J&J has enough support from claimants for $6.5 billion talc settlement: report

Johnson & Johnson has cleared a key threshold in its proposed $6.5 billion settlement of tens of thousands of lawsuits alleging that its baby powder and other talc products cause cancer, a research firm said. Bloomberg reports.

More than 75% of plaintiffs voted in favor of the proposal, according to Bloomberg, a hurdle set for J&J’s third attempt to place a subsidiary into bankruptcy protection to resolve the litigation.

Reuters has not independently verified the report, which was published by Bloomberg, citing sources familiar with the negotiations. The sources who spoke to Reuters said votes were still being counted.

J&J spokeswoman Claire Boyle said she couldn’t comment because the vote hadn’t been finalized. The company has previously expressed confidence that its proposed settlement would ultimately have enough support from plaintiffs to move forward with the cases.

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J&J faces lawsuits from about 61,000 plaintiffs who claim that its Baby Powder and other talc products are contaminated with asbestos and cause ovarian and other cancers. J&J denies the allegations and says its products are safe.

The company set a 75% voter turnout threshold, consistent with US bankruptcy law, as the threshold for moving forward with a new bankruptcy filing expected in the near future. Voting closed on July 26.

After being rejected twice by federal courts, the health care giant is again trying to end the case under the so-called “Texas Two-Step” bankruptcy law.

This “two-step” gambit involves transferring the talc debt to a newly formed subsidiary, which then declares Chapter 11 bankruptcy protection, with the goal being to use this process to force all plaintiffs into a single settlement without J&J having to file for bankruptcy itself.

But the subsidiary would need 75% of creditors to vote in favor before asking a bankruptcy judge to force the deal on all creditors.

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Johnson & Johnson is seeking approval for “Texas Two-Step” bankruptcy to transfer its talc liabilities to a new company. (Reuters/Brendan McDiarmid/Reuters Photo)

A bankruptcy judge could enforce a global settlement that would permanently stay all related litigation and bar new lawsuits. Outside of bankruptcy, the settlements J&J reached with some customers would still leave holdouts and future plaintiffs with the right to sue — exposing the company to the possibility of multi-billion dollar judgments that motivated it to opt for a two-stage litigation in the first place.

The company is engaged in a fierce battle with lawyers who oppose its third attempt to settle lawsuits using the tactic.

Andy Burchfield, an attorney for plaintiffs who oppose the settlement, called Johnson & Johnson’s voting procedures a “sham bankruptcy election” that wouldn’t hold up in court.

“Whatever tally is released, we expect it will be challenged and ultimately dismissed so that a jury can decide what to do about Johnson & Johnson’s egregious conduct,” Burchfield said.

Johnson & Johnson’s third attempt at a bankruptcy settlement builds on previous settlements with state attorneys general and people who sued after developing mesothelioma, a rare cancer linked to asbestos exposure, and differs in part from previous efforts in that it focuses only on ovarian and other gynecologic cancer claims.

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Johnson & Johnson is facing new lawsuits related to its talc-based products. (Photo by Peter Dazeley/Getty Images/Getty Images)

J&J’s bankruptcy strategy still faces legal hurdles: The Supreme Court recently ruled in the Purdue Pharma bankruptcy case narrowing the power of courts to block lawsuits against people or companies like J&J that aren’t bankrupt without the consent of the people bringing the lawsuits.

J&J has said the Purdue ruling does not affect its proposed settlement because U.S. bankruptcy law contains specific legal protections for asbestos defendants who have not filed for bankruptcy. J&J is entitled to those protections because the lawsuits generally allege that the talc used in its products was mined from underground deposits that also contain asbestos.

Some legal experts say J&J may not qualify for certain legal safeguards that were enacted to encourage insurers with indirect liability in asbestos litigation to pay settlements.

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J&J’s strategy also faces opposition from plaintiffs’ lawyers who argue the new settlement should be rejected for the same reasons as the first two: Courts dismissed J&J’s first two talc bankruptcies because the subsidiaries weren’t in “financial distress,” and J&J will have to overcome similar arguments in its latest bankruptcy filing.

Congress has proposed legislation that would limit companies’ ability to protect themselves from lawsuits by filing bankruptcy shells.