By Dietrich Knauth
NEW YORK (Reuters) -Johnson & Johnson has cleared 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 caused cancer, according to a Bloomberg report.
More than 75% of claimants voted in favor of the proposal, according to Bloomberg, a hurdle J&J (NYSE:JNJ) set for a third attempt at placing a subsidiary in bankruptcy protection to resolve the litigation.
Reuters has not independently verified the report, for which Bloomberg cited sources familiar with the negotiations. Sources who spoke with Reuters said the votes are still being tallied.
J&J spokesperson Clare Boyle said the company could not comment as the vote tally was not final. The company has previously expressed confidence that its settlement proposal would ultimately win enough support from plaintiffs to proceed.
J&J faces lawsuits from about 61,000 claimants who alleged 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 that its products are safe.
The company set the 75% vote percentage, matching a provision in U.S. bankruptcy law, as the benchmark to proceed with another bankruptcy bid, which now is expected in the near future. The deadline for casting votes was July 26.
After being rebuffed twice by federal courts, the healthcare giant is attempting again to end the litigation in a so-called “Texas two-step” bankruptcy.
The "two-step" maneuver involves offloading its talc liability onto a newly created subsidiary, which then declares Chapter 11. The goal is to use the proceeding to force all plaintiffs into one settlement – without requiring J&J itself to file bankruptcy.
But the company needs the votes of 75% of claimants before the subsidiary can ask a bankruptcy judge to impose the deal on all of them.
Bankruptcy judges can enforce global settlements that permanently halt all related lawsuits and forbid new ones. Outside of bankruptcy, any settlement J&J reached with some clients would still leave holdouts or future plaintiffs with the right to sue – and leave the company exposed to potential multibillion-dollar verdicts that encouraged it to use a two-step in the first place.
The company has been engaged in a bitter fight with lawyers opposing its third attempt to settle the litigation through this maneuver.
Andy Birchfield, who represents plaintiffs opposed to the settlement, called J&J's voting process a "fake bankruptcy election" that would not stand up in court.
"No matter what tally is announced, I expect it will be challenged and eventually rejected so that juries can decide what to do about J&J’s egregious conduct," Birchfield said.
J&J's third attempt at a bankruptcy settlement differs from its previous efforts in part because it focuses only on ovarian and other gynecological cancer claims, building on J&J's previous settlements with state attorneys general and people who had sued after developing mesothelioma, a rare form of cancer linked to asbestos exposure.
J&J's bankruptcy strategy still faces legal hurdles. The Supreme Court recently ruled in Purdue Pharma's bankruptcy to narrow 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 sued.
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 that have not filed for bankruptcy. J&J has said it qualifies for those protections because the lawsuits generally allege that the talc used in its products was mined from underground mineral deposits that also contained asbestos.
Some legal experts have said that 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' attorneys who argue that its new settlement should fail for the same reason as its first two. Courts rejected J&J's first two talc 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 the ability of companies to shield themselves from lawsuits by putting a shell company into bankruptcy.