U.S. trustee blasts Johnson & Johnson talc unit’s new bankruptcy case

By Sarah Lizee

Olympia, Wash., May 2 – The U.S. trustee overseeing Johnson & Johnson subsidiary LTL Management LLC’s second Chapter 11 bankruptcy filed a motion to dismiss the case, according to documents filed Monday with the U.S. Bankruptcy Court for the District of New Jersey.

“LTL’s bankruptcy petition appears to reflect a mistaken belief that the best cure for bad faith is more bad faith,” Regions 3 and 9 U.S. trustee Andrew R. Vara said in his objection.

Vara noted that the new case was filed just 131 minutes after the court dismissed LTL’s previous Chapter 11 case for cause, following a ruling by the U.S. Court of Appeals for the Third Circuit that found that LTL lacked a valid reorganization purpose and that it had sought bankruptcy protection in bad faith.

“Standing alone, LTL’s defiance of the Third Circuit (and the controlling effect of the Third Circuit’s decision) would be sufficient cause for immediate dismissal of its refiled case. But LTL did more,” Vara said.

“In the weeks leading up to its second bankruptcy filing, LTL and its ultimate parent, Johnson & Johnson engaged in a series of transactions that LTL admits were designed for no purpose other than creating artificial ‘financial distress’ to sidestep the Third Circuit’s decision.”

Vara said that while he and other interested parties have had only a brief opportunity to investigate the transactions, it appears that they involved, at a minimum, significant intracompany asset transfers that eroded the value of LTL’s support from its affiliates, as well as LTL’s decision to terminate its rights under a funding agreement that had been its principal asset since it was created.

Vara noted that these transfers occurred when LTL was still a debtor in possession in its first case, subject to broad fiduciary duties to its creditors and the supervision of the court. However, LTL never disclosed the transactions to its creditors and never sought or obtained approval from the court for either its termination of the funding agreement or its decision to file a second bankruptcy petition.

“LTL is nothing more than J&J’s captive and this case is but a part of J&J’s scheme to discharge its tort obligations at cents on the dollar – without itself filing for bankruptcy,” Vara said, adding that LTL only exists to “get J&J out of a jam as cheaply as possible.”

Vara stated that the bankruptcy system and Johnson & Johnson’s creditors “deserve better,” and that this second bankruptcy case should fare no better than the first.

Johnson & Johnson is a consumer products company based in New Brunswick, N.J. The LTL Management subsidiary filed its initial Chapter 11 bankruptcy petition on Oct. 14, 2021 under case number 21-30589. The new case was filed on April 4 under case number 23-12825.

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