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Court Rules Johnson & Johnson Can’t Throw Out Civil Liability Because Of ’Good Intentions’

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When people usually think of bankruptcy, they usually think about it as a last resort response to large debts, mortgages they are behind on, and fatigue from the daily hounding of so many unknown numbers. The realization that student loan debt is not dischargeable by bankruptcy likely steals sleep from a good faction of our reader base too. If Johnson & Johnson hadn’t just faced a legal setback, it would have been at the top of many a corporate person’s bankruptcy associations.

A U.S. appeals court on Monday shot down Johnson & Johnson’s (JNJ.N) attempt to offload tens of thousands of lawsuits over its talc products into bankruptcy court. The ruling marked the first major repudiation of an emerging legal strategy with the potential to upend U.S. corporate liability law.

J&J is among four major companies that have filed so-called Texas two-step bankruptcies to avoid potentially massive lawsuit exposure. The tactic involves creating a subsidiary to absorb the liabilities and to immediately file for Chapter 11.

Our avid readers will know that we last covered this ploy here. Thousands of folks are suing Johnson & Johnson on the claim that the use of their talcum powder has given them or their loved ones cancer. Weird thing about talc, it and asbestos are besties. If the appeals court would have granted J&J’s attempt to head to bankruptcy court, it would have ushered in copycat stratagems where liability-facing companies would have been able to shift liability to a smaller entity, hit the “oh no bankruptcy” button, and save themselves potentially massive amounts of cash in payouts.

The court ruled the healthcare conglomerate improperly placed its subsidiary into bankruptcy even though it faced no financial distress. J&J’s two-step sought to halt more than 38,000 lawsuits from plaintiffs alleging the company’s baby powder and other talc products caused cancer. The appeals court ruling revives those lawsuits.

The cunning part of J&J’s legal strategy was their attempt to frame the bankruptcy offloading as being in the customer they allegedly gave cancer’s interest. Given the fact pattern, if there was a time that two-stepping bankruptcies would have been a thing, this would have been it. See if you buy J&J’s argument:

New Jersey-based Johnson & Johnson, valued at more than $400 billion, said its subsidiary’s bankruptcy was initiated in good faith. J&J initially pledged $2 billion to the subsidiary to resolve talc claims and entered into an agreement to fund an eventual settlement approved by a bankruptcy judge.

“Resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders,” J&J said.

A three-judge panel on the appeals court rejected J&J’s argument, finding the company’s subsidiary, LTL Management, was created solely to file for Chapter 11 protection but had no legitimate need for it. Only a debtor in financial distress can seek bankruptcy, the panel ruled. The judges pointed out that J&J assured that it would give LTL plenty of money to pay talc claimants.

“Good intentions – such as to protect the J&J brand or comprehensively resolve litigation – do not suffice alone,” the judges said in a 56-page opinion. “LTL, at the time of its filing, was highly solvent with access to cash to meet comfortably its liabilities.”

You know what they say — the road to offsetting corporate liability via two-stepping is paved with good intentions. The path is not completely blocked though; the company has already stated that it plans to challenge the ruling. Whatever the outcome, I hope that a speedy resolution is met for the sake of those who could have been negatively impacted.

U.S. Court Rejects J&J Bankruptcy Strategy For Thousands Of Talc Lawsuits [Reuters]

Earlier: Whose Remedy Is It Anyway? The Future Of Product Liability Could Depend On It.


Chris Williams became a social media manager and assistant editor for Above the Law in June 2021. Prior to joining the staff, he moonlighted as a minor Memelord™ in the Facebook group Law School Memes for Edgy T14s.  He endured Missouri long enough to graduate from Washington University in St. Louis School of Law. He is a former boatbuilder who cannot swim, a published author on critical race theory, philosophy, and humor, and has a love for cycling that occasionally annoys his peers. You can reach him by email at cwilliams@abovethelaw.com and by tweet at @WritesForRent.

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As Law Firms Start Layoffs, Alternative Legal Services Providers Grow Like Gangbusters

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Dollar growth chartMost law firms aren’t in the process of laying off associates. But Cooley and Goodwin have been upfront about force reductions and other firms seem to be… less upfront about it. While we have no reason to believe the layoff bug will spill over to the rest of the law firm landscape, even limited layoffs cast a pall over the industry.

But while law firms nervously eye the future, Alternative Legal Services Providers are lighting cigars with $100 bills.

The latest iteration of the Alternative Legal Services Providers 2023 Report compiled by the Thomson Reuters Institute in partnership with The Center on Ethics and the Legal Profession at Georgetown Law and the Saïd Business School at the University of Oxford reveals that ALSPs now make up $20 billion of the legal market. That represents a compounded annual growth rate of 20 percent from 2019-2021.

Screenshot 2023-01-31 at 10.17.57 AM

Of course, this pales in comparison to the $800+ billion total legal market, but it’s all in the growth. Demand for legal services remains stagnant and clients will only countenance fee hikes for so long. ALSPs have a greased runway to start soaking up business.

And while most of that business flows to independent ALSPs and the Big Four always loom in the background, the fastest growing segment of the ALSP world are the “law firm captives,” the internal ALSPs law firms have built to keep business in house.

Law firm captives, while the smallest part of the ALSP market, are also the fastest growing of the groups. Law firms create captives in multiple ways: with a tight integration (often via an acquisition or equity stake) with an independent ALSP; through an incubator or accelerator for technology-enabled service providers; or by starting a new company or line of business within the parent firm. Such entities now account for about $1 billion in revenues, showing 117% growth since our last report and a CAGR of 47%. Since 2015, the captive market has grown by 589%.

Even without keeping the business inside the firm, the report notes substantial increases among both large and midsize law firms citing ALSPs helping them retain clients.

It’s not all good news though. Corporate law departments already using ALSPs are divided on where they plan to go from here with 21 percent planning to increase ALSP spend, while 22 percent are either decreasing spend or are unsure. Still, that’s likely a net increase when all is said and done and the report also notes that law departments that don’t currently use ALSPs have increased interest in doing so.

There’s a lot in this report, but the primary takeaway is that if there were ever a battle between law firms and ALSPs for work, that’s over. The strategic challenge of the next decade is figuring out which industry players — law firms, in-house, accounting firms — best leverage ALSP concepts.

Alternative Legal Services Providers 2023 Report [Thomson Reuters Institute]


HeadshotJoe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.


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Biglaw Associates, Partners Need To Change Their ‘Selfish’ Work Routines Now That They’re Expected In The Office

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sad-upset-young-lawyer-summer-associate-law-student-stress-needs-helpWe got into a space [during the pandemic] where we had the ability to be completely selfish for a long time, and it was OK to do so. Unlearning some of those practices as we integrate back into society has been difficult for associates, partners, everyone. The slightest inconvenience feels like world war.

We, as society and the legal industry, are in a position where we need to commit to the change and endure some of the tougher, more inconvenient parts. That is, if they want to maintain a sense of community that brought them to their firm.

Ru Bhatt, a recruiter with Major, Lindsey & Africa who specializes in associate placement, in comments given to the American Lawyer, on the way that lawyers’ sensibilities and sensitivities have changed since the COVID-19 pandemic. Now that the majority of Biglaw employees are expected to work in the office at least three days each week, a lot of their remote work behaviors must change, and quickly at that.


Staci ZaretskyStaci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.



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Biglaw Staff Member Arrested In Sting Operation By Vigilante ‘Creep Catching Unit’

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Handcuffs and FingerprintsWe have some alarming news to report on from California, where a staff member at one of the most successful Biglaw firms in the country stands accused of attempting to initiate sexual contact with a minor.

Micael Barnum, a legal secretary at Morrison & Foerster’s Los Angeles office, was arrested on January 28 in Alhambra, California, in the wake of a vigilante sting by a group known as the Creep Catching Unit (CC Unit). The CC Unit claims that it used a social media account to lure Barnum to the L.A. suburb for an alleged sexual encounter with an underage boy. The American Lawyer has the details:

Barnum was arrested on a felony charge of contacting a minor with the intent to commit a crime involving the minor, according to the Los Angeles County Sheriff’s Department. He was bonded out of custody on Sunday.

A MoFo spokesperson said the firm is aware of Barnum’s arrest: “Although to our knowledge nothing in the reports pertains to workplace-related conduct, Mr. Barnum was immediately placed on administrative leave from the firm pending further review.”

Morrison & Foerster Legal Secretary Arrested in Los Angeles Sting Operation [American Lawyer]


Staci ZaretskyStaci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.



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What Health Plans Need To Know About QHPs Now That the ACA Is Here To Stay

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Providing Qualified Health Plans, or QHPs, that meet the requirements of the Affordable Care Act has become an integral part of many health plans’ offerings. Now that numerous calls for repeal and legal challenges brought against the ACA over the years have failed, health plans can finally invest confidently in this line of business.

As healthcare costs continue to rise, Americans need QHPs. With 35 million people enrolled in coverage related to the ACA and rapid growth of enrollments, QHP plans present an incredible growth opportunity for participating health plans. Here’s what health plans need to know to navigate this market successfully.

Regulatory filing is key — and inflexible

QHPs can be lucrative for health plans, but this particular revenue stream comes with unique responsibilities. Regulatory filing for the purpose of maintaining compliance can be a cumbersome burden and tedious task — there are myriad changes each year — but even the simplest of mistakes can result in millions of dollars in lost revenue.

For example, Tufts Health missed a Rhode Island regulatory filing deadline by two minutes — which Tufts attributed to traffic and construction — and it may have caused them to lose a $400 million Medicaid contract. The snafu disqualified Tufts from bidding on Rhode Island’s $7 billion contract for five years. The rejection of Tufts’ appeal cited avoiding setting a precedent that would allow the acceptance of proposals that were submitted late. In other words, if you can’t file on time, you can’t be trusted to offer a health plan in the marketplace.

In addition to high-stakes examples like this with long-term repercussions, the Center for Medicaid and Medicare Services scores and rates health plans based on the quality of their QHPs on an annual basis. Ratings are based on a number of measures using CMS methodology and criteria such as enrollee experience, plan efficiency, affordability and management on a national and health plan-specific basis.

While the health insurance business is highly regulated, investing in offering QHPs comes with an additional level of scrutiny and complexity for which health plans have to be ready. Noncompliance can lead to federal fines, withdrawal from federal and state exchanges for years, or other penalties. Some states will impose thousand-dollar-a-day fines for missing a deadline.

A seasonal specialization

Every state releases updates to their guidance, often hundreds of pages in length, which dictates changes to benefit coverage — changes in cost shares, copays, filing deadlines, etc. — during the first quarter of the year. So, for large health plans who offer QHPs in a dozen or more states, that’s a lot to intake, interpret, document and process in order to maintain compliance. Simply tracking regulatory changes and making recommendations to the organization could be a full-time job.

For instance, the Department of Health and Human Services recently extended the Covid-19 public health emergency through December 31, 2024. This will have a big impact on how QHP member subsidies are determined and may result in large shifts between carriers. Any health plan offering QHPs has likely tracked and projected how this plays out.

While guidelines and information can change any time, Q2 is the time for filing. This takes an extraordinary effort from the health plan employees dedicated to completing this task. But as we move into the second half of the year, those responsibilities slow down tremendously. The people who handle regulatory filing usually find their responsibilities allocated elsewhere.

Despite this inherently being treated as a hybrid position, it is crucial for these employees to be experts in this area. Given the unforgiving nature of the regulatory process, the health plan’s bottom line — or a big chunk of it — is in the hands of those making these filings, even if they have other duties at other times of year.

The QHP market can be volatile

The massive job loss in 2020 as a result of the pandemic meant that many Americans who previously were insured through their employer were suddenly in need of QHPs. They turned to the state and federal exchanges. But when those same people went back to work in 2021, they left their QHP for employer-sponsored plans.

While an event like Covid-19 is quite rare, the demand for QHPs can fluctuate. For health plans — some of which earn half their revenue from QHPs — it takes careful business planning to navigate this ebb and flow.

While the demand can shift some, there’s no doubt that there is a need for this type of plan. Since the threat of an ACA repeal that would wipe out the QHP market has abated, that demand will continue for the foreseeable future. Health plans can finally offer these products with confidence — provided they navigate the regulatory landscape effectively.

Photo: Sylverarts, Getty Images

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Biglaw Firm That Lost $62 Million Assures Everyone They’re Going To Be Just Fine Financially

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hundreds money bonusesLast week we told you about the arbitration brought against the Biglaw firm Husch Blackwell by, what I presume is now a former client, engineering firm Burns & McDonnell. Burns & McDonnell alleged that Husch Blackwell partner Charles Renner, in his role as outside counsel for the Kansas City city council, tanked their bid to build the new KC airport. Meanwhile another client of Renner’s ultimately scored the airport contract.

The arbitration panel found Renner breached his duty of loyalty to a firm client. They awarded Burns & McDonnell $62 million, representing the anticipated profits to the engineering firm, had it won the contract.

There was a confidentiality clause in the arbitration agreement, so Husch Blackwell has been mum on the entire sitch. At least publicly.

Internally, an email sent by Paul Eberle, the firm’s chief executive officer, and Catherine Hanaway, the firm chair, provides a tiny bit more detail on how the firm’s dealing post-decision. The email reveals that the firm thinks the decision is “wrong on its merits,” but it will move forward “despite this setback.”

Importantly — particularly given Biglaw concerns over a coming economic downturn — the email makes clear that there will not be a “material impact on the firm’s financial condition.” Good ole’ professional liability insurance will be covering the costs.

You can read the full email below.

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Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.



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ChatGPT Crowns Clarence Thomas As Champion Of Gay Rights In Feedback Loop Of Stupid

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The robot works with a laptopEveryone is chattering about ChatGPT. Can it pass the bar exam? No, though it performs well on some sections. Which should force a serious reevaluation of the test’s ultimate value to the profession, but instead will convince bar examiners to introduce cavity searches. And, as The Onion points out, ChatGPT was as depressed to take the test as the rest of us.

Can it pass law school exams? Yes… but only if you consider Cs as passing in law school. Perhaps it needs to be programmed to send itself rejection letters from firms so it can take a hint before plunking down tuition for 2L.

But perhaps these experiments place the cart firmly ahead of the horse. SCOTUSBlog decided to ask ChatGPT 50 questions about the Supreme Court. The results were… well…

ChatGPT’s performance was uninspiring. The bot answered just 21 of our questions correctly. It got 26 wrong. And in three questions, its responses were literally true but struck us as incomplete or potentially misleading. You can read all of the questions and ChatGPT’s responses, along with our annotations, here.

That’s pretty bad. Though none of the bot’s whiffs compared to when it couldn’t even figure out which side of Obergefell the justices were on.

ChatGPT-Obergefell-final-1536×1090

This is what a glitch in the Matrix looks like.

That’s only half-joking. ChatGPT pulled this idea that Thomas and Ginsburg swapped sides in Obergefell from somewhere online when it spit it out as fact. Someday soon, a few content spamming bots are going to start citing each other about Nelson Mandela dying in prison while eating Stouffer’s Stuffing. The sheer volume of content they put out will rewrite the internet’s “consensus” of history in a flash crash of misinformation.

Can you imagine the repercussions this could have for the legal sector? Imagine basic constitutional history being wholesale rewritten, erasing centuries of accumulated legal understanding as the appellate process cherry-picks and amplifies out-of-context snippets all the way up the chain?

Yeah, I wonder what that would be like.


No, Ruth Bader Ginsburg did not dissent in Obergefell — and other things ChatGPT gets wrong about the Supreme Court [SCOTUSBlog]

HeadshotJoe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.


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Morning Docket: 01.31.23 – Above the LawAbove the Law

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Donald Trump yelling

(Photo by Win McNamee/Getty Images)

* Trump sues Bob Woodward claiming copyright on all the stuff he told Woodward during interviews Trump granted for the purpose of letting Woodward write a book. This is not going in the magical “Trump keeps winning cases” bucket his lawyer talks about. [Courthouse News Service]

* Johnson & Johnson tried the “Monopoly Man turns out his pockets” routine and failed. [Law360]

* Hey Siri, explain labor law. [MacRumors]

* Speaking of labor law, a look at the upcoming Supreme Court labor showdown from the perspective of the service workers are preparing. [Eater]

* Jones Day facing sanctions request citing harassment as the motivation for the earlier sanctions request Jones Day made against former associates in discrimination case. You may remember this one as the case that brought attention to Jones Day’s… questionable photoshop decisions. [Reuters]

* The pandemic may have broken lawyers. I mean, lawyers were always broken, but it broke them in a new way. [American Lawyer]

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The U.S. News Ranking Methodology May Have Changed, But Law Schools Are Still Dropping Like Flies

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ranking Gold, silver and bronze seals

(Image via Getty)

Ed. Note: Welcome to our daily feature Trivia Question of the Day!

How many law schools have publicly announced they’re withdrawing from the U.S. News law school rankings (or that they’re not submitting data to USNWR) so far?

Hint: Sure, U.S. News has altered their methodology, but that doesn’t mean schools are eager to participate again.

See the answer on the next page.

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A Rose By Any Other Name Would Be Just As Petty — See Also

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Judge R. David Proctor’s Reprimanding Would Have Made The Bard Proud: You know things are bad when someone insults you in Shakespeare.

As Great As Academic Freedom Is, Sure Wish This Guy Would Shut Up: Law Professor Robert Steinbuch takes a break from educating to be a bigot.

This Is Why You Get Insurance, People! Law firm nonplussed after $62M loss thanks to insurance.

Finally, Some Musical Copyright That Isn’t A JoJo’s Episode: These rock musicians faced a hurdle getting the rights to their music back.

Manners, People! The shift back to working-from-work may require a manners adjustment.

The post A Rose By Any Other Name Would Be Just As Petty — See Also appeared first on Above the Law.

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