TRENTON, N.J. (Legal Newsline) - Plaintiff lawyers who successfully blocked Johnson & Johnson from settling talc claims in bankruptcy sought more than $1 million in fees as a judge for the second time dismissed the Chapter 11 reorganization case of the LTL Management unit J&J set up specifically to pay tort claims.
LTL fought the fee request from plaintiff lawyers for their work early in the case, saying their efforts “resulted in no discernable benefit to the debtor’s estate” and were motivated by a desire “to return to the tort system to seek blockbuster judgments.” J&J established LTL in a maneuver commonly known as the “Texas Two-Step,” setting up a subsidiary company to hold talc liabilities which it then put in bankruptcy in order to avail itself of an automatic stay of litigation and force a $9 billion settlement.
That effort failed as plaintiff lawyers representing tens of thousands of people who claim asbestos-contaminated talcum powder causes cancer complained to the court that J&J was in no financial danger and could continue fighting the cases in court. The Third Circuit Court of Appeals ended J&J’s first attempt at bankruptcy in January and on July 28, U.S. Bankruptcy Judge Michael Kaplan ended the second, ruling J&J had failed to show “sufficient `imminent’ or `immediate’ financial distress” to merit protection from the court.
The decision doesn’t mean the end of settlement efforts, as Judge Kaplan noted in his order. Plaintiff lawyers have a financial incentive to settle the claims of their current clients so they can collect their fees, and LTL claimed its second filing had the support of lawyers led by Mikal Watts representing 60,000 claimants. But by claiming one of a commonly used consumer product – Johnson’s Baby Powder – causes mesothelioma and other cancers, those lawyers created a problem for themselves. Any settlement must account for all the future cancer patients who will have equally valid claims based on the plaintiff theories.
“There are two insurmountable hurdles to globally resolving talc litigation in the tort system—latency periods for injuries and unknown future claimants,” Judge Kaplan wrote in his July 28 order. He urged the parties to continue to negotiate a global settlement, even as he ruled that J&J failed to make the case it could do so through bankruptcy.
LTL, meanwhile protested the attempt by plaintiff lawyers to collect $1.4 million in fees and expenses for fighting its attempt to reorganize. The lawyers sought payment for their “substantial contribution” to the bankruptcy in the weeks after LTL filed in 2021. They said they were “ambushed” by the filing and “compelled to mobilize” until the “cavalry” arrived in November with the court’s appointment of an official tort claimants committee.
By hiring specialist law firms including bankruptcy experts, the law firms argued, they “provided a benefit for tort claimants beyond that of their own individual talc creditor clients and the bankruptcy estate as a whole.”
Nonsense, LTL responded. The bankruptcy judge in North Carolina, where LTL originally filed, denied their earliest motions and transferred the case to New Jersey on his own. LTL, meanwhile, spent $22.1 million on 12 law firms litigating the issues the plaintiff lawyers are now seeking their own payment for fighting, the company said.
The lawyers were “motivated to return to the tort system to seek blockbuster judgments (despite the significant risk to claimants of no recovery), protect their business models and, in certain cases, preserve their entitlement to common benefit funds,” LTL said.
The lawyers seeking payment from LTL’s estate include Otterbourg, Cole Hayes, Levin Papantino and Levy Konigsberg.