J&J Plan for Bankruptcy to End Talc Cancer Claims Rejected

(Bloomberg) — A federal judge rejected Johnson & Johnson’s third attempt to use bankruptcy to set up a multibillion-dollar trust fund to pay women who claim they got cancer using baby powder and other products allegedly tainted with a toxic substance.

US Bankruptcy Judge Christopher Lopez on Monday dismissed the bankruptcy of a small J&J unit called Red River Talc following a two-week trial in Houston, finding that a vote of cancer victims on the proposal was flawed.

J&J was trying for the third time to use a small unit to resolve all talc-related lawsuits involving ovarian cancer and other, similar gynecological diseases at once instead of facing trials around the country in different courts. The latest trust proposal would have set aside $9 billion for victims.

Voting on the settlement included irregularities, among them was “an unreasonably short voting time for thousands of creditors, was all done to get to 75% at any cost,” Lopez said.

What J&J Is Trying to Achieve in Bankruptcy Court: QuickTake

Since J&J launched its strategy in 2021, critics have complained that the company, one of the most profitable in the world, is trying to use special federal rules only available to bankrupt businesses to shield itself from the lawsuits.

The company’s first two attempts to pay claims through a bankruptcy trust were dismissed by a federal appeals court in Philadelphia. By moving the case to Texas, the company came under the jurisdiction of the appeals court in New Orleans, which has issued decisions more in line with J&J’s legal arguments. J&J could now ask the appeals court to review the case.

A company spokesperson didn’t immediately respond to a request for comment.

While most of the prominent personal-injury lawyers handling tens of thousands of baby powder cases favor the deal offered by the health care giant, a handful wanted Lopez to reject it. The Justice Department’s bankruptcy watchdog also opposed it. Opponents have said J&J shouldn’t be allowed to use Chapter 11 to resolve the cases and questioned the company’s tactics in rounding up pre-bankruptcy support from victims.

The women who sued allege J&J sold baby powder and similar products made from talc contaminated with the cancerous substance asbestos. The company denies that the powder is harmful, but it stopped selling talc-based baby powder in the US in 2020.  

At the trial, which took place in February in Houston, Lopez was asked to navigate the intricacies of bankruptcy law, including whether J&J manipulated a vote on the settlement among 93,000 claimants.

If a company with asbestos liabilities obtains 75% approval from plaintiffs voting on a bankruptcy settlement plan, the firm is allowed to resolve all current and future liabilities via a trust, according to the ruling. 

Under the rejected proposal, a bankrupt unit of J&J would have established a trust to determine how much each cancer victim would get based on a set of detailed criteria. All lawsuits related to allegations that baby powder causes ovarian cancer and other gynecological diseases would have been halted and instead resolved by the trust.

For its latest bankruptcy, J&J organized a vote of claimants before filing the Chapter 11 case. After the company increased its settlement offer, more claimants were in favor of a deal, giving the company enough support to meet a 75% threshold set by the bankruptcy code.

Red River has denied that voting was flawed and contends that lawyers opposed to the bankruptcy settlement were motivated by their own financial interests to defeat the deal. 

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

–With assistance from Jef Feeley.

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