J&J Wins Stay of States Asbestos Lawsuits in Bankruptcy Court

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New Mexico and Mississippi must stay their asbestos-related consumer protection lawsuits against Johnson & Johnson because allowing them to continue while other creditors are pending is unfair, a court judge has heard bankruptcies in New Jersey.

Tuesday’s ruling by Judge Michael Kaplan means Johnson & Johnson scores another procedural victory as the healthcare giant uses the controversial bankruptcy of a subsidiary to limit its liability stemming from creditors’ claims over baby powder products allegedly contaminated.

Attorneys General of Mexico and Mississippi have filed lawsuits in state courts alleging that J&J and its bankrupt unit, LTL Management LLC, violated state laws by knowingly selling baby powder and other products containing asbestos and other carcinogens without warning labels.

Allowing states to move forward “seems grossly unfair” while “those alleging more direct personal harm must wait,” Kaplan said, granting LTL’s motion to halt the state lawsuit.

“Given the circumstances of this case, fairness demands that, at this time, the states experience a similar impact from the injunction as other creditors,” Kaplan said.

Kaplan said he plans to revisit the issue of the automatic and continuing stay of litigation in LTL’s bankruptcy case in December.

J&J created LTL last year and filed for bankruptcy after more than 38,000 lawsuits from consumers who say they developed ovarian cancer or mesothelioma after using the talc products in question.

J&J has maintained that its baby powder is safe and does not contain asbestos or cause cancer. Its purpose for the bankruptcy is to resolve the company’s talc litigation, the company said.

The Mississippi and New Mexico cases were put on hold when LTL filed for bankruptcy last year. The states have sought to pursue their lawsuits against J&J because the company has not filed for bankruptcy itself.

LTL argued that the states’ claims are “intrinsically linked” to talc’s claims in bankruptcy court. Letting the states’ litigation continue would hurt the company’s ability to resolve talc’s claims and hamper its reorganization prospects, LTL argued.

The states argued that their cases should be dealt with because they were sovereign entities exercising “policing and regulatory powers”.

States seeking to deter deceptive marketing are important, the judge said. But “these considerations are not paramount to the public interest in meeting the needs of talc seekers at this stage,” he said.

The state litigation could also disrupt J&J’s deal to fund LTL’s bankruptcy and possible broader resolution with the plaintiffs, he said.

Kaplan’s decision is “ripe for immediate appellate consideration,” said attorney Clay Thompson, whose firm Maune Raichle Hartley French & Mudd LLC represents mesothelioma victims.

“This is another example of this bankruptcy court wielding power it doesn’t have, and all to protect a $450 billion company that hasn’t actually filed for bankruptcy,” Thompson wrote in an email.

The states’ actions are aimed at “preventing disease by warning the public about the asbestos-contaminated baby powder they already have in their homes,” he wrote.

The case is In re LTL Mgmt. LLC, Banker. DNJ, no. 21-30589, opinion issued on 4/10/22.

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