Lawyers suing Johnson & Johnson in baby powder suits seek privileged attorney-client communications
Co-lead counsel in a lawsuit filed last month against Johnson & Johnson are asking a judge to allow access to communications among some top in-house lawyers in a bid to show that the company abused the bankruptcy process in litigation over talcum powder alleged to cause cancer. (Photo by Rafael Henrique/SOPA Images/Sipa USA via the Associated Press)
Co-lead counsel in a lawsuit filed last month against Johnson & Johnson are asking a judge to allow access to communications among some top in-house lawyers in a bid to show that the company abused the bankruptcy process in litigation over talcum powder alleged to cause cancer.
Beasley Allen and Ashcraft & Gerel allege that they should be allowed to access the communications under a crime-fraud exception to attorney-client privilege, Bloomberg Law reports.
The law firms allege that Johnson & Johnson is trying to fraudulently transfer its liabilities to an underfunded corporate entity in a divisional merger and to then resolve them using a process known as a “Texas two-step” bankruptcy.
Johnson & Johnson has twice failed to settle the talcum powder cases through a Texas two-step bankruptcy. It involves a company splitting in two, with corporate assets and liabilities divided between the new entities. The old company then dissolves, and the company holding liabilities files for bankruptcy.
According to Bloomberg Law, Johnson & Johnson “is taking a third crack” at the Texas two-step process.
In yet another tack, Johnson & Johnson is pursuing a prepackaged bankruptcy reorganization in which $6.5 billion would be used to settle tens of thousands of suits alleging that traces of asbestos in the company’s baby powder caused ovarian cancer. The deal would require approval of 75% of talc plaintiffs.
Despite agreeing to a settlement, Johnson & Johnson “stands by the safety of its talc products,” according to a press release.
Beasley Allen and Ashcraft & Gerel are seeking a temporary restraining order to block the global settlement, according to Bloomberg Law. Their May 22 suit, however, concerns the Texas two-step bankruptcy process.
Before the first bankruptcy filing, Johnson & Johnson Consumer Inc. was split into a company holding talc liabilities called LTL Management and a company holding nearly all Johnson & Johnson’s assets, which was also called Johnson & Johnson Consumer Inc., according to the May 22 suit, filed in New Jersey federal court. LTL Management then sought bankruptcy protection.
While the first bankruptcy case was pending, the company holding Johnson & Johnson’s assets transferred its consumer health business assets to corporate parent Janssen Pharmaceuticals and then to a new entity called Kenvue, according to the May suit. Kenvue owns well-known brands, such as Tylenol and Listerine, as well as a baby powder without any talc, according to Bloomberg Law.
When LTL Management initially filed for bankruptcy, it had a funding agreement entitling it to indemnity from Johnson & Johnson for talc cost. The estimated value of the agreement was about $61.5 billion. A federal appeals court tossed the first bankruptcy case in January 2023 because LTL Management was not in financial distress.
In the second bankruptcy, the funding agreement for LTL Management was reduced to $29.9 billion, and it was to be funded solely by Johnson & Johnson Consumer Inc., according to the May suit.
In July 2023, a bankruptcy judge tossed the company’s second case seeking bankruptcy protection on the ground that LTL Management was still not in imminent financial distress.
“J&J has recently announced its intent to pursue further corporate transfers as part of an as-yet unfulfilled scheme which may also constitute additional fraudulent transfers,” the suit alleges. “As an initial step in this scheme, LTL has already been converted to a Texas entity and renamed LLT Management LLC.”
The suit says Johnson & Johnson’s “past fraudulent transfers should be declared frauds and avoided, so as to ensure that talc victims have access to the same assets to satisfy their claims that they had prior to the divisive merger fraud.”
Johnson & Johnson, meanwhile, is seeking discovery on Beasley Allen’s litigation funding arrangements, Law360 reports.
In a brief filed in federal multidistrict litigation in New Jersey, Johnson & Johnson said its $6.5 billion settlement offer is “unprecedented” and in the best interest of claimants. Yet Beasley Allen is “vehemently opposed” to the prepackaged bankruptcy, the Johnson & Johnson brief says.
“Given the extreme lengths to which Beasley Allen (and its co-counsel) have gone to derail voting on the proposed prepackaged bankruptcy, defendants are left with no choice but to seek discovery that would shed light on what is really driving the firm’s persistent and vocal anti-vote campaign,” the Johnson & Johnson brief says.
