J&J’s $8.2 Billion Talc Settlement Faces January Court Test

The fate of Johnson & Johnson’s latest push to use bankruptcy courts to end thousands of cancer lawsuits tied to its iconic baby powder now hinges on a high-stakes trial in January.

After months of wrangling, a federal judge in Houston early next year will decide whether J&J’s bid to quickly settle the claims with an $8.2 billion payout can move ahead. A lead attorney for holdouts insists a vote by claimants in support of the deal was rigged, a charge that J&J denies.

J&J has struggled to end the 15-year-long litigation over its talc-based baby powder, which the company insists never caused cancer and is no longer available. After failing twice to resolve the claims by bankrupting a unit in New Jersey, the company is trying again through a fast-track process in Texas after saying in August that more than 75% of claimants voted for a sweetened offer.

“J&J thinks it can get this done in months, but if the legitimacy of those votes is called into question, that timeline goes out the window,” said Carl Tobias, a University of Richmond law professor who teaches about mass torts and is following the baby powder litigation saga.

The company says it’s set aside $12 billion to resolve all of its baby powder cases, including thousands of ovarian cancer claims in the settlement that U.S. Bankruptcy Judge Christopher Lopez will rule on. J&J is now facing more 60,000 claims overall.

Careful Counting

Andy Birchfield, a lawyer representing thousands of alleged victims, this month accused another plaintiff’s attorney of improperly changing votes. He also claimed the firm overseeing the process facilitated the switch at the behest of J&J.

“We view this so-called vote as another fraudulent effort by J&J to manipulate the bankruptcy process and minimize the legitimate claims of ovarian cancer victims,” said Birchfield, an Alabama-based lawyer.

Birchfield’s lawyers say EPIQ, a consulting firm hired by J&J to run the pre-bankruptcy vote, and another plaintiffs’ lawyer, Allen Smith, improperly switched 11,434 votes from “reject to accept.” Lopez will now have to determine whether the votes were wrongfully counted and should be switched back.

J&J’s worldwide head of litigation Erik Haas said EPIQ’s actions were consistent with the solicitation and voting rules, and that the company negotiated with Smith in good faith to get a faster resolution.

“We are confident in the voting process, which showed that the proposed bankruptcy plan is indeed what claimants want to end this litigation in a fair and timely manner,” Haas said in a statement. “The plan constitutes one of the largest settlements ever reached in a mass tort bankruptcy case.”

Lawsuits and Infighting

Smith, a Mississippi-based lawyer who’s notched several wins against J&J, was once part of Birchfield’s inner circle. They jointly represent more than 11,000 clients. Smith changed the votes of those clients to support the deal after his former partner lodged them against the offer.

Birchfield, who sued his former colleague in September over who had the power to cast the votes, argued Smith sold out the ex-baby powder users because he was facing $240 million in litigation-finance debt. Smith filed a countersuit denying the allegations. He didn’t return calls seeking a comment.

In an August letter to colleagues, Smith said “continuing to fight against J&J is no longer justified.”

“As the attorney that started this litigation fifteen years ago and who has fought against J&J inside and outside the courtroom as vigorously as anyone in the country, I can finally say for the first time this revised plan provides adequate compensation for our clients,” Smith wrote.

Changing Votes

Birchfield argues EPIQ violated J&J’s ground rules for allowing the switch and should be removed from overseeing claims, which could generate millions in fees. EPIQ officials didn’t return emails seeking comment.

In court filings, EPIQ officials said they switched Birchfield’s no votes after lawyers for J&J’s unit told them to “incorporate the votes reflected on the Smith firm’s master ballot, superseding the votes submitted” by his former colleague.

J&J counters Birchfield lodged questionable no votes, and says his firm should be removed from its leadership position in the case. The six firms opposing the settlement, including Birchfield’s, haven’t provided a meaningful alternative to it and have yet to recover any money for their clients, the company said.

Those lawyers also will benefit financially if the bankruptcy doesn’t go through, J&J said. It agreed to pay $650 million to cover the cost of the common legal work done on behalf of all the plaintiffs as part of the settlement. They are now covered by a percentage of the money gained from each resolved case, which goes into a pool controlled by a select group of attorneys. The size of the pool without the bankruptcy could be substantially higher than the pre-set figure, depending on final figures.

Speedy Resolution

Lopez – who denied Birchfield’s request to send the bankruptcy back to New Jersey – said he plans to take a close look at the balloting, which was done without court supervision.

“We have some hard decisions here,” Lopez said during a September hearing.

The judge agreed Oct. 21 to put all trials focused on whether J&J’s talc-based baby powder caused ovarian cancer on hold while the bankruptcy plan is debated. The company still faces juries weighing whether powders tainted with asbestos caused cancer. Earlier this month, a Connecticut jury ordered J&J and some units to pay $15 million to a real estate developer who blamed his cancer on the product.

J&J is arguing the enhanced settlement and subsequent bankruptcy is the only way to fairly deal with future cancer lawsuits without decades of litigation.

If approved, the accord would resolve nearly all talc cases against J&J in the US and bind everyone to the same terms – even those who voted against it and women who develop cancer in the future. A trust would be set up to deal with later-developing cancers.

“Sign-off on the settlement may lead to resolution of the talc litigation around year-end, though an appeal would be expected,” wrote Larry Biegelsen, an analyst at Wells Fargo, in a note to clients.

The case is Red River Talc, 24-90505, U.S. Bankruptcy Court for the Southern District of Texas (Houston).