The federal judge in charge of the multidistrict litigation (MDL) against Johnson & Johnson’s asbestos-tainted talcum products has declined to decide issues arising from the bankruptcy of the company’s subsidiary LTL Management. This decision sharply limits what talc plaintiffs can do to continue to pursue justice while LTL Management settles its bankruptcy affairs, according to Law360.
On Jan. 21, Judge Freda L. Wolfson released a 14-page decision, stating that it would be improper to take up the decision over whether LTL Management can legally extend its bankruptcy protections to other third-party company affiliates. These bankruptcy protections are currently preventing the talc liability lawsuits from proceeding.
The talc MDL, comprised of more than 38,000 lawsuits from people claiming that J&J’s talcum powder caused their ovarian cancer, has been stalled after J&J chose to use a business loophole known as the “Texas two-step” to separate all of their talc liability into a new company and then force that company into bankruptcy. Now the new company, LTL Management, is receiving the benefit of a bankruptcy process known as a “stay.”
This stay pauses all collections efforts against an entity, including lawsuits, until the bankruptcy has been concluded. This stay protection has also been extended to all of LTL Management’s affiliates, including its parent company Johnson & Johnson. Plaintiff’s attorneys critical of this maneuver have accused J&J of exploiting an obscure business strategy and using the bankruptcy system in bad faith in order to prevent more talc lawsuits from going to trial.
In protest of these actions, a committee made up of talc plaintiff’s attorneys attempted to compel Judge Wolfson to restrict the broad protections of the stay through a legal motion called a withdrawal of reference. This procedure asks a judge to weigh in on a discrete, finite issue separate from the procedure as a whole. LTL Management’s attorneys argued against this withdrawal, saying that the issues of the automatic stay and its scope are “quintessential bankruptcy issues.”
Judge Wolfson agreed with LTL Management that these issues were the core of the bankruptcy proceeding and therefore declined to overreach into deciding the issues of the bankruptcy court. With Judge Wolfson’s refusal, a series of legal maneuvers may finally begin to conclude.
Initially, the plaintiffs asked that the entire Chapter 11 bankruptcy proceeding be thrown out because it was conducted in bad faith. The North Carolina judge who heard their motion declined to pass judgment, citing the case’s impending transfer to New Jersey.
On Jan 10, New Jersey Bankruptcy Judge Micheal Kaplan delayed his judgment of the bad faith question pending Judge Wolfson’s withdrawal of reference decision. Now that Judge Wolfson has made her judgment, Judge Kaplan may be free to rule on the legitimacy of LTL Management’s bankruptcy claims.