J&J’s Failed Talc Bankruptcy Puts Some Mass Tort Firms in Bind

Johnson & Johnson’s failure to resolve mass tort talc litigation through the US bankruptcy system wasn’t just a setback for the health-care giant, but also a costly blow for plaintiffs’ lawyers who got behind the effort.

The pharmaceutical giant’s return to civil courts to face roughly 60,000 lawsuits alleging its baby powder and other consumer talc products were tainted with cancer-causing asbestos has disrupted the calculated plans by some firms to settle thousands of claims in one fell swoop in bankruptcy.

After devoting time and resources into pushing a $9 billion Chapter 11 settlement with large contingency fee returns, these attorneys now have until mid-June to file about 30,000 suits in civil court before statutory time limits. Bringing that many cases will cost several million dollars in filing fees alone—without any guarantee of a return on investment.

“It looked like a good bet going in,” said attorney Brian Glasser of Bailey & Glasser LLP, who represented plaintiff firms that opposed the bankruptcy proceedings. “But I think there’s essentially no possibility there will be 90,000 lawsuits.”

The March 31 dismissal of J&J’s third talc unit bankruptcy closed the door on the company’s multiyear campaign to cabin off and settle tens of thousands of personal injury suits. It also exposed part of the role that financing plays in mass tort talc litigation, and it has put some firms like Watts Law Firm LLP in a tough spot.

“I think it’s a missed opportunity,” said attorney Mikal Watts, a mass tort fixture whose firm spent $68 million growing its J&J talc claimant count above 17,000. “We thought it was worth a try.”

Bankruptcy Bet

J&J engineered its first talc subsidiary bankruptcy in 2021, as personal injury lawsuits against the company swelled following a more than $2 billion court victory for a group of ovarian cancer plaintiffs. J&J used a legal strategy known as the Texas Two-Step to place a talc liability-holding subsidiary into bankruptcy and negotiate a mass settlement.

After its first two bankruptcy efforts collapsed under court scrutiny, J&J retooled its approach by inking agreements with a growing network of plaintiffs’ firms. In a final run at the Two-Step strategy last year, newly created subsidiary Red River Talc LLC filed for bankruptcy in Houston proclaiming more than 80% of claimants were backing a Chapter 11 plan.

But that attempt failed too. A bankruptcy court trial that exposed deficient claim voting protocols also brought to light the extent to which some attorneys viewed J&J’s bankruptcy gambit as an opportunity to score big for themselves and clients without proving difficult cases.

“One in our business acquires clients when you think it makes economic sense to do so, so that you can get a return on what is a very large investment,” Watts testified in February. “So I did that thinking I would make money settling talc cases.”

Attorney Anne Andrews of Andrews & Thornton similarly acknowledged that her firm began acquiring talcum powder claimants in 2022, after the bankruptcy process began. Andrews & Thornton’s retainer agreements with more than 10,000 J&J talc exposure clients indicated the firm might only represent them in a bankruptcy setting.

“Verdicts are challenging, period,” she said at trial. “And talc claims are very challenging.”

Watts, Andrews, and others who supported the Chapter 11 plan now have 30,000 potential lawsuits to file in the coming weeks. But few familiar with the litigation expect the current case load to surge that much, especially considering the upfront expenditures.

Medical records and filing fees can exceed $1,000 for each suit, and that’s before “significant labor costs,” Glasser said.

Andrews told Bloomberg Law that her firm is representing claimants beyond the bankruptcy and is getting cases ready for clients looking to sue. She couldn’t specify how many of the 10,000 bankruptcy claimants she represents will be filing suit before the deadline but said it’s a large number.

Watts said his firm is also preparing to file thousands of cases in federal and state courts.

Delayed Returns

J&J talc litigation is one of the largest in the mass tort space, but its bankruptcy attempts have delayed a settlement. Many lawyers and their financial backers didn’t anticipate nearly a decade of case work.

“On the financing side, this is a nightmare,” said Steve Nober, president and CEO of Consumer Attorney Marketing Group, a mass tort marketing firm that also works with litigation funders.

Although litigation funders have traditionally stuck to financing commercial cases, many have recently plowed money into mass torts, where deals are structured differently. Instead of financing one or a handful of cases, the funding is structured like a loan typically using the law firm’s entire docket as collateral.

Before the Red River bankruptcy, plaintiffs’ firm Beasley Allen accused joint venture partner Smith Law Firm of pushing clients to support the Chapter 11 settlement because of pressure to pay off a large debt—"perhaps as high as $240 million"—to its litigation funder.

“I am sitting in the middle often where I know law firms are not in good shape and would be interested in a secondary funder to take the cases,” Nober said.

Cesar Bello, a partner at Corbin Capital Partners who leads the firm’s litigation finance effort, said his company didn’t have much exposure to the talc litigation until recently, when it took on a law firm with a big talcum powder inventory.

He said the deal involved participating in a piece of a refinance of the law firm, which he declined to name due to confidentiality, with another funder. The law firm is involved with leadership in talc cases and its current loan and cash on hand can cover costs associated with filing bankruptcy claims as lawsuits.

“If not, you probably made a bet on a bad horse,” he said.