By Akiko Matsuda

Healthcare conglomerate Johnson & Johnson on Tuesday kicked off a bankruptcy-court trial on its third attempt to resolve one of the largest-ever mass tort lawsuits through a chapter 11 case.

Over the multiweek hearing, J&J will seek to overcome objections from several stakeholder groups to the proposed plan that offers roughly $10 billion over time -- or $8 billion in present-day dollars -- to tens of thousands of women who claimed the company's talc products contained asbestos and caused ovarian and other gynecological cancers.

J&J will also face challenges to the vote count for the settlement plan, which hinges on whether as a solvent company it can use chapter 11 to resolve its talc-related liabilities. The company has said the proposed plan is in the best interests of talc-related plaintiffs and that its talc products, including Baby Powder and Shower to Shower, are safe and never contained asbestos.

If Judge Christopher Lopez of the U.S. Bankruptcy Court in Houston approves J&J's plan, it would mark the first successful use of a controversial tactic known as a divisive merger to resolve mass tort cases through chapter 11.

In September of last year, J&J placed its Red River Talc affiliate in bankruptcy, and said its proposed settlement won support from more than 83% of roughly 93,500 injury claimants, more than the 75% required under bankruptcy law.

The proposed plan is a "good faith compromise and settlement of claims and controversies," J&J has said in court papers. A group of personal injury lawyers for dissenting claimants has disputed the vote count, asserting J&J disqualified a ballot from Alabama-based Beasley Allen law firm that included nearly 12,000 votes against the settlement.

The lawyers' group claimed J&J favored a competing ballot from its co-counsel with votes overwhelmingly supporting the plan. With "voting irregularities" corrected, the settlement won't meet the 75% threshold, the lawyers' group added.

J&J maintains Beasley Allen's ballot was disqualified because it lacked informed consent from the claimants. Allison Brown, a lawyer for the company, argued in court on Tuesday that lawyers led by Beasley Allen falsely certified ballots against the plan.

Andy Birchfield of Beasley Allen said his clients include ovarian cancer patients who want to see their day in court.

"We oppose this bankruptcy plan because it does not give fair treatment to the claimants," Birchfield said. "We look forward to presenting the evidence to you, and we ask at the end of the evidence that you dismiss this bankruptcy and not confirm this plan."

Lawyers representing J&J's insurance companies, including Travelers, have also objected to the plan, arguing it treats the insurers unfairly. They alleged the vote solicitation process for the plan was "fundamentally flawed" and want J&J to re-solicit votes because "reviewing and sanctioning or disallowing each of the pervasive irregularities" in the voting process would be a "significant waste of judicial economy."

The Justice Department's bankruptcy watchdog, the U.S. Trustee's Office, has also objected to the plan, and in a motion to dismiss said the chapter 11 case was "filed in bad faith by a shell entity that has no valid restructuring purpose or need for bankruptcy relief."

Erik Haas, J&J's worldwide vice president of litigation, said in a statement Friday that the proposed plan "affords claimants a far better recovery than they stand to recover at trial."

"We look forward to presenting the overwhelming support for the filed bankruptcy plan, and we are confident the plan satisfies all the requirements of the bankruptcy code," Haas said.

Since 2021, J&J has sought to bring finality to mounting talc-related lawsuits by creating subsidiaries to absorb liabilities and file for chapter 11 protection, a legal maneuver also known as a Texas Two Step. Texas allows a company to divide itself and hold assets in one business entity while another assumes legal or financial liabilities.

The first two attempts in the U.S. Bankruptcy Court in New Jersey failed after the Third Circuit Court of Appeals ruled in 2023 that J&J's subsidiary LTL Management wasn't in financial distress.

Write to Akiko Matsuda at akiko.matsuda@wsj.com

(END) Dow Jones Newswires

February 18, 2025 17:22 ET (22:22 GMT)

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