 11.
In LTL’s bankruptcy case, all mesothelioma and ovarian cancer victims were initially represented by one tort claimant committee. But after the U.S. Trustee set up two tort committees, LTL asked for a judge to have them deemed invalid, arguing that only the single committee should continue.
The judge granted the motion without prejudice, leaving the door open for someone to ask for a second committee. Mesothelioma victims have not filed such a motion yet but have been vocal in their support for their own committee.
On Monday, they asked a judge to allow their tort committee to exist in order to prosecute their appeal of the bankruptcy court’s decision not to dismiss LTL’s Chapter 11 case. Cancer victims have called the case an abuse of the bankruptcy system.
“Both the creditors and this case will be best served by giving independent voices to the two sets of claimants through the separate committees that the U.S. Trustee rightly formed,” their lawyer wrote in a filing in January.
Mesothelioma claims are worth “tens of billions of dollars,” Michael Klein, an attorney at Cooley representing claimants, said at the January hearing. J&J “doesn’t want mesothelioma victims to speak with a unified voice.”
Costs are also a contentious issue. In addition to paying tort victims, the bankruptcy estate also has to pay for official committees’ lawyers and financial advisers.
Attorneys for the existing tort committee in LTL’s case have requested more than $2.3 million in fees for the month of January 2021 alone, according to court filings.
“The problem is that every committee that is appointed is a financial drain on the business, so there’s less money for everyone to go around,” Foohey said.
J&J’s lawyer Gordon argued that each tort committees’ hiring of its own professionals and experts would lead to a “financial duplication of effort.”
LTL’s mesothelioma and ovarian cancer claimants say there are instances where tort victims’ interests are sufficiently different such that more than one tort committee makes sense.
Mesothelioma cases are almost always fatal, and so victims have more of an interest in getting compensated as quickly as possible and may be willing to settle if it means a faster payout, he said. But ovarian cancer patients have up to a 98% five-year survival rate, Ruckdeschel said, citing the American Cancer Society.
Another key distinction is that the link between asbestos contamination and mesothelioma is well-known, but there’s still a significant dispute over whether asbestos-contaminated talc products cause ovarian cancer, Ruckdeschel said.
The ovarian cancer group therefore may be more focused on discovery and proving that J&J products caused its members’ illnesses, he said.
Future claimants could also complicate the debate. There’s almost always a tension between current tort victims and future claimants whose injuries haven’t yet manifested, especially in asbestos cases.
That calls for two separate official tort committees, said Samir Parikh, a bankruptcy law professor at Lewis & Clark Law School. Parikh thinks a separate committee should exist to represent future claimants.
Victims with known injuries want to get paid as much and quickly as possible, putting them at odds with future victims, he said.
Both groups are compensated by a single trust in the bankruptcy. Future victims therefore depend on remaining funds once their injuries become known. And they need assurances that those funds will be there once others take their share.
Future claimants typically are represented by a court-appointed future claims representative. But such a representative isn’t always an adequate substitute for a separate committee, Parikh said.