Relevant Document:
Agenda
Today’s first day hearing in the chapter 11 case of LTL Management, the newly-created entity spun off from Johnson & Johnson in its Oct. 12 “Texas two-step” divisional merger,
concluded with Judge Craig Whitley questioning whether the Western District of North Carolina is the proper venue for the debtor’s case. Judge Whitley said he will enter an order tomorrow, Oct. 21, directing the parties to brief the venue question and suggested that either New Jersey or Delaware might be more appropriate venues. The court scheduled a venue hearing for Nov. 10 at 9:30 a.m. ET. “I’ve got an open mind about it,” said the judge, but “you’ve got some convincing to do as to whether we’re in the right place here.”
Much of today’s contentious hearing focused on the debtor’s
vehemently opposed motion to enforce the automatic stay as to non-debtor affiliates and other defendants in talc litigation cases pending throughout the country, which the debtor had requested be heard today on shortened notice. After hearing argument on the motion to shorten notice, Judge Whitley
said that he was “not comfortable at all” with “doing something as broad” as he was being asked to do on such short notice and concluded that the proper procedure would be for the debtor to commence an adversary proceeding seeking a temporary restraining order and injunction, as urged by the MDL plaintiff steering committee, or PSC, in its motion to strike the debtor’s stay motion.
Debtor’s counsel agreed to file an adversary complaint by 12 p.m. ET tomorrow, Oct. 21, which will be accompanied by a supplemental declaration in support of the requested injunction. Over the objections of numerous parties at today’s hearing, the judge
permitted the debtor to present oral argument in support of the TRO during the afternoon portion of today’s hearing. Parties opposing the TRO, including the PSC and other tort claimant representatives, will cross-examine the debtor’s witness and make their presentations at a continued hearing on Friday, Oct. 22, at 1:30 p.m. ET.
Earlier in the hearing, debtor’s counsel informed the court that
the debtor intends to file a motion shortly asking the court to direct the parties to engage in a global mediation to resolve talc-related claims against the debtor. In addition, the court granted the debtor’s other
first day relief subject to reservations of the rights of an eventual tort claimants’ committee to challenge final approval.
As to the question of venue, Judge Whitley cited concerns over the ability of the “small, underserved court” with only two bankruptcy judges to provide the parties with the time and resources to handle a case of this size and complexity. He also observed the debtor’s “minimal contacts” with the state of North Carolina, which he said appear to be limited to LTL’s incorporation in the state following the divisional merger. He noted that J&J is headquartered in New Jersey and the ongoing talc multidistrict litigation, or MDL, is currently pending in New Jersey federal court. The judge also suggested the debtor’s apparent connections to the
Imerys Talc America and
Cyprus Mines chapter 11 cases, currently pending in Delaware, may make Delaware another feasible option.
Judge Whitley added that the venue question also raises the “broader question” of whether the Western District of North Carolina should be at the forefront of deciding the propriety of “Texas two-step” bankruptcy cases.
“I can think of no reason why the Western District of North Carolina needs to be the arbiter” of that question for other courts and circuits, remarked the judge. Other “Texas two-step” cases
DBMP,
Bestwall and
Aldrich Pump are likewise pending in the district.
In addition to the continued Oct. 22 TRO hearing, the court scheduled omnibus hearings on Nov. 4 (where the court will consider a preliminary injunction if a TRO is granted as well as the appointment of a tort claimants’ committee), Nov. 10 (where the court will consider the venue question) and Dec. 9.
First Day Presentation and Opening Remarks
Debtor’s counsel Gregory Gordon of Jones Day commenced the first day presentation with an overview of the debtor’s corporate history from the 1970s through and including the Oct. 12 “Texas two-step” transaction that preceded this case, as outlined in greater detail in the debtor’s first day papers. He emphasized that, as a result of the Texas divisional merger, LTL received the talc-related liabilities and certain assets of the entity formerly known as Johnson & Johnson Consumer, Inc., or old JCCI - namely $6 million cash, insurance coverage rights and the equity in Royalty A&M LLC. The other entity to emerge from the divisional merger, which took on the name Johnson & Johnson Consumer, Inc., or new JCCI, is LTL’s direct parent company and received old JCCI’s remaining assets and liabilities.
Addressing the status of ongoing talc-related litigation, as detailed in the debtor’s informational brief filed with the petition, Gordon described “wide-ranging” outcomes in the litigation, which he said “is similar to playing the lottery” and produces “unfair and inequitable” outcomes for plaintiffs and defendants alike. He said that the purpose of the LTL filing is “to permanently and equitably resolve all current and future talc-related claims” in a single forum and that the debtor’s goal is to “negotiate and confirm a plan as quickly as possible” that will establish a trust to pay current and future talc claims.
To that end, said Gordon, the debtor intends to file a motion shortly seeking court-directed mediation. He added that LTL is also considering filing a similar motion in the pending Imerys and Cyprus Mines chapter 11 cases to have those debtors likewise participate in LTL’s mediation process. Both of those debtors have contended that they have indemnification claims against old JCCI, Gordon added, which he said is the subject of adversary proceedings currently pending in both cases and which the LTL debtor and J&J contest.
Turning to the debtor’s funding agreement with J&J and new JCCI, Gordon said the agreement “assures that LTL has the same if not greater ability to fund the cost” of resolving current and future talc claims as did old JCCI. J&J’s obligation under the funding agreement, he continued, “differentiates” this agreement from those in the DBMP and Aldrich Pump cases, where he noted that the court and the parties have expressed concerns regarding the hypothetical ability of payors in those cases to engage in intercompany transactions that could diminish their assets, as well as the absence of a guarantee. Including J&J as a payor here, said Gordon, is “better than a guarantee” and is meant to assuage those types of concerns.
Gordon also clarified that the $2 billion that J&J and new JCCI propose to “prefund” into a qualified settlement fund is, contrary to the characterizations of various objectors, “not intended to place a cap on potential liability.” Gordon added, however, that the debtor believes the $2 billion amount exceeds any liability that the debtor “could reasonably have” for talc claims. In their objection, the PSC contended liability could “easily” exceed $20 billion. The debtor’s motion to approve the settlement fund will be the subject of a future hearing.
Gordon next addressed various objections from plaintiff constituencies, saying that this case is “not about” escaping liability or attempting to “quarantine or ring-fence” assets. The assets that were available to satisfy claims before the divisional merger are still available today, Gordon asserted. This case is “not about securing a discount,” he continued. “It’s about securing an agreement.” The “lottery-like results” of the pending litigation, resulting in “huge recoveries for a small few and no recovery for the rest,” is “untenable for both sides,” said Gordon.
Melanie Cyganowski of Otterbourg appeared for the talc plaintiff steering committee, or PSC, appointed in the MDL. Echoing the PSC’s omnibus objection to first day pleadings, Cyganowski decried LTL’s filing as using the bankruptcy process as a “weapon” to avoid J&J’s corporate responsibilities through the use of an “artificial construct.” She argued that the “five year old” MDL is the proper forum to address talc-related claims, with bellwether trials scheduled to begin in the spring of 2022.
In contrast to other “Texas two step” cases such as Aldrich Pump, asserted Cyganowski, these claimants have “direct” rather than “derivative” claims against LTL’s parent company, which she argued should not be subject to the debtor’s automatic stay as requested by the debtors.
Numerous other plaintiffs’ counsel likewise appeared to challenge the propriety of the “Texas two step” filing as well as the requested enforcement of the automatic stay to non-debtor parties.
Kimberly Posin of Latham & Watkins appeared on behalf of chapter 11 debtor Imerys Talc America, who she said was previously the “exclusive supplier” of talc to J&J and its affiliates. J&J owes Imerys contractual indemnification for talc-related liabilities, argued Posin, who went on to describe Imerys’ July 2021
adversary proceeding seeking to enforce those obligations against J&J. If the court determines that LTL assumed J&J’s indemnification obligations through the divisional merger, said Posin, Imerys would be one of LTL’s largest creditors and thus intends to be an active participant in LTL’s case.
Counsel for Cyprus Mines, Paul Singer of Reed Smith, echoed Posin’s remarks, saying that Cyrpus Mines filed for chapter 11 as a result of personal injury claims alleged to have been caused by J&J products and likewise intends to actively participate in the case.
Before proceeding to the stay motion, the court and the parties discussed granting interim approval of the debtor’s other first day relief subject to reservations of rights for a future tort claimants’ committee. The bulk of the discussion involved the debtor’s motion to limit case notice to major plaintiffs’ law firms rather than providing notice directly to the claimants themselves. The judge concluded that, for the time being, the debtor should provide notice of case commencement to the law firms as proposed by the debtors, with reservation of all parties’ rights with respect to the manner of service of future filings in the case and as to whether individual claimants are properly served so as to make future orders binding on them.
Arguments on Stay Motion/TRO
Robert Hamilton of Jones Day argued in favor of the debtor’s motion to have its stay motion considered today. He argued that the debtor is not asking the court to issue an injunction, which would require an adversary proceeding, but instead is merely asking for an extension of the automatic stay to certain non-debtor parties. He argued that an “immediate” determination is necessary because numerous plaintiffs have made clear their intent to proceed with litigation and the various trial courts have already asked the parties to brief the question of whether the automatic stay applies, creating the risk of “inconsistent rulings.”
Cyganowski, for the PSC, asked the court to decline to consider the stay motion, which she said seeks to extend the stay to over 150 additional entities, some of whom “are not even defendants.” The “confusion” in the trial courts over the application of the stay is “self generated,” she argued. The automatic stay applies to a debtor and its property only, said Cyganowski, and not to the debtor’s parent company or unaffiliated retailers such as Target and Family Dollar, who she said are included on the debtor’s list. “We have no idea what their relationship is” to certain of these parties, she continued, adding that what the debtor is requesting is “really not an extension” of the automatic stay; “it’s an injunction.”
After hearing from several other plaintiff representatives joining the PSC’s objection, Judge Whitley denied the motion to shorten notice. In response, Gordon, on behalf of the debtor, suggested that the debtor file an adversary complaint and seek entry of a TRO this week. After a short break for the parties to confer on next steps, Judge Whitley accepted the debtor’s proposal, and permitted the debtor to proceed with argument today in support of its forthcoming TRO request.
Before hearing the debtor’s arguments in support of a TRO, Judge Whitley informed the parties that he is “likely” to conclude - consistent with prior decisions of the court - that, to the extent the divisional merger allocated predecessor liabilities to LTL, those are claims against the debtor’s estate that may be stayed. But “if it’s something else” that does not involve property of the estate, added the judge, he may decide otherwise.
Both Hamilton and Gordon argued in support of the TRO. Hamilton argued that the automatic stay applies to causes of action against non-debtors that are based on theories of derivative liability for the debtor, which he said applies here.
Picking up the argument, Gordon emphasized that any claims plaintiffs may hold against J&J and other affiliates are the “exact same” claims, seeking the same recovery, that they now have against LTL as a result of the divisional merger. Gordon referred to the portion of the first day declaration detailing a series of transactions beginning in 1979 whereby J&J transferred its assets and liabilities related to J&J baby products, which were eventually transferred to old JCCI. As a result, he asserted, any claims against J&J related to those products are “really against” old JCCI and, by virtue of the divisional merger, against LTL.
He also explained that various contractual indemnities make LTL “the real party in interest” with respect to such claims against affiliates as well as against retailers who sell or have sold the related products.
After the conclusion of the debtor’s argument, numerous parties expressed concern over the lack of documentation supporting various assertions in support of the TRO, particularly documents evidencing the string of corporate transfers, which they said they will need in advance of Friday’s continued hearing. Gordon responded that the debtor will endeavor to provide as much of the requested information as possible in advance of Friday’s hearing, but said that certain “voluminous” documentation will not be available in time.
The TRO hearing is scheduled to resume on Friday, Oct. 22, at 1:30 p.m. ET, with the PSC likely to file responsive papers in advance of the hearing, according to Cyganowski. The court also heard argument today from counsel for terminally ill plaintiff
Nedelka Vanklive, who asked the court to lift the automatic stay as her litigation to the extent it applies. The debtor likewise intends to respond to that argument at the Oct. 22 hearing.