J&J’s two failed Chapter 11 cases aimed at settling all current and future baby powder suits involved the improper shifting of billions of dollars of assets among its units and worked to wrongfully delay cancer victim’s jury trials, attorneys for consumers said in the suit, filed Tuesday in federal court in New Jersey.
The company adopted a “strategy of repeat fraudulent transfers and serial bad faith bankruptcy filings to hinder, delay, and defraud’’ ex-baby powder users, plaintiffs lawyers involved in consolidated cases in New Jersey said in court filings.
The suit is the latest salvo in more than a decade’s worth of litigation over claims J&J officials hid the powders’ cancer risks. The company now is seeking consumers’ backing for an $11 billion settlement that would resolve all current and future cases. J&J officials have said the accord would be administered by a trust as part of a third bankruptcy filing.
“Our focus has been and will remain reaching a full, fair and final resolution of this litigation, and allowing the claimants to speak for themselves,” Erik Haas, J&J’s lead in-house lawyer, said in an emailed statement.
J&J announced last year it was mulling a third Chapter 11 bid to resolve cases alleging talc in its former baby-powder formulation caused multiple kinds of cancer.
The longstanding litigation — plus the prospect of potential future cancer suits — is hurting its stock, JPMorgan Chase & Co. analyst Chris Schott said.
J&J has steadfastly maintained talc doesn’t cause cancer and that it appropriately marketed its baby powder for more than 100 years. Last year, it pulled its talc-based version off shelves worldwide and replaced it with a cornstarch substitute.
J&J now faces more than 61,000 suits blaming talc in its powders for causing ovarian and asbestos-related cancers, according to securities filings. Many of those cases have been gathered before US District Judge Michael Shipp in Trenton, New Jersey for pre-trial information exchanges and test trials. Other cases are set for trial in state courts.
In July, a judge rejected J&J’s second bankruptcy attempt, in which the company sought to resolve at least 40,000 suits for about $8.9 billion with a bankruptcy filing for its subsidiary LTL Management LLC. The judge said J&J didn’t meet the test for financial distress. A federal appeals court made a similar finding in January 2023 when it tossed a J&J unit’s first Chapter 11 filing.
That opinion foreshadowed the fraudulent transfer arguments being advanced now.
“Some might read our logic to suggest LTL need only part with its funding backstop to render itself fit for a renewed filing,” the opinion said.
The appeals court noted that transfers can be undone in bankruptcy under certain circ*mstances. The statement was interpreted by some observers as a warning to J&J not to try too hard to manufacture financial distress for another bankruptcy filing.
The company in December changed the name of LTL to LLT and moved it to Texas from North Carolina.
‘Badges of Fraud’
The complaint asserts plaintiffs are entitled to monetary damages under states’ fraudulent-transfer laws, a powerful legal doctrine that allows creditors to reverse corporate transactions done to impede claimants’ ability to collect what they’re owed.
At the heart of consumers’ claims — which seek class action status — are allegations that J&J mishandled so-called “funding agreements” backing up the bankruptcy filings. The pacts amounted to vows from J&J to cover its bankrupt unit’s costs of paying out settlements and jury awards in the litigation.
The suit asserts the first Chapter 11 case’s funding agreement obligated J&J to cover talc claims against its former consumer products unit up to $61 billion. Even though courts tossed the J&J unit’s Chapter 11, the pact “applies with equal force outside of bankruptcy,” according to the complaint.
In the second Chapter 11 case, J&J officials revised the funding agreement to only cover $29 billion in powder claims, the suit said. The shifting away of $32 billion in assets from the bankrupt unit amounted to a fraudulent transfer, consumers’ lawyers said in the suit.
“The termination of the funding agreement bears several of the badges of fraud,” plaintiffs lawyers said in court filings.
The suit also names J&J CEO Joaquin Duato, CFO Joseph Wolk and other executives as individual defendants, alleging they participated in the fraudulent transfers.
The plaintiffs are represented by Bailey Glasser LLP, Levin Papantonio Rafferty Proctor Buchanan O’Brien Barr Mougey PA, Beasley Allen Crow Methvin Portis & Miles PC, Golomb Legal, Ashcraft & Gerel LLP and Burns Charest LLP.
The case is Love v. LLT Management LLC, No. 24-06320, Complaint 5/22/24.
