J&J Fights to Save Legal Tactic That Would End Cancer Suits

Johnson & Johnson wrapped up a trial today to determine if the health care giant is misusing the bankruptcy system for the second time in less than two years in a bid to force an end to about 40,000 cancer lawsuits.

A bankrupt unit of J&J has been in federal court this week fighting a group of cancer victims who want juries around the country to decide whether their diseases were caused by tainted talc in baby powder the company sold for years. J&J is using the unit’s Chapter 11 case to try to force holdouts to accept an $8.9 billion settlement offer.

In the coming weeks, US Bankruptcy Judge Michael Kaplan, who is based about 25 miles from J&J’s headquarters, must decide whether to throw out the bankruptcy of LTL Management, a unit created to try to end all current and future health claims related to the talc. Earlier this year, a federal appeals court ordered Kaplan to dismiss the first LTL bankruptcy.

Kaplan did not say when he would rule on the new bankruptcy case, but told lawyers they can submit a final round of written arguments in July.

Since J&J first put LTL into bankruptcy in 2021, victims have been blocked from taking their cancer claims to trial. The bankruptcy strategy was developed after J&J lost some big trials, including one verdict in which the company was forced to pay out $2.5 billion to about 20 women.

“While one of the richest corporations in America plots and schemes to protect itself, victims of its products are sick and dying,” Jeff Jonas, a lawyer for a committee of alleged talc victims, told Kaplan Friday morning. Should Kaplan dismiss LTL’s bankruptcy holdouts would regain their right to pursue J&J in jury trials.

When J&J developed its bankruptcy strategy, the company faced about 40,000 claims. Today the company faces as many as 100,000, some of which have been filed as lawsuits and others that are cases that law firms are developing, LTL bankruptcy lawyer Greg Gordon told Kaplan.

About 60,000 claimants support the $8.9 billion settlement, said Kris Hansen, who represents a group of law firms that back the settlement. Those cancer victims have a better chance of getting paid and getting paid more quickly in bankruptcy, he said.

Lawyers for LTL and their supporters told Kaplan Friday afternoon that if he dismisses the Chapter 11 case he will prevent tens of thousands of cancer claimants from deciding whether they’d prefer taking the $8.9 billion settlement or their chances in the court system.

Lawyers suing J&J are split over the bankruptcy strategy. The main victim group backing the settlement includes lawyers with tens of thousands of clients who have not yet sued. Holdouts, many of whom have filed lawsuits and are preparing for trial, want to take their claims to juries around the country.

Last year Kaplan sided with J&J against a unified band of the top plaintiff’s law firms in the US, but was overruled by a federal appeals court in Philadelphia, which ordered the judge to dismiss LTL Management’s first Chapter 11 bankruptcy petition.

J&J responded by tweaking its legal strategy and raising its settlement offer to $8.9 billion in order to attract support from cancer victims. LTL returned to bankruptcy in April and Kaplan agreed to hold a hearing to decide if the new case fixed the legal flaws that doomed the first effort.

At the heart of the decision Kaplan must make are several complex legal questions including whether LTL faces any real financial distress, if the bankruptcy was filed in good faith, and whether J&J conspired to strip LTL of a valuable funding agreement in order to qualify for a new bankruptcy case.

The holdouts argue that the new case, like the old one, is not a valid use of bankruptcy. The appeals court previously ruled that LTL — the bankrupt unit — was never in financial distress because it had an agreement with J&J to backstop any settlement funding shortfall. The court found the backstop agreement meant LTL could pay claimants as much as $61.5 billion outside of bankruptcy and therefore the Chapter 11 filing was not made in good faith.

In response, J&J and LTL agreed to cancel that funding agreement and replace it with one backed by a J&J holding company worth about $30 billion. J&J also said it would only provide LTL money to pay the cancer victims as part of a bankruptcy case. Lawyers for LTL say all of the changes mean the new case meets the appeals court test.

The new bankruptcy filing is LTL Management LLC, 23-12825, U.S. Bankruptcy Court for the District of New Jersey (Trenton).

–With assistance from Jonathan Randles.