Whittaker, Clark & Daniels, Inc. v. Brenntag, AG (In re Whittaker, Clark & Daniels, Inc.)

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Whittaker, Clark & Daniels, Inc. et al., Debtors.

Whittaker, Clark & Daniels, Inc., et al., Plaintiffs, v. Brenntag, AG, et al., Defendants.

No. 23-13575 (MBK)

Adv. Pro. No. 23-01245 (MBK)

United States Bankruptcy Court, D. New Jersey

October 24, 2024

NOT FOR PUBLICATION

Hearing Date: October 15, 2024

MEMORANDUM OPINION

Michael B. Kaplan, Chief Judge

All Counsel of Record

This matter comes before the Court by way Debtor's bankruptcy case (Case No. 23-13575) and subsequent motion ("Motion", ECF No. 299) filed by Whittaker, Clark & Daniels, Inc., ("WCD") and its affiliates (collectively, "Debtors") in adversary proceeding Adv. Pro. No. 23-01245^[1] seeking a preliminary injunction. The Court has fully considered the submissions of the parties and the arguments set forth on the record at a hearing held on October 15, 2024. The Court also takes judicial notice of prior rulings and documents filed in this adversary proceeding, in the underlying bankruptcy case (23-13575) and in the related state court tort actions.^[2] For the reasons set forth below, the Court grants Debtor's Motion, in part, and enters a limited preliminary injunction (the "Preliminary Injunction"), and denies the Motion, in part, for the specific purpose of granting limited stay relief.^[3] As explained further, the limited Preliminary Injunction will prohibit the continuation of the actions identified in the attached Schedule, subject to the limitations described herein, until final resolution of the pending Settlement Motion (discussed infra) or further of this Court. The Court issues the following findings of fact and conclusions of law as required by Fed.R.Bankr.P. 7052.^[4]

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

The background and procedural history of this case is well known to the parties and will not be repeated in detail at this time. For purposes this Opinion, it is enough to report that Debtors filed for chapter 11 bankruptcy to address and resolve existing and future claims alleging injuries from exposure to products containing talc, asbestos, or chemical compounds processed or distributed by the Debtors or their predecessors in interest.

The claims against the Debtors fall into two general categories (1) Asbestos Claims, which are claims alleging injuries resulting from exposure to products containing talc, asbestos, or chemical compounds processed or distributed by the Debtors or their predecessors in interest; and (2) Environmental Claims, which are environmental litigation claims against the Debtors relating to the production or handling of hazardous materials which allegedly contaminated certain properties. See Complaint ¶ 1, ECF No. 1. As a result of this litigation, Debtors are currently defendants in lawsuits across more than 30 different jurisdictions. Much of the litigation also includes claims against Brenntag North America and its related entities ("Brenntag") which, in 2004, purchased substantially all the Debtors' operating assets, including indemnification rights against certain Debtors. See First Day Decl. of Moshin Y. Meghji ¶ 21, ECF No. 5 in Case No. 23-13575.^[5] After filing their chapter 11 petition, Debtors commenced the instant adversary proceeding to address the Environmental and Asbestos Claims (collectively, the "Tort Claims"). Debtors then filed a Summary Judgment motion as to Counts I and IV. After oral argument and many months of stalled mediation efforts among the parties, this Court issued a decision and held that any Tort Claim that seeks to establish non-debtor entities' liability on any grounds, including, without limitation, that such entities are successors to, or alter egos of, the Debtors-such as Brenntag- is property of the bankruptcy estate. Such claims are referred to by the parties and the Court as "Successor Liability Claims." The Court memorialized its ruling in a written Opinion dated August 13, 2024 (ECF No. 268) and directed the parties to meet and confer on a proposed form of order. This task proved to be easier said than done, and gave rise to further disputes regarding the scope of the existing Temporary Restraining Order ("TRO"). The Court continued the TRO on a limited basis and advised the Debtors that-in order to continue the TRO-Debtors must present to the Court a proposed end game, which would fully and finally address these claims. Ultimately, an Order granting summary judgment was entered on August 28, 2024.

Heeding the Court's instruction, the Debtors then filed the "Settlement Motion", seeking approval of an agreement between and among the Debtors, Brenntag, NICO, and DB U.S. Holding Corp. ("DBUS") that purports to resolve all Estate Causes of Action against the Contributing Parties and their Related Parties (including Successor Liability Claims) as of the Effective Date of the Settlement Agreement, in exchange for $535 million and mutual releases. Debtors then filed a Motion to Amend the Complaint-which the Court granted-and a Motion to Extend the Automatic Stay and/or Preliminarily Enjoin Certain Actions against Non-Debtors pending a final decision of the Debtors' Settlement Motion. The Court also granted the latter motion and entered an Order Enforcing the Automatic Stay and Temporarily Restraining Certain Actions Against Non-Debtors ("October TRO" ECF No. 344), which included Exhibits 1 & 2 (collectively, the "Schedule", ECF No. 344-2), identifying restrained actions. A final hearing on the October TRO was conducted on October 15, 2024, and this decision follows.

The parties debate appropriate treatment of claims and litigation involving a nondebtor, Brenntag. The Talc Claimants Committee ("TCC") concedes that Successor Liability Claims cannot proceed in light of this Court's Summary Judgment ruling, but asserts that direct claims against Brenntag should be allowed to continue. The Debtors assert that certain plaintiffs are attempting to circumvent the Summary Judgment Order and the October TRO by strategically dismissing the successor liability components of their claims against Brenntag. Notwithstanding these efforts, Debtors contend that the remaining direct claims against Brenntag continue to be premised on allegations of pre-2004 talc/asbestos exposure and, thus, implicate Debtors' conduct, operations, and potential indemnification obligations owing Brenntag. The record includes a detailed Schedule, listing such claims which Debtors seek to stay and/or enjoin, pending resolution of their Settlement Motion.

Debtors maintain that all of the six hundred eighty-three (683) lawsuits identified in the Schedule are either subject to the automatic stay or should be enjoined for one of three reasons: (1) because they include express Successor Liability Claims; (2) because they contain a bifurcation stipulation in which the plaintiff acknowledges Brenntag as successor to WCD; or (3) because the claims allege pre-2004 exposure, rendering them effective Successor Liability Claims and/or necessarily impacting Debtors' rights and defenses and creating the potential for litigation prejudice (by way of possible application of res judicata and collateral estoppel, as well as record taint).

The Court read an oral ruling into the record on October 21, 2024. This written Opinion is intended to clarify and supplement the oral opinion, the transcript of which is available on the docket at ECF No. 359 and is hereby incorporated by reference.

III. Discussion

A. Authority and Standard for Extension of Stay to Nondebtors

Prior to addressing the merits of Debtors' Motion, the Court first assures itself of its authority and jurisdiction to grant the requested relief. In doing so, the Court looks to its own well-documented jurisprudence on this issue; noting its view that § 362(a), §105(a), or a court's inherent powers can each serve as independent bases for extension of a stay to nondebtor third parties. See In re LTL Mgmt., LLC, 645 B.R. 59 (Bankr. D.N.J. 2022); In Re LTL Mgmt., LLC, 640 B.R. 322 (Bankr. D.N.J. 2022); In re LTL Management, LLC, 638 B.R. 291 (Bankr. D.N.J. 2022). The Court will not repeat the lengthy discussions therein and, instead, incorporates them by reference.

In sum, this Court relies on the Third Circuit's decision in McCartney v. Integra Nat. Bank N., 106 F.3d 506 (3d Cir. 1997) which, in turn, cites with approval the Fourth Circuit in In re A.H. Robins Co, 788 F.2d 994, 1001-1003 (4th Cir. 1986). Notably, the McCartney court determined that the automatic stay-and not a stay extension or an injunction under § 105-precluded a litigant from pursuing a state court action against a nondebtor. Thus, McCartney appears to be an endorsement of § 362 as an independent basis for applying the stay to nondebtor actions.

Nevertheless this Court is mindful that other courts still view the question as unsettled. See, e.g., In re Philadelphia Newspapers, LLC, 423 B.R. 98, 103 n.8 (E.D. Pa. 2010). While the practical effect of an extension of the stay under § 362 or an injunction under § 105 is the same, the distinction is significant because it impacts subject matter jurisdiction. Therefore, this Court will utilize the same three-step inquiry outlined in its LTL Management opinions to address the instant Motion. Namely, in determining whether to extend the automatic stay to nondebtor third parties, the Court considers: (1)...