HOUSTON (Legal Newsline) - Plaintiff lawyers will face off at a January hearing in Houston to decide whether Johnson & Johnson can move ahead with a $9 billion plan to settle thousands of talc lawsuits in bankruptcy court, with each side accusing the other of manufacturing votes on the plan and possibly acting on the orders of outside investors with a stake in the outcome.
One group of lawyers, led by the Smith Law Firm, says they have the approval of a majority of women claiming they contracted ovarian cancer from using Johnson’s Baby Powder and other types of cosmetic talc.
Another group, led by Beasley Allen and joined by the U.S. Trustee, says those approvals are illegitimate and J&J shouldn’t be allowed to ram through settlements in bankruptcy court while the parent company remains solvent. It has sued the Smith firm in Alabama, claiming the rival firm switched its position at the behest of outside funders.
Those and other issues will be aired at a Jan. 27 hearing before U.S. Bankruptcy Judge Christopher M. Lopez in Houston, who must decide whether to approve J&J’s plan to channel all of its ovarian cancer claims through a special-purpose vehicle called Red River Talc.
The so-called “Texas Two-Step” maneuver has failed twice before, as judges in New Jersey and the Third Circuit Court of Appeals ruled J&J can’t shove off its tort liabilities into an entity formed for the sole purpose of filing for bankruptcy.
J&J filed a prepackaged plan in Houston in September, over objections the bankruptcy belongs in the company’s home state of New Jersey.
Supporters of the plan say it’s the only realistic way to settle some 40,000 claims by women who say their cancer was caused by asbestos-tainted talc. Johnson & Johnson has won most of the cases that have gone to trial so far and maintains there was never asbestos in its products.
But a few devastating losses, including a $2.1 billion verdict in Missouri, forced the company to enter settlement negotiations. Defending the cases has cost J&J $10-20 million a month and trying each one in court would take decades, with wildly different results for individual plaintiffs.
Proponents, including the Smith firm, say bankruptcy offers a faster and fairer process for compensating cancer plaintiffs. The latest bankruptcy plan would place some $9 billion in a fund to pay present and future cancer claimants – excluding much higher-value mesothelioma claims – including $650 million in a fund to cover a shared portion of plaintiff legal fees.
The Smith firm split with Beasley Allen after J&J added about $1.5 billion to the plan, including the fee fund, leading Beasley Allen and other critics to say they had been bought off. Smith says the $650 million fee fund will be managed by a retired judge and distributed to all plaintiff lawyers.
Beasley Allen is asking the court to accept 12,000 votes against the plan it submitted earlier this year, using a negative-option process in which clients who didn’t respond to an email seeking their vote were presumed to have approved it. The Smith firm, which shares representation with most of those clients, later used a similar process to claim 83% of those same plaintiffs approved the plan.
Beasley Allen has also accused the Smith firm of “stuffing the ballot box” with “meritless,” “non-compensable” gynecological claims, meaning they involve illnesses other than the ovarian cancer plaintiff experts say can be caused by exposure to talc.
Those experts produced this theory after reading reports from the 1960s of higher levels of that cancer in female industrial workers exposed to asbestos. Later analysis suggested many of those cases were misdiagnosed peritoneal cancer, but as the supply of traditional male asbestos workers dwindled, plaintiff lawyers hired experts who were willing to testify talc causes ovarian cancer, creating an entirely new class of asbestos claimants. Some of those experts previously dismissed such claims as baseless.
Since lawyers claim talc causes many kinds of cancer, it is unclear why they would consider other gynecological cancers “non-compensable,” other than because those diseases aren’t on the schedule in the Red River prepackaged bankruptcy plan. Under that plan, women with ovarian cancer would be paid $50,000 to $200,000 per claim.
Beasley Allen also has accused the Smith firm of acting at the behest of outside funders it owes some $240 million, money largely spent on advertising campaigns to recruit clients. In a recent court filing, J&J said it also wants to find out about outside funding, saying it believes Beasley Allen has outside investors and it needs to “understand who the true party in interest is and who is driving Beasley Allen’s adamant refusal to resolve these claims.”
“Through motion practice in the federal (multidistrict litigation) and through ongoing discussions with other plaintiffs’ firms, the debtor has come to learn that litigation funding has permeated the talc litigation,” J&J said in a filing.
The Smith firm says the Coalition of Counsel for Justice for Talc Claimants – mainly Beasley Allen – is also trying to skew the vote with non-compensable claims that are barred by the statute of limitations.
“The legal propriety of a law firm acting contrary to certain of its own clients’ interests is highly suspect at best,” the firm said in a recent filing.
The Coalition supports the U.S. Trustee’s effort to dismiss the bankruptcy for a third time. In an to Oct. 21 motion to dismiss, the Trustee said the third attempt represents “a textbook example of bad faith.” J&J doesn’t need to go into bankruptcy itself and there is no need for the court to allow it to pursue a “futile strategy” that “cannot lead to a confirmable plan of reorganization.”