J&J has enough support from plaintiffs for a $6.5 billion talc settlement

By Dietrich Knauth

NEW YORK (Reuters) – Johnson & Johnson has passed a key threshold of support for its proposed $6.5 billion settlement of tens of thousands of lawsuits alleging its baby powder and other talc products cause cancer, Bloomberg reported.

More than 75% of the plaintiffs voted in favor of the proposal, according to Bloomberg, an obstacle the company put in place for a third attempt to place a subsidiary into bankruptcy protection to resolve the litigation.

J&J spokeswoman Clare Boyle said the company could not comment until the vote count was final. Reuters has not independently verified the report.

J&J faces lawsuits from about 61,000 plaintiffs who allege that its baby powder and other talc products were contaminated with asbestos and caused ovarian and other cancers. J&J denies the allegations and has said its products are safe.

The company set the 75% voting percentage, which is in line with a provision of U.S. bankruptcy law, as the benchmark for proceeding with another bankruptcy filing, which is now expected to take place in the near future. The deadline for casting votes was July 26.

After being twice rejected by federal courts, the health care giant is again trying to end the litigation in a so-called “Texas two-step” bankruptcy.

The J&J subsidiary, now called LLT Management, was created in 2021 under a different name to try to protect the healthcare conglomerate from lawsuits over talc. Courts have blocked two previous bankruptcy attempts.

The “two-step” maneuver involves transferring its liability for talc to a newly created subsidiary, which then files for bankruptcy. The goal is to use the procedure to force all the plaintiffs to settle, without forcing J&J to file for bankruptcy.

But the company needs the votes of 75 percent of the plaintiffs before the subsidiary can ask a bankruptcy judge to impose the settlement on all of them.

Bankruptcy judges can enforce global settlements that permanently stop all related lawsuits and bar new ones. Outside of bankruptcy, any settlement J&J reaches with some customers would leave holdouts or future plaintiffs standing to sue — and leave the company exposed to the potential multibillion-dollar verdicts that encouraged it to use the two-step procedure in the first place.

The company has been locked in a bitter fight with lawyers who oppose its third attempt to resolve the dispute through this maneuver.

J&J's bankruptcy strategy still faces legal hurdles. Recently, the Supreme Court ruled in the Purdue Pharma bankruptcy case that it limits the ability of courts to stop lawsuits against people and companies like J&J that are not bankrupt without the consent of the people who have filed the lawsuit.

J&J has said the Purdue ruling does not affect its settlement proposal because U.S. bankruptcy law includes explicit legal protections for asbestos defendants who have not filed for bankruptcy. J&J has said it qualifies for those protections because the lawsuits typically allege that the talc used in its products was mined from underground mineral deposits that also contained asbestos.

Some legal experts have said J&J may not qualify for those specific legal protections, which were written to encourage settlement payments by insurers with indirect liability for asbestos lawsuits.

J&J's strategy also faces opposition from plaintiffs' lawyers, who argue that its new deal should fail for the same reason as its first two. Courts rejected J&J's first two talc-related bankruptcies because the subsidiary was not in “financial distress,” and J&J must overcome similar arguments in this bankruptcy attempt.

Congress has proposed legislation that would limit companies' ability to protect themselves from lawsuits by declaring a shell company bankrupt.