New Mexico and Mississippi must pause from proceeding with their asbestos-related consumer protection lawsuits against Johnson & Johnson because allowing them to continue while other creditors are on hold is unfair, a New Jersey bankruptcy court judge ruled.
Judge Michael Kaplan’s Tuesday ruling means Johnson & Johnson notches another procedural win as the healthcare giant uses a controversial bankruptcy of a subsidiary to limit its liability stemming from creditors’ claims over allegedly tainted baby powder products.
Attorneys general from Mexico and Mississippi have filed state court cases that allege J&J and its bankrupt unit, LTL Management LLC, violated state laws by knowingly selling baby powder and other products that contained asbestos and other carcinogens without warning labels.
Allowing the states to move forward “seems patently unfair” while “those who allege more direct, personal harm—must wait,” Kaplan said, granting LTL’s motion to stop the state lawsuits.
“Given the circumstances of the instant case, fairness demands that—for the time being—the States experience a similar impact from injunctive relief as other creditors,” Kaplan said.
Kaplan said he plans to revisit in December the issue of continued automatic stay of litigation in LTL’s bankruptcy case.
J&J created LTL last year and placed it into bankruptcy after more than 38,000 lawsuits were filed by consumers who say they developed ovarian cancer or mesothelioma after using the talc products in questions.
J&J has maintained that its baby powder is safe and doesn’t contain asbestos or cause cancer. Its goal for the bankruptcy is to resolve the company’s talc litigation claims, the company said.
The Mississippi and New Mexico cases were paused when LTL filed bankruptcy last year. The states sought to continue their cases against J&J since the company hasn’t itself declared bankruptcy.
LTL argued that the states’ claims are “inherently intertwined” with the talc claims in the bankruptcy court. Allowing the states’ litigation to proceed would hurt the company’s ability to resolve the talc claims and hinder its reorganization prospects, LTL argued.
The states argued that their cases should proceed because they’re sovereign entities exercising “police and regulatory powers.”
States seeking to deter misrepresentative marketing is important, the judge said. But “those considerations are not paramount to the interests of the public in addressing the needs of the talc claimants at this juncture,” he said.
The state litigation also could disrupt J&J’s agreement to fund LTL’s bankruptcy and a potential larger resolution with claimants, he said.
Kaplan’s ruling is “ripe for immediate appellate review,” said attorney Clay Thompson, whose firm Maune Raichle Hartley French & Mudd LLC represents mesothelioma victims.
“It’s another example of this bankruptcy court exercising power it does not have, and all to protect a $450 billion company that has not actually filed for bankruptcy,” Thompson wrote in an email.
The states’ actions are meant to “prevent disease by warning the public about asbestos contaminated baby powder they already have in their homes,” he wrote.
The case is In re LTL Mgmt. LLC, Bankr. D.N.J., No. 21-30589, opinion issued 10/4/22.