Restructure This! Podcast Ep. 20
3M: The Controversy of MDL in Chapter 11 with Ashley Barriere
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Listen to the original podcast released February 10, 2023 here:
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Sheppard Mullin's Restructure THIS! podcast explores the latest trends and controversies in Chapter 11 bankruptcy, commercial insolvency and distressed investing. In this week's episode, we welcome Ashley Barriere, partner at Keller Postman LLC, to discuss the 3M Combat Arms Earplug multidistrict litigation and the subsequent Chapter 11 bankruptcy filing by 3M subsidiary Aearo Technologies from the perspective of the plaintiffs she represents: military veterans seeking recovery for injuries related to the earplugs.
Guests:
About Ashley Barriere
As a partner at Keller Postman, Ashley Barriere focuses on product-liability matters, leveraging her experience at an AmLaw25 law firm and knowledge of the intricacies of multidistrict litigation to anticipate opponents' arguments, crafting powerful legal strategies and briefs on behalf of her clients.
Ashley has been appointed to serve on the Plaintiffs’ Executive Committee In the Acetaminophen—ASD-ADHD Products Liability Litigation, where she will lead the Law and Briefing Subcommittee. She is also a member of the court-appointed Plaintiffs’ Steering Committee in the Onglyza and Kombiglyze XR MDL, where she chairs the Law and Briefing Subcommittee. Ashley also represents clients and briefs critical legal issues in the 3M Combat Arms Earplug MDL and the Paragard IUD MDL.
Ashley served as a law clerk for Judge Eldon E. Fallon at the U.S. District Court for the Eastern District of Louisiana. Judge Fallon's work overseeing large multidistrict litigation matters inspired Ashley to join the plaintiffs' bar.
About Justin Bernbrock
Justin Bernbrock is a partner in the Finance and Bankruptcy Practice Group in Sheppard Mullin's Chicago office, where he focuses on all aspects of corporate restructuring, bankruptcy and financial distress. He represents clients across a wide range of matters, including debtor and creditor representations. He has substantial experience in out-of-court and in-court restructurings, primarily in the Southern District of New York, Eastern District of Virginia, District of Delaware and Southern District of Texas.
Transcript:
Justin Bernbrock:
On this installment of Restructure This, we welcome Ashley Barriere partner at Keller Postman. Ashley has spent the last several years representing plaintiffs in 3M Company’s multidistrict litigation in Florida involving the Combat Arms earplugs. In July of last year, that form expanded to the United States Bankruptcy Court for the Southern District of Indiana when 3M subsidiary, Aearo Technologies, filed chapter 11. Today Ashley joins us to discuss the Aearo Technologies' case from the perspective of the plaintiffs she represents, who are military veterans seeking recovery for injuries related to the earplugs. As always, stay tuned after the interview for a rundown of current restructuring news and notable stories.
Welcome back to another episode of Restructure This. Today, we have the distinct pleasure of speaking with Ashley Barriere, who's a partner at Keller Postman. Ashley is going to talk with us about her experience in the Aearo Technologies case pending in Indianapolis. Ashley, thank you so much for agreeing to sit down and speak with us today. Think the work you do is very, very important to me personally, as a veteran, and as someone who's interested in veteran issues. So, I thank you for that. And I think it's a fascinating law practice and one that, as we are seeing more and more, is having this interaction with the bankruptcy system. And so, it's a great time to talk about these issues. So, welcome. Thank you. And as we start nearly every one of these episodes, we want to know about you, we want to know about your background, how did you end up in mass tort practice, how'd you come to be who you are.
Ashley Barriere:
Sure. Well, thanks, Justin. I'm excited to be here, and like you said, talking about this topic, the intersection of our two practices, which is more relevant this week than ever I'd say. So, thanks, I really appreciate you having me. As you said, I'm a partner at Keller Postman. I practice in mass torts, but I did not start out that way. When I graduated from law school, I clerked for Judge Fallon in the Eastern District of Louisiana. I would say that was a really formative experience for me in my current practice, because Judge Fallon has presided over a number of multidistrict litigations or MDLs and has really been a trailblazer in that area. When I was there, almost 10 years ago, Judge Fallon at the time had the Vioxx, Chinese drywall, and Xarelto MDLs. And I had the opportunity to really learn the ins and outs of that work and just more generally mass tort work. So, I became interested in that, and particularly, for me, on the plaintiff's side.
I'd gone to law school, and I think, oftentimes, law schools really emphasizes defense side work. So, that was some of my first exposure to plaintiff side work. And I was drawn to it just because I've always been drawn to representing the underdog. And so, that held a lot of appeal for me. But at that time, I wanted to go to a big white shoe law firm and get the best training possible, which I did. I went to Davis Polk in New York and spent a few years there doing litigation work. But actually I did a fair amount of bankruptcy litigation, so I have some connection to your practice. And I worked on the Arch Coal, C&J bankruptcies, and also the TOUSA appeal. So, I had, I'd say, a little bit of experience in bankruptcy, just enough to make me dangerous, but not a regular practitioner, if you would.
I left Davis Polk in 2018 and moved to the plaintiff's side, took the plunge to follow my dream, like I said, to represent the underdog. And I've been at Keller Postman now for a few years. And since that time, I've worked on the 3M MDL, Onglyza, Paragard. And now, I'm actually working on it on the plaintiff's executive committee for the pending Acetaminophen MDL, which is in the Southern District of New York. But most of my time, I would say, at this point, since I've been at Keller Postman has been working on the 3M MDL, where Keller Postman is one of, I think, over 200 firms representing military veterans in that MDL, which is pending in the Northern District of Florida in Pensacola.
Justin Bernbrock:
Got it. That's a fascinating background and career and trajectory, and I'm familiar with some of those bankruptcy cases. So, for those folks who who've not closely followed what it is that that's going on with the 3M subsidiary and that bankruptcy case, which I'll confess, from my perspective, it's getting less attention and press particularly because I think LTL, as you alluded to above, has gotten a lot more press. And we can talk about the decision that was just released yesterday in a bit. But for those folks who are just unfamiliar what the issue is with Aearo Technologies, the Combat Arms earplugs, could you just sing a few bars on what that case is about, what the current state of the world is in respect to that case?
Ashley Barriere:
Yeah, absolutely. So, at a high level, the lawsuit arises out of claims that the Combat Arms Version 2 earplugs, which sometimes we'll call the CAEV2, it's a dual-sided earplug, which was also the primary earplug used by the military from roughly 2003 to 2015. And Aearo, who is now 3M subsidiary, had initially manufactured the earplug. And then, 3M purchased Aearo in 2008. And the allegations are essentially that the earplug did not provide the hearing protection that 3M and Aearo had represented it provided to the military, in that they knew it did not provide the level of hearing protection, and even played with the testing to get the testing results they wanted, and yet misrepresented those facts to the military and to our service members.
And the tort actually came about in 2018. The Justice Department announced a settlement with 3M, $9 million settlement that settled the DOJs claims against 3M, that 3M had knowingly essentially sold the earplug to the military with these defects. Soon thereafter, service members, veterans, started filing these lawsuits. And the Judicial Panel on Multidistrict Litigation consolidated all the lawsuits into a multidistrict litigation, the MDL, in 2019, and sent all the cases, like I said, to Pensacola, to the Northern District of Florida.
All the plaintiffs are all current or former military service members who have hearing loss or tinnitus, sometimes called tinnitus, or pronounced tinnitus, which is ringing in the ears, due to the Combat Arms earplugs and the fact that it didn't provide the hearing protection that it said it did. At this point, I think there are still around 200,000 claims pending in the multidistrict litigation. At its peak, it was up to, I think, 290,000. But Judge Rogers, who's the federal Article III judge presiding over those cases, has done an incredible job of marching through and dismissing cases that don't have the requisite documentation. She's been calling down the cases, and I think we're probably at or little below 200,000 at this point.
Justin Bernbrock:
You specifically identified Judge Rogers in the Northern District of Florida as being an Article III court. And my sense is you have looked into some of the issues with a non-Article III bankruptcy court. Am I picking up on something there?
Ashley Barriere:
So, yes, I would say this is something I feel very strongly about. Judge Rogers, as an Article III judge, receives the cases under 28 U.S.C. 1407, which is the MDL statute where the Judicial Panel on Multilitigation transferred the cases to her. And she's overseeing these cases now for four years and worked tirelessly and expeditiously to progress. And she's overseeing the litigation in an efficient and decisive manner. And ultimately, again, returning to my earliest point, this a power endowed to her by Congress, which again runs back to the Constitution. And so, I think she has proper jurisdiction over the cases and should be the one overseeing these cases.
Justin Bernbrock:
But it is one of these interesting aspects of complex bankruptcy practice, since the Stern versus Marshall decision and a number of its progeny and really the intense focus on bankruptcy court subject matter jurisdiction over the last 15 years, I think, has been an interesting area. So, let's get into more of the nuance of this particular case. What, from your perspective, are the unique aspects of this multidistrict litigation?
Ashley Barriere:
Yeah, so I think, as I alluded to, one unique aspect to this particular MDL is the volume. As I noted, we peaked at 290,000 claimants. And typically, I mean, that's a massive MDL. Oftentimes, MDLs can just run in even just the single digit a hundred cases, but usually around a few thousand. So, the volume alone kind of distinguishes this case. But again, I think Judge Rogers has taken pains to manage that large docket and to also cull it down. Another interesting piece, because our clients are veterans, and it was a product sold to the military, so we had this interplay between the United States government, which you typically don't have to deal with in a products liability MDL. And this has affected everything from simple medical records requests to even conducting just fact discovery, and has in some ways, I would say, drawn out discovery or definitely made it more complicated in that way.
Another issue, and this also plays into the government piece, is that 3M has asserted a government contractor defense, essentially saying that, since they sold the product to government specifications or orders, they can't be held liable for making this product. The court disagreed with 3M and actually granted a plaintiff's motion for summary judgment on this defense and ultimately prohibited 3M for putting forth this defense, which is now up on appeal before the 11th Circuit. My firm Keller Postman's actually handling the initial appeal on that, which will be argued in May, and jumping ahead on that piece. But this was Aearo's gripe in the bankruptcy. They said that Judge Rogers had gotten this defense wrong and that they basically wanted to reargue it in the bankruptcy.
Justin Bernbrock:
Is it essentially an argument for or an attempt at some level of sovereign immunity or just... Correct me if I have this totally wrong. I mean, this is not what I do at all, but can't sue the Department of the Army for product defect. So, is this basically their attempt at cozying up or at least getting the benefit of that protection?
Ashley Barriere:
Yes, yes. And in some ways an idea is that, if you're the manufacturer and there's following orders from the government, you can't then in turn be held liable for just carrying out their specifications. And as you said, you can't sue the government. So, if there is a scenario where, and there are, I mean there's Supreme Court case law about this, if you are injured by a product that was designed or specified by the United States military or government but is manufactured by a third party, you can't get around that sovereign immunity by suing the third party. What's unique about the 3M MDL is the number of bellwether trials we've had. And from that, also the information we have about the strength of the case. So typically the MDL court will set a few bellwether trials. Bellwethers are test cases. And the idea is that we'll put forward a few test cases and that both sides will really understand the strength of the case and oftentimes it'll inform settlement.
So here, unlike other cases where you usually have a, I would say, like four bellwethers, we had 16 trials for 19 plaintiffs. That's an incredible volume of bellwether cases. And we had those trials, I think, over the course of maybe 16 months, which is a very rapid pace, especially considering that a lot of this litigation is going on during the height of COVID. So, I think that also just speaks to how quickly this MDL has run and has not been bogged down in ways that the other mass litigations can. And so, that is to say I disagree with some of 3M's critiques of the MDL. But from those 16 trials, plaintiffs actually won 10 trials, or 13 of the 19 verdicts, with verdicts approximating over $300 million. Again, as a plaintiff's attorney, that is an awe-inspiring number.
It is the plaintiff's burden, in these cases, to prove liability. And just given the complexity of the science and just juries, it's hard to win a case. And so, when you have those kind of returns, I think it really speaks to the strength of the case. In fact, I mean, the verdicts were quite high too. Our last plaintiff secured a verdict of over $77 million in just in compensatory damages, not even punitive damages. So again, I think that speaks to the strength of the case. And Judge Rogers actually, after we had the 19 verdicts, said, back in June of 2022, this case has more information or data points than any other complex litigation that she was aware of, and it should really inform the party settlement at that point. We should be in a position to come to the table and figure out a number to resolve the rest of the claims. And that's what she did, back in June 2022, was ordered court ordered mediation in an effort to settle the claim.
Justin Bernbrock:
For the plaintiffs that participate in the bellwether trials and verdict is in favor of the plaintiff, I mean, that isn't subject to some additional MDL process or procedure, right? Do I understand that right? I mean that's a final judgment.
Ashley Barriere:
It is a final judgment. So MDLs, it differs from a class action. They're mass actions, but each case maintains its own individual identity. It's truly just consolidating thousands of individual cases. So those bellwether trials are still considered individual cases that go through the standard appeals process. So, after we have a verdict, you can go through post-trial briefing, which we did, and then go onto the 11th Circuit, in this instance, since we're in the Northern District of Florida. So, at this point, I don't know the exact number, but a number of the bellwether cases are up on appeal to the 11th Circuit. And as I said earlier, a few of them are set for argument. The first ones are set for argument in May.
Justin Bernbrock:
So, July 26, 2022 meaningful date I think.
Ashley Barriere:
Yeah.
Justin Bernbrock:
Where were, just procedurally, the MDL? What was going on in terms of communications with 3M on or around that date?
Ashley Barriere:
At that point, we had concluded all the bellwether trials, and Judge Rogers had ordered that the parties start to essentially work up cases in waves, or batches, of 500. And so, the idea would be that she would identify 500 cases and the parties would then take those through a fact discovery all the way through dispositive motions and expert motions, which she would then rule on, and then remand those cases back to their home court. Because ultimately, I mean, the MDL court, its purpose is to handle pretrial proceedings, which has been interpreted to include bellwether trials. Because again, like I said, bellwether trials can inform settlement. But it does not have the authority to adjudicate all these cases into perpetuity. If the MDL essentially doesn't work and it has fulfilled its purpose of pretrial discovery and et cetera, then it's supposed to, and should, send cases back to the remand district, so those Article III courts can handle those cases, because they have the proper personal jurisdiction, venue, et cetera.
She had ordered the work over these cases. And for wave one, we had completed expert and fact discovery at a lightning pace and had also admitted our initial Daubert and motions for summary judgment. And we were in the middle of fact, and I believe actually we were in the middle of potentially expert discovery for wave two. Again, I said that we've been working at a lightning pace. I really can't underscore the amount of work that both sides, that we had done for these wave cases, both the plaintiff's firms and the defense firms. So, we were in the throes of that. And then, simultaneously, in June of that year, Judge Rogers had ordered the court ordered mediation, again thinking that given all the data from the bellwether trials, the parties should be in a position to hopefully resolve these cases.
So, the parties had participated in three-day court ordered mediation, which I believe had wrapped either the day prior or a few days prior, unsuccessfully, but not in the sense that we thought all hope had been lost. Again, I didn't participate in the court ordered mediation. These are just what I'd heard through the grapevine. But beyond that, 3M generally had represented to the court and to us that they would never undertake a Texas Two-Step like J&J had done in LTL. Because, that, after J&J had done that across the mass torts bar, that's always the fear, that essentially if a defendant is unsuccessful or the case is ongoing, they'll simply do a Texas Two-Step, throw that in scene to bankruptcy and call it a day with the MDL court. But 3M had said that they weren't planning a Texas Two-Step. So, when I woke up on July 26th and saw my hundreds of text messages and email that Aearo had filed for bankruptcy, I was shocked. And I think everyone on my team and beyond that, my colleagues on the case, were really shocked.
Justin Bernbrock:
I'm curious what Judge Rogers reaction was. I mean, if there were representations in court, that's an interesting... Suffice to say, I would not want to be counsel who was making such representations. Did Judge Rogers, did she say anything ever about that?
Ashley Barriere:
We had a hearing on July 28th in front of Judge Rogers, the MDL court. And I would say, Judge Rogers had then in turn ordered, I can't recall if it was a hearing, but essentially she wanted to inquire whether 3M had participated in the court ordered mediation in good faith. That was all under seal. I don't know what the result of that was. But I think there was some concern, and I think rightly so from our side as well, whether 3M had adhered to the court's order, and come to the table, and participated in this exercise in good faith. So, that was discussed at that initial hearing. I think, generally speaking, it is, I can say for my part and my colleagues, there was a fair amount of anger. Because, we had worked deciduously for years on this case. And then, to have the rug taken out from under us just because the defendant decides they want to go to another forum, as a legal professional, as an attorney, I find deeply, deeply troubling. And then, on a personal level is infuriating.
Justin Bernbrock:
Let's continue forward in time, the bankruptcy court enters an order denying the debtor's motion to extend the automatic stay to certain nondebtors and nondebtor parent 3M. Can you talk a bit about that reasoning for that decision? I mean, I will say, as a complex bankruptcy lawyer, that's a fairly common motion or tool to get relief for nondebtor parents affiliates, including individuals, subject to lawsuits if they're co-defendants in things. So, this decision went against the grain of what I think a lot of folks would say is fairly common in the context of bankruptcy. It's also not terribly surprising in this instance. But what are your thoughts on that decision in particular?
Ashley Barriere:
Yeah, I've thought about this a lot just because, as you said, I mean, intuitively it's not surprising. And you would think that, from logically speaking, that 3M shouldn't enjoy the benefit of the stay. But at that point in time, and now we have the benefit recently of the 3rd Circuit LTL opinion, but at that time, I would say it had come out the other way in most, if not all, similar mass tort bankruptcy scenarios. So, I think in hindsight, looking back, I really think for Judge Graham, who is the bankruptcy judge, his reasoning was premised on the fact that continuation of the MDL against 3M would have no pecuniary effect on the bankruptcy. And that's really by virtue of the funding agreement, which triggered the need for the bankruptcy. Unlike LTL, 3M did not undertake a Texas Two-Step. But they rather solely entered into this funding agreement, which basically served to manufacture the bankruptcy.
For that funding agreement, 3M agreed to basically provide uncapped funding for the Aearo bankruptcy. And that's really key, it's uncapped funding. In exchange for that Aearo agreed to indemnify 3M for its liabilities arising out of the MDL. But curiously, and actually using the words of Judge Graham, the funding agreement was and is completely circular in that, if 3M seeks indemnification from Aearo, if Aearo has to indemnify 3M, Aearo can then turn around and get reimbursed by 3M for those indemnification payments. So, it's, like I said, it's circular. I mean, if you look under the form for the substance, it's just purely these machinations to get a bankruptcy going and to somehow tie 3M there. So, the funding agreement, or it's the who's your hop, that's what my colleagues called it, ultimately just resulted in totally uncapped funding to the bankruptcy estate with no real pecuniary effect on Aearo. And so, I think that was really the key in Judge Graham's opinion, and the fact again that it was so circular.
Secondly, and I think this played a role, and Judge Graham also noted this in his opinion, but the 7th Circuit takes a more narrow view than some other circuits about applying the automatic stay to nondebtors. And so, for Judge Graham who faithfully applies the law, I think that also played a role. We weren't in the 4th Circuit, for instance, which 3M cited extensively. 7th Circuit definitely takes a more narrow view there.
And then, third, it's hard to say how much this actually played a role in the opinion. And again, judge Graham was very clear, from the outset, that he was not judging the MDL, or the propriety the MDL, or the pros and cons of the MDL. But from the outset, Aearo made it very clear, they were completely transparent that they were filing this bankruptcy to basically get out of the MDL, to switch forums.
The day of the bankruptcy filing, as they filed for their TRO and the preliminary injunction to extend the stay to 3M, they also filed a pretty extraordinary informational brief. It was a 65-page brief basically condemning the MDL and also lodging pretty personal attacks on Judge Rogers, which actually continued into the first day hearings. And so, I think the fact that Aearo was so transparent that it was forum shopping, although it may not have played a role in Judge Graham's opinion, it did permeate the proceedings. So, I do think that might have also played a role. And so, all those factors combined, I think, got us the result that, surprising result, as you said, in some ways, that Judge Graham did not extend the automatic stay to 3M.
Justin Bernbrock:
Some of the points you're highlighting here, I do want to explore further. I'm a little shocked, because it just feels like never a great idea to make the court or the bench the subject of intense criticism. Tell us a little bit more about this tension or struggle between the two courts. I'm focused on this.
Ashley Barriere:
Yeah, absolutely. I mean, I think as we discussed earlier, it's an interesting tension between the Article III court and the bankruptcy court. And I think that was exaggerated here, where the debtors again filed the 65-page informational brief lodging attacks on the MDL, but as well as the court, and in particular on the MDL court's rulings. Aearo basically laid out its disagreement with the court on a number of rulings, including the government contractor defense, some Daubert rulings, some evidentiary rulings, and laid out that basically their idea was that all these claims could be resolved in an estimation process that would disregard those rulings, or in their words, essentially come out the right way on those rulings. So, it does create, as you've said, a very problematic, I would say, jurisdictional issue. Because, you have a party essentially seeking to go into another forum to relitigate an Article III judge's rulings, and to basically thwart her authority and infringe on her jurisdiction.
That gets me to one of the strategies that Keller Postman pursued picking up on this at the outset. My colleagues and I, again, were appalled, as attorneys, at the strategy. But also found that it was unlawful in some ways. And there's a little, some would say, obscure federal provision in the Judiciary Act of 1789 that essentially authorizes Article III courts to issue all writs necessary to protect their jurisdiction. Oftentimes, it is used in the context of parties going to state court, trying to forum shop out of the federal court. But here, we had a different scenario. We had a party basically trying to infringe on a federal court's jurisdiction by running into a bankruptcy court.
So, Aearo had sought a temporary restraining order during the first day to extend the stay as to 3M, which I think is pretty standard in these cases. Judge Graham, actually, he did not deny the TRO, but by lunchtime, during those first day hearings, had signaled that he didn't really see irreparable harm or any real need for the TRO, given that there weren't any pending litigation proceedings coming up against Aearo. There were some depositions set up, but none of them were Aearo employees. He didn't really see the need for it. So, he encouraged the parties to reach a resolution to avoid the need for him to make a ruling, which the parties did. They agreed to a stand down in the MDL. But there was no court order precluding parties from taking legal action in the MDL against 3M.
So, Keller Postman, my firm, again recognizing what we saw as the unlawful actions of 3M, filed a preliminary injunction in the MDL court pursuant to the All Writs Act, basically asking the federal judge to issue an injunction saying that, essentially, these actions threatened the court's jurisdiction and precluding 3M from seeking to undermine her jurisdiction through relitigating her orders. We also asked her to consider the automatic stay as to 3M. Judge Rogers, we had a hearing, and this hearing happened actually before the bankruptcy court's preliminary injunction hearing. And she issued her ruling actually the second day of the bankruptcy court's preliminary injunction hearing granting our preliminary injunction in part and finding that 3M's actions really did threaten the court's jurisdiction.
So, going into the third day of the hearing, we had this ruling from Judge Rogers preventing 3M essentially from arguing in favor of overruling her orders. And actually, her ruling initially prevented 3M from even financially supporting Aearo from doing the same. But she later cabined her ruling. But we had this order going into the third day of the hearing. And then, you also have the bankruptcy judge ruling along similar lines, whether it should enforce a stay as to 3M. So, it really set up this interesting entanglement, I would say, between the two court systems.
Justin Bernbrock:
It's fascinating. I mean, it's absolutely fascinating. One question that just came to mind for me, I think the answer lies in how the claims are styled, but they're products liability, not personal injury, correct?
Ashley Barriere:
I guess, I think they're both. I mean, ultimately they are personal injury claims, because we do seek damages for injuries to these veterans, their hearing issues, et cetera. But I would house them as product liability claims for personal injuries, if that makes sense.
Justin Bernbrock:
Yeah, it does. But it's interesting because of the bankruptcy jurisdiction statutes that accept personal injury claims and make clear that non-Article III courts should not be deciding personal injury claims. And so, it raises for me just a fundamental strategy question as to what the ultimate efficacy of bankruptcy filing in this instance was. And not to critique it, it's more curiosity about the process. And as I said, bankruptcy jurisdiction and matters surrounding bankruptcy jurisdiction have become significant in the last 15 years. And this exception in the... It's actually in the judicial code, the sections that addressed bankruptcy jurisdiction. It was just interesting. It's interesting to me.
Ashley Barriere:
Yeah. I mean, we actually raised this point in our briefing. Just it speaks to Aearo 3M strategy to delay our clients' day in court, because they're making them do the stopover in bankruptcy, which, as you say, ultimately can't adjudicate such claims. So, it's either, one, seeking to deprive them of their day in court, deprive them to their right to a jury trial, or again to just impose inordinate delay on their cases and to hopefully force a lower settlement, which I think was ultimately the goal. And I think they, again, made that clear that they wanted to resolve these claims in an estimation process, not through the traditional court systems, but through an estimation process that they perceive to be more beneficial to them.
Justin Bernbrock:
Got it. So, this use of bankruptcy to address sprawling or mass liabilities is not new.
Ashley Barriere:
Right.
Justin Bernbrock:
There's nothing new under the sun. I can think back to the Dalkon Shield liability, the significant asbestos liability addressed through the bankruptcy mechanism, which indeed led to amendments to the bankruptcy code, which is unique, because that statute is not often amended. It seems to be, from our perspective as bankruptcy practitioners, more and more common, which I'm sure is not terribly exciting for you in your practice. As we talked about at the top of the episode, there was a monumental decision by the 3rd Circuit yesterday in the LTL case, whereupon the court dismissed the bankruptcy as a bad faith filing. And that's huge. I mean, that is just huge in the context of complex corporate restructuring practice today.
The court's opinion, and I want to get your take on it, but I do think that the court dismissed the case because of the funding agreement as between Johnson & Johnson and LTL. It was not a wholesale condemnation of what is commonly called the Texas Two-Step, but having digested that decision, how does this form your thoughts and thinking not only about your own case, but just about this developing trend, this intersection between mass liability and bankruptcy?
Ashley Barriere:
Yeah, I mean, I think Judge Ambro's opinion in LTL, in my personal opinion, got it right. I think, as you said, it wasn't a wholesale condemnation of using bankruptcy to resolve mass torts. But with the right scenario, it can be appropriate, but only when the party, the debtor, is actually facing some form of financial distress. It can't be like as here, as in 3M, or as an LTL, simply a tool to forum shop or to otherwise exit a forum that you perceive as disfavorable in search of another one, because you think it'll be better for the company. So, in that way, I do think the 3rd Circuit got it right. And I think it was, as you said, it's an incredibly important opinion in that it really sets some guardrails on corporations just can't use the bankruptcy code when they don't have a need for it, when there is no financial distress, but they're simply using it as a way, in bad faith, to exit the forum that they're in
Justin Bernbrock:
That it's Judge Ambro writing the decision, by the way, is so meaningful and important. Because, he's a bankruptcy expert.
Ashley Barriere:
Right.
Justin Bernbrock:
He has written very important bankruptcy opinions for at least as long as I've been a lawyer. If Judge Ambro writes on a topic, and its bankruptcy, it is important. It is significant. And I'd be remiss if I didn't mention that Judge Ambro cites my former bankruptcy professor, Professor Brubaker, University of Illinois College of Law. He's a friend of the show. He's been on before. We've talked. Great, great bankruptcy scholar. But this all in my mind, it's that much more significant and material when the intellectual forces that are informing and authoring the opinion are true bankruptcy experts and brilliant ones at that. It's going to be interesting to see where this plays out from here. I'm not sure if the Supreme Court would accept cert on a case like this. I do think that it certainly has the names that get the attention of the Supreme Court.
Ashley Barriere:
Yeah.
Justin Bernbrock:
I mean, it's a significant issue. And so, it'll be really interesting to see how this plays out from here and certainly to continue watching how things play out for you, your partners, your clients. As I started, a 10-year veteran of the finest Navy in the world, and the women and men with whom I served are far and away the most impressive people. And what they do day in and day out is remarkable. And so, I thank you for your service to veterans, your service to the development of the law in this area. And thank you for coming and helping us and our audience understand these topics, because they're important, they're meaningful, and they are actually developing. We're in the midst of the development. So, thank you so much. This has been really great.
Ashley Barriere:
Thank you. No, I really appreciate being on the podcast, especially that we've talked about this critical moment where we just had the LTL opinion, which is going to have huge implications for my practice going forward. But I also would be remiss if I didn't speak to, as you said, my clients, veterans, who are phenomenal individuals and have many of them gone to great pains to pursue their case against 3M and Aearo. And these too, as we're watching these things unfold, we do need to remember that they these decisions, LTL, 3M, has very real-world implications for our individual clients, and I'm so happy. I think the LTL opinion came out on the right side. As you mentioned, Judge Ambro, a phenomenal bankruptcy scholar, and somebody who really loves the bankruptcy code and respects it. And I think that speaks volumes to the significance of the opinion from that vantage point. And so, I think, hopefully, we're moving in the right direction that we put up some guardrails as these corporations, again, as I've said repeatedly throughout the podcast, using the code to forum shop, but we'll see as this continues to unfold.
Justin Bernbrock:
Great. Thank you.
Catherine Jun:
This is Catherine Jun of Sheppard Mullin for Restructure This with this week's news and notable stories. A pet supply retailer filed Chapter 11 this week with plans to sell its assets and right size at store footprint. Independent Pet Partners filed petitions on Sunday in the District of Delaware. The company currently operates 159 stores. By way of a 363 sale, it expects to reduce that number to 66. Prepetition lenders have already said that they intend to credit bid $60 million for the assets. The lenders also provided $27 million in debtor in possession financing to fund the Chapter 11 case. Founded in 2017, Independent Pet Partners built its business through the purchase of other pet products retailers. Those include Chuck and Don's, Kriser's Natural Pet, and Natural Paws.
The company went through a debt restructuring in 2020, but missed its projections during the COVID pandemic and in inflationary economy, according to the FDD. With the backing of its lenders, the company aims to complete a bankruptcy sale of its assets by April 14. In 2022, the company generated $220 million in net sales. On the day of the filing of the petitions, company reported $182 million in total assets, and $215 million in liabilities.
Also in the District of Delaware this week, the planned confirmation hearing of pharmaceutical company Clarus Therapeutics is scheduled before Judge Mary F. Walrath. The deal, which had the support of the Unsecured Creditors Committee, calls for prepetition secured indenture claims to receive all of the debtor's cash, proceeds from a sale, royalty payments, and the first $3 million of any D&O insurance proceeds. A liquidating trust would also be set up for the general unsecured creditors whose claims are estimated at approximately $50 million. The trust would consist of all assets of the estates, retained causes of action, a $100,000 of a GUC priority amount, and the holdco's interests in Clarus Therapeutics Incorporated.
The pharmaceutical company filed Chapter 11 in September of last year. And in October, it held an auction for its FDA-approved drug, Jatenzo following bid solicitation. Illinois based company Tolmar was announced the winning bidder. That's it for restructuring news and notable stories. See you next time.
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