Houston Republic

The U.S. Bankruptcy Court for the Southern District of Texas in Houston will be the stage for a pivotal hearing on Jan. 27, as Johnson & Johnson’s controversial $9 billion bankruptcy plan faces intense scrutiny. 

The case, which has already seen two failed bankruptcy attempts, is set for the court to determine whether the settlement, designed to resolve around 40,000 claims, can proceed.

The hearing will center on whether the company can use bankruptcy proceedings to resolve the claims alleging that its talcum powder products caused ovarian cancer. 

Despite objections that the case should be heard in New Jersey, J&J filed the plan in Houston, where U.S. Bankruptcy Judge Christopher Lopez will decide whether to approve the creation of a special-purpose entity, Red River Talc, to handle the claims.

The bankruptcy strategy, which involves channeling the claims through a separate legal entity, has already been rejected twice by courts in New Jersey and the Third Circuit Court of Appeals, but it remains a key component of J&J’s effort to settle the class of claims. 

Critics have labeled the move a “Texas Two-Step.” 

A major source of contention is the $1.5 billion added to the plan by J&J, including a $650 million fund earmarked for plaintiff lawyers' fees. 

The dispute has sparked a fierce battle among plaintiffs' lawyers, with the Smith Law Firm, which is based in Houston, claiming the majority of ovarian cancer claimants support the plan.

The Smith Law Firm argues that bankruptcy offers a faster, fairer process for compensating women whose cancer they allege was caused by asbestos-tainted talc. 

However, fellow plaintiffs’ firm Beasley Allen and the U.S. Trustee’s office overseeing the case, dispute the legitimacy of the vote count, accusing the Smith Law Firm of "stuffing the ballot box" with questionable claims, many allegedly influenced by financial backers.

Experts, such as Samir Parikh, a professor at Wake Forest University who has called hedge fund involvement "opaque capital," have warned that the influx of hedge-fund money into mass tort cases, where large numbers of claims are aggregated to pressure defendants into settlements, could undermine the integrity of the legal process. 

Hedge fund involvement has become a central issue in the case, with J&J arguing that the funds are driving plaintiffs' lawyers to prioritize repayment over the best interests of their clients. 

“Litigation funding has permeated the talc litigation,” J&J said in regard to Beasley Allen in a recent court filing. 

J&J warned that the firm’s actions may be influenced by outside financial backing. 

“Beasley Allen’s conduct suggests that other undisclosed financial interests are actually driving its decisions relating to the resolution of the talc litigation,” J&J said in the court filing. 

Meanwhile, Beasley Allen has denied the allegations that it has borrowed $240 million from hedge funds to fund the litigation.  

Hedge funds, including Fortress Investment Group and Elliott Associates, have also allegedly lent millions of dollars to the Smith Law Firm. 

The latest action in the case was on Nov. 12 when Randi Ellis was named the future claims representative for Red River Talc, the J&J subsidiary handling talc-related lawsuits, in its Chapter 11 case. 

Ellis, a seasoned dispute resolution attorney, is tasked with overseeing future claims from women alleging cancer due to talc exposure, as part of the controversial settlement plan.

Despite objections from the U.S. Trustee and insurers over potential conflicts of interest due to Ellis’s involvement in past J&J cases, Judge Lopez ruled that Ellis could operate independently, clearing the way for her continued role. 

Judge Lopez has otherwise been in the news recently for his oversight of the bankruptcy proceedings of Alex Jones’ Austin-based website media platform InfoWars after he halted an auction of the media property to satirical website The Onion.