LTL Mgmt. v. New Mexico, ex rel. Balderas (In re LTL Mgmt.)

Decision Date04 October 2022
Docket Number21-30589 (MBK),Adv. Pro. 22-01231 (MBK)
PartiesLTL Management, LLC, Debtor. v. State of New Mexico, ex rel. Hector H. Balderas, Attorney General; and State of Mississippi, ex rel. Jim Hood, Attorney General Defendants. LTL Management, LLC, Plaintiff,
CourtU.S. Bankruptcy Court — District of New Jersey
Hearing Date: September 14, 2022

Caption in Compliance with D.N.J. LBR 9004-2(c)

Chapter 11

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. 22-01231) and motion ("Motion") (ECF No. 2 in Adv. Pro. No. 22-01231)[1] filed by Plaintiff LTL Management, LLC ("LTL" or "Debtor") seeking an Order (I) Preliminarily Enjoining the Prosecution of the New Mexico and Mississippi State Actions and (II) Granting a Temporary Restraining Order Pending 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 September 14, 2022. The Court also takes judicial notice of prior rulings and documents filed in the underlying bankruptcy case (Case No. 21-30589) and the related adversary proceedings, including sworn statements and exhibits attached thereto, and prior testimony.[2] For the reasons set forth below, the Court grants Debtor's Motion and resolves the adversary proceeding in favor of Debtor without prejudice to revisiting the continuation of the preliminary injunction at a later date as discussed herein. The Court issues the following findings of fact and conclusions of law as required by FED. R. BANKR. P. 7052.[3]

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, 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. A thorough discussion of the history of J&J and its talc products can be found in this Court's February 25, 2022 Opinion Denying the Motions to Dismiss and the Court will limit its recitation of the factual background here. See In re LTL Mgmt., LLC, 637 B.R. 396 (Bankr. D.N.J. 2022). In relevant part, in 1979, J&J transferred all its assets associated with the Baby Products division to J&J Baby Products Company (the "1979 Agreement"). Thereafter, as the result of intercompany transactions, one of J&J's corporate subsidiaries, Johnson &Johnson Consumer Inc. ("Old JJCI") assumed responsibility for all claims alleging that J&J's talccontaining products caused ovarian cancer and mesothelioma. Kim Decl. ¶¶ 10-14, 15, 32, ECF No. 5 in Case No. 21-30589.

On October 12, 2021, Old JJCI engaged in a series of transactions pursuant to the Texas divisional merger statute, See Tex. Bus. Orgs. Code Ann. §§ 10.001 et seq. (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, the "Payee's Talc-Related Liabilities", as well as "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.

One week after the chapter 11 filing, Debtor initiated an adversary proceeding (the "Talc Adversary Proceeding"), seeking declaratory and injunctive relief against plaintiffs who had filed federal and state actions against Debtor's affiliates and other entities for talc-related claims (the "Talc Actions"). Complaint, ECF No. 1 in Adv. Pro. No. 21-03032. By way of the Talc Adversary Proceeding, the Debtor sought an order declaring that the automatic stay applies to those actions against nondebtors or, in the alternative, to enjoin such actions and grant a temporary restraining order pending a final hearing. Debtor simultaneously filed a 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 in Adv. Pro. No. 21-03032. Ultimately, the chapter 11 and related adversary proceeding case were transferred to the District of New Jersey, and Debtor supplemented its initial brief and amended and restated its arguments in support of the relief sought to reflect Third Circuit precedent. Several interested parties opposed the motion. Additionally, two separate parties filed motions to dismiss the underlying bankruptcy, alleging it had been filed in bad faith. See ECF Nos. 632 &766 in Case No. 21-30589. The Court heard arguments on the motion for preliminary injunction in the Talc Adversary Proceeding contemporaneously with arguments on pending motions to dismiss the bankruptcy during evidentiary hearings held on February 14-18, 2022. Shortly thereafter, on February 25, 2022, the Court denied the motions to dismiss in the underlying bankruptcy case and granted the motion for preliminary injunction in the Talc Adversary Proceeding. See In re LTL Mgmt., LLC, 637 B.R. 396 (Bankr. D.N.J. 2022) (denying motions to dismiss); In re LTL Management, LLC, 638 B.R. 291, 297 (Bankr. D.N.J. 2022) (granting preliminary injunction).

Debtor then commenced an adversary proceeding (the "Securities Adversary Proceeding") on March 7, 2022 against San Diego County Employees Retirement Association ("SDCERA"). Complaint, ECF No. 1, Case No. 22-01073. Simultaneously therewith, Debtor filed a motion requesting injunctive relief. Motion, ECF No. 2 in Adv. Pro. No. 22-010733. The Securities Adversary Proceeding and accompanying motion sought to enjoin the continued prosecution of a securities action (the "Securities Action") pending in the United States District Court for the District of New Jersey against certain non-debtor individuals and affiliates of the Debtor. See Hall v. Johnson &Johnson, No. 3:18-cv-01833 (D.N.J.). On April 29, 2022, this Court granted the motion for preliminary injunction in the Securities Adversary Proceeding and extended the automatic stay to nondebtor defendants in the Securities Action. See In re LTL Mgmt., LLC, No. 22-01073, 640 B.R. 322 (Bankr. D.N.J. 2022).

On July 14, 2022, Debtor commenced the instant adversary proceeding ("Consumer Protection Adversary Proceeding"), against the State of New Mexico, ex rel. Hector H. Balderas, Attorney General and State of Mississippi, ex rel., Jim Hood, Attorney General. Complaint, ECF No. 1. Simultaneously therewith, Debtor filed a motion (the "Motion") (ECF No. 2) requesting injunctive relief. The Consumer Protection Adversary Proceeding and Motion seek to enjoin temporarily the continued prosecution of certain state actions (the "State Actions").[4] The defendants in the Consumer Protection Adversary Proceeding are states (the "States") that filed claims in state court seeking, among other things, injunctive relief and civil penalties against various defendants, including J&J (the "Consumer Protection Defendants"). Debtor argues that the claims asserted in the State Actions are "inherently intertwined" with the claims being resolved in the bankruptcy proceeding (the "Talc Claims"). Accordingly, Debtor asserts that continuation of the State Action will impair its ability to resolve the Talc Claims in the chapter 11 bankruptcy case. Debtor also contends that continued litigation of the State Actions will jeopardize its ability to successfully reorganize.

The States oppose the Motion and assert that they are sovereign entities exercising their police and regulatory powers and, thus, should be permitted to proceed with the State Actions. See States' Opp'n, ECF No. 18. In addition to the States' Opposition, objections to the Motion were filed by the Ad Hoc Committee of States Holding Consumer Protection Claims (ECF No. 21), the TCC (ECF No. 22), and Maune Raichle Hartley French &Mudd, LLC (ECF No. 23).

III. Discussion

A. The State Actions

Prior to addressing the merits of the Motion, a brief discussion of the State Actions is warranted to provide context to the parties' arguments. The State of New Mexico filed its complaint against, among others, J&J and Old JJCI in 2020, alleging that Consumer Protection Defendants defrauded consumers and violated state statutes prohibiting...

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