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J&J can’t use bankruptcy to resolve talc-injury lawsuits, appeals court rules
- bsagdiyev 4y agohttps://archive.is/M5EQc https://archive.is/M5EQc
- Kon-Peki 4y agoThis is the 3rd circuit, which covers Delaware and all of its corporations. This is a really big deal, until and if the Supreme Court is willing to take it up and reverse (but remember J&J went down this path because the Supreme Court refused to hear an appeal of a talc verdict against them). > ... J&J’s stated goal was to isolate the talc liabilities in a new subsidiary so that entity could file for Chapter 11 without subjecting Old Consumer’s entire operating enterprise to bankruptcy proceedings. > Two days later, LTL filed a petition for Chapter 11 relief ... > Talc claimants there moved to dismiss LTL’s bankruptcy case as not filed in good faith ... > We start, and stay, with good faith. Good intentions — such as to protect the J&J brand or comprehensively resolve litigation—do not suffice alone. What counts to access the Bankruptcy Code’s safe harbor is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus we dismiss its petition. Page 49: > Finally, we cannot help noting that the casualness of the calculations supporting the [Bankruptcy] Court’s projections engenders doubt as to whether they were factual findings at all, but instead back-of-the-envelope forecasts of hypothetical worst-case scenarios. BURN! https://www2.ca3.uscourts.gov/opinarch/222003p.pdf https://www2.ca3.uscourts.gov/opinarch/222003p.pdf
- ok_dad 4y agoI, too, wish I could just give my friend all my assets sans my liabilities, jump into a new body, then have them give it back to me and avoid paying for my mortgage and other loans. I am glad to see this ruling and hope it sticks as hard as possible, and new laws are written to prevent this in the future. I've always believed that corporations should be subordinate to humanity and even individual humans in law, or else what are corporations for? They should be serving humans, not vice versa. If a corporation starts to harm people, it should be taken out back and shot.
- Gibbon1 4y agoI feel like we need to back off the shareholders are immune from liability by a quarter turn. In particular fine the shareholders with voting rights not the company. And not the ones that currently own the stock, the ones that did when the company did something bad.
- kps 4y agoYes, limited liability is an unfair subsidy to corporations over individuals.
- pessimizer 4y agoWell that's an incentive/reward for private people taking on risky ventures to accomplish the objectives of the state. Too bad they took out the work requirement and it just became welfare.
- themitigating 4y agoShouldn't the current shareholders be responsible for looking into potential liabilites? If I buy stock in a game company and the next day it releases a new game that tanks I didn't own stock when the game was developed.
- marcosdumay 4y agoIf you don't limit the liability, you will see the stock market die. This would be more a case of you buying stock on the game company, and the next day somebody discovering that the previous dividends were fraudulent and only happened because the company stole 100 times more than its market value, and then you being on the hook for paying 100 times more than the stock price as restitution. I do agree that the liability limitation is currently too strict. But it can't just be removed.
- themitigating 4y agoBut that's new information. The talc issue has been known for years. How serious or what the monetary outcome would be was not known but should have been a calculated risk for those purchasing stock
- anm89 4y agoGreat to hear. Stuff like this degrades basically belief that we presently have rule of law in America. Imagine trying to pull this shit as an individual. You burn down some apartment complex and then just create an empty company and assign all of your liabilities to that company and say "you've got to sue them, I've got no liability here". You'd get laughed out of the courtroom. But this came pretty close to working for J & J. When I see looters lighting businesses on fire or breaking windows, I tend to think back to stuff like this or civil forfeiture and say "seems fair". I think the establishment underestimates the extent to which normal people hold this doctrine and feel ok with an all means are justified attitude because they've heard too many stories like this where the law doesn't apply to powerful interests.
- xxpor 4y agoIf J&J ultimately wins this, maybe I should form an LLC to take ownership of my car and house just in case I do something in the future where I have massive liability just so I can pull this stunt.
- asah 4y agoFYI landlords routinely put their apartments into single-purpose LLCs precisely to cordon-off the liability, while allowing profits to flow back.
- nimos 4y agoI was actually just wondering what is stopping companies from forming separate LLCs for every product line or even product? I mean at some point the administrative overhead is not worth it but 100-1000 individual LLCs seems pretty trivial to manage for a fortune 500 company and that cuts your liability massively if you are able to effectively distribute assets.
- kasey_junk 4y agoI’ve worked in environments where legal entities were kept in a database because there were enough of them to make it worthwhile.
- oh_sigh 4y agoIf they can't use bankruptcy to get around this, what exactly does the future of j and j look like? They're getting things like $400M judgements against them for a single case of a talc-related death. And there surely are tens or hundreds of thousands of similar cases. Does the entire ownership just switch over to the litigants?
- hardtke 4y agoMonsanto is facing something similar with Glysophate. I think their playbook was to make the prospect of appeals so long that most of the plantiffs would never see the money, at which point most agreed to be part of a large comprehensive settlement.
- crmd 4y agoMaybe they don’t have a future. I’m a proponent of the corporate death penalty under certain circumstances for companies found guilty of killing people. I empathize with their shareholders, but corporations have free will and their death will act as a deterrent to other corporations therefore saving many more lives.
- JumpCrisscross 4y ago> proponent of the corporate death penalty As an insignificantly-minor J&J shareholder, I would be fine with a corporate death penalty. The company would be disbanded, assets and liabilities together, instead of fines and judgements putting it into actual bankruptcy. Pretty much every formulation of "corporate death penalty" is fines, but less severe, or fines, with extra steps.
- infamouscow 4y agoIf such a law existed, I think it would also have to have a provision about the shares being destroyed -- not being worth 0. Shareholders ought to have some skin in the game to incentivize behavior that does not lead down the road of corporate death. If you allow the value to go to zero, shareholders will just turn a blind eye and write the investment off as a loss on their taxes.
- albatross13 4y ago[flagged]
- jnwatson 4y agoThey didn’t make any manufacturing mistakes. It turns out that putting talc on your sensitive parts isn’t good for you in the long term, especially for women. That J and J is responsible for that is just the American legal system.
- wtetzner 4y agoI thought their talc was contaminated with asbestos?
- selimthegrim 4y agoI believe that comment was the tongue-in-cheek variety of "pro-vax" Not to mention most if not all of J&J's vaccines used in the US were made in the Netherlands, at least initially the ones made in the USA at Baltimore's Emergent Biosciences did indeed suffer from manufacturing mistakes and were never distributed.
- _zn02 4y agoWhat do you mean? According to the sources I'm reading- not this paywalled one, of course- the lawsuits allege the presence of asbestos in their talc, detected in-product by the FDA as recently as 2019. Are you saying that was intentional? Because that would seem to be even more damning than what's alleged.
- natroniks 4y agoCan someone here clarify: Is today's ruling about the legitimacy of structuring JNJ's talc liabilities into LTL? Or is it saying that LTL can't file for bankruptcy AT THE MOMENT because the firm (LTL) is not yet in financial distress? I don't see this as a loss for JNJ's "Texas Two-Step" strategy, but rather the judges are saying "LTL can't declare bankruptcy preemptively, LTL needs to be under actual financial distress before declaring bankruptcy."
- Kon-Peki 4y agoThat's a good question. The court opinion I linked in a different comment addresses this. They are merely saying that LTL can't declare bankruptcy preemptively, because it is in amazing financial health. The "Texas Two-Step" structure they created was enormously friendly to LTL because LTL was intended to immediately go bankrupt. Does the Texas law used to create this kind of corporate structure require such friendly terms? Is quick bankruptcy the loophole? That is something I don't know.
- natroniks 4y agoThanks for your input. The main downside I could imagine is if the courts rule that JNJ must provide open-ended financial backing to LTL. JNJ initially provided $2B to LTL to cover liabilities, but made clear they wouldn't be shocked if it were somewhat more than $2B. What's not being judged here is whether LTL can ever declare bankruptcy. In a confusing turn, many comments (here and elsewhere) seem to be taking the next step and claiming that the court's decision today implies the courts will rule the whole Texas Two Step" structure is "in bad faith." As of now, the only "bad faith" move is LTL declaring bankruptcy while they're still solvent. Should there be enough judgments against LTL such that they run out of money, then they might indeed be able to declare bankruptcy and shield JNJ from further costs (though, as I state, there has been previous discussion of adding to the the initial $2B pot).
- Kon-Peki 4y agoThe court doesn't need to force J&J to provide open-ended backing. LTL already have it: > The Funding Agreement merits special mention. To recap, under it LTL had the right, outside of bankruptcy, to cause J&J and New Consumer, jointly and severally, to pay it cash up to the value of New Consumer as of the petition date (estimated at $61.5 billion) to satisfy any talc-related costs and normal course expenses. Plus this value would increase as the value of New Consumer’s business and assets increased. App. 4316-17 (Funding Agreement 4-5, § 1 Definition of “JJCI Value”).15 The Agreement provided LTL a right to cash that was very valuable, likely to grow, and minimally conditional. And this right was reliable, as J&J and New Consumer were highly creditworthy counterparties (an understatement) with the capacity to satisfy it. My question, inspired by yours, is why? Why did J&J provide such a generous funding agreement if it didn't have to? Or did it? The only thing I can think of is that they needed to do so, but it wasn't supposed to matter as LTL filed bankruptcy two days later.
- passwordoops 4y agoGood! Now hold execs financially and criminally responsible, and you have a chance of saving this wonderful experiment in democracy! Oh, and reverse the rulings that led to the Sacklers keeping their fortune
- cscurmudgeon 4y agoCan we go all the way and fine and punish the govt., politicians and regulators that should have been ultimately responsible but were in bed with the companies?
- deleted 4y ago[deleted]
- r00fus 4y agoFirst the executives that likely bought off the regulators and pols need to be held accountable. Then the political class.
- cscurmudgeon 4y agoWhy not both at first? Then we will see how quickly things get good.
- r00fus 4y agoI like the idea, but divide & conquer is the best proven way to tackle a systemic issue.
- robocat 4y agoAnd then also punish everyone who voted for the politicians too, since they also bear responsibility. Or why not just jail everybody - we all have a responsibility somewhere along the line, even if it was just inaction.
- cscurmudgeon 4y ago
- fsh 4y agoAs far as I know, there is still no good evidence that talc usage leads to a significant increase in cancer risks. This is despite the product having been used by many millions of people for decades. There are also plenty of large-scale studies that didn't result in statistically significant signals. If the effect was real, it should really have shown up by now. Nonetheless, J&J keeps losing trial after trial which results in completely ridiculous fines that are now threatening the existence of the company. I guess this is one of the failure modes of the archaic US legal system. You just have to convince the jury, regardless of what is actually true.
- user3939382 4y agoWho says what's true? Juries don't become scientists on issues like this, they listen to expert testimony. Technically you have to convince the experts that are testifying. It's not perfect, but of all the problems our (largely corrupt) government has this is the least. Corporate interests run roughshod over our entire democracy, the contemporary "justice" system is basically designed to protect them. I don't think we have to lose any sleep over them not getting a fair shake.
- fsh 4y agoI don't think it is acceptable that the legal system is punishing someone for causing damages that are probably not real, even if that someone is some evil corporation.
- user3939382 4y agoMy primary point is, who decides they're probably not real, if not a jury informed by expert testimony?
- fsh 4y agoMy point is that countries whose legal systems don't rely on juries appear to be less affected by such counterfactual rulings. Maybe it is simply easier to manipulate jurors than professional judges.
- zamalek 4y agoInteresting, Alex Jones is also currently attempting to use bankruptcy to dodge his responsibilities. Hopefully we see a similar judgement to this.
- sidewndr46 4y agoI'm not a fan of Mr. Jones but it's completely unrelated. Jones is just trying to get a court to establish that he is financially ruined so that anyone with a claim against him has their day in court to settle stuff. He is decently wealthy but I really doubt he has over a billion dollars in liquid or nearly liquid assets to pay the verdict against him.
- throwaway5959 4y agoHe doesn’t have to pay a billion dollars, he just needs to be broke for the rest of his life. Screaming “I’m bankrupt” as a way to avoid paying your debt seems a bit hypocritical coming from someone who I’m sure expects people to pay back their student loans in full.
- hatefulmoron 4y agoSo you're saying this standard only applies to him? Or should your opinion on him change how it works, for the worse, for everybody else?
- throwaway5959 4y agoIt’s already bad for everyone in the US with student loans, they’re already basically not dischargeable in bankruptcy.
- hatefulmoron 4y agoYou seem to think that's a bad thing, yet you would prefer that it should be made worse? I still don't get what you're saying.
- rgoldfinger 4y agoFrom the opinion, some encouragement from the judge for others to try a similar approach again: > That said, we mean not to discourage lawyers from being inventive and management from experimenting with novel solutions. Creative crafting in the law can at times accrue to the benefit of all, or nearly all, stakeholders. Thus we need not lay down a rule that no nontraditional debtor could ever satisfy the Code’s good-faith requirement.
- scott00 4y agoThe article does a bad job explaining what exactly J&J is trying to do here and what exactly the appeals court won't let them do. J&J's plan was to split into two pieces, which I'll call Goodco and Badco. Goodco got the operating assets, Badco got the talc liabilities and more or less immediately filed for bankruptcy. That's a maneuver that has come to be called the Texas Two-Step. However there's a very important missing piece that seems not to be covered by the article: in addition to the talc liabilities, Badco also got a funding agreement with Goodco, which gives Badco the right to be reimbursed by Goodco for any expenses incurred as a result of the talc liabilities, up to ~60 billion USD, or the value of Goodco, whichever is higher. So J&J's play here was not to outright shield their assets from being used to pay talc liabilities, but rather to force the liabilities to be determined by a single bankruptcy process in the near future, rather than tens of thousands of individual lawsuits that would trickle in over the next 100 years or so. The appeals court ruled that because of the funding agreement Badco is not in financial distress, and is therefore ineligible to file for bankruptcy. They did not rule either way as to whether the Texas Two-Step is legal.
- kneebonian 4y agoThe fact that the Texas 2 Step is not explicitly illegal is a freaking travesty and the biggest evasion of justice I can think of. EDIT: There's a TV show me and my wife like call leverage. In the show one of the bad guys who is a powerful CEO says "That's the thing if you or I kill a guy we go to jail. Our company kills a guy we shell out a couple dollars and are on our way." There needs to be personal consequences for those involved in this, the concept of a corporation and not a person being liable is at the root of the issues. Individuals should be held accountable for what they do, they shouldn't be able to hide behind a legal fiction to protect themselves from the consequences of their actions. Most of the problems people blame on capitalism aren't a problem with capitalism they are a problem with corporatism. I guarentee there are plenty of CXOs who would be making much different decisions if it involved their asses being thrown in jail, rather than a simple restructuring of their holdings.
- megiddo 4y agoPersonal liability is still a thing. If you kill someone as part of your job, you are criminally liable and the corp is civilly liable.
- jacquesm 4y agoIs there any knowledge on their reasoning regarding the indemnification contract, why did J&J create that part to begin with, it seems to counteract their whole legal book of tricks in creating the house-of-death to begin with.
- animitronix 4y agoGreat, now do Alex Jones
- vivegi 4y agoB-schools had the J&J Tylenol recall case study as one where corporate communications excelled. I wonder where the J&J talc-gate would appear and what lessons it would teach.