Bankruptcy Court Remains Open as a Venue to Resolve Mass Tort Litigation

How does an otherwise healthy company that is facing mass tort litigation manage thousands of claims while preserving the enterprise as a going concern? History has shown that some companies choose to litigate each claim on a case-by-case basis hoping that its insurance does not run out, while others attempt to negotiate mass settlements utilizing insurance as well as company assets to strike a deal. When neither approach works, many companies turn to Chapter 11 as a last resort hoping it can use the bankruptcy process to avoid liquidation. Recently, however, some companies have attempted to utilize Chapter 11 even when it may not be the last resort, but rather a more efficient means to liquidate and pay claims without the attendant cost and delay of defending each claim on an individual basis. In a recent decision from the U.S. Bankruptcy Court for the District of New Jersey, Chief Judge Michael Kaplan refused to dismiss a Chapter 11 petition as a bad-faith filing even though the reason for filing the Chapter 11 petition was to fully resolve talc-related personal injury claims as opposed to reorganizing the defendant company. See In re LTL Management, Debtor, (Bankr. D.N.J. 2022).

Johnson and Johnson Consumer, Inc., a subsidiary of Johnson and Johnson, Inc., (JJCI) was faced with thousands of claims for alleged talc liability, and potentially billions of dollars in defense costs. Therefore, in October 2021, JJCI engaged in a restructuring transaction under Texas law through which it ceased to exist and out of which LTL Management, LLC and a new Johnson and Johnson Consumer, Inc. were created. LTL Management assumed all talc-related liabilities while Johnson and Johnson Consumer Inc. continued the business of JJCI. Hours after the restructuring, LTL filed Chapter 11 for the purpose of resolving the talc-related claims without subjecting the operating company to a bankruptcy proceeding. Subsequently, the Official Committee of Talc Claimants along with a law firm (together, movants) moved to dismiss the LTL case alleging that the filing was made in bad faith.