LTL Management LLC
This matter comes before the Court upon motions (collectively, “Motions“) filed by the Official Committee of Talc Claimants1 (ECF No. 632) and the law firm of Arnold & Itkin, LLP, on behalf of certain talc personal injury claimants (ECF No. 766) (together, “Movants” or “Claimants“),2 seeking an order of the Court dismissing the within bankruptcy proceeding
I. Background & Procedural History
On October 14, 2021, LTL Management, LLC (“LTL” or “Debtor“) filed a voluntary petition for chapter 11 relief (ECF No. 1) in the United States Bankruptcy Court for the Western District of North Carolina (the “North Carolina Bankruptcy Court“). LTL is an indirect subsidiary of Johnson & Johnson (“J&J“) and traces its roots back to Johnson & Johnson Baby Products, Company (“J&J Baby Products“), a New Jersey company incorporated in 1970 as a wholly-owned subsidiary of J&J. See Declaration of John K. Kim in Support of First Day Pleadings (”Kim Decl.“) ¶¶ 9-10, ECF No. 5. J&J, a New Jersey company incorporated in 1887, first began selling JOHNSON‘S® Baby Powder (“Johnson‘s Baby Powder“) in 1894, launching its baby care line of products. Id. at ¶¶ 10-14. In 1972, J&J established a formal operating division for its baby products business, including Johnson‘s Baby Powder. Id. In 1979, J&J executed a transaction (the “1979
Prior or to October 12, 2021, one of J&J‘s corporate subsidiaries was Johnson & Johnson Consumer Inc. (“Old JJCI“). See Kim Decl. ¶¶ 10-14, ECF No. 5. As the result of a series of intercompany transactions, Old JJCI assumed responsibility for all claims alleging that J&J‘s talc-containing Johnson‘s Baby Powder caused ovarian cancer and mesothelioma. Id. at ¶¶ 15, 32. In the talc lawsuits, claimants contend generally that multiple scientific studies have repeatedly found (i) that samples of Johnson‘s Baby Powder contain amphibole asbestos and fibrous talc; (ii) that perineal or genital application of talcum powder increases the risk of and can cause ovarian cancer; and (iii) that exposure to asbestos-contaminated talcum powders can cause mesothelioma. Original TCC‘s Motion to Dismiss ¶ 16, ECF No. 632. Despite this product being sold since 1894, prior to 2010, there were a limited number of isolated cases involving cosmetic talc filed against Old JJCI and J&J, asserting a range of claims including talcosis, mesothelioma, dermatitis, and rashes. Kim Decl. ¶ 34, ECF No. 5. Litigation escalated after the 2013 trial Deane Berg v. J&J, wherein plaintiff alleged she had developed ovarian cancer as a result of genital exposure to Old JJCI‘s talc-based product. Id. at ¶ 35. The jury found for the plaintiff but awarded no damages. Following that
The increase in talc-related litigation imposed a financial burden on Old JJCI. In the seven quarters of operations preceding the bankruptcy filing, the talc litigation led to financial statement charges totaling $5.6 billion and cash payments totaling $3.6 billion. Bell Report at ¶ 8. Talc litigation charges—otherwise referred to as “probable costs“—accounted for 51 percent of sales, and the talc litigation payments—or costs previously paid—accounted for 122 percent of the pre-tax cashflows estimated to be generated by operations. Id. Old JJCI‘s income before tax for the business segment dropped from a $2.1 billion profit in 2019 to a $1.1 billion loss in 2020. Id. Much of the reverse in profits, of course, were attributable to the Ingham charge and payment.
On October 12, 2021, Old JJCI engaged in a series of transactions (the “2021 Corporate Restructuring“) through which it ceased to exist, and two new companies, LTL and Johnson & Johnson Consumer Inc. (“New JJCI“), ultimately were formed. Kim Decl. ¶¶ 16, 22-23, ECF No.
The supposed purpose of this restructuring was to “globally resolve talc-related claims through a chapter 11 reorganization without subjecting the entire Old JJCI enterprise to a bankruptcy proceeding.” Id. at ¶ 21. As a result of the 2021 Corporate Restructuring, LTL assumed responsibility for Old JJCI‘s talc-related liabilities. Id. at ¶¶ 16, 24. Through the restructuring, LTL also received Old JJCI‘s rights under a funding agreement (the “Funding Agreement“). Id. at ¶ 24. Under the Funding Agreement, J&J and New JJCI, on a joint and several basis, are obligated to
(a) to satisfy the Debtor‘s talc-related liabilities at any time when there is no bankruptcy case and (b) in the event of a chapter 11 filing, to provide the funding for a trust, in both situations to the extent that any cash distributions received by the Debtor from Royalty A&M are insufficient to pay such costs and expenses and further, in the case of the funding of a trust, the Debtor‘s other assets are insufficient to provide that funding.
Id. at ¶ 27. Debtor has no repayment obligation as the Funding Agreement does not establish a loan. Id.
The 2021 Corporate Restructuring also lays out Debtor as the direct parent of a North Carolina limited liability company, Royalty A&M LLC (“Royalty A&M“), which owns a portfolio of royalty revenue streams, including royalty revenue streams based on third-party sales of LACTAID®, MYLANTA® / MYLICON® and ROGAINE® products. Burian Report at 15. Debtor asserts that it intends to review royalty monetization opportunities in the healthcare industry and grow its business by reinvesting the income from these existing royalty revenue streams into both the acquisition of additional external royalty revenue streams, as well as financings to third parties secured by similar royalty streams. Kim Decl. ¶ 18. On October 11, 2021, Old JJCI organized Royalty A&M as a direct subsidiary of LTL and—in exchange for full
On December 1, 2021, the Original TCC filed a motion to dismiss Debtor‘s chapter 11 bankruptcy case with prejudice pursuant to
- John H. Kim, Chief Legal Officer of LTL Management LLC
- Adam Lisman, Vice President and Assistant Corporate Controller of Johnson & Johnson
- Thibaut Mongon, Executive Vice President and Worldwide Chair of Johnson & Johnson Consumer Health
- Michelle Ryan, former Treasurer of Johnson & Johnson (via recorded deposition testimony)
- Michelle Wang Goodridge, President of U.S. Self-Care with Johnson & Johnson Consumer Health and President of Johnson & Johnson Consumer Inc.
- Robert O. Wuesthoff, President of LTL Management, LLC and President of Royalty A&M LLC
The Court also heard testimony from five expert witnesses including:
- Gregory K. Bell, PhD, Group Vice President of Charles River Associates for Debtor
- John R. Castellano, Managing Director at Alix Partners for Debtor
- Charles H. Mullin, PhD, Managing Partner at Bates White Economic Consulting for Debtor
- Saul E. Burian, Managing Director at Houlihan Lokey for Movants
- Matthew Diaz, Senior Managing Director at FTI Consulting, Inc. for Movants
To the extent the Court finds the expert testimony helpful, reference has been made in this opinion to the applicable report or testimony. In rendering its decision, the Court also has reviewed declarations submitted by Rebecca J. Love, D.D.S., a member of TCC I, and Kristie Doyle, a member of the TCC II. Finally, the Court has considered brief statements offered by the United States Trustee and counsel for the Canadian Class Action Plaintiffs on the final day of trial, February 18, 2022.
II. Discussion
A. Overview
By way of brief overview, the Movants and other talc claimants, in their own words, view their tasks as a moral and legal imperative to vigorously oppose the efforts of both J&J and Old JJCI to utilize the bankruptcy system as a litigation tactic to address their talc-related litigation liabilities through this Debtor. Movants point to the fact that LTL was created within hours before the chapter 11 filing, as a special purpose vehicle, with the stated purpose of filing chapter 11 to
Not unexpectedly, Debtor takes a far more positive view of the chapter 11 foundation and its purposes: to produce an equitable resolution of both current and future talc claims by means of a settlement trust, established pursuant to
B. Applicable Legal Standard
The Third Circuit has held that “a Chapter 11 petition is subject to dismissal for ‘cause’ under
[A good faith standard] furthers the balancing process between the interests of debtors and creditors which characterizes so many provisions of the bankruptcy laws and is necessary to legitimize the delay and costs imposed upon parties to a bankruptcy. Requirement [sic] of good faith prevents abuse of the bankruptcy process by debtors whose overriding motive is to delay creditors without benefitting them in any way . . . .
SGL Carbon, 200 F.3d at 161–62 (quoting Little Creek Dev. Co. v. Commonwealth Mortgage Corp. (In re Little Creek Dev. Co.), 779 F.2d 1068, 1072 (5th Cir. 1986)); see also Carolin Corp. v. Miller, 886 F.2d 693, 698 (4th Cir. 1989) (holding that the good faith requirement is “indispensable to proper accomplishment of the basic purposes of Chapter 11 protection“). Once the movant establishes that there is an issue regarding good faith,7 the debtor bears the burden of proving that a petition was filed in good faith. NMSBPCSLDHB, L.P. v. Integrated Telecom Express, Inc. (In re Integrated Telecom Express, Inc.), 384 F.3d 108, 118 (3d Cir. 2004); In re GVS Portfolio I B, LLC, No. 21-10690 (CSS), 2021 WL 2285285, at *5 (Bankr. D. Del. June 4, 2021) (quoting Tamecki v. Frank (In re Tamecki), 229 F.3d 205, 208 (3d Cir. 2000) (“[O]nce a debtor‘s good faith is appropriately put at issue, it is the burden of the debtor to produce evidence of good faith.“)); In re Cloudeeva, Inc., No. 14-24874, 2014 WL 6461514, at *4 (Bankr. D.N.J. Nov. 18, 2014). The debtor bears the burden of proving good faith by a preponderance of the evidence. In re Vascular Access Centers, L.P., 611 B.R. 742, 761 (Bankr. E.D. Pa. 2020).
The good faith inquiry is based on “‘the totality of facts and circumstances.‘” In re Integrated Telecom, 384 F.3d at 118 (quoting In re SGL Carbon, 200 F.3d at 162). In determining whether a chapter 11 petition was filed in good faith, the court must undertake a “fact intensive inquiry” to determine where the petition “falls along the spectrum ranging from the clearly acceptable to the patently abusive.” Id.; see also Perlin v. Hitachi Cap. Am. Corp., 497 F.3d 364, 372 (3d Cir. 2007). The focus of the inquiry is whether the petitioner sought “to achieve objectives outside the legitimate scope of the bankruptcy laws.” In re SGL Carbon Corp., 200 F.3d at 165 (internal quotations omitted). The question of a debtor‘s good faith “depends on an amalgam of factors and not upon a specific fact.” Id. (quoting Idaho Dep‘t of Lands v. Arnold (In re Arnold), 806 F.2d 937, 939 (9th Cir. 1986)). “[T]he courts may consider any factors which evidence ‘an intent to abuse the judicial process and the purposes of the reorganization provisions.‘” Phoenix Piccadilly, Ltd. v. Life Ins. Co. of Va. (In re Phoenix Piccadilly, Ltd.), 849 F.2d 1393, 1394 (11th Cir. 1988) (quoting Albany Partners, Ltd. v. Westbrook (In re Albany Partners, Ltd.), 749 F.2d 670, 674 (11th Cir. 1984)); In re JER/Jameson Mezz Borrower II, LLC, 461 B.R. 293, 297–98 (Bankr. D. Del. 2011); see also In re Schaffer, 597 B.R. 777, 791 (Bankr. E.D. Pa. 2019), aff‘d sub nom. Matter of Schaffer, 606 B.R. 228 (E.D. Pa. 2019), aff‘d sub nom. In re Schaffer, No. 19-3664, 2020 WL 2529371 (3d Cir. Jan. 24, 2020).
All parties acknowledge that the general focus must be “(1) whether the petition serves a valid bankruptcy purpose and (2) whether the petition is filed merely to obtain a tactical litigation advantage.” 15375 Mem‘l Corp. v. BEPCO, L.P. (In re 15375 Mem‘l Corp.), 589 F.3d 605, 618 (3d Cir. 2009) (citing In re SGL Carbon, 200 F.3d 154,165 (3d Cir. 1995)). “[T]he ‘good faith’ filing requirement encompasses several, distinct equitable limitations that courts have placed on Chapter 11 filings . . . to deter filings that seek to achieve objectives outside the legitimate scope of the bankruptcy laws.” SGL Carbon, 200 F.3d at 165 (quoting In re Marsch, 36 F.3d 825, 828 (9th Cir. 1994)). In evaluating the legitimacy of Debtor‘s bankruptcy filing, this Court must also examine a far more significant issue: which judicial system—the state/federal court trial system,
As will be discussed below, the Court is unwilling to dismiss this case as a bad faith filing. The Court employs the standards cited above and followed by other courts within the Third Circuit. On aside, the Court acknowledges there is a much more stringent standard for dismissal of a case for lacking good faith in the Fourth Circuit, which would have governed a decision by Judge Whitley in North Carolina. The Court cannot help but ponder how a bankruptcy filing, which took place in North Carolina and most likely satisfied the good faith standards under the applicable law in that jurisdiction, suddenly morphs post-petition into a bad faith filing simply because the case travels 400 miles up I-95 to Trenton, New Jersey. Notwithstanding, the Court rules today that the chapter 11 filing also satisfies the standards this Court must apply under Third Circuit precedent.
To be filed in good faith, a chapter 11 petition must be supported by “a valid reorganizational purpose.” In re SGL Carbon, 200 F.3d at 165–66. When a company “seek[s] the protections of bankruptcy when faced with pending litigation that pose[s] a serious threat to [a] compan[y‘s] long term viability,” a valid reorganizational purpose exists only if the company is experiencing “serious financial and/or managerial difficulties at the time of filing . . . to establish the good faith of its present petition.” In re SGL Carbon, 200 F.3d at 164. As the Supreme Court has explained, the two main functions of the bankruptcy law are (1) “preserving going concerns” and (2) “maximizing property available to satisfy creditors.” In re Integrated Telecom Express, Inc., 384 F.3d 119 (quoting Bank of Am. Nat‘l Trust & Sav. Ass‘n v. 203 N. LaSalle St. P‘ship, 526 U.S. 434, 453, 119 S. Ct. 1411, 143 L.Ed.2d 607 (1999)). “If neither of these purposes can be demonstrated, the petition will be dismissed.” In re Am. Cap. Equip., LLC, 296 F. App‘x 270, 274 (3d Cir. 2008) (citation omitted) (emphasis added). In their oral and written arguments, Movants urge the Court to restrict its examination to the valid business purpose held by the Debtor, LTL, as opposed to the reorganizational needs of Old JJCI. The Court certainly agrees that it is the Debtor‘s good faith at issue. Yet, even the Movants’ experts testified that the 2021 Corporate Restructuring and the ensuing bankruptcy filing should be viewed by this Court as “a single, pre-planned, integrated transaction” comprised of interdependent steps. See Burian Report at 8; Expert Report of Matthew Diaz (”Diaz Report“) at 19. This Court must undertake an analysis that considers the totality of the circumstances and consider the financial risks and burdens facing both Old JJCI and Debtor.
From the outset, J&J and Debtor have been candid and transparent about employing Debtor‘s chapter 11 filing as a vehicle to address the company‘s growing talc-related liability exposure and costs in defending the tens of thousands of pending ovarian cancer claims and hundreds of mesothelioma cases, as well as future claims. As Movants’ own experts have acknowledged, the use of the Texas divisional merger statute and subsequent filing by the newly formed LTL constituted a single integrated transaction designed to allow “New JJCI to continue to operate Johnson & Johnson‘s Consumer Health business in the United States without interruption and provide LTL with the opportunity to pursue process to resolve current and future [cl]aims in an equitable and efficient manner.” Debtor‘s Exhibit D-56.
The Court is cognizant of the Third Circuit‘s admonition, as pointed out by Movants, that “a desire to take advantage of a particular provision in the Bankruptcy Code, standing alone . . . does not . . . establish[] good faith.” In re Integrated Telecom, 384 F.3d at 127-128 (“Just as a desire to take advantage of the protections of the Code cannot establish bad faith as a matter of law, that desire cannot establish good faith as a matter of law. Given the truism that every bankruptcy petition seeks some advantage offered in the Code, any other rule would eviscerate any limitation that the good faith requirement places on Chapter 11 filings.“). However, Debtor here has demonstrated an intent to make use of the Bankruptcy Code as a whole, apart from any single Code section, to address its financial needs. There is no question as to the import and value to Debtor of implementing an asbestos trust under
All Code sections are not equal in import or impact. In Integrated Telecom, a nonoperating liquidating debtor desired to take advantage of the
Determining whether Debtor is pursuing a valid bankruptcy purpose through this chapter 11 proceeding also requires the Court to examine a far more difficult issue—whether there is
There is no question that, over time, our bankruptcy courts have witnessed serious abuses and inefficiencies, striking at the heart of the integrity of our bankruptcy courts. For instance, the approval of overly broad nonconsensual third-party releases, and the propriety/necessity for twenty-four hour accelerated bankruptcy cases have drawn deserved scrutiny. Likewise, the selection of case venue, as in the matter at hand, has warranted critical attention and debate.10 In point of fact, there has been a deluge of critical commentary in recent months by academics, commentators, and even policymakers11 challenging the shortfalls of the bankruptcy system and calling for reform. Some have even employed such distasteful, click-generating insidious phrases as “morally corrupt” or “lawless” in reference to the bankruptcy courts. No one can deny that there are situations in which tools and strategies have been abused and warrant critical review. Unfortunately, however, these commentators choose to focus on the limited failings of the system, as opposed to its innumerable successes. Every one of the Court‘s 370 plus colleagues on the
While this Court recognizes and appreciates the passion and commitment of the Committee members and every one of the attorneys advocating for the interests of the injured cosmetic talc claimants in this case, the Court simply cannot accept the premise that continued litigation in state and federal courts serves best the interest of their constituency. Many of these cases, both in the United States and abroad, have been pending for a half dozen or more years and remain years away from trial dates, not to mention the substantial delays they face in the inevitable appeals process. Notably, since 2014, there have been only 49 trials that have proceeded to verdict. True, in this same period, there have been approximately 6,800 cases which have settled outside of court. Movants’ Exhibit 161. This number is dwarfed, nonetheless, by the projected 10,000 new cases to be filed each year going forward. See Expert Report of Charles H. Mullin, PhD (”Mullin Report“) at 5. As noted in her amici curiae brief, Professor Maria Glover acknowledges there is no perfect solution to the problems with mass tort litigation: “But no mechanism for handling the thorny challenges of mass torts is perfect, including bankruptcy. Indeed, it is the nature of mass torts to
For instance, a class action is not usually suitable for mass tort cases, since there typically exists too much variation concerning claimants’ injuries, illnesses, and related losses. In the 1990s, the United States Supreme Court issued two decisions that effectively terminated the use of class actions, at least for product liability cases. In Georgine v. Amchem Prods., Inc., 521 U.S. 591, 138 L.Ed.2d 689 (1996), an asbestos case, the Supreme Court held that class actions under
Significantly, as Debtor points out, the Ortiz Court highlighted the difference between due process concerns in representative suits (e.g. class actions) versus bankruptcy cases. Id. at 846; see also Debtor‘s Omnibus Response to the Amicus Briefs 20-21, ECF No. 1554. The Supreme Court rejected the use of class actions under
As further noted by Professor Troy A. McKenzie:
The Court‘s strict formalism in Amchem and Ortiz also derived from an unhidden skepticism about the use of the Federal Rules of Civil Procedure as license to undertake essentially legislative reforms. The question presented in Amchem, as Justice Ginsburg phrased it, was “the legitimacy under Rule 23 of the Federal Rules of Civil Procedure of a class action certification sought to achieve global settlement of current and future asbestos claims.” The unspoken assumption in both cases, then, was that methods of global resolution that did not invoke the Federal Rules of Civil Procedure could escape the rigid strictures placed on the class action by the Court.
Troy A. McKenzie, Toward a Bankruptcy Model for Non-Class Aggregate Litigation, 87 N.Y.U. L. Rev. 960, 977 (2012) (emphasis in original).
The multi-district litigation (“MDL“) poses its own set of significant challenges and inefficiencies. Here in New Jersey, for instance, the MDL being handled by Chief Judge Wolfson—which does not include mesothelioma cases, the Canadian class actions, state court proceedings, or the claims of future tort victims—will at best produce a handful of bellwether trials later in 2022, offering some insight into the strength of the cases, but will also necessarily return nearly 40,000 cases to federal courts across the country to await pre-trial proceedings and eventual trials and appeals. Notwithstanding the pre-trial work undertaken through the MDL, the fact remains that plaintiffs and defendants will be forced to relitigate causation, and damages, and apportion liability among defendants in every case, which will be both costs prohibitive and “burden the tort system with unnecessarily drawn-out litigation.” Mullin Report at 9.
Again, in her amici curiae submission, Professor Glover touts the “flexibility and adaptiveness” of MDL in facilitating settlements and global resolutions by experienced MDL judges. Glover Brief at 24. The Court has no doubt that talented federal judges have produced
The fact remains that since 2014—over seven years ago—only 49 trials have gone to verdict, and many of those remain on appeal or have been remanded to retry. Given the pace of the litigations to date, as well as the mounting escalation in the number of new actions being brought monthly,12 the vast majority suffering from illness in the existing backlog of cases will not see a penny in recovery for years. The tort system has struggled to meet the needs of present claimants in a timely and fair manner.13 The system is ill-equipped to provide for future claimants. The Court has no reason to believe this will differ for the talc plaintiffs here.
This Court is neither blind nor deaf to the stated preferences of plaintiffs who seek to remain in the tort system and have their cases tried before a jury. The tort claimants have not chosen the bankruptcy forum. Indeed, creditors rarely choose to have their rights vindicated in the bankruptcy courts, but our Constitution and the laws passed by Congress countenance such a result. Undeniably, there have been sizable multi-million and multi-billion dollar verdicts in favor of handful of plaintiffs who were fortunate to have their claims brought in front of a jury. Movants
This Court also has factored into its decision the substantial risks facing the talc claimants in the tort system. There have been countless plaintiffs denied any recovery and many of the plaintiffs’ verdicts have been reversed ultimately on appeal.15 “The results of the 49 [t]alc [l]itigation cases to proceed to trial are inconsistent in terms of liability and damages awards. Defendants prevailed in 18 cases; plaintiffs prevailed in 17 cases; eight cases resulted in mistrials; and six cases settled during trial.” Bell Report at 14. It is inarguable that continued litigation of talc claims in the state and federal tort system comes with a meaningful risk of recovery. Debtor points to prior multiple litigation successes by J&J and Old JJCI over the years by securing dismissals of roughly 1,300 ovarian cancer cases and over 250 mesothelioma cases without payment and trying sixteen cases to defense verdicts. See Kim Decl. ¶ 38. ECF No. 5. Old JJCI secured reversal of numerous plaintiff verdicts. Id. Of equal concern to this Court is the capacity for the state and federal courts to protect future claimants, whose claims may surface in the next half century given the acknowledged latency period for the types of cancer at issue. The needs of these victims are wholly ignored by the current rush to secure judgments against Debtor in the
The Court‘s comments are not intended to dismiss or discredit the inarguable benefits of our tort system and the essential work of our plaintiffs’ bar in bringing about corporate transparency and vindicating the rights of those victims who are ill-equipped to pursue their rights against large corporate defendants. In this vein, we can all point to concrete illustrations where such litigation has been responsible for necessary safety reforms and health measures. What the Court regards as folly is the contention that the tort system offers the only fair and just pathway of redress and that other alternatives should simply fall by the wayside. It is manifestly evident that Congress did not share this narrow view in developing the structure of asbestos trusts under
Bankruptcy has proven an attractive alternative to the tort system for corporations [facing mass tort claims] because it permits a global resolution and discharge of
present and future liability, while claimant‘s interests are protected by the bankruptcy court‘s power to use future earnings to compensate similarly situated tort claimants equitably.
684 F.3d 355, 359 (3d 2012). Indeed, the Third Circuit has taken notice that the asbestos bankruptcy trusts achieved Congress‘s expressed aims in best serving the interests current and future asbestos victims,17 as well as corporations saddled with such liabilities:
Furthermore, the trusts appear to have fulfilled Congress‘s expectation that they would serve the interests of both current and future asbestos claimants and corporations saddled with asbestos liability. In particular, observers have noted the trusts’ effectiveness in remedying some of the intractable pathologies of asbestos litigation, especially given the continued lack of a viable alternative providing a just and comprehensive resolution. Empirical research suggests the trusts considerably reduce transaction costs and attorneys’ fees over comparable rates in the tort system.
In re Federal-Mogul Glob., Inc., 684 F.3d at 362 (citing studies).
The Court acknowledges that Movants have raised a challenging and interesting issue as to whether Debtor can take advantage of a
In recent weeks and months, we have seen comprehensive and productive mediated settlements, producing hundreds of millions of dollars in funding of settlement trusts. Indeed, we need look only at the USA Gymnastics settlement approaching $400 million, the proposed Mallinckrodt $1.7 billion trust and the Boy Scouts proposed settlement nearing $3 billion as examples. Likewise, settlement trusts are in some stage of negotiation in over thirty Catholic Church diocese cases across the country. The Court places these positive results against a backdrop of dozens of successful asbestos trust cases created over the years pursuant to
Through adopted procedures, these trusts establish fixed criteria and common parameters for payments to claimants, ensuring a level playing field for all present and future victims, taking into consideration the significance of preserving all due process rights. See In re W.R. Grace & Co., 729 F.3d 311, 324 (3d Cir. 2013) (“Therefore, as long as a court correctly determines that § 524(g)‘s requirements are satisfied, present and future claims can be channeled to a § 524(g) trust without violating due process.“). In recent years, state attorneys general and the United States Justice Department have undertaken numerous investigations of existing trust funding and trust distribution procedures and have brought issues before courts aimed at safeguarding the availability of funding for future claimants. In sum, the bankruptcy system, through use of a
The record before the Court does not reflect assets that have been ring-fenced, concealed, or removed. Neither J&J nor New JJCI (nor any J&J affiliate for that matter) are to be released from liability, or their assets placed out of reach of creditors, absent a negotiated settlement under a plan in which J&J‘s and New JJCI‘s roles and funding contributions warrant a release as a matter of both law and fact. True, a handful of claimants who have secured judgments may be delayed by the bankruptcy process, but this Court must act to ensure justice for all the nearly 40,000 current claimants and undetermined future injured parties (and families) who face years in litigation. Also, it is nonsensical to accept the notion that J&J and Old JJCI would bear the brunt of public and judicial scrutiny, as well as the time and costs to implement this integrated transaction, simply to
2. Debtor‘s Financial Distress
Debtor is the successor to Old JCCI and has been allocated its predecessor‘s talc-based liabilities, including verdicts, settlements, and defense costs, “as reflected in Old JJCI‘s general ledger.” Debtor‘s Sur-Reply 9, ECF No. 1444. As testified in detail by Mr. Adam Lisman, Assistant J&J Controller, at both his deposition and during trial, the talc-related expenses were charged to Old JJCI because it had legal responsibility for them. Lisman Dep. Tr. 117:1-3, Oct. 30, 2021, Ex. H to Toroborg Decl., ECF No. 1444-9 (“[T]hese are talc product liability costs that JJCI was ultimately responsible for, which is why it is showing up as a [sic]expense on their account.“).21 One cannot distinguish between the financial burdens facing Old JCCI and Debtor. At issue in this case is Old JJCI‘s talc liability (and the financial distress that liability caused), now the legal responsibility of Debtor. Absent a global settlement, neither entity would be able to defend or economically resolve the current and future talc-related claims. As Debtor‘s expert, Dr. Gregory Bell testified, and as reflected in J&J‘s public filings, talc-related litigation was the “primary driver” that caused J&J‘s entire Consumer Health segment “to drop from a $2.1 billion profit (14.8 percent of sales) in 2019 to a $1.1 billion loss (-7.6 percent of sales) in 2020.” Bell Report at 4; see also id. at 6 (“This current and potential future financial drain imposed by the Talc Litigation . . . was threatening Old JJCI‘s ability to sustain the marketing, distribution, and R&D expenditures needed to compete in the U.S. market . . . placing Old JJCI at a significant competitive disadvantage.“).
This chapter 11 followed denial of review by the U.S. Supreme Court of a multi-billion dollar award in the Ingham litigation, as well as other more recent verdicts for hundreds of millions
Mr. Klein: “If the last seven jury awards in mesothelioma trials are any indication, and I submit to Your Honor that they are, then my Committee‘s constituents’ claims are worth ten[s] of billions of dollars.” [transcript citations omitted]
Mr. Finch: “You know, Mr. Rice resolved the tobacco litigation 20 some years ago for $250 billion. I happen to think that the, the dollar figure here has to be a lot closer to 250 billion than the 2 billion that Johnson & Johnson has put on the table.” [transcript citations omitted]
Debtor‘s Sur-Reply at 8, n.12, 13, ECF No. 1444 (citing transcripts of hearings held on Jan. 19, 2022 and Nov. 4, 2021 (Toroborg Decl. Ex. E, F, ECF No. 1444-6, 1444-7)).
It is true that Debtor, under the Funding Agreement, could compel J&J to deplete its available cash (amounting to nearly 7% of its entire market cap) or pursue a forced liquidation of New JJCI to tap into its enterprise value of $61 billion. Needless to say, such actions would have a horrific impact on these companies, with attendant commercial disruptions and economic harm to thousands of employees, customers, vendors, and shareholders, and threaten their continued viability. The Court is at a loss to understand, why—merely because Debtor contractually has the right to exhaust its funding options—the Debtor is not to be regarded as being in “financial distress.”
It is of no moment that the Debtor, by virtue of the Funding Agreement, was not insolvent on the date of the chapter 11 filing. “As a statutory matter, it is clear that the bankruptcy law does not require that a bankruptcy debtor be insolvent, either in the balance sheet sense (more liabilities than assets) or in the liquidity sense (unable to pay the debtor‘s debts as they come due), to file a chapter 11 case or proceed to the confirmation of a plan of reorganization.” Marshall v. Marshall (In re Marshall), 721 F.3d 1032, 1052 (9th Cir. 2013). Prior to the chapter 11 filing, J&J and Old JJCI incurred compensatory damages awards in ovarian cancer cases which ranged from $5 million to $70 million, while punitive damage awards ranged from $50 million to $347 million. Likewise, in mesothelioma cases, there were compensatory damages awards ranging from $2.5 million to $40 million, while punitive damages ranged from $100,000 to $300 million. As acknowledged by all parties, in the Ingham case, a jury awarded $4.14 billion in punitive damages, one of the largest personal injury verdicts ever seen in the United States, ultimately reversed in part and reduced on appeal to $2.24 billion.23 Even without a calculator or abacus, one can multiply multi-million dollar or multi-billion dollar verdicts by tens of thousands of existing claims, let alone future claims, and see that the continued viability of all J&J companies is imperiled.
As Dr. Bell testified at trial,
Old JJCI was not positioned to continue making substantial Talc Litigation payments from working capital or other readily marketable assets. . . . As a consequence, it is apparent that Old JJCI had no significant excess net current assets available for the satisfaction of future Talc Litigation payments. In addition, Old JJCI had no other assets that were readily marketable in order to satisfy liabilities associated with the Talc litigation, which could be substantial.
Bell Report at 19-21, 32. At the time of filing, the prospects of continued monthly $10-20 million defense expenditures, with rapidly increasing numbers of new claims being filed, warranted seeking action in this Court. By comparison, the administrative burdens and costs to oversee the trust distributions under a
No public or private company can sustain operations and remain viable in the long term with juries poised to render nine and ten figure judgments, and with such litigation anticipated to last decades going forward. The Court must also factor in the negative impact of ongoing regulatory investigations by state attorneys general. The Third Circuit in In re SGL Carbon noted that there exists a “need for early access to bankruptcy relief to allow a debtor to rehabilitate its business before it is faced with a hopeless situation.” 200 F.3d at 163; see also In re Johns-Manville, 36 B.R. 727, 736 (Bankr. S.D.N.Y 1984) (holding debtor “should not be required to wait until the economic situation is beyond repair in order to file a reorganization petition,” and noting that the “‘Congressional purpose’ in enacting the Code was to encourage resort to the bankruptcy process“). While the Third Circuit requires “some” degree of financial distress, see In re
At the hearing, Movants attempted to make the case that J&J would have continued to fund all talc-related obligations of Old JJCI without any bankruptcy filing. This was merely supposition, offered without evidentiary support. The focus then shifted to Old JJCI‘s rising profits, year after year, of J&J‘s Consumer Health Sector, allegedly undermining any claim of financial distress. Movants’ expert, Saul E. Burian, testified, on both direct and cross examination, that none of the entities (LTL, J&J, Old JJCI or New JJCI) needed to file bankruptcy. Burian Report at 34-39. To be sure, Mr. Burian highlighted that after taking out payments and charges relative to the talc litigation, the sales and adjusted income before tax for J&J‘s Total Consumer Health sector have grown steadily since 2016; pointedly, the loss experienced in 2020 by Old JJCI is attributable primarily to the one-off payment of the Ingham judgment. Id. Movants also call to the Court‘s attention Debtor‘s access to funding through the Funding Agreement:
Here, the totality of facts and circumstances conclusively show that LTL was not in serious financial distress when it filed its bankruptcy petition. To the contrary, prior to the bankruptcy, J&J entered into a Funding Agreement with LTL pursuant
to which it and New JJCI agreed to fund LTL‘s current and future talc liabilities up to the value of New JJCI—roughly $61 billion.
TCC II Reply Mem. 8, ECF No. 1358. As a result, Movants contend that “LTL had the ability to require that J&J and New JJCI fund up to $61 billion to satisfy talc liabilities.” Id. at 9. Similarly, Movants insist that LTL was not in serious financial distress because it could “have relied on the Funding Agreement to [settle its liabilities] before filing for bankruptcy, because at the moment of the divisive merger, J&J had approximately $31 billion in cash on its balance sheet, and a half trillion-dollar market cap.” Id. at 11, n.7.
Movants appear to suggest that due to Old JJCI‘s pre-petition sales revenues, as well as Debtor‘s financial capacity (primarily derivative from funding provided by J&J and New JJCI), this Court cannot find that Debtor suffered from financial distress at the time of filing. This suggestion, as a corollary, would mean that neither J&J nor Old JJCI (which had an even greater asset base than New JJCI) could have filed for chapter 11 in good faith. Yet, this is wholly inconsistent with Movants oft repeated contention:
If the Debtor and/or J&J wanted the Court to focus on the financial condition of Old JJCI in evaluating the good faith of this proceeding, Old JJCI should have filed for bankruptcy. It did not. . . . J&J or Old JJCI could have chosen what it perceived to be the difficult path of obtaining the benefits and complying with the burdens of Chapter 11.
TCC II Reply Mem. at 23, ECF No. 1358 (emphasis in original).
More significantly, the Court is troubled by Movants’ conflicting positions as to whether any chapter 11 filing had to be undertaken at all, as claimants submit that J&J and Old JJCI could have satisfied the extant claims without resorting to the bankruptcy court. On the one hand, Movants minimize Debtor‘s true talc-related financial exposure by pointing out that over 6,800
Yet, on the other hand, Movants’ counsel compelled Mr. Kim to acknowledge on cross examination that plaintiffs have prevailed in the last seven mesothelioma trials, for verdicts totaling over $360 million. Diaz Report at 13. These verdicts average to over $50 million for each mesothelioma claim and hardly can be characterized as manageable. Movants also highlighted significant events in the timeline which point toward greater talc exposure for Debtor:
- October 2019: FDA finds asbestos in Johnson‘s Baby Powder
- June 2020: Missouri Court of Appeals affirms Ingham
- April 21, 2021: Health Canada confirms its 2018 finding of a significant association, indicative of a causal effect, between exposure to talc and ovarian cancer
- May/June 2021: Settlement in Imerys falls apart
- June 2021: U.S. Supreme Court denies certiorari in the Ingham case
TCC I Closing at 19. Simply put, there is a clear inconsistency in the message to the Court: either JJCI was facing increased unmanageable financial risk from the talc litigation, warranting bankruptcy consideration, or it was not. At the end of the day, this Court concludes that the weight of evidence supports a finding that J&J and Old JJCI were in fact facing a torrent of significant talc-related liabilities for years to come. The evidence at trial, including the testimony of S&P Global witnesses Arthur Wong and David Kaplan, raise doubts about the intentions underlying the
3. Debtor’s Chapter 11 Filing Was Not Undertaken to Secure an Unfair Tactical Advantage
As noted, in addition to gauging whether a chapter 11 filing serves a valid bankruptcy purpose, courts must also consider “whether the petition is filed merely to obtain a tactical litigation advantage.” In re Integrated Telecom Express, Inc., 384 F.3d at 120; SGL Carbon, 200 F.3d at 165. In this regard, the thrust of Movants’ challenge to Debtor’s filing appears bottomed on the 2021 Corporate Restructuring and the use of the Texas divisional merger statute to create a special purpose vehicle in the hours before the filing to accomplish J&J’s goals. Pertinently, Movants contend that the 2021 Corporate Restructuring “hindered,” “delayed,” and “prejudiced” talc claimants—by “blocking talc creditors from obtaining access” to “Old JJCI’s substantial business assets” and “remov[ing] Old JJCI’s business assets and operations from the reach of its talc creditors.” Original TCC’s Mot. to Dismiss ¶¶ 2-4, 41, 50, ECF No. 632; A&I’s Mot. to Dismiss ¶¶ 4, 55-63, ECF No. 766. Yet, notwithstanding the barrage of academic and media criticism leveled at the use of the divisional merger provisions under the Texas Business
Debtor was incorporated and domiciled in Texas prior to effectuating the 2021 Corporate Restructuring, albeit only days before implementation. The Texas statute “applies to all business entities, regardless of when such entities were formed.” Phillips v. United Heritage Corp., 319 S.W.3d 156, 163 n.5 (Tex. Ct. App. 2010). The Texas Business Organizations Code establishes the procedures that an entity must follow to effect a divisional merger, including development of a plan of merger (specifying, among other things, the allocation of assets and liabilities) and a filing with the Secretary of State. See
The divisional merger under the Texas statute, in the absence of any subsequent bankruptcy filing by LTL, may possibly have prejudiced creditors by requiring them to await LTL’s draw upon the Funding Agreement; however, that did not occur and is not the situation presented. Rather, a bankruptcy filing for the newly created, smaller entity housing the talc liabilities was a critical component of the 2021 Corporate Restructuring from the outset. As noted above, it is uncontested that the restructuring was intended as a single integrated transaction. Indeed, no one contests that J&J and Old JJCI looked to the Bankruptcy Code for a way to globally address all talc-related claims. With Debtor’s chapter 11 filing, this Court now has jurisdiction and oversight over the bankruptcy estate, which controls LTL’s rights under the Funding Agreement, and can ensure that Debtor pursues its available rights against J&J and New JJCI. It is inexplicable
The Funding Agreement between Debtor, on the one hand, and J&J and New JJCI (on a joint and several basis) on the other, is not intended to—and is unlikely to—impair the ability of talc claimants to recover on their claims. See Kim Decl. ¶ 21, ECF No. 5 (“A key objective of the restructuring was to make certain that the Debtor has the same, if not greater, ability to fund the costs of defending and resolving present and future talc-related claims as Old JJCI did prior to the restructuring.“) In this regard, under the Funding Agreement, all creditors, including talc claimants, maintain the ability to enforce any liquidated and fixed claims against LTL, with the added benefit of having both J&J and New JJCI backstop such obligations, up to the fair market value of Old JJCI as a floor amount, along with any additional value in New JJCI.27 Thus, as a result of the 2021 Corporate Restructuring, Debtor would have the funding available to satisfy present and future claims against Old JJCI, with the added contractual right to look to J&J and New JJCI as primary obligors without having to establish independent liability. Moreover, with
This Court agrees with Judge Beyer in In re Bestwall LLC, in analyzing a comparable funding agreement facing similar challenges:
The Court disagrees with the [c]ommittee’s argument [that the divisional merger “enabled Old GP to replace the assets against which asbestos creditors had a claim with a much smaller subset of assets“] for several reasons. First, because of the [f]unding [a]greement, the [d]ebtor’s ability to pay valid Bestwall [a]sbestos [c]laims after the 2017 [c]orporate [r]estructuring is identical to Old GP’s ability to pay before the restructuring.
606 B.R. at 252. Debtor, in argument and its submissions, points out that for over thirty years, Texas law has permitted divisional mergers that exclusively allocate liabilities (and assets) to a new entity created by the transaction, see CURTIS W. HUFF, The New Texas Business Corporation Act Merger Provisions, 21 St. Mary’s L.J. 109, 110 (1989), and that several other states have since enacted similar statutes, see, e.g.,
Movants point to the indisputable fact that the current Debtor had no liabilities (and thus no need for a bankruptcy filing) until the divisional merger was completed hours before the filing. The Court fully understands the refrain that if J&J or New JJCI are to obtain the benefits under the Bankruptcy Code, they should file their own chapter 11 cases and bear the burdens under the Bankruptcy Code. As noted in Movants’ Reply Memorandum:
Under the law, J&J and New JJCI must shoulder burdens commensurate to such benefits: “Since a discharge is an extreme remedy, stripping a creditor of claims against its will, it is a privilege reserved for those entities which file a petition under the bankruptcy code and abide by its rules. Simply put, ‘the enjoyment of the benefits afforded by the code is contingent on the acceptance of its burdens.’” In re Arrowmill Dev’t Corp., 211 B.R. 497, 503 (Bankr. D.N.J. 1997) (citation omitted). J&J and New JJCI thus must file for bankruptcy for this kind of benefits package. See id. at 506.
TCC I Reply Mem. at 10, ECF No. 1357. While that argument has facial appeal, it falters when the Court reviews and weighs the harm such filings would cause to Debtor, its affiliates, the bankruptcy estate, all creditors and claimants, and non-insider third parties. Filings by these companies would create behemoth bankruptcies, extraordinary administrative costs and burdens,
Let me be clear, this is not a case of too big to fail… rather, this is a case of too much value to be wasted, which value could be better used to achieve some semblance of justice for existing and future talc victims. The Court is not addressing the needs of a failing company engaged in a forced liquidation. Instead, the J&J corporate enterprise is a profitable global supplier of health, consumer products and pharmaceuticals that employs over 130,000 individuals globally, whose families are dependent upon continued successful operations. Why is it necessary to place at risk the livelihoods of employees, suppliers, distributors, vendors, landlords, retailers—just to name a few innocent third parties—due to the dramatically increased costs and risks associated with all chapter 11 filings, when there is no palpable benefits to those suffering and their families? Clearly, the added hundreds of millions of dollars that would be spent on professional fees alone would be better directed to a settlement trust for the benefit of the cancer victims. As acknowledged by other
And what are the important burdens of bankruptcy that J&J, Old JJCI and New JJCI have avoided through use of the Texas divisional merger statute? The Bankruptcy Code requires full transparency of all assets, liabilities and financial conduct through scheduling and reporting. Moreover, the Code mandates accountability for all assets and expenditures. Likewise, the Code requires judicial oversight over all non-ordinary course of business conduct. Finally, the Code burdens a debtor with the need to reach a consensus with its creditor base though the plan process and voting requirements. Given what will be required to confirm a plan in this case, as well as the attention this case is receiving from the public, media, government regulators, policy makers—let alone the Court, the United States Trustee and the dozens of attorneys involved—the Court is disinclined to view any of these entities as escaping the scrutiny or burdens.
There is no question that a fair resolution of this chapter 11 proceeding will require extraordinarily large contributions by the J&J corporate family, and likely insurers, toward a settlement fund. The sooner we get there, the better all around. Grossly multiplying the costs and complexity of this proceeding will not help the process. The J&J corporate family will not attain the benefits sought in this proceeding unless and until the parties can reach a court-approved global resolution under a confirmed plan of reorganization. This dynamic does not change whether Debtor, as a special purpose vehicle, filed the chapter 11 or the J&J family filed independent
The decision to seek resolution of the present and future talc claims within the bankruptcy system, through a
As to whether the divisional merger or the desired implementation of a
A finding that there exists an abusive litigation strategy, warranting dismissal of the case, is made most often in such obvious circumstances as a filing intended to simply delay the inevitable entry of judgment, to forestall collection efforts to allow the transfer of assets, a filing without any real prospects of confirming a plan or reorganizing, or where there is pointed effort to exploit the Bankruptcy Code—to name just a few examples. Certainly, this case differs from the above scenarios. The Claimants cite to In re Integrated Telecom Express, Inc., 384 F.3d 108 (3d Cir. 2004), and In re 15375 Memorial Corp., 589 F.3d 605 (3d Cir. 2009), for the proposition that a desire to use a particular provision in the Bankruptcy Code is “by itself” insufficient to establish
With respect to the use of the now infamous “Texas Two-Step,” the Court finds nothing inherently unlawful or improper with application of the Texas divisional merger scheme in a manner which would facilitate a chapter 11 filing for one of the resulting new entities. This Court does not find that the rights of the talc claimants and holders of future demands are materially affected by the divisional merger. Certainly, I can say with some confidence, that the legislature
Argument has been put forward by Movants, other parties in interest, and the drafters of the amici curie brief that allowing this case to proceed will inevitably “open the floodgates” to similar machinations and chapter 11 filings by other companies defending against mass tort claims. Given the Court’s view that the establishment of a settlement trust within the bankruptcy system offers a preferred approach to best serve the interests of injured tort claimants and their families, maybe the gates indeed should be opened. Nonetheless, for most companies, the complexity, necessary capital structure, and financial commitments required to lawfully implement a corporate restructuring as done in this case, will limit the utility of the “Texas Two-Step.” Not many debtors facing financial hardships have an independent funding source willing and capable of satisfying the business’s outstanding indebtedness. Moreover, the Court notes that in the fifteen years since having been appointed to the bankruptcy bench, there have been roughly 60 asbestos case filings under chapter 11 across the country, and under 100 filings since the very first case in 1982—hardly a flood. There have been, of course, dozens of additional mass tort cases not involving asbestos, primarily filings by a handful of pharmaceutical companies, manufacturers and several dozen catholic dioceses. With respect to the latter, the Court doubts very much that the dioceses will be
4. Application of Equitable Considerations
Movants urge the Court to exercise its equitable powers in dismissing this proceeding:
Bankruptcy courts are courts of equity. See, e.g., Young v. United States, 535 U.S. 43, 50–51 (2002) (explaining that bankruptcy courts “appl[y] the principles and rules of equity jurisprudence“) (citation omitted); United States v. Energy Res. Co., 495 U.S. 545, 549 (1990) (“[B]ankruptcy courts, as courts of equity, have broad authority to modify creditor-debtor relationships.“) (citation omitted); United States v. Energy Res. Co., 495 U.S. 545, 549 (1990) (“[B]ankruptcy courts, as courts of equity, have broad authority to modify creditor-debtor relationships.“); Pepper v. Litton, 308 U.S. 295, 304 (1939) (“for many purposes ‘courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity’” (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 240 (1934))). . . . A bankruptcy court can exercise its equitable powers “to the end that fraud will not prevail, that substance will not give way to form, that technical considerations will not prevent substantial justice from being done.” Pepper, 308 U.S. at 305.
TCC II Reply Mem. at 33, ECF No. 1358. The Court is unsure how this argument aides Movants’ position. Indeed, the last quote above from the Pepper opinion suggests—and the Court agrees—that form should not supplant substance. Such is the very reason the Court is disinclined to dismiss this case based on Debtor’s 2021 corporate reorganization efforts. At the risk of being labeled didactic, the Court observes that notwithstanding the ubiquitous acceptance by courts and attorneys, bankruptcy courts are not courts of equity. Rather, bankruptcy courts exercise authority granted by statute and may address both legal and equitable claims. See HON. MARICA S. KREIGER, “The Bankruptcy Court is a Court of Equity“: What does that Mean?, 50 S.C.L. REV. 275 (1999).
In permitting this case to proceed going forward, this Court stands prepared to employ its limited equitable authority under
Once the province of common law courts and judges, mass tort cases now forced the courts to adopt an equitable posture. Courts of equity traditionally have taken into account the equities-the concrete issues of fact and fairness of the particular situation-in fashioning remedies. In the mass tort context these include: (1) fairly and expeditiously compensating numerous victims, and (2) deterring wrongful conduct where possible; while (3) preventing over deterrence in mass torts from shutting down industry or removing needed products from the market, (4) keeping the courts from becoming paralyzed by tens or even hundreds of thousands of
repetitive personal injury cases, and (5) reducing transactional costs of compensation.
JACK B. WEINSTEIN & EILEEN B. HERSHENOV, The Effect of Equity on Mass Tort Law, 991 U. ILL.
While class actions offer no pathway for redress with personal injury mass tort litigation and MDL’s have been employed in the past with only limited success, and neither address the needs of future claimants, the use of the tools found within the Bankruptcy Code may well be the key here to fashion the remedies envisioned by Judge Weinstein.
III. Conclusion
For the reasons discussed, the Court denies the Motions in their entirety. The Court is aware that its decision today will be met with much angst and concern. Nonetheless, the matter before the Court is so much more than an academic exercise or public policy debate. These issues impact real lives. This Court lives with the distress in the voice of Vincent Hill, a mesothelioma plaintiff, when he testified about wanting his day in court and the need to care for his family. Sadly, Mr. Hill passed away recently and his death reaffirms for this Court the horrible truth that many of these cancer victims will not live to see their cases through the trial and appellate systems, but certainly deserve the comfort in knowing that their families’ financial needs will be addressed timely. The Court remains steadfast in its belief that justice will best be served by expeditiously providing critical compensation through a court-supervised, fair, and less costly settlement trust arrangement.
During closing arguments, the U.S. Trustee suggested that if the case were not dismissed, the Court should consider the appointment of a chapter 11 trustee. This same argument was raised by counsel for the Canadian Class Plaintiffs. In apparent response, Debtor offered to consent to
Michael B. Kaplan, Chief Judge
U.S. Bankruptcy Court
District of New Jersey
Dated: February 25, 2022
Notes
By way of example, § 7.6 of the Trust Distribution Procedures in the Duro Dyne National Corp. bankruptcy case provides:
7.6 Suits in the Tort System. If the holder of a disputed claim disagrees with the Asbestos Trust‘s determination regarding the Disease Level of the claim or the claimant‘s exposure history, and if the holder has first submitted the claim to non-binding arbitration as provided in Section 5.8 above, the holder may file a lawsuit against the Asbestos Trust in the Claimant‘s Jurisdiction as defined in Section 8.3 below. Any such lawsuit must be filed by the claimant in his or her own right and name and not as a member or representative of a class, and no such lawsuit may be consolidated with any other lawsuit. All defenses (including, with respect to the Asbestos Trust, all defenses which could have been asserted by a Debtor) shall be available to both sides at trial; however, the Asbestos Trust may waive any defense and/or concede any issue of fact or law. If the claimant was alive at the time the initial pre-petition complaint was filed or on the date the proof of claim form was filed with the Asbestos Trust, the case shall be treated as a personal injury case with all personal injury damages to be considered even if the claimant has died during the pendency of the claim.
Trust Distribution Procedures 43, Exhibit F to Third Amended Plan, ECF No. 1-2 in Case No. 19-cv-15433 (also available at ECF No. 784-3 in Bankr. Case No. 18-27963).