Smith Law Firm Sues Funders in Talc Cases

The Smith Law Firm, a Mississippi-based plaintiffs firm representing approximately 11,500 people with talc-related cancer claims against Johnson and Johnson, has sued three of its litigation funders in federal court, alleging they engineered a scheme to seize control of the firm’s case inventory.

The amended complaint, filed February 11, 2026, in the US District Court for the Southern District of Mississippi, names Ellington Financial, ICG Investments, and Stifel Financial Corp. as defendants.

What the Complaint Alleges

Smith Law Firm claims the three financial institutions committed to a multi-tranche loan totaling tens of millions of dollars to fund the firm’s talc litigation operations. The arrangement included a second tranche of approximately $30 million.

According to the complaint, the funders withheld access to that second tranche after J&J’s repeated bankruptcy filings delayed case resolutions for years. Without those funds, Smith Law could not meet the required cash interest payments on its existing loan and was placed in default.

The firm’s attorneys at Carner and Rosemon characterized the alleged strategy in the filing: “The Defendants have executed what is commonly referred to as a ‘loan-to-own’ scheme.”

The complaint further alleges that “from the outset the Defendants conspired to defraud SLF knowing that this fraud would most likely result in SLF defaulting on its SLF1 loan interest payments and quarterly talc expenses which would allow the Defendants to pirate the SLF case fees.”

The CLO Allegation

One of the more unusual claims in the complaint involves the structure of the loan itself. Smith Law alleges the funders included the $30 million second tranche solely to inflate the overall loan size so it could be placed into a collateralized loan obligation, a structured financial product that bundles loans and sells them to investors.

If true, this would connect the litigation finance industry to the same Wall Street securitization mechanisms used in other debt markets. The allegation has drawn attention in legal industry coverage.

How J&J’s Bankruptcy Strategy Created the Pressure

The financial squeeze described in the complaint did not happen in a vacuum. Johnson and Johnson filed for bankruptcy three times using a strategy known as the “Texas Two-Step,” in which the company created a subsidiary to absorb its talc liabilities and placed that subsidiary in bankruptcy.

All three attempts were rejected by courts. The most recent rejection came on April 1, 2025, and J&J confirmed it would not appeal. But the years of delay had real consequences for firms carrying litigation funding debt, since interest continued to accrue while cases sat frozen.

Smith Law alleges it felt comfortable buying out its former partner Porter Malouf’s interest in the joint venture, using a loan from ICG, because it believed the $30 million second tranche would be available. When that funding did not materialize, the firm was left financially exposed.

Background on the Firm and the Litigation

R. Allen Smith Jr. founded the Smith Law Firm in Ridgeland, Mississippi, in 2007. He filed the first talcum powder and ovarian cancer case against J&J and tried the first such case to verdict in South Dakota federal court in 2013. The firm has led 10 talc and ovarian cancer cases against J&J, securing verdicts totaling nearly $1 billion, including a landmark $72 million verdict for plaintiff Jackie Fox.

The firm’s talc cases stem from a joint venture formed in 2013 with Beasley Allen and Porter Malouf. Under the original agreement, Beasley Allen handled 50% of the work and expenses, plus all client contact. The venture eventually encompassed more than 11,000 claims.

Smith Law and Beasley Allen are separately embroiled in their own dispute. Beasley Allen has sued Smith and Porter Malouf over the J&J settlement vote, alleging that Smith pushed clients to support a controversial settlement plan because of financial pressure from its funders. Smith has countersued Beasley Allen for defamation.

Litigation Funding Under Scrutiny

Third-party litigation funding has grown into an estimated $15.2 billion industry, with projections reaching $31 billion by 2028. In mass tort cases, funding arrangements regularly exceed $50 million per matter.

The Smith Law Firm complaint adds to growing scrutiny of these arrangements. Since 2021, New Jersey’s federal courts, where the J&J talc multidistrict litigation is based, have required parties to disclose sources of third-party litigation funding, including the funder’s identity and financial interest.

An October 2025 report from the US Chamber of Commerce Institute for Legal Reform found that third-party litigation funding “operates largely in secret,” with funders investing in high-dollar litigation without appearing on court dockets or being subject to meaningful oversight.

None of the three defendants have publicly responded to the complaint.