Judge 'struggling' with talc plaintiffs' bid to block J&J asset maneuvering

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A bottle of Johnson and Johnson Baby Powder is seen in a photo illustration taken in New York. REUTERS/Mike Segar

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(Reuters) - A Delaware bankruptcy judge said on Tuesday that she was uncertain about a bid by individuals with talc-related personal injury claims to block Johnson & Johnson from taking steps that they believe could shift valuable assets out of their reach.

U.S. Bankruptcy Judge Laurie Selber Silverstein in Wilmington, Delaware made her comments during a virtual hearing over a group of talc claimants’ motion in the Chapter 11 bankruptcy of J&J's former talc supplier, Imerys Talc America, to enjoin J&J from pursuing a transaction that would separate its talc-related liabilities from its assets.

The individuals seeking the injunction hold personal injury claims against Imerys, which is pursuing a reorganization plan that would set up a trust to compensate personal injury claimants and is seeking indemnification from J&J to fund the trust. J&J’s alleged indemnification obligations, which it disputes, stem from a series of supply agreements between the two companies.

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J&J faces legal actions from tens of thousands of plaintiffs alleging baby powder and other talc products contained asbestos and caused cancer. The plaintiffs include women suffering from ovarian cancer and others battling mesothelioma. J&J maintains its consumer talc products are safe.

Imerys was named as a co-defendant in many talc-related lawsuits and ultimately filed for bankruptcy to address the litigation in 2019.

Reuters reported in July that J&J is considering a plan to separate liabilities from talc-related litigation into a newly-created entity that would then be placed in bankruptcy. The healthcare conglomerate could do so under the Texas “divisive merger” law that allows a company to split into more than one entity. J&J has neither confirmed nor denied whether it intends to pursue the divisive merger.

A lawyer for the talc claimants, Natalie Ramsey of Robinson & Cole, argued that the transaction, if it were to occur, would violate the automatic stay protecting entities in bankruptcy against efforts to collect on debts owed or seize the debtors’ assets.

Silverstein said she was “struggling” with the situation and would need a few days to issue a ruling.

“I’m having some trouble wrapping my head around this as [an automatic stay] violation as opposed to perhaps something else,” the judge said.

Ramsey told the judge that Imerys’s right to indemnification under its contract with J&J is a property right. An effort to separate J&J’s talc liabilities from its valuable assets and place the entity with the talc-liabilities into bankruptcy would impair its ability to satisfy those indemnification obligations, and thereby impair Imerys’s property rights, she said.

“It would be like taking the debtors’ sports car and bringing back a beat-up jalopy,” she said.

Ramsey argued that such a transaction would be a “targeted act” aimed at controlling Imerys property and therefore constitute a violation of the automatic stay. She urged the judge to reject J&J’s contention that barring it from moving forward with a divisive merger would interfere with its normal corporate operations.

Theodore Tsekerides of Weil Gotshal & Manges, representing J&J, said the plaintiffs are trying to enjoin the company from using legal restructuring tools. The plaintiffs haven’t shown that this type of transaction by J&J would cause harm, he added.

“Charitably, the motion is a hot mess,” he said.

Separately, a group of cancer victims filed papers in a Missouri state court on Tuesday aiming to block J&J from placing its talc-related liabilities into bankruptcy.

The case is In re Imerys Talc America, Inc., U.S. Bankruptcy Court, District of Delaware, No. 19-10289.

For the tort claimants’ committee: Natalie Ramsey, Mark Fink and Michael Enright of Robinson & Cole, Rachel Strickland, Jeffrey Korn and Stuart Lombardi of Willkie Farr & Gallagher and Kami Quinn and Heather Frazier of Gilbert

For Johnson & Johnson: Theodore Tsekerides, Diane Sullivan, Gary Holtzer and Ronit Berkovich of Weil Gotshal & Manges and Patrick Jackson of Faegre Drinker Biddle & Reath

For Imerys Talc: Jeffrey Bjork, Kimberly Posin, Helena Tseregounis and Richard Levy of Latham & Watkins and Mark Collins, Michael Merchant, Amanda Steele and Brett Haywood of Richards Layton & Finger

Read more:

EXCLUSIVE J&J exploring putting talc liabilities into bankruptcy

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.