February 13, 2019 – Imerys Talc America, Inc. and two affiliated Debtors (“Imerys” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10289 [Docket No. 1]. The Company, the leading talc producer on the American continent, with operations in Montana, Vermont, and Texas, is represented by Mark D. Collins of Richards, Layton & Finger. Further board-authorized engagements include (i) Latham & Watkins as co-counsel, (ii) Alvarez & Marsal North America as financial advisor and (iii) Prime Clerk as claims agent.
The Company’s petition notes between 10,000 and 25,000 creditors; estimated assets between $100mn and $500mn; and estimated liabilities between $50mn and $100mn. Documents filed with the Court list the Company’s three largest unsecured creditors as each having trade claims that are less than $1mn, ie inconsequential to the Debtors. What is
both consequential and telling is a schedule entitled: “Debtors’ Consolidated List of the Top Thirty Law Firms with the Most Significant Representations of Talc Claimants.”
In a press release announcing the filing, Imerys stated, “Imerys Talc America, Inc., along with Imerys Talc Vermont, Inc. and Imerys Talc Canada, Inc. (‘the filing companies’), announced that they have made a determination to initiate voluntary Chapter 11 cases in Delaware. The filing companies have reached this decision after evaluating a range of strategies to safeguard their long-term business interests and address their historic talc-related liabilities in the United States.
The Chapter 11 process will allow the filing companies the time and protection to negotiate a global agreement with creditors, primarily representatives of current and future claimants in cosmetic talc-related litigation, while defining a path forward for the impacted talc businesses….The Chapter 11 filing immediately suspends all outstanding U.S. talc-related litigation against the filing companies. As a result, it is expected that normal operating cash flow will be sufficient to satisfy all of the filing entities’ operating obligations during this period.”
Giorgio La Motta, the Company’s President, commented: “This is an important, meaningful, strategic step for our business. After carefully evaluating all possible options, we determined that pursuing Chapter 11 protection is the best course of action to address our historic talc-related liabilities and position the filing companies for continued growth. The safety of talc has been confirmed by dozens of peer-reviewed studies, as well as regulatory and scientific bodies, and the litigation is entirely without merit….However, it is simply not in the best interests of our stakeholders to litigate these claims in perpetuity and incur millions of dollars in projected legal costs to defend these cases. By deciding to file for Chapter 11 protection, we have laid the groundwork to efficiently resolve our historic talc-related liabilities and focus on our continued success in the industry.”
In a declaration in support of the Chapter 11 filing (the “Picard Declaration”) [Docket No. 10], Alexandra Picard, Imerys’ Chief Financial Officer, further commented on the rationale for a Chapter 11 filing, “The Debtors’ decision to commence the Chapter 11 Cases was prompted by certain recent developments arising from the growing number of Talc Claims [ie, claims by plaintiffs alleging personal injuries caused by exposure to talc mined, processed, and/or distributed by one or more of the Debtors] in the United States. These developments include: (i) the significant increase in settlement demands with respect to cosmetic Talc Claims in the wake of recent verdicts, including a multi-billion dollar verdict rendered against Johnson & Johnson (‘J&J’), and the ensuing media focus on talc for cosmeticapplications; (ii) the increased unwillingness of the Debtors’ insurers and third party contractual indemnitors to provide coverage for the Debtors’ mounting defense costs and potential liability exposure; and (iii) recent constructive discussions with a proposed future claims representative that led the Debtors to conclude that the Chapter 11 Cases would be the optimal path for resolving their historical talc-related liabilities in a manner that maximizes distributable value for all stakeholders.
The Debtors’ primary goal in filing these Chapter 11 Cases is to confirm a consensual plan of reorganization pursuant to Sections 105(a), 524(g), and 1129 of the Bankruptcy Code that channels all of the present and future Talc Claims to a trust vested with substantial assets and provides for a channeling injunction prohibiting claimants from asserting against any Debtor or non-debtor affiliate any claims arising from talc mined, produced, sold, or distributed by any of the Debtors prior to their emergence from these Chapter 11 Cases. While the Debtors dispute all liability as to the Talc Claims, the Debtors believe this approach will provide fair and equitable treatment of all stakeholders.”
Events Leading to the Chapter 11 Filing
The Picard Declaration makes it clear that there exists only one contributing factor to the Company’s current need to shelter in a Chapter 11, exposure to Talc Claims litigation. Imerys is profit making and has little or no debt. In what may be a first for a large Chapter 11 filing, the Picard Declaration states, “The Debtors are not party to any secured financing arrangements or any third party credit facilities, and instead have relied on the positive cash flow generated by their operations to run their businesses.” Its client base is diversified and cosmetic talc, which is the source of the Talc Claims litigation makes up only 5% of total sales [NB: In 2018, talc sales by category were polymers (31%); paper (18%); paints and coatings (16%); specialties (16%); rubber (7%); personal care/cosmetics (5%); building materials (4%); and others (3%)]. The Company has ample insurance and believes it is generally protected by indemnities from J&J.
In a nutshell, however, the problem is that there are holes in Imersys’ insurance coverage and J&J is not rushing to embrace Imersys’ view of the J&J indemnities; it is these uncertainties that put the Company at risk and militated towards a Chapter 11 filing.
The Picard Declaration states, “The Debtors are among the defendants in thousands of actions brought before several U.S. federal and state courts by multiple plaintiffs asserting Talc Claims. The Debtors believe this litigation is without merit and their strategy has consistently been to mount a vigorous defense to all such claims. Given the increasing number of Talc Claims asserted, the rise in settlement demands in cosmetic talc lawsuits, and the increased unwillingness of the Debtors’ insurers and third party contractual indemnitors to provide coverage for the Debtors’ mounting defense costs and potential liability exposure, the Debtors determined that the commencement of these Chapter 11 Cases was their best option to protect their estates and preserve value for all stakeholders. The Debtors lack the financial wherewithal to remain in the tort system.”
Talc Claims Overview
The Picard Declaration further notes, “Plaintiffs generally have asserted two types of Talc Claims: (1) claims alleging ovarian cancer or other gynecological diseases arising as a result of talc exposure (the “OC Claims”) and (2) claims alleging respiratory cancers or other asbestos-related diseases arising as a result of talc exposure (“Mesothelioma Claims”). As of the Petition Date, there are approximately 13,800 pending alleged OC Claims and approximately 850 pending alleged Mesothelioma Claims.
As they have consistently argued during all such litigation, the Debtors maintain that their talc is safe, that the OC Claims and the Mesothelioma Claims are entirely without medical or scientific merit, and that exposure to their talc products has not caused any personal injuries. The safety of the Debtors’ talc has been confirmed by dozens of peer-reviewed studies and multiple regulatory and scientific bodies, including the FDA.
Three of the largest real- world studies ever conducted—one on talc miners over the course of 50 years and two of the largest studies of women’s health ever conducted in the United States—have overwhelmingly confirmed that talc is not carcinogenic. Moreover, the trial court supervising the coordinated talc ovarian cancer litigation in New Jersey state court held that the scientific evidence of talc as an alleged cause of ovarian cancer was insufficient to allow selected bellwether cases in that court (approximately 286) to proceed to trial against ITA and J&J.”
The Picard Declaration continues, “One or more of the Debtors have rights to the proceeds of insurance policies for both the OC Claims and the Mesothelioma Claims, and the Debtors continue to litigate and negotiate the scope of the potentially available insurance coverage. The Debtors are informed and believe that the total amount of insurance available for the OC Claims is at least $529 million and believe the total amount of insurance coverage for the Mesothelioma Claims is at least $180 million. The Debtors also believe that the Talc Claims related to the Debtors’ sale of talc to J&J are subject to uncapped indemnity rights against J&J under various stock purchase and supply agreements. One or more of the Debtors also have rights to the proceeds of insurance policies issued to J&J and its subsidiaries, and policies issued to Standard Oil and its subsidiaries, which the Debtors believe to have total limits of approximately slightly more than $3 billion. Despite this seemingly robust insurance coverage, the Debtors have determined that it is no longer feasible for them to continue to litigate the Talc Claims. While the Debtors have access to numerous insurance policies, coverage is not available for all claims.
For example, where a claimant’s alleged date of first exposure to talc occurs after a certain date, the claim may not be covered under some of the insurance policies. In addition, some policies only provide coverage for non-asbestos related injuries, and punitive damages often are not covered by insurance. The Debtors, in consultation with their insurance coverage counsel, have thoroughly analyzed their various insurance policies and determined that currently available insurance coverage for certain cosmetic talc-related litigation may be exhausted in the first half of 2019.
One or more of the Debtors also have certain indemnity rights against J&J or one of its affiliates for OC Claims and Mesothelioma Claims. For example, under a 1989 stock purchase agreement pursuant to which the Debtors purchased the entity known today as ITV, J&J agreed to indemnify one or more of the Debtors for all liabilities arising out of use or exposure to talc-containing products supplied to J&J prior to the January 6, 1989 closing date. In addition, under various talc supply agreements, J&J agreed to indemnify one or more of the Debtors for all liabilities arising out of the supply of talc to J&J during the term of the supply agreements. While the Debtors have additional protection from the Talc Claims through these indemnification agreements with J&J and its affiliates, the Debtors’ ability to recover under these indemnification agreements in a timely fashion is uncertain. As of the Petition Date, J&J has refused to acknowledge or accept its indemnification obligations and has disputed the scope of coverage available to the Debtors under these agreements (or denied indemnification altogether). As such, the Debtors’ recovery under these indemnification agreements has been significantly delayed.”
Trust under Sections 105 and 524(g) of the Bankruptcy Code
According to the Picard Declaration, as a result of the increasing talc litigation and the unwillingness of the Debtors’ insurers and indemnitors to provide coverage for the Debtors’ mounting defense costs, the Debtors retained advisors to identify and assess alternatives to resolve the Talc Claims, including the costs and benefits associated with continued litigation of the Talc Claims in the tort system. At the same time, the Debtors explored the viability of using Chapter 11 to address these Talc Claims by channeling them to a trust created under Sections 105 and 524(g) of the Bankruptcy Code that would be structured to ensure fair and equitable treatment of present and future claimants. As part of this exploratory effort and to facilitate the implementation of this potential Chapter 11 strategy if and when authorized by their boards of directors, the Debtors entered into an engagement letter with James L. Patton, Jr. of Young, Conaway, Stargatt & Taylor, LLP (“Young Conaway”) on September 25, 2018 to serve as a proposed future claims representative (the “Proposed FCR”) to represent the interests of individuals who may in the future assert talc-related demands against the Debtors.
The Debtors had hoped to engage with plaintiffs firms prior to the commencement of these Chapter 11 Cases to determine if a pre-arranged chapter 11 plan could be achieved. The Debtors did not have sufficient time, however, to conduct the diligence process that would be necessary for the parties to engage in meaningful discussions given the pending trial calendar (and risk of incurring a judgment for which the Debtors could not post an appeal bond) and the ever-increasing costs of settlement and defense. Nevertheless, the constructive discussions with the Proposed FCR confirmed, from the Debtors’ perspective, the viability of using Chapter 11 to resolve the Talc Claims in a manner that will maximize the distributable value for all stakeholders and will provide fair and equitable treatment of the Talc Claims.
After extensive discussions with their advisors, the Debtors ultimately determined that, due to the increasing number of Talc Claims asserted and the prospect of diminishing, readily accessible insurance/third party indemnitor coverage, continued litigation in the tort system was not a viable option and that the commencement of these Chapter 11 Cases was in the best interests of the Debtors, their estates and their stakeholders. Accordingly, on February 13, 2019, the Debtors’ boards of directors authorized the filing of these Chapter 11 Cases.
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