Law Professors Support a Motion to Dismiss Debtor’s Chapter 11 Case filed by the Official Committee of Talc Claimants
Herrick, Feinstein LLP authored and filed an amicus brief on behalf of a group of well-renowned bankruptcy law professors. The debtor, LTL Management LLC (“LTL”), which is the entity created by Johnson & Johnson (“J&J”) to hold its talc liabilities, filed for Chapter 11 protection in October 2021. The professors filed this brief in support of the Official Committee of Talc Claimants’ motion to dismiss LTL’s chapter 11 case. The Talc Claimants’ Committee represents the individuals who have sued Johnson & Johnson alleging that its talc products caused them to develop cancer.
The amicus brief argues that J&J created LTL with the sole intention of protecting J&J’s assets from its talc victims. While this is not the first time a company has sought bankruptcy relief to address its mass tort litigation exposure, the brief emphasizes that the strategy in this case—namely, J&J’s use of a divisive merger mechanism referred to as the “Texas Two-Step” to funnel all of its talc liabilities into a non-operating entity only for that entity to file for bankruptcy—is an egregious misuse of the bankruptcy system.
The brief states: “The strategy employed here—manufacturing an undercapitalized company solely to file for bankruptcy for that entity—is a novel and dangerous tactic that would be a ‘significant departure from the use of Chapter 11 to validly reorganize financially troubled businesses.’”
Additionally, the brief argues that “this strategy is a direct attack on the fundamental integrity of the Chapter 11 system, which is intended to protect honest but unfortunate debtors who are willing to subject themselves and their assets to the supervision of the Court. Solvent tortfeasors, like J&J, should not be permitted to use Chapter 11 as a tool to shield assets from the claims of their victims.”
The Herrick team included Sean O’Donnell, Stephen Selbst, Christopher Carty, Steven Smith, Rachel Ginzburg, and Silvia Stockman.
The hearing on the motion to dismiss is scheduled to begin on February 14, 2022.
A copy of the brief is available here.
