LTL Mgmt., LLC v. Those Parties Listed on Appendix a to Complaint (In re LTL Mgmt., LLC)

• Citation: 638 B.R. 291
• Decision Date: 25 February 2022
• Docket Number: Case No. 21-30589 (MBK),Adv. Pro. No. 21-03032 (MBK)
• Parties: LTL MANAGEMENT, LLC, Debtor. LTL Management, LLC, Plaintiff, v. Those Parties Listed on Apppendix a to Complaint and John and Jane Does 1-1000, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

638 B.R. 291

LTL MANAGEMENT, LLC, Debtor.

LTL Management, LLC, Plaintiff,

v.Those Parties Listed on Apppendix a to Complaint and John and Jane Does 1-1000, Defendants.

Case No. 21-30589 (MBK)

Adv. Pro. No. 21-03032 (MBK)

United States Bankruptcy Court, D. New Jersey.

Hearing Date: February 18, 2022

Signed February 25, 2022

Arthur Abramowitz, Sherman Silverstein, Moorestown, NJ, Thomas B. Bennett, Brian Glasser, Bailey & Glasser, LLP, Washington, DC, David J. Molton, Brown Rudnick LLP, New York, NY, Ross J. Switkes, Sherman, Silverstein, Kohl, Rose & Podolsky, P.A., Moorestown, NJ, for Creditor Committee.

Brad Jeffrey Axelrod, Paul R. DeFilippo, James N. Lawlor, Joseph Francis Pacelli, Lyndon Mitchell Tretter, Wollmuth Maher & Deutsch LLP, New York, NY, Brad B. Erens, Chicago, IL, Gregory M. Gordon, Daniel B. Prieto, Amanda Rush, Jones Day, Dallas, TX, John R. Miller, Jr., C. Richard Rayburn, Jr., Matthew L. Tomsic, Rayburn Cooper & Durham, P.A., Charlotte, NC, for Plaintiff.

MEMORANDUM OPINION

Michael B. Kaplan, Chief Judge This matter comes before the Court by way Debtor's bankruptcy case (Case No. 21-30589) and subsequent adversary proceeding (Adv. Pro. No. 21-03032) and motion ("Motion") (ECF No. 2 in Adv. Pro. No. 21-03032)¹ filed by Plaintiff LTL Management, LLC ("LTL" or "Debtor") seeking an Order (I) Declaring That the Automatic Stay Applies to Certain Actions Against Non-Debtors or (II) Preliminarily Enjoining Such Actions and (III) Granting a Temporary Restraining Order Pending a Final Hearing. The Motion was initially filed in the Western District of North Carolina. Debtor filed a Supplemental Brief (ECF No. 128) to incorporate applicable Third Circuit law. The matter was fully briefed and scheduled for a Final Hearing. The Court has fully considered the submissions of the parties and the arguments set forth on the record at a hearing held on February 18, 2022. For the reasons set forth below, the Court grants Debtor's Motion and resolves the adversary proceeding in favor of Debtor. The Court issues the following findings of fact and conclusions of law as required by FED. R. BANKR. P. 7052.² Contemporaneously with filing this Memorandum Opinion, the Court is filing a separate Opinion Denying the Motions to Dismiss with respect to the pending motions to dismiss this chapter 11 proceeding. These matters have been tried collectively at evidentiary hearings held on February 14-18, 2022. The Court also adopts and incorporates herein the factual findings and conclusions of law set forth in the separate Memorandum Opinion dated February 25, 2022.

I. Venue and Jurisdiction

The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended September 18, 2012, referring all Bankruptcy cases to the Bankruptcy Court. As explained in detail below, this matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) and (G). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

II. Background

On October 14, 2021, LTL filed a voluntary petition for chapter 11 relief in the United States Bankruptcy Court for the Western District of North Carolina (the "North Carolina bankruptcy court"). Petition , ECF No. 1 in Case No. 21-30589. LTL is an indirect subsidiary of Johnson & Johnson ("J&J") and traces its roots back to Johnson & Johnson Baby Products, Company ("J&J Baby Products"), a New Jersey company incorporated in 1970 as a wholly owned subsidiary of J&J. Declaration of John K. Kim in Support of First Day Pleadings ("Kim Decl. ") ¶¶ 9-10, ECF No. 5 in Case No. 21-30589. J&J, a New Jersey company incorporated in 1887, first began selling JOHNSON'S® Baby Powder in 1894, launching its baby care line of products. Id. at ¶¶ 10-14. In 1972, J&J established a formal operating division for its baby products business, which included JOHNSON'S® Baby Powder. Id. In 1979, J&J transferred all its assets associated with the Baby Products division to J&J Baby Products. Id. In connection with this transfer, J&J Baby Products assumed all liabilities associated with the Baby Products division. Supplemental Declaration of John K. Kim in Support of Debtor's Complaint for Declaratory and Injunctive Relief and Related Motions ("Kim Supp. Decl. ") ¶ 5, ECF No. 3. Over the next few decades, nearly all assets³ of the Baby Products division were transferred in a series of transactions and mergers, ultimately resting with one of J&J's corporate subsidiaries, Johnson & Johnson Consumer Inc. ("Old JJCI") in 2015. Kim Decl. ¶ 10-14, ECF No. 5 in Case No. 21-30589. Following these intercompany transactions, Old JJCI assumed responsibility for all claims alleging that J&J's talc-containing baby powder caused ovarian cancer

and mesothelioma. Id . at ¶¶ 15, 32. Similarly, through a series of transfers and indemnification agreements, Old JJCI assumed responsibility for all claims alleging that another J&J product, "Shower to Shower" caused cancer or other diseases. Debtor's Supplemental Memorandum in Support of Preliminary Injunction Motion ("Debtor's Supp. Mem. ") 12-14, ECF No. 128. Old JJCI also agreed to indemnify various retailers ("Retailers") who sold Old JJCI's talc-containing products for claims related to the sale of such products. Kim Supp. Decl. ¶ ¶ 8-12, ECF No. 3.

On October 12, 2021, Old JJCI engaged in a series of transactions (the "2021 Corporate Restructuring") through which it ceased to exist and two new companies, LTL and Johnson & Johnson Consumer Inc. ("New JJCI"), were formed. Kim Decl. ¶ 16, 22-23, ECF No. 5 in Case No. 21-30589. The alleged purpose of this restructuring was to "globally resolve talc-related claims through a chapter 11 reorganization without subjecting the entire Old JJCI enterprise to a bankruptcy proceeding." Id. at ¶ 21. As a result of the restructuring, LTL assumed responsibility for all of Old JJCI's talc-related liabilities. Id. at ¶¶ 16, 24. Through the restructuring, LTL also received Old JJCI's rights under a funding agreement (the "Funding Agreement"). Id. at ¶ 24. Under the Funding Agreement, J&J and New JJCI are obligated to pay, inter alia , "any and all costs and expenses" LTL incurs during its bankruptcy case, "including the costs of administering the Bankruptcy Case" to the extent necessary. Funding Agreement 6, Annex 2 to Declaration of John K. Kim in Support of First Day Pleadings , ECF No. 5 in Case No. 21-30589.

Shortly after filing for bankruptcy on October 14, 2021 in the Western District of North Carolina, Debtor initiated the instant adversary proceeding, seeking declaratory and injunctive relief. Specifically, the Complaint requests an order declaring that the automatic stay applies to certain actions against nondebtors (the "Protected Parties") or, in the alternative, asks the Court to enjoin such actions and grant a temporary restraining order pending a final hearing. Complaint , ECF No. 1. Debtor simultaneously filed the instant Motion requesting a preliminary injunction enjoining the prosecution of actions outside of the chapter 11 case on account of the same talc claims that exist against the Debtor in the chapter 11 case. Motion , ECF No. 2. The North Carolina bankruptcy court held a two-day evidentiary hearing on November 4 and 5, 2021. On November 10, 2021, Judge Whitley issued oral findings of fact and conclusions of law and granted the motion on a preliminary basis. North Carolina Bankruptcy Court's Order Granting Motion for Preliminary Injunction , ECF No. 102. As the result of Judge Whitley's Order, the defendants were "prohibited and enjoined, pursuant to sections 105 and 362 of the Bankruptcy Code, from commencing or continuing to prosecute any [talc-related claims] against any of the Protected Parties" for a period of 60 days. Id. at 7-8. Judge Whitley made clear that his Order was without prejudice and was "not intended to bind a subsequent Presiding Court." Id. at 7. He then transferred the bankruptcy case to the Bankruptcy Court for the District of New Jersey, and, on November 17, 2021, this Court assumed exclusive jurisdiction of the adversary proceeding and the underlying bankruptcy case.⁴

Following the transfer of the case to the District of New Jersey, Debtor supplemented its initial brief and amended and restated its arguments in support of the relief sought to reflect Third Circuit precedent. At its core, Debtor's argument remains the same and is two-fold. First, Debtor cites to 11 U.S.C. § 362 and contends that the automatic stay prohibits prosecution of talc claims against the Protected Parties. Second, Debtor asserts that the Court should exercise its authority under 11 U.S.C. § 105(a) to enjoin the continuation or commencement of the talc claims against the Protected Parties.

Several interested parties oppose the Motion, including: the Official Committee of Talc Claimants⁵ (ECF No. 142), certain plaintiff-insurers (the "Objecting Insurers") (ECF No. 141), and attorneys for Alystock, Witkin, Kreis & Overholtz, PLLC ("AWKO") (ECF No. 143). The Debtor submitted an omnibus reply (ECF No. 146).⁶

In opposition to the Motion, the Original TCC contends that an extension of the stay under § 362(a) is not warranted. Moreover, the TCC asserts that this Court lacks subject matter jurisdiction to enjoin actions between nondebtors under § 105(a). AWKO likewise opposes the Motion and raises similar arguments. AWKO asserts that J&J must file its own bankruptcy petition to enjoy the benefits and protections of the Bankruptcy Code's automatic stay and argues that equitable relief under § 105(a) is not warranted. Finally, the Objecting Insurers object to the Motion only to the extent it seeks to enjoin pending litigation in the Superior Court of New Jersey (the "New Jersey Coverage Action").

III. Discussion

A. The Automatic Stay

Section 362(a) of the Bankruptcy Code provides, in relevant part, that

a petition filed under section 301, 302, or 303

...