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Johnson & Johnson Faces Critical Vote on Controversial Bankruptcy Strategy Amid Talc Lawsuit Battles

In 2016, Eron Evans succumbed to ovarian cancer at the age of 41, leaving behind two daughters. Her mother, Darlene, believes that Johnson & Johnson’s Baby Powder was responsible for her daughter’s illness and has continued a lawsuit that Eron began ten years ago, claiming that the company’s talc products caused the fatal disease.

Darlene, a 71-year-old grandmother from the Houston area, has exhausted her savings while caring for her granddaughters. She and tens of thousands of other claimants now face a critical deadline of July 26 to vote on Johnson & Johnson’s third attempt at a contentious bankruptcy strategy that aims to limit its liability and establish a fund to compensate victims.

“I don’t know how much longer I can carry on,” Darlene shared with Reuters, expressing the pressure she feels to vote in favor of the settlement.

Eron Evans, shown with one of her daughters, died in 2016 of ovarian cancer at age 41. She had sued J&J alleging talc in its Baby Powder caused her disease.

After two previous rejections by federal courts, the $350 billion healthcare conglomerate is once again trying to resolve the litigation through a “Texas two-step” bankruptcy. This strategy involves transferring its talc liabilities to a newly formed subsidiary, which then files for Chapter 11 bankruptcy. The objective is to use the bankruptcy proceedings to consolidate all plaintiff claims into a single settlement, avoiding the need for Johnson & Johnson to declare bankruptcy itself.

However, for this plan to succeed, Johnson & Johnson needs the approval of 75% of the claimants before the subsidiary can request a bankruptcy judge to enforce the deal. The company is facing lawsuits from over 61,000 plaintiffs, with the potential total rising to 100,000 when including those who have not yet sued, according to Erik Haas, Johnson & Johnson’s global vice president of litigation. The company insists that its talc products are safe and do not cause cancer.

Some plaintiffs’ attorneys, including Darlene Evans’ lawyer, Jim Onder, are encouraging their clients to accept the settlement. Onder has described the deal as a reasonable compromise given the circumstances, noting that some clients are critically ill and cannot afford to wait through prolonged legal battles.

Darlene Evans, a 71-year-old Houston-area grandmother, is among tens of thousands of claimants facing a July 26 deadline to vote on J&J’s proposal to settle its talc litigation in the bankruptcy proceedings of a J&J subsidiary.

“While no amount of money is ever enough for the horrific suffering these women have undergone, this is an opportunity to get money now and avoid many years of additional protracted litigation,” Onder told Reuters.

Conversely, a coalition of other plaintiffs’ attorneys is challenging the plan, arguing that Johnson & Johnson’s bankruptcy maneuver should not be permitted, given the company’s substantial profitability. They also contend that the proposed $6.48 billion settlement is insufficient.

In a June 21 email to plaintiffs’ attorneys seeking support for the settlement, J&J’s lead settlement attorney, Jim Murdica, accused opposing lawyers of turning settlement discussions into a “flame throwing war” filled with exaggerated rhetoric against Johnson & Johnson and its supporting lawyers. The company claims that the holdout lawyers are motivated by greed, aiming to secure hundreds of millions of dollars in additional fees that would not be available in a bankruptcy settlement.

Opposing lawyers argue that Johnson & Johnson is exploiting the bankruptcy system to deny plaintiffs the right to a jury trial or individual settlement decisions. They also accuse the company of manipulating the vote by recruiting clients with dubious claims linked to cancers less likely to be caused by talc, which the company would not settle outside of bankruptcy.

In a statement to Reuters, Erik Haas dismissed these allegations, describing the proposed settlement as “one of the largest in the history of tort litigation” and asserting that the company’s offer is fair and reasonable.

This summer’s vote campaign, marked by intense rhetoric akin to a political campaign, could significantly impact the future use of the Texas two-step strategy in U.S. corporate defense.

J&J is one of several major corporations that have attempted this tactic, which aims to settle mass litigation in bankruptcy courts without subjecting the parent company to the full consequences of Chapter 11, such as harm to its market value and credit rating. The maneuver’s name originates from a Texas law that permits a financially troubled company to split into two entities: one to assume liability and seek bankruptcy protection, and the other to continue operating normally.

Reuters has reported extensively on the secretive planning of Texas two-steps by Johnson & Johnson and other corporations.

The innovative legal maneuver, first attempted by J&J in October 2021, initially promised to change how corporations manage mass tort claims by eliminating the threat of jury trials. However, the strategy has faced strong resistance from some plaintiffs and judges, and no company has yet succeeded in reaching a bankruptcy settlement through this method.

J&J asserts that it now has significant support from plaintiffs’ lawyers who have agreed to recommend the settlement to about 80,000 claimants, primarily those with ovarian cancer.

Andy Birchfield from the law firm Beasley Allen, leading the opposition, is advocating for a substantially larger settlement. He hopes to gather approximately 25,000 votes to block the bankruptcy, with half of those being his own clients.

J&J’s Haas accused Birchfield’s campaign against the settlement of being a last-ditch effort to prevent claimants from making their own decisions.

Erik Haas, the top litigation executive at Johnson & Johnson, appears before a September 19, 2023 Senate hearing entitled, “Evading Accountability: Corporate Manipulation of Chapter 11 Bankruptcy.”

In a June email seeking settlement support, J&J attorney Murdica called for an end to “hyperbole and unnecessary personal attacks” by opposing lawyers. He told Reuters the message led to a “factual and accurate discussion” with some plaintiffs’ attorneys, some of whom subsequently supported the proposed deal.

Haas stated that a bankruptcy settlement would provide all claimants with fairer compensation compared to trial courts, where many might receive nothing.

A central issue in the litigation, which spans over 15 years, is the claim that customers developed cancer due to exposure to asbestos-contaminated talc in J&J’s Baby Powder. Mined talc can contain asbestos, a known carcinogen. J&J maintains that its talc does not contain asbestos.

J&J has won most cases that have gone to trial, but its losses include a Missouri verdict for ovarian-cancer victims that ultimately cost the company $2.1 billion. Additionally, a plaintiff with mesothelioma, a deadly cancer affecting the tissue lining various organs, won a $260 million judgment from an Oregon jury in June. J&J plans to appeal.

In previous Chapter 11 cases, a J&J subsidiary filed for bankruptcy, hoping that claimants would approve the settlement after the filing. This time, J&J aims to secure 75% of claimants’ support beforehand and have the subsidiary file a “prepackaged” bankruptcy with the necessary votes.

Should this bankruptcy plan withstand legal challenges, payouts for individual cases would be determined by trust administrators established to pay claims. According to bankruptcy plan documents reviewed by Reuters, the average payout for an ovarian cancer claim is estimated to range between $75,000 and $150,000.

Birchfield and his supporters accused J&J of attempting to “stuff the ballot box” by reaching settlement agreements with lawyers representing claimants with diseases lacking a scientific link to talc, which the company would not settle outside of bankruptcy.

Haas dismissed the ballot-stuffing argument as a smear tactic, stating that J&J had to propose a plan addressing claims beyond ovarian cancer to achieve a comprehensive resolution. He noted that Birchfield and other plaintiffs’ lawyers had filed such cases in trial courts.

Birchfield countered that he had no plans to pursue cases without supporting medical evidence for an ovarian cancer diagnosis and that his objective was to secure fair compensation for his clients.

While J&J solicits votes for the deal, Birchfield has launched his own campaign, urging fellow plaintiffs’ lawyers to reject J&J’s plan. A June email reviewed by Reuters called J&J’s effort a “scam” to avoid accountability.

“The stakes could not be higher,” the email stated.

Johnson & Johnson company offices are shown in Irvine, California. The company faces tens of thousands of lawsuits alleging its talc products caused cancer. REUTERS/Mike Blake

A change of venue

For J&J, the enduring allure of Chapter 11 lies in the fact that bankruptcy judges, unlike trial-court judges, can enforce global settlements that permanently halt all related lawsuits and forbid new ones. Otherwise, any settlement with some clients would still leave holdouts or future plaintiffs with the right to sue – and leave J&J exposed to the kind of multibillion-dollar verdicts that made it resort to a two-step in the first place.

J&J’s previous two-step bankruptcies in New Jersey, where the company is headquartered, were rejected on the grounds that its subsidiary lacked the “financial distress” required for bankruptcy protection because it could access billions of dollars in J&J’s money to pay claims. So J&J’s subsidiary plans to file in Texas this time, where some legal experts say it could get a different opinion on the financial-distress standard.

The first rejection of J&J’s strategy on those grounds came from the 3rd U.S. Circuit Court of Appeals in Philadelphia, which ruled against its initial two-step bankruptcy in January 2023.

J&J’s subsidiary nevertheless filed a second bankruptcy in April 2023. The case went to U.S. Bankruptcy Judge Michael Kaplan in New Jersey, the same judge who had ruled in favor of J&J’s first two-step before the appeals court rejected it.

U.S. Bankruptcy Judge Michael Kaplan decided in July 2023 to dismiss J&J’s second attempt to resolve talc litigation in the Chapter 11 proceedings of a subsidiary. REUTERS/Leah Millis

This time, Kaplan was skeptical. J&J had reduced the amount of money backing its subsidiary from about $61.5 billion in the first bankruptcy to $30 billion in the second in an effort to convince the court that the subsidiary meets the financial-distress standard. Kaplan said the reduction in money available to J&J’s subsidiary appeared “manufactured” to get around the appeals court’s ruling and decided to dismiss the bankruptcy in July 2023 for failing to meet the appeals-court standard that the subsidiary’s distress must be “imminent” and “immediate.”

The judge, however, urged J&J and claimants to “build upon the remarkable progress” made toward reaching a settlement and consider pursuing a resolution in another kind of bankruptcy proceeding.

‘Fraudulent’ claims?

J&J believes it will get the claimant support it needs for its third two-step. The company removed some of the opposition by settling – outside of bankruptcy court – with claimants who had previously helped derail its Chapter 11 plans.

By May, J&J had reached agreements to settle almost all claims from people with mesothelioma. J&J declined to disclose the total it paid but sources familiar with the matter said it was about $2 billion. In June, J&J agreed to pay about $700 million to U.S. states alleging the company misled consumers about the safety of its talc products.

The majority of the remaining cases involve ovarian cancer. The claims arising from that disease and mesothelioma have been considered the strongest cases by plaintiffs’ lawyers because scientific evidence, while mixed and disputed by J&J, links the illnesses to talc.

Birchfield alleges J&J is weaponizing thousands of “fraudulent” claims related to other diseases – including cervical, vaginal and uterine cancers – as a strategy to overwhelm the objecting votes of ovarian-cancer plaintiffs.

The total number of claims allegedly involving diseases without clear connections to talc isn’t known. But it could be enough to decide the outcome of a potentially close vote based on J&J’s estimates of total claims.

J&J recruited one key plaintiffs’ lawyer who had initially opposed its two-step bankruptcy in part by agreeing to settle in Chapter 11 with about 9,000 of his clients with uterine cancer, according to the attorney’s testimony in J&J’s second subsidiary bankruptcy. That lawyer was Onder, who represents a total of 21,000 clients, including those with ovarian cancer.

That’s a potentially decisive voting bloc for J&J. Haas said in a May investors call the company faces between 85,000 and 100,000 total claims, “depending upon the ultimate process that we go through in vetting those claims.”

Birchfield argues J&J has little incentive to weed out bogus claims because they could provide the critical ‘yes’ votes it needs for a Chapter 11 settlement.

Onder first agreed to support J&J’s settlement during its second bankruptcy attempt. Under questioning at the time from another plaintiffs’ lawyer opposing the deal, Onder acknowledged that J&J had agreed to pay his clients for uterine-cancer claims it wouldn’t otherwise settle outside of bankruptcy.

J&J is actively recruiting to drive up the number of claims, Birchfield says.

J&J is running advertisements to alert potential claimants to vote on its bankruptcy plan by July 26.

“Attention talcum powder users!” declares one ad running on YouTube and paid for by a J&J subsidiary. “Have you had ovarian or gynecological cancer?” J&J’s settlement “will pay those who believe they got sick from using talc products,” the ad continues. “You have until July 26, 2024, to vote to accept or reject the plan.”

The ad directs potential claimants to a website that says J&J’s plan covers “any talc-related” claims involving “bodily injury, death, sickness, disease, emotional distress, fear of cancer, medical monitoring, or other personal injuries (whether physical, emotional, or otherwise).” There’s no guarantee any particular claim will be paid, the site says.

The ad is part of a required effort when soliciting votes on a bankruptcy plan to alert potential claimants, Haas said.

Birchfield takes issue with J&J’s solicitation of claims beyond ovarian cancer in the campaign, which spans television, radio, newspapers and online media. The intent of such efforts is to rig the vote, Birchfield argues.

“The magical appearance of tens of thousands of unsubstantiated cases could dilute the entire pool of plaintiffs” and provide the votes J&J needs, Birchfield and another attorney warned in a May email blast urging other lawyers to fight J&J’s settlement.

Andy Birchfield, an attorney at law firm Beasley Allen, is a leading opponent of J&J’s third attempt to settle talc lawsuits in the bankruptcy proceedings of a subsidiary. REUTERS/Andrew Kelly

‘Pure greed’

J&J’s lawyers have launched counterattacks on attorneys representing the holdouts, especially Birchfield. The company alleges Birchfield and his firm are undermining their clients’ best interests to get a bigger payout for themselves.

Plaintiffs’ lawyers commonly charge their clients contingency fees – a cut of any settlement or trial judgment. The lawyers’ share is often a third, though it varies.

Birchfield charges 40% of a settlement or judgment. But he and other lawyers also stand to collect additional compensation for their work on a steering committee overseeing most of the trial-court cases J&J faces, which are consolidated in a New Jersey federal court. The additional fees and expense reimbursements could total between 8% and 12% of any settlement, according to Birchfield and a court filing.

Haas calls such fees a “tax” and “windfall” unavailable to Birchfield in bankruptcy, attributing their opposition to “pure greed.”

Birchfield maintains he puts his clients’ compensation before his own.

In a separate line of attack, J&J has asked the federal judge overseeing more than 57,000 talc legal actions, also in New Jersey, to ban Birchfield from the litigation.

The company alleges Birchfield and a former J&J attorney had formed an improper alliance to present a proposal for a much larger $19 billion settlement, which at the time included the since-settled cases from U.S. states and mesothelioma claimants. Haas called the settlement proposal “delusional” and the partnership a “shockingly egregious” violation of attorney-client privilege between J&J and its former lawyer. Birchfield dismissed the allegation as a baseless effort to bully his clients.

‘Ridiculous’

Elizabeth Onekalit, 44, is among the clients of Birchfield’s firm who oppose J&J’s proposal.

“It sounds like it’s a ton of money,” she said. “But when it comes down to it, there are so many people that were affected by this. It’s just not adequate.”

She was 28 when an oncologist diagnosed her with stage-four ovarian cancer at a Denver hospital in 2008, she said. She blames Baby Powder.

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Charles Wright
Charles Wrighthttps://devstory.org.za
Charles Wright embarked on his journalism career two decades ago, quickly making a name for himself with his insightful reporting and keen eye for detail. His dedication to uncovering the truth and presenting well-researched stories has earned him a reputation as a reliable and respected journalist. Over the years, Charles has covered a wide range of topics, from local news and politics to international affairs and in-depth investigative pieces. Throughout his career, Charles has demonstrated exceptional skills in investigative journalism, political reporting, and feature writing. His ability to dissect complex issues and present them in a clear, engaging manner has won him numerous accolades and the trust of his readers. Charles is known for his commitment to unbiased reporting and his relentless pursuit of the facts, which has made him a cornerstone of the journalistic community.