A federal bankruptcy commissioner’s unusual push to create two asbestos-related cancer victim groups in a Chapter 11 case of a Johnson & Johnson spinoff highlights tensions over how they would be paid.
The US Trustee, a unit of the Department of Justice that oversees bankruptcies, tried to set up an official committee to represent the interests of mesothelioma victims and another to represent the interests of ovarian cancer claimants.
The two cancers allegedly caused by asbestos in J&J’s baby powder products are sufficiently different to warrant separate representation, the US Trustee said. The healthcare giant and its offshoot LTL Management LLC decline to deal with two official committees, the costs of which will be borne by the debtor.
The committee drama could hurt the recovery of victims in the highly controversial bankruptcy that is expected to pay out billions. It could have implications for other tort bankruptcies as well.
Having two tort committees “is going to slow down and complicate negotiations,” Greg Gordon, a Jones Day attorney representing LTL, said at a hearing in January. It could also “hinder efforts to reach consensus.”
It is fairly common in bankruptcies to have more than one committee representing different types of creditors on matters ranging from paying out to investigating possible wrongdoing by the debtor.
Tort victims generally want their own committee apart from unsecured creditors because they often try to get other information from the debtor, said Pamela Foohey, a professor of bankruptcy law at the Cardozo School of Law.
For example, a negligence claim may depend on whether the company knew a product was defective before it was sold. Unsecured claims from vendors simply focus on whether they were paid appropriately for their product or service.
Mass tort bankruptcies usually deal with only one official committee representing the victims of the tort. In this case, however, the issue of double compensation commissions has arisen since J&J deals with victims with different illnesses. In a court filing, J&J said it faces about 430 mesothelioma lawsuits and about 38,000 ovarian cancer cases.
“In these circumstances, it is critical to maintaining fairness that separate committees represent these two distinct constituencies,” said Jon Ruckdeschel, an attorney who has represented mesothelioma claimants in other cases.
J&J officials did not respond to a request for comment.
LTL was spun off from Johnson & Johnson to house liabilities from J&J’s talc products. The new company then filed Chapter 11.
Initially, in LTL’s bankruptcy proceedings, all mesothelioma and ovarian cancer victims were represented by a single arbitration panel. But after the US trustee established two compensation committees, LTL asked a judge to invalidate them, arguing that only the single committee should survive.
The judge granted the motion unreservedly, leaving the door open for someone to request a second committee. Mesothelioma victims have not yet submitted such an application, but have been vocal in supporting their own committee.
On Monday, they asked a judge to let their torts committee stand to pursue their appeal against the bankruptcy court’s decision not to dismiss LTL’s Chapter 11 case. Cancer victims have called the case an abuse of the bankruptcy system.
“Both creditors and this case are best served if the two classes of plaintiffs are given independent votes through the separate committees that the US Trustee has rightly established,” her attorney wrote in a January filing.
Mesothelioma claims are worth “tens of billions of dollars,” said Michael Klein, an attorney at Cooley representing claimants, at the January hearing. J&J “does not want mesothelioma victims to speak with one voice.”
Cost is also a point of contention. The bankruptcy estate, in addition to paying the victims of tort, must also pay the lawyers of the official committees and the financial advisors.
Lawyers on the existing torts panel in LTL’s case have sought more than $2.3 million in fees for the month of January 2021 alone, according to court filings.
“The problem is that every committee appointed puts a financial strain on the company, leaving less money for everyone,” Foohey said.
J&J attorney Gordon argued that hiring each compensation panel would result in “financial duplication” of its own professionals and experts.
LTL’s mesothelioma and ovarian cancer petitioners say there are instances where the interests of crime victims are so diverse that more than one crime panel makes sense.
Mesothelioma cases are almost always fatal, so victims have a greater interest in being compensated as soon as possible and may be willing to settle if that means a quicker payout, he said. But ovarian cancer patients have a five-year survival rate of up to 98%, Ruckdeschel said, citing the American Cancer Society.
Another important difference is that the link between asbestos contamination and mesothelioma is well known, but there’s still considerable controversy over whether asbestos-contaminated talc products cause ovarian cancer, Ruckdeschel said.
The ovarian cancer group may therefore be more focused on discovering and proving that J&J products caused their members’ diseases, he said.
Prospective applicants could also complicate the debate. There is almost always tension between current crime victims and future plaintiffs whose injuries have not yet manifested themselves, particularly in asbestos cases.
That requires two separate official tort committees, said Samir Parikh, a professor of bankruptcy law at Lewis & Clark Law School. Parikh believes that a separate committee should exist to represent prospective applicants.
Victims with known injuries want to be paid as much and as quickly as possible, putting them at odds with future victims, he said.
Both groups are compensated by a single trust in insolvency. Future victims are therefore dependent on remaining money after their injuries become known. And they need reassurances that those funds will be there once others take their share.
Future claimants are usually represented by a court-appointed future claims representative. But such a representative is not always an adequate substitute for a separate committee, Parikh said.