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Preventing Bankruptcy from Becoming a Tool for Injustice | TZ Files Amicus Brief on Behalf of Public Justice in J&J Bankruptcy Case

Date Published
Jul 11, 2022
Amicus Brief

Updated January 31, 2023

July 7, 2022. On behalf of client Public Justice, Tycko & Zavareei LLP filed an amicus brief in the United States Court of Appeals for the Third Circuit in support of a nationwide group of plaintiffs who allege that asbestos in Johnson & Johnson’s baby powder caused them to develop life-threatening cancers. Public Justice is a national public interest law firm that works to ensure access to the justice system for people injured by corporate or government wrongdoing. Hassan Zavareei, Glenn Chappell, Allison Parr, and Leora Friedman produced this brief.

In this case, Johnson & Johnson (J&J) employed a controversial procedure and “quirk in Texas corporation law” called the “Texas Two-Step,” by which it split itself into two corporate entities. One entity retained J&J’s assets and continued doing business while the other, called LTL Management or Legacy Talc Litigation, took on the burden of J&J’s potential liabilities and immediately filed for bankruptcy protection. The amicus brief explains why the unique and powerful tools available to bankruptcy courts only work as intended when a debtor is in legitimate financial distress. Where a thriving, profitable company tries to use the bankruptcy process purely to limit its potential liabilities in court, bankruptcy becomes a tool for injustice.

The brief illustrates the stakes with specific examples from prior suits against J&J and explains why jury trials are crucial for claimants, many of whom have only a short time to live due to their terminal illnesses. It argues that the civil justice system contemplated by the United States Constitution is the proper place to resolve these claims, and it is producing fair results for claimants and J&J.

Specifically, the brief asserts:

The extraordinary protections of the bankruptcy laws function properly only when invoked by honest debtors in legitimate financial distress.

J&J is a profitable company and has “manufacture[d] insolvency,” as its recent news releases show its continuing growth.

J&J’s divisive merger strategy artificially walls off assets from talc claimants, denies them the right to enforce their own right to recover, and subverts the constitutional system in place to redress their harms.

J&J and LTL’s funding agreement “disadvantages” talc claimants as it states that J&J only has to fund LTL up to its value on the date of the companies’ division.

The stakes in this case are real, and the human costs are high.

Talc claimants are suffering from a variety of cancers and the attendant side-effects of chemotherapy and other treatments.  Claimants are dying even while their cases are proceeding in court.

If allowed to stand, J&J’s attempted abuse of the bankruptcy laws will set a dangerous precedent.

Other companies could implement this maneuver to limit the amount of funds available to people seeking financial compensation for harms caused by a company’s products or services.

“The Third Circuit’s decision will have far-reaching impacts on the right of plaintiffs harmed by large corporations and bringing meritorious claims to seek civil justice,” said Glenn Chappell, Associate. “We’re proud to represent the voice of consumers in this crucial case.”

In a matter of first impression, the appeals court will decide whether J&J’s use of the Texas Two-Step is a valid, good faith use of the bankruptcy process or whether LTL’s bankruptcy petition should be dismissed.

The Case is In Re LTL Management, LLC, Nos. 22-2003, 22-2004, 22-2005, 22-2006, 22-2007, 22-2008, 22-2009, 22-2010, 22-2011 (Consolidated) in the United States Court of Appeals for the Third Circuit.

Read the Amicus Brief

Read more on Law360

Read about the outcome of the case in Reuters

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