A law firm heavily involved in the long-running Johnson and Johnson baby powder litigation has filed a sweeping lawsuit against its own litigation funders, alleging fraud, deception, and an improper attempt to seize control of lucrative mass-tort cases tied to the talc cancer claims.
The lawsuit, filed in federal court in Mississippi, was brought by Smith Law Firm, a plaintiffs firm that represents roughly 11,500 claimants alleging injuries from Johnson and Johnson’s talc-based baby powder products. The firm accuses several
major financial backers of engineering a scheme designed to push the firm into default and take over its valuable inventory of talc cases.
Allegations Against Litigation Funders
According to the complaint, Smith Law Firm entered into financing agreements with
multiple litigation finance entities to support the enormous costs associated with mass-tort litigation, including expert witnesses, discovery, and case administration. The defendants named in the suit include Ellington Financial, ICG Investments, and Stifel Financial Corp.
Smith alleges that the funders committed to providing up to $30 million in financing but later withheld access to a critical portion of that funding. The firm claims this decision was deliberate and strategically timed to force Smith into a technical default on earlier loans. Once the default was triggered, the funders allegedly sought to gain control over Smith’s litigation interests.
The lawsuit characterizes the strategy as a “loan-to-own” maneuver, a term commonly used in financial disputes where lenders allegedly attempt to acquire distressed assets by manipulating loan terms rather than enforcing them in good faith.
Claims of Fraud and Misrepresentation
Smith Law Firm contends that it relied on assurances from the funders that additional capital would be made available as promised. Based on those assurances, the firm says it took on further financial obligations, including a loan used to buy out another firm’s stake in a joint venture connected to the Johnson and Johnson talc litigation.
When the promised funds did not materialize, Smith claims it was left financially exposed and unable to meet certain obligations, creating leverage for the lenders to assert greater control over the cases. The firm argues that these actions amount to fraud, breach of contract, and intentional interference with its business operations.
In its filing, Smith seeks to have the financing agreements declared void and unenforceable, while also pursuing damages tied to the alleged misconduct. The firm maintains that the funders’ actions harmed not only its business but also its ability to effectively represent thousands of clients.
Impact on Talc Litigation Representation
The dispute highlights
growing tensions within the booming litigation finance industry, particularly in high-stakes mass-tort cases where portfolios can be worth hundreds of millions of dollars. Law firms increasingly rely on third-party funding to manage the costs and risks associated with
large-scale product liability lawsuits, but critics argue the practice can blur ethical and professional boundaries.
Smith’s lawsuit asserts that the alleged financial pressure limited the firm’s ability to take on new matters and strained its ongoing representation in the sprawling federal talc litigation, which includes more than 70,000 claims nationwide.
Broader Johnson and Johnson Talc Context
Johnson and Johnson has faced talc-related lawsuits for decades, with plaintiffs alleging that asbestos contamination in baby powder and other talc products caused ovarian cancer and mesothelioma. The company has consistently denied the claims, maintaining that its products are safe and asbestos-free.
Johnson and Johnson stopped selling talc-based baby powder in the United States in 2020 and later discontinued global sales. The company has also made multiple attempts to resolve its talc liabilities through bankruptcy proceedings involving a subsidiary, a controversial strategy commonly referred to as the “Texas two-step.” Courts have rejected those efforts, sending the cases back to the tort system.
Smith Law Firm itself has played a visible role in recent settlement efforts, including participation in a proposed bankruptcy deal that ultimately failed. That involvement has drawn scrutiny from other plaintiffs’ firms and sparked additional disputes over voting rights and client representation in the talc litigation.
Litigation Finance Under the Microscope
The lawsuit adds to mounting scrutiny of litigation funding arrangements, particularly as courts, regulators, and bar associations debate whether funders exert too much influence over legal strategy and settlement decisions. While supporters argue
litigation finance expands access to justice, critics warn that financial incentives may conflict with client interests.
The defendant funders have not publicly commented on the allegations. The case, filed in the U.S. District Court for the Southern District of Mississippi, is expected to test the limits of litigation finance agreements and could have broader implications for how
law firms structure funding relationships in mass-tort cases.
As the Johnson and Johnson baby powder litigation continues to evolve, the dispute underscores that the battle over talc claims is no longer confined to plaintiffs versus defendants but increasingly extends to the financial machinery behind modern mass-tort litigation.
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