A New Jersey bankruptcy judge has approved the payment of hundreds of thousands of dollars in legal fees and expenses to attorneys representing talc tort claimants in the bankruptcy of Johnson & Johnson’s subsidiary, LTL Management LLC. The decision acknowledges the significant role these firms played in the early stages of the case, despite not awarding the full amount requested.

Detailed Review of Legal Fees Granted

U.S. Bankruptcy Judge Michael B. Kaplan, in his recent opinion, approved a portion of the nearly $2 million in fees and expenses sought by nine plaintiff law firms involved in the initial phase of LTL Management’s Chapter 11 proceedings. These proceedings began shortly after Johnson & Johnson executed a controversial “Texas two-step” maneuver, spinning off its talc liabilities to LTL, which then promptly filed for bankruptcy in October 2021.

The case, originally filed in North Carolina, was later transferred to New Jersey. Despite being dismissed by the Third Circuit in January on grounds that LTL was not genuinely financially distressed, and a subsequent refiling being dismissed again in July, the legal maneuvers and their implications were deemed “extraordinary” by Judge Kaplan.

Firms such as Aylstock Witkin Kreis & Overholtz PLLC and a coalition known as the “Substantial Contribution Claimants” argued that their early work substantially contributed to the proceedings. This included challenging the Chapter 11 automatic stay and the preliminary injunction that halted ongoing talc tort litigation, efforts for which they sought significant reimbursement.

Judge Kaplan agreed that before the appointment of the official creditor committees, the vast body of creditors lacked representation and required legal guidance through the case’s complex pre-petition restructuring and contentious venue issues. However, he drew a line at compensating work performed after the committees’ formation, stating the presence of court-approved professionals negated the need for further independent legal action.

He also expressed reservations about the alignment of the firm’s opposition to the bankruptcy stay with the broader interests of the bankruptcy estate, suggesting that their efforts primarily served individual plaintiffs rather than collective creditor interests. 

Nonetheless, Kaplan acknowledged that some aspects of the legal work laid essential groundwork for the motion to dismiss the bankruptcy, agreeing to compensate 25% of the related fees and expenses.

The law firms have been instructed to submit fee orders in line with the judge’s directives, marking a partial victory in their quest for compensation for their early, pivotal involvement in the bankruptcy case.