United States Bankruptcy Court for the District of New Jersey, October 4, 2022
The Asbestos Case Tracker has followed every step in Johnson & Johnson’s bankruptcy case. Recently, Plaintiff LTL Management (“Debtor”) moved to enjoin certain “State Actions” by New Mexico and Mississippi on a preliminary basis, as well as sought a temporary restraining order pending a final hearing. These State Actions include a complaint filed by the State of New Mexico against several defendants including J&J which the court refers to as the “Consumer Protection Defendants.” In 2020, the State of New Mexico alleged that “the Consumer Protection Defendants were aware that the products contained asbestos, fibrous talc, and other carcinogens but refused to place warnings on their Talc Products in violation of state law.” In 2014, the State of Mississippi alleged that the Consumer Protection Defendants “failed to inform the Public of the known catastrophic health consequences associated with the use of [their] Talc Products and purposely procured and disseminated false, misleading, and deceptive information regarding the safety of the Talc Products to the public.”
As pertinent to this motion, Debtor began a “Consumer Protection Adversary Proceeding” with a motion for injunctive relief against the attorney generals of New Mexico and Mississippi to temporarily enjoin prosecution of state actions seeking injunctive relief and civil penalties against the Consumer Protection Defendants in July 2022. Debtor advanced several arguments in support of its requested relief, as the State Actions are “inherently intertwined” with the bankruptcy proceeding claims. Further, litigating these State Actions would “jeopardize its ability to successfully reorganize.” In opposition, the States contended that the State Actions should go forward as they are using their “police and regulatory powers” as sovereign entities. Ultimately, Judge Michael Kaplan granted the motion without prejudice.
Judge Kaplan reiterated his determination that the Court has authority to stay litigation against nondebtor third parties. First, the Court determined that it had subject matter jurisdiction over this “core” proceeding under Section 362(a). Further, the Court found that it also has subject matter jurisdiction to issue injunctive relief under Section 105(a) as “continued prosecution of the claims asserted in the State Actions could conceivably impact the administration of the bankruptcy case.” Notably, the State Actions could affect estate property as they “may impact available coverage under Debtor’s insurance policies.” In addition, “related to” jurisdiction exits as “Debtor is obligated to indemnify other named Consumer Protection Defendants in the State Actions.” Further, “continued litigation in the State Actions would certainly impact valuation and negotiation of the state-consumer claims in the bankruptcy proceeding.”
The Court next evaluated the appropriateness of the stay to nondebtors under Section 362(a). As to Section 362(a)(1), the Debtor is a true defendant of the State Actions as “Debtor is responsible for any and all liabilities associated with the talc products.” Under Section 362(a)(3), “the Consumer Protection Defendants and Debtor share insurance policies, which policies may be impacted by any judgment obtained by the States against the Consumer Protection Defendants.” Moreover, “unusual circumstances” exist here for the same reasons the Court found that it has “related to” jurisdiction. In addition, previous decisions in the Talc Actions extended the stay to nondebtor defendants. Finally, the Court found that “a preliminary injunction under Section 105(a) extending the stay is appropriate.”
Read the full decision here
