J&J’s Talc Bankruptcy Vote Under Attack

The presidential vote is about one week away, but the ballots in Johnson & Johnson’s talc bankruptcy have lawyers already asking for a recount.

At an Oct. 21 hearing, lawyers for thousands of talcum powder claimants clamored to crack open the confidential vote tabulation behind J&J’s $9 billion prepackaged bankruptcy plan. J&J’s lawyers insisted that 83% of talc claimants supported the plan, but Eric Goodman, of Brown Rudnick in Washington D.C., representing a group called the Coalition of Counsel for Justice for Talc Claimants, told U.S. Bankruptcy Judge Christopher Lopez, of the Southern District of Texas, to cast doubt on the result.

“Something really bad happened in this case,” Goodman said.

Those are “strong allegations,” Lopez replied.

“We’re going to get to a hearing where I hear everything,” he added. “We’re going to put it to the evidence.”

The judge said he would combine the voting issue with two motions to dismiss, filed by the coalition and the U.S. trustee in Houston, and J&J’s confirmation of the plan. He told lawyers he would schedule two weeks in late January or early February for a trial.

“I need to give everyone an answer on this stuff,” he said.

J&J announced its prepackaged bankruptcy plan on May 1, then solicited votes through July 26. Its subsidiary, Red River Talc, filed for Chapter 11 on Sept. 20 after more than 75% of about 93,500 talc claimants voted in favor of the plan.

However, in a flurry of motions, the coalition has accused J&J of conducting a “rigged election” that is “tantamount to vote purchasing” and has asked for access to the sealed voting tabulation. It filed motions for an estimation of the claims and a designation of the votes, given there are only 40,000 ovarian cancer lawsuits. The coalition argued there are noncompensable claims involving other gynecological cancers included in the vote.

“The debtors have in their possession a very detailed voting report,” the coalition’s lawyer, Goodman, said at the hearing. “That voting report is damning. It shows here, in our view, your honor, that the vote here is not going to hold up in any way, shape or form.”

Excluding noncompensable claims, he said, the vote falls below 50%.

But Jones Day’s Greg Gordon, a Dallas partner for Red River Talc, said he was “completely perplexed by the fundamental position of the committee, of the coalition, that all gynecological claims should be viewed as noncompensable.”

One of the coalition’s members, Beasley Allen, has 5,000 clients who, by its definition, have noncompensable claims, he said.

“Has Beasley Allen told its clients that their claims are worthless?” Gordon said. “I just don’t understand what’s going on here.”

The challenges over the vote are unusual, particularly in a prepackaged bankruptcy, said Samir Parikh, a professor at Wake Forest University School of Law.

“The bankruptcy court is trying to resolve this dispute quickly,” he said. “It’s setting up a very complicated question before the court: how are they going to address the possibility of nonmeritorious and noncompensable claimants voting on a plan?”

Filtering out certain claims is complicated, he said, and much depends on the science and causation.

Usually, he said, if there is a fight over nonmeritorious claims in mass tort bankruptcies, it is the corporate debtor that’s making those arguments.

“This is the opposite,” he said. “There’s a lot of claims out there. The vitriol is pretty high.”

‘A Wrongful and Fraudulent Vote’?

The coalition also filed a motion to reinstate the vote of 11,000 talc claimants who are clients of Beasley Allen. Its attorneys alleged manipulation of the vote after Beasley Allen’s “master ballot” opposing the plan was reversed. Instead, the Smith Law Firm, which is co-counsel with Beasley Allen, voted for the plan last month on behalf of those same 11,000 clients as part of a confidential memorandum of understanding with J&J that added $1.1 billion for claimants, plus $650 million in attorney fees.

“There are serious problems with J&J’s handling of the voting process that, when presented to the court, will show that J&J’s third bogus effort to use bankruptcy to cap its liability at the expense of cancer victims fails like its first two attempts,” Beasley Allen principal Andy Birchfield, in Montgomery, Alabama, said in a statement.

In court, Rachael Ringer, of New York-based Kramer Levin Naftalis & Frankel, who represents the Smith Law Firm, which is in Ridgeland, Mississippi, called the coalition’s accusations “at best, misleading.”

The coalition also has filed a motion asking Lopez to reconsider his order approving the appointment of Epiq Corporate Restructuring, which tabulated the votes.

“The fact that Epiq certified the results of a wrongful and fraudulent vote under these circumstances is a grave concern to those women who voted to reject the plan and should raise red flags and concerns to the court,” the coalition wrote.

Erik Haas, J&J’s worldwide head of litigation, said he remained confident about the voting process.

“At this point,” he said in a statement, “just six plaintiff law firms, who stand to benefit financially outside of bankruptcy, continue to oppose this plan. The six opposing law firms have never recovered a dime for their clients in the 11 years of this litigation and their clients would not share in the financial benefit they would derive outside of bankruptcy. Lastly, the opposing firms have presented no meaningful alternative to get their clients a better recovery on any sort of realistic timeline. The time has come to end this litigation.”

SCOTUS Bound?

The vote isn’t the only aspect of J&J’s talc bankruptcy that is challenged, either.

Earlier this month, Lopez ruled that the Chapter 11 case remain in Texas. Both the coalition and U.S. trustee had hoped to transfer the case to New Jersey, where Chief U.S. Bankruptcy Judge Michael Kaplan dismissed two prior talc bankruptcies last year filed by another J&J subsidiary, LTL Management. The U.S. Court of Appeals for the Third Circuit affirmed the second dismissal on July 25.

On Oct. 23, the coalition filed a motion to reconsider Lopez’s venue decision, citing an application this month before the U.S. Supreme Court to grant Red River, as successor to LTL Management, another 60 days to file its petition to reverse the Third Circuit’s decision in the second talc bankruptcy. Although Red River Talc’s attorneys argued that their client differed from LTL Management, the motion said, Red River “is acting in place of LTL in an effort to appeal the dismissal of LTL’s bankruptcy.”

Also, on Oct. 24, Lopez granted a temporary restraining order that halted ovarian cancer talc litigation against third parties, such as J&J, through Dec. 2 due to the bankruptcy’s automatic stay. But he exempted Kenvue Inc., a 2022 spinoff of J&J’s consumer health division named in some talc lawsuits.

The order impacted a motion J&J filed along with its bankruptcy to remove Beasley Allen from the plaintiffs steering committee in the talc multidistrict litigation in New Jersey. On Monday, U.S. District Judge Michael Shipp of the District of New Jersey lifted the deadlines for the motion, which accuses Beasley Allen of falsely certifying that it had the consent of its clients to vote on the bankruptcy plan.