In a surprising decision by the Third Circuit, the court dismissed LTL Management (LTL) ‘s petition to file for Chapter 11 bankruptcy. The court stated that LTL failed to show good faith in its petition and that the entity was not in financial distress, as it had previously claimed.
How did this start?
The issue began with products liability lawsuits alleging that talc used in Johnson & Johnson Consumer, Inc. (J&J) products had asbestos. As this was happening, the company decided to go through a merger which resulted in two entities: J&J and LTL.
As part of this merger, all product liability claims were transferred to LTL. Johnson & Johnson kept all the assets and got rid of all liability. After that, LTL filed for bankruptcy.
What does this mean?
Now that the court has dismissed LTL’s attempts to file bankruptcy, this will end injunctions keeping certain third-party lawsuits from continuing litigation. These third parties included retailers. Now that the court has lifted the stay, they can continue litigation.
Progression of the lawsuit
Claimants challenged LTL’s Chapter 11 bankruptcy petition filing, arguing that LTL was not acting in good faith by petitioning the court for bankruptcy. It looked like a scheme to make J&J talc claims disappear by transferring liabilities to LTL. In theory, this could shield J&J from any further liability.
Lower courts denied motions to dismiss and sided with LTL until it reached the Third Circuit. The court held that LTL’s filing was not in good faith because the evidence clearly showed that LTL was not in financial distress, in addition to bad faith on the part of LTL.