J&J talc bankruptcy stays in Texas despite 'forum-shopping' opposition

By Dietrich Knauth

NEW YORK (Reuters) -A Johnson & Johnson subsidiary can pursue its third attempt to resolve tens of thousands of lawsuits alleging its talc products caused cancer in a federal bankruptcy court in Texas, a judge ruled on Thursday, allowing the company to avoid a venue that shot down its two previous efforts.

U.S. Bankruptcy Judge Christopher Lopez at a hearing in Houston rejected arguments raised by the U.S. Department of Justice's Office of the U.S. Trustee, its bankruptcy watchdog, and attorneys representing some of the women suing the company who are opposed to the settlement.

They had argued that the case should be sent to a U.S. bankruptcy court in New Jersey, which oversaw and dismissed two previous bankruptcies meant to resolve the same talc lawsuits. But Lopez said J&J's latest effort should be treated as a new case, in part because J&J gathered votes in advance from claimants who support the settlement.

"I think this bankruptcy case is different," Lopez said.

New Jersey-headquartered J&J faces lawsuits from more than 62,000 plaintiffs alleging its baby powder and other talc products were contaminated with asbestos and caused ovarian and other cancers.

The company has said its products do not contain asbestos and do not cause cancer. It says bankruptcy is the best way to equitably compensate plaintiffs, who otherwise would wait years for their cases to be heard in a "lottery-like" tort system that often results in no recovery for plaintiffs.

Erik Haas, J&J's worldwide vice president of litigation, said Lopez's ruling would aid the company's settlement efforts.

"Today’s decision is another step closer to full and final resolution of the talc litigation for the benefit of all stakeholders,” Haas said.

J&J subsidiary Red River Talc filed for bankruptcy protection in Houston in September, seeking to take advantage of bankruptcy courts' ability to enforce global settlements that permanently halt all related lawsuits and forbid new ones. It proposed a $9 billion settlement to resolve claims by women who allege that they developed gynecological cancers after using J&J talc products.

Outside of bankruptcy, any settlement J&J reached with some claimants would still leave holdouts or future plaintiffs with the right to sue - and leave the company exposed to potential multibillion-dollar verdicts.

Opponents of the deal have said that J&J cannot be allowed to simply pick a new bankruptcy court to get around previous rulings that its subsidiary was not eligible for bankruptcy protection. A federal appeals court has ruled that neither the talc subsidiary nor J&J were in the type of "financial distress" that bankruptcy was meant to resolve, and it reiterated that ruling after J&J and its talc company filed for bankruptcy a second time.

If companies can seek out new bankruptcy courts to escape a ruling they don't like, the entire bankruptcy system is undermined, said Linda Richenderfer, an attorney for the U.S. Trustee, at the hearing.

Law firms opposed to the settlement pointed out that J&J's forum shopping has now led to three bankruptcies filed in three courts since 2021.

"If that isn't abusive forum shopping, I don't know what is," attorney Sunni Beville told Lopez on Thursday.

Bankruptcy reform advocate Cliff White said Lopez's decision highlights the need for new rules to prevent bankruptcy forum shopping. White, a former head of the U.S. Trustee program, said, "There are no rules anymore," after Lopez's decision.

The proposed bankruptcy settlement has deeply divided attorneys representing cancer victims. Some support the deal as the best way to get compensation for their clients, while others argue that the settlement value is too low and that wealthy companies like J&J should not be allowed to use the legal system to gain bankruptcy protections meant for people and companies that cannot afford to pay their debts.

(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi, Leslie Adler and Bill Berkrot)