J&J’s Talc Litigation Saga Gets Attorney-Client Privilege Twist

Lawyers in the multibillion-dollar battle over Johnson & Johnson‘s allegedly cancer-causing baby powders are now fighting on a new front, seeking to reveal the strategies behind each side.

Some key plaintiffs’ lawyers argue that J&J illicitly transferred assets and abused the bankruptcy process in response to the massive talc litigation. They want a court to invoke the crime-fraud exception to attorney-client privilege and force J&J to turn over emails and other communications among some of its top in-house attorneys. That could allow a behind-the-scenes glimpse at the strategies that J&J has used to try to limit liability and resolve some 61,000 talc cases.

The lawsuit highlights some of the creative tactics being employed on both sides as J&J seeks approval of an $11 billion global settlement deal. The company is taking a third crack at the “Texas Two-Step,” a controversial move in which it takes a subsidiary loaded with the talc liability and has it file for bankruptcy. J&J also is looking to disqualify some of the lawyers leading the suits against it.

The latest salvos are a sign that the major players are pulling out all the stops to gain an edge in the eventual outcome, said a source familiar with the campaigns of the warring camps, who requested anonymity.

“What, in litigation, isn’t for settlement leverage?” said Bruce Markell, a former Nevada bankruptcy judge who is now a professor at Northwestern University’s Pritzker School of Law, when asked about the most recent machinations in a litigation free-for-all that’s now wound its way through various US appellate, bankruptcy, and district courts. “Especially if you’ve got a plausible point and want to apply pressure. Things are done for mixed motives all the time.”

Six plaintiffs firms are steering a putative class action filed last month in a New Jersey federal district court on behalf of clients claiming to have been adversely affected by asbestos-contaminated talc in former J&J baby powder products. The suit accuses the pharmaceutical and health care technology titan of abusing the US bankruptcy process with two unsuccessful Chapter 11 attempts by an affiliate it formed to resolve the sprawling litigation.

Co-lead plaintiffs’ class counsel—Beasley Allen and Ashcraft & Gerel—want a judge to scrap the attorney-client privilege, which would otherwise shield J&J from being required to turn over in-house legal communications. The same group has also sought a temporary restraining order barring J&J from proceeding with the global settlement, which could be implemented via a third restructuring, a pre-packaged bankruptcy filed in Texas by a subsidiary.

An eight-week window that began in early June will see talc plaintiffs vote on that proposal ahead of a July 26 deadline that needs 75% support for confirmation. Beasley Allen’s Andy Birchfield Jr. called J&J’s latest plan “flagrant forum shopping designed to deny justice to cancer victims through delay.”

J&J earlier this month finalized a separate $700 million talc settlement with 43 US states. The company was advised by lawyers at O’Melveny & Myers and Shook, Hardy & Bacon.

Piercing Privilege

The civil complaint filed last month by Birchfield’s group lists a handful of current and former J&J in-house lawyers as “material witness” to the “fraudulent” transfer of key corporate assets—and legal liability—through bankruptcy.

It focuses on the two failed insolvencies by LTL Management, a J&J affiliate, and the $4 billion spinoff last year of Kenvue Inc. The latter is a consumer health business once part of J&J that sells talc-free baby powder and owns other well-known brands such as Tylenol, Neutrogena, and Listerine.

Markell said plaintiffs could potentially convince a court that J&J’s talc bankruptcies were fraudulent attempts made with “actual intent” to avoid liability, triggering the exemption to attorney-client privilege.

“You’re trying to hinder, delay, and maybe defraud creditors,” said Markell, speculating about the rationale for J&J’s twin Texas Two-Steps. “It’s not a crazy application of the crime-fraud exception to go after those communications, but it does get complicated.”

Markell and a half-dozen other law school professors previously called for J&J’s first talc bankruptcy bid to be dismissed.

Stephen Lubben, a bankruptcy professor at Seton Hall Law School, said the new fraud suit is an “interesting effort” that shouldn’t be “dismissed out of hand.” Still, with some other plaintiffs’ counsel now openly announcing their support for a resolution of J&J’s talc cases, Beasley Allen and its co-counsel face a tall order in convincing a court to pierce attorney-client privilege.

Markell said most judges have a high bar for doing so, and even if successful, there will likely be restrictions in how such evidence could be used by plaintiffs. He doesn’t believe bankruptcy court is the best fit for resolving mass torts but acknowledged it provides a forum for imposing a settlement on all parties.

Cornell Law School professor W. Bradley Wendel, who specializes in torts and product liability, does see bankruptcy, including the Texas Two-Step process, as being one of three “well-established” mechanisms for handling mass torts, along with class actions and multidistrict litigation.

J&J’s effort to resolve its talc cases through a divisional merger—or allowing a solvent parent company to put some of its liabilities into a new entity that then files for bankruptcy—was a “fair and reasonable” strategy for its in-house and outside counsel to consider in the talc litigation, Wendel said.

University of Chicago Law School bankruptcy and business law professor Anthony Casey, who last year co-wrote a white paper about divisional mergers and mass torts, called it a “laughable” and “frivolous” argument by certain plaintiffs’ counsel to invoke the crime-fraud exception.

Dueling Narratives

J&J in a statement from its worldwide head of litigation Erik Haas accused Beasley Allen and others of doing their own forum shopping by using “abusive litigation tactics” designed to “obtain aberrant and extreme judgments.”

Haas joined J&J in 2020 from Patterson Belknap Webb & Tyler, a law firm that’s represented J&J in talc litigation. He said Birchfield’s group is among a “small minority” of plaintiffs’ firms looking to “enrich themselves” and “place their own economic interests above those of their clients” by delaying the New Brunswick, New Jersey-based company’s effort to reach a final talc litigation resolution.

Haas and J&J are also trying to disqualify Birchfield for allegedly crafting an alternative settlement plan with one of its ex-outside lawyers, James Conlan, a former bankruptcy partner at Faegre Drinker Biddle & Reath and Sidley Austin who is now CEO of a tort liability management consultancy.

J&J asked a federal judge last month to issue subpoenas for records from Beasley Allen detailing the firm’s communications with litigation financiers and media outlets. Beasley Allen and a steering committee for plaintiffs in the talc litigation have sought to quash those subpoenas, citing their concerns about access to work product records that they deem privileged. Haas claims the steering committee wants to avoid bankruptcy court because its members will receive less than they would from a settlement in the MDL.

“J&J, as a nearly $400 billion company, has no right to bankruptcy protection,” said Birchfield, a longtime J&J foil who has accused the company of smear tactics. “We will press on through all of J&J’s delay tactics and bullying. Our clients deserve our unrelenting effort—and they will continue to get just that.”

Birchfield said it is the duty of Alabama-based Beasley Allen to “employ every appropriate mechanism possible” to stop J&J from using bankruptcy to deprive his clients of their day in court and “coerce acceptance of unreasonable settlement values and terms.” He added that “even if J&J can manufacture a 75% result, we are confident it will not be sustained as a valid vote.”

Alabama is where one of the first major talc cases originated almost a decade ago. Bloomberg News examined the roots of J&J’s talc litigation in a short documentary last year. Haas, in a letter sent in response to that video, called it a “false and misleading portrayal” that presented a “one-sided and misleading perspective on these issues.” J&J has created its own websites detailing what it considers the facts about talc and to vote on its current settlement plan.

Haas and former J&J legal chiefs Russell Deyo and Michael Ullmann—the latter of whom retired two years ago—are among the in-house lawyers singled out by Beasley Allen and its co-counsel. Faegre partner Susan Sharko, a former head of the firm’s product liability and mass torts practice, entered an appearance last week for J&J, Kenvue, twice-bankrupt LTL and its proposed successor LLT Management, and other defendants in the suit seeking to breach privilege.

Faegre’s represented J&J on roughly 25% of its US federal court cases within the past five years, almost all of which relate to health care and product liability, per Bloomberg Law data. Faegre is also one of least 60 legal service providers on the payroll of J&J and its affiliates, according to bankruptcy documents.

In the most recent court filing Sunday, plaintiffs demanded access to five high-ranking J&J executives and in-house lawyers’ depositions, including Haas and Deyo, taken in the two prior Chapter 11 cases filed in New Jersey.

The case is Love v. LLT Management LLC, No. 24-06320, D.N.J.