Court File and Parties
COURT FILE NO.: CV-21-673856-00CL; CV-23-697824-00CL and CV-23-697823-00CL DATE: 20230425 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)
IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF LTL MANAGEMENT LLC.
APPLICATION OF LTL MANAGEMENT LLC UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT
BEFORE: Osborne J.
COUNSEL: Linc Rogers, Alexia Parente, Gord McKee and Karine Russell, on behalf of the Applicant, LTL Management Shayne Kukulowicz, Natalie Levine and Alec Hoy, Counsel to the proposed Information Officer, Ernst & Young Inc. Joel Rochon and Grant Moffat, on behalf of Strathdee et al Gavin Finlayson, Counsel to Committee of Talc Claimants Stuart Clinton and Alex Morrison, Proposed Information Officer, Ernst & Young Inc.
HEARD: April 9, 2023
Endorsement
JUSTICE OSBORNE:
1On April 13, 2023 I issued a brief Endorsement together with three orders, with reasons to follow. These are those reasons.
2Defined terms in this Endorsement have the meaning given to them in the motion materials unless otherwise indicated.
[3]
Background
LTL is an indirect subsidiary of Johnson & Johnson. Johnson & Johnson Consumer Inc., an entity that was the product of various corporate reorganizations and name changes (“Old JJCI”), became responsible for all claims in respect of Johnson’s baby powder and other talc-containing products. In addition to the talc claims against Old JJCI in the United States, additional talc lawsuits were commenced in Canada against Old JJCI, J&J, J&J Canada and Valeant Pharmaceuticals International, Inc.
4Those Canadian actions include a certified class action in Québec, three proposed class actions and one individual action in Alberta, BC, Ontario and Québec. In addition, certain individual actions were apparently commenced in violation of the stay of proceedings granted in connection with the 2021 CCAA proceeding described below.
5Old JJCI implemented a corporate restructuring in 2021 as a result of which it ceased to exist, and two new entities were created: LTL, and a second entity which ultimately changed its name to Johnson & Johnson Consumer Inc. (“New JJCI”).
6As a result of that 2021 restructuring, LTL holds certain assets previously owned by Old JJCI as well as responsibility, effectively, for all talc-related claims against Old JJCI.
7LTL commenced Chapter 11 proceedings in the United States on October 14, 2021 in the North Carolina Bankruptcy Court, precipitated by numerous lawsuits against the predecessor entity of LTL related to the use of talc products. That Chapter 11 Proceeding was transferred to the New Jersey Bankruptcy Court on November 16, 2021.
8On December 17, 2021, this Court granted an initial recognition order under the CCAA recognizing the US Chapter 11 Proceeding as a foreign main proceeding, and a supplemental order which recognized an order enjoining tort claims against the debtor and certain other related indemnified parties. That injunctive relief was subsequently extended.
9The Official Committee of Talc Claimants (“TCC”) filed a motion on December 1, 2021 to dismiss the Chapter 11 Proceeding, which motion was supported by other parties. The moving parties submitted that the Chapter 11 Proceeding was not filed in good faith and that the plaintiffs should be permitted the opportunity to pursue their claims against the Debtor and its non-Debtor affiliates in the tort system.
10Initially, the Motions to Dismiss were denied by the New Jersey Bankruptcy Court on February 25, 2022, but the United States Court of Appeals for the Third Circuit directed the dismissal of the Chapter 11 Proceeding by opinion issued on January 30, 2023, concluding that it had not been filed in good faith because the Debtor’s financial distress in the moment in time before filing was not sufficiently immediate.
11On April 4, 2023, the New Jersey Bankruptcy Court granted an order dismissing the 2021 Chapter 11 Proceeding.
12That same day, the Debtor commenced a second filing under the US Bankruptcy Code to commence new Chapter 11 Proceedings. LTL was again appointed to act as foreign representative (of itself) by the New Jersey Bankruptcy Court in order to, among other things, bring a fresh application pursuant under the CCAA.
13On April 10, 2023, the New Jersey Bankruptcy Court issued the 2023 TRO which prohibits all plaintiffs, including the plaintiffs in the Canadian actions described above, from commencing or continuing any action or claim seeking to hold the Protected Parties liable for Debtor Talc Claims.
14On April 12, 2023, the New Jersey Bankruptcy Court granted the 2023 Foreign Representative Order authorizing the Debtor to act as foreign representative on behalf of its estate.
15The basis for the new (2023) Chapter 11 Proceedings was a series of steps and efforts undertaken by the Debtor following the issuance of the opinion by the Third Circuit to address the concerns expressed by that court.
16Following the issuance of the opinion from the Third Circuit, the Debtor, J&J, Holdco and various US-based plaintiff law firms negotiated, with the assistance of court-appointed mediators, Plan Support Agreements in respect of a plan of reorganization that would fully resolve all of the liability for talc-related claims of the Debtor.
17Those Plan Support Agreements provide for the establishment of a trust, to be funded over a period of 25 years, in the amount of $8.9 billion on a net present value basis with a view to making significant progress towards a consensual resolution of current and future talc claims against the Debtor.
18The Debtor is of the view that the establishment of that trust, together with the financing arrangements put in place to fund the amounts necessary to satisfy its talc-related liabilities and to fund the trust, resolve the concerns that led the Third Circuit to dismiss the 2021 Chapter 11 Proceeding.
19Against that backdrop, the Debtor brought the motions before me today seeking various heads of relief.
[20]
Relief Sought
First, the Debtor sought an order recognizing the Dismissal Order of the 2021 Chapter 11 Proceedings and related termination of the CCAA Proceeding in this jurisdiction.
21Second, the Debtor sought an order recognizing the 2023 Chapter 11 Proceedings as a “foreign main proceeding” under the CCAA together with an ancillary order granting various supplemental relief including recognition (in full force and effect in all provinces and territories of Canada) of the 2023 Foreign Representative Order in the 2023 TRO, and appointing E&Y as Information Officer.
22This relief, including recognition of the 2023 Chapter 11 Proceeding in Canada would provide the benefit of a stay of proceedings for the Debtor and the Canadian Co-Defendants and provide a venue to ultimately seek recognition in Canada of an order confirming a plan of reorganization to facilitate a global resolution to talc-related claims against the Debtor or as described above.
23None of the relief sought today is opposed by any party. Canadian counsel for the Committee of Talc Claimants appeared, however, simply to advise the Court that while the relief sought was not opposed, the Committee expected and intended that its claims would have to be addressed as part of the US proceedings.
24LTL submits that when considered all together, the relief sought today addresses the main issue of ensuring that all talc-related claims will be treated equally, regardless of where they were commenced.
[25]
Analysis
I am satisfied that the relief sought should be granted.
26The 2023 Chapter 11 Proceeding is a foreign proceeding as contemplated in section 46(1) of the CCAA. Section 47 of the CCAA provides that this Court shall make an order recognizing the foreign insolvency proceeding if two requirements are met: the application relates to a “foreign proceeding” within the meaning of the CCAA; and the applicant is a “foreign representative” within the meaning of the CCAA.
27The 2023 Chapter 11 Proceeding is a foreign proceeding within the definition of section 45(1).
28LTL is a debtor company. It has assets in Canada (consisting of a retainer held by its legal counsel in this jurisdiction). LTL is insolvent for the purposes of the CCAA as there is a reasonably foreseeable expectation that there is a looming liquidity condition or crisis that would result in the company being unable to pay its debts as they generally became do if a stay was not granted: Re Stelco.
29If the Court grants an order under section 47(1), it is required pursuant to section 47(2) to specify whether the foreign proceeding is a “foreign main proceeding”. That is a proceeding in a jurisdiction where the debtor company has the centre of its main interests, or COMI.
30Pursuant to section 45(2) of the CCAA, in the absence of proof to the contrary, the COMI of the debtor company is presumed to be the location of its registered office. Beyond the presumption, Canadian courts have considered various factors, including the location of the debtor that is reasonably ascertainable by creditor; the location of its principal assets or operations; and the location where management of the debtor takes place: Lightsquared LP (Re), 2012 ONSC 2994 at para. 25.
31The Debtor’s head office is in New Jersey. All members of its board of directors and management reside in the United States.
32I am satisfied that the COMI of the Debtor is the United States and that the 2023 Chapter 11 Proceeding is a “foreign main proceeding”.
33It follows that the Court is required to grant relief pursuant to section 48(1) of the CCAA once a proceeding is found to be a foreign main proceeding, including staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedings taken or that might be taken against the debtor company under the BIA or the Winding-Up and Restructuring Act, as well as restraining until otherwise ordered by the Court, further proceedings in any action, suit or proceeding against the Debtor, and prohibiting the commencement of new proceedings. Finally, the Debtor is to be prohibited from selling or otherwise disposing, outside the ordinary course of business, of any of its property in Canada.
34The Initial Recognition Order sought by the Foreign Representative today is consistent with the Model CCAA Initial Recognition Order (Foreign Main Proceeding) issued by the Commercial List. I am satisfied it is appropriate in the circumstances.
35I am also satisfied, pursuant to section 49 of the CCAA which gives this Court the power to make any order necessary for the protection of the Debtor’s property or the interests of a creditor or creditors, and pursuant to the principles of comity, that recognition and effect be given to the 2023 TRO and 2023 Foreign Representative Order entered by the New Jersey Bankruptcy Court here in Canada, in order that these proceedings can be coordinated with the 2023 Chapter 11 Proceedings.
36I am further satisfied that E&Y should be appointed as Information Officer. While not technically required by the CCAA, it is appropriate here and will assist the Court, and thereby stakeholders and affected parties, to stay apprised of the status of the foreign proceedings in the United States.
37I am also satisfied that the requirements of section 53(b) of the CCAA, requiring the Foreign Representative to provide notice of the foreign proceeding, ought to be dispensed with here. A service list has already been established in connection with the 2021 CCAA Recognition Proceeding and the Information Officer (the same party) will use that service list. Moreover, other than the plaintiffs in the Canadian actions, the Debtor has no stakeholders in Canada who are affected by the 2023 Chapter 11 Proceeding.
38The JIN Guidelines have been adopted by the Commercial List, and are included in the Supplemental Recognition Order. They are appropriate here and will maximize efficiency and coordination between the two jurisdictions in respect of these proceedings.
[39]
Conclusion
For all of the above reasons, I signed the orders granted on April 13, 2023 with immediate effect and without the necessity of issuing and entering.
Osborne J.
Date: April 9, 2023