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Greg Gordon, a lawyer for J&J subsidiary LTL Management LLC,
raised during a hearing before U.S. Bankruptcy Judge Michael
Kaplan the idea of a court-appointed examiner that could "come
in and do whatever investigation it wants" to determine whether
the restructuring short-changed cancer victims.
Bankruptcy judges have wide discretion over the scope and budget
for an appointed examiner. Any such examination would be
contingent on LTL remaining in bankruptcy, an arrangement that
cancer plaintiffs oppose.
Cancer plaintiffs have asked Kaplan to dismiss LTL's bankruptcy
case and allow them to resume the lawsuits against J&J. Kaplan,
who presided over a week-long hearing on the matter in Trenton,
New Jersey, has said he will decide by the end of the month
whether to dismiss the case.
J&J is attempting to use LTL's bankruptcy case to resolve about
38,000 lawsuits alleging the company's talc products caused
ovarian cancer and mesothelioma, an illness linked to asbestos
exposure. J&J maintains that its talc products are safe and
asbestos-free, but attorneys for LTL argued that bankruptcy is
the only practical way to resolve the sheer volume of lawsuits.
During closing arguments in the hearing, Gordon floated the
option of an independent examiner to clear the air after lawyers
for cancer victims argued the bankruptcy was improper.
J&J, which has a stock market value of more than $400 billion,
created LTL to take on the responsibility for the cancer
lawsuits in October 2021. LTL filed for bankruptcy just days
later. Cancer plaintiffs have called the corporate restructuring
and bankruptcy "rotten to the core."
Legal experts have dubbed this type of maneuver a "Texas
two-step" because it exploited a Texas law that allows a company
to split into two via a so-called divisive merger, saddling one
company with liabilities while the other takes valuable assets.
Gordon said if a court-ordered investigation finds evidence of
improper corporate maneuvering, the talc plaintiffs would be
able to sue for fraud related to the restructuring while the
bankruptcy case proceeds.
In the bankruptcy of media company Tribune Co, an examiner found
evidence of dishonesty in the media company's disastrous 2007
leveraged buyout, ultimately leading to a $200 million
settlement of related fraud claims in 2019.
Before Gordon raised the possibility of an examiner, the U.S.
Justice Department's bankruptcy watchdog suggested another
alternative path, saying on Thursday that the court should
consider appointing a Chapter 11 trustee to take over LTL's
operations from the J&J-appointment management team.
(Reporting by Dietrich Knauth, Tom Hals and Mike Spector;
Editing by Will Dunham and Amy Stevens)
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