Texas Judge Calls J&J’s Third Bankruptcy Attempt ‘Different’
Despite objections from the Office of the U.S. Trustee and some plaintiffs’ attorneys, a judge says Johnson & Johnson’s bankruptcy can proceed in Texas. U.S. Bankruptcy Judge Christopher Lopez ruled the company’s latest case is “different” enough from its previous attempts in New Jersey.
What set this third attempt at bankruptcy apart from previous attempts, according to Judge Lopez, was the recent vote in which a significant majority of plaintiffs voted in support of J&J’s settlement offer. The settlement offer is now nearly $9 billion.
Those opposed to the new filing proceeding in Texas had argued the case should be sent back to New Jersey. The first two bankruptcy attempts were heard in the state where J&J is headquartered.
Bankruptcy Judge Michael Kaplan in New Jersey ruled J&J was not in “financial distress” and dismissed both filings. Judge Kaplan pointed out J&J is a $390 million company and able to handle the costs of ongoing asbestos litigation related to the its talcum powder.
Opposing Arguments Against Proceeding in Texas
Opponents of J&J’s attempt to move its bankruptcy proceedings from New Jersey to Texas called the tactic court shopping, also known as forum shopping. Attorney Sunni P. Beville, representing plaintiffs involved in opposing J&J’s plan, argued, “If that isn’t abusive forum shopping, I don’t know what is.”
The U.S. Department of Justice’s Office of the U.S. Trustee argued in court that the tactic was “an assault on the very integrity of the bankruptcy system.” The mission of the Office of the U.S. Trustee is to “promote the integrity and efficiency of the bankruptcy system.”
Beville also said, “This is not how bankruptcy is supposed to work. People see this as a manipulation of the bankruptcy system.”
At the heart of arguments about proceeding in Texas versus New Jersey are roughly 62,000 pending ovarian cancer lawsuits. These claims allege exposure to asbestos caused plaintiffs’ cancer.
Bankruptcy would allow J&J to settle the claims without going to trial. Companies often opt to offer settlements rather than continue to litigate.
J&J’s Bankruptcy Filing in Texas
When the company filed its first two attempts at bankruptcy in New Jersey, it was through its subsidiary LLT Management LLC. The subsidiary was created to hold responsibility for all of the talc lawsuits against J&J. The September 2024 bankruptcy filing is through another J&J subsidiary, Red River Talc LLC.
Absorbing a company’s lawsuits in a subsidiary and then declaring bankruptcy is referred to as the Texas Two Step. Bankruptcy court can enforce settlements that stop all related lawsuits and prevent new ones from being filed.
Lawyer Greg Gordon, representing Red River, argued in court that the subsidiary “has the right to choose the venue that is the most favorable.” He admitted the company filed in Houston to circumvent the New Jersey court that previously ruled against it.
Gordon suggested this was acceptable because most plaintiffs voted to accept the settlement. He added that when the plaintiffs voted on the settlement, they were aware there would be a bankruptcy filing in Texas. Judge Lopez agreed in his ruling.
