## Facts

- A Johnson & Johnson subsidiary that sold talc-based products faced over 38,000 personal-injury claims alleging carcinogenic harm.
- The subsidiary was reorganized through a Texas divisional merger, creating (1) LTL Management, LLC, assigned the talc-related liabilities and some assets, and (2) a separate entity holding the operating business.
- LTL obtained rights under a funding agreement with Johnson & Johnson and an affiliated entity that obligated them to provide a funding backstop for talc liabilities, described as jointly and severally available up to large enterprise value.
- Two days after formation, LTL filed a voluntary Chapter 11 petition in the District of New Jersey to consolidate and resolve present and future talc claims through bankruptcy mechanisms, including a trust and channeling-type relief.
- Talc claimants and an official committee moved to dismiss the case under 11 U.S.C. § 1112(b), arguing the petition lacked good faith because LTL was not in genuine financial distress.
- The bankruptcy court denied dismissal, concluding the filing served a valid bankruptcy purpose.
- The court of appeals accepted a direct appeal.

## Issues

1. Whether a Chapter 11 case may proceed in good faith under 11 U.S.C. § 1112(b) when the debtor lacks sufficient financial distress due to substantial committed funding from non-debtors.
2. Whether Chapter 11 may be used primarily to centralize and manage mass-tort litigation when insolvency risk is remote and the debtor can access ample resources outside bankruptcy.

## Decision

- The court of appeals reversed the bankruptcy court’s order denying dismissal.
- The court remanded with instructions to dismiss the Chapter 11 case for lack of good faith.
- The court held that LTL was not in sufficient financial distress at filing because the funding agreement provided access to substantial resources to satisfy talc liabilities.
- Because financial distress was absent, the petition did not serve a valid bankruptcy purpose and failed the circuit’s good-faith requirement.

## Legal Principles

- A Chapter 11 petition is subject to dismissal for lack of good faith under 11 U.S.C. § 1112(b).
- Good faith in this circuit is assessed through a two-part inquiry: (1) whether the petition serves a valid bankruptcy purpose (e.g., preserving a going concern or maximizing value for creditors) and (2) whether it is filed merely to obtain a tactical litigation advantage.
- Financial distress is a necessary predicate to a valid bankruptcy purpose; without sufficient (imminent or immediate) financial distress, Chapter 11 cannot be justified as serving reorganization or value-maximization goals.
- The existence of large litigation exposure, standing alone, does not establish the required financial distress where binding funding arrangements make near-term insolvency unlikely.
- Using bankruptcy primarily as a litigation-management device, absent the required financial distress, is inconsistent with Chapter 11’s purpose and supports dismissal for lack of good faith.

## Conclusion

The court of appeals required dismissal because the debtor’s substantial, binding access to non-debtor funding meant it lacked the level of financial distress needed to show a valid bankruptcy purpose, rendering the Chapter 11 filing not in good faith under § 1112(b).


In re LTL Mgmt., LLC, 64 F.4th 84 (3d Cir. 2023)