WASHINGTON (Legal Newsline) - Although Johnson & Johnson’s Chapter 11 bankruptcy is proceeding, talcum powder plaintiffs are appealing a federal judge’s ruling that dismissed their opposition.
On Feb. 25, Chief Bankruptcy Judge Michael B. Kaplan denied a challenge by plaintiff lawyers arguing that the bankruptcy through the Johnson & Johnson subsidiary LTL Management was an abuse of legal proceedings because it employed what they called the "Texas two-step."
The reference is to Section 1.002(55)(A) of the Texas Business Organizations Code, in which a corporation is split into two separate entities.
Plaintiffs challenged the structure of the Johnson & Johnson bankruptcy, which saddled LTL Management with legal liabilities while its counterpart, Johnson & Johnson Consumer Inc (JJCI), took on corporate assets.
LTL Management then filed for bankruptcy to litigate the claims as a subsidiary on behalf of Johnson & Johnson.
Bankruptcy expert Samir Parikh, professor of law at Lewis & Clark Law School in Oregon, doesn't believe that Kaplan’s decision will be overturned on appeal.
“That would be highly irregular,” he said “I think these are significantly complicated bankruptcy issues. Judge Kaplan did a great job explaining why the case deserves to stay in bankruptcy court.”
Parikh made the comments while he was a featured speaker on a Washington Legal Fund (WLF) panel last week on April 21 called Litigation or Bankruptcy? Cutting Through the Hyperbole Over Equitable Mass-Tort Resolution.
“While this case is unfolding, there's an automatic stay of state and federal proceedings that prevents any sort of credit or collection action, which would capture litigation across the country,” Parikh added.
Other panelists in attendance were Mayer Brown litigation partner Archis A. Parasharami, American Tort Reform Association (ATRA) President Sherman ‘Tiger’ Joyce and Glenn Lammi, WLF’s executive director and vice president of legal studies.
Questions included whether it’s fair to halt litigation while a bankruptcy judge’s decision is on appeal when litigation nationwide doesn't involve LTL management directly.
“The reason all proceedings are halted is because bankruptcy is essentially a settlement process,” Parikh said. “The automatic stay halts all these distracting events, which allows key parties to focus on settling the main case.”
Last year, for example, a San Jose woman was awarded more than $26.5 million by a California jury after allegedly using Johnson & Johnson baby powderwhich she claimed led to her developing cancer, according to media reports.
“When we have these one-off rulings across the country, it doesn't move the larger case to settlement in any way,” Parikh added. “So, the thinking is that halting all those proceedings that are distracting the key parties and letting them focus on settling the main matter is essentially curing the disease instead of addressing all the symptoms of the disease.”