2023 Bankruptcy Shocker: Third Circuit Lauding Disparate Results For Similarly Situated Claimants

By Donald L. Swanson

Here’s my biggest bankruptcy shocker from 2023:

• the Third Circuit’s rationale for dismissing Johnson & Johnson’s bankruptcy.

I’ll try to explain.

Appalled

I’m still appalled by the lack of concern, from the Third Circuit Court of Appeals in its dismissal opinion, over these disparities it describes in results for similarly situated claimants:

• Since 2018, a limited number of not-reversed jury verdicts result in an average judgment amount against Johnson & Johnson on talc-related claims of $39.7 million per claim; but
• By contrast:
  • 6,800 talc-related claims were settled for just under $1 billion total (that’s an average of <$150 thousand per claim); and
  • 1,300 ovarian cancer actions and 250 mesothelioma actions have been dismissed with no payment whatsoever to any of the claimants.

All of the claimants used the same talc products and incurred the same types of cancer and asserted the same types of claims against Johnson & Johnson—but their lawsuit results are disparate in the extreme.

Instead of seeing such disparities as a bad thing, the Third Circuit seems to hail such disparities as justice incarnate—even lauding the “15 years of tort litigation by A.H. Robins” before filing its bankruptcy as the way our system of mass tort justice should work.

And the disparities are likely to continue, since over 38,000 ovarian cancer actions and over 400 mesothelioma actions were pending against Johnson & Johnson at bankruptcy filing, with many, many more expected to be filed over decades to come.

See the linked dismissal opinion at 22 & fn. 13.

A Made-Up Eligibility Standard

In reaching its dismissal decision, the Third Circuit uses a made-up Chapter 11 eligibility standard: financial distress.

The Third Circuit even acknowledges in its opinion that no bankruptcy statute requires financial distress for Chapter 11 eligibility.  Yet, it dismisses the Johnson & Johnson bankruptcy because:

• “Our precedents show a debtor who does not suffer from financial distress cannot demonstrate its Chapter 11 petition serves a valid bankruptcy purpose” (id. at 36).

Then, it identifies the “Our precedents” as two cases.

• The first distinguishes its debtor (SGL Carbon) from Johns-Manville like this, “SGL Carbon faces a known and finite number of suits” whereas Johns-Manville faced 16,000 lawsuits, with the prospect of “an even more staggering number of suits over the course of 20-30 years” (In re SGL Carbon Corp., 200 F.3d 154, 169 (3rd Cir. 1999)); and
• The second involves a solvent debtor that had ceased doing business, had no intention of maximizing its value by reorganizing or liquidating as a going concern, and wanted only to take advantage of the Bankruptcy Code’s limitation on lease recoveries under § 502(b)(6). (In re Integrated Telecom Express, Inc., 384 F,3d 108, 112 (3rd Cir. 2004)).

See the linked dismissal opinion at 36-38.

Obviously, Johnson & Johnson is:

• more like Johns-Manville (thousands of suits now and many more expected over decades to come) than SGL Carbon (a finite number of suits); and
• nothing like Integrated Telecom (Johnson & Johnson is operating and trying to reorganize, with a goal of providing reasonable recoveries for all claimants—both present and future).

Conclusion

How can the Third Circuit possibly hail as a good thing the litigation disparities it describes?!

And how can the Third Circuit possibly think that a continuation of those disparities is how mass tort justice should continue to work?!

That’s my 2023 bankruptcy shocker.

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