## Facts

- SGL Carbon Corporation, a graphite electrode manufacturer, faced a federal criminal investigation and multiple civil antitrust suits alleging price-fixing.
- Civil actions were consolidated into a class action; many purchasers opted out and pursued or threatened separate suits.
- On August 4, 1998, SGL filed a voluntary Chapter 11 petition, triggering the automatic stay and halting the antitrust litigation.
- SGL acknowledged it was financially sound, with substantial assets, positive cash flow, and access to financing, and did not face a near-term inability to pay debts.
- SGL stated it filed to centralize antitrust litigation in the bankruptcy forum and to obtain a more efficient resolution of potentially large contingent antitrust liabilities.
- The Official Committee of Unsecured Creditors moved to dismiss the case as a bad-faith filing; the bankruptcy court denied dismissal and the district court affirmed.

## Issues

1. Whether Chapter 11 petitions are subject to an implied “good faith” filing requirement.
2. Whether a financially healthy debtor’s Chapter 11 filing, made primarily to manage and gain leverage over significant antitrust litigation, satisfies the good-faith requirement.

## Decision

- The Third Circuit adopted an implied good-faith requirement for Chapter 11 filings.
- The court held SGL’s petition lacked a valid reorganizational purpose and therefore was not filed in good faith.
- The court reversed the district court’s affirmance of the denial of dismissal and directed dismissal of the Chapter 11 case.

## Legal Principles

- Chapter 11 relief is limited by an implied good-faith filing requirement to prevent abuse of the bankruptcy process.
- Good faith is assessed through a fact-intensive inquiry into the debtor’s financial condition, motives, timing, and the realistic need for reorganization.
- A petition must serve a valid reorganizational purpose (e.g., preserving a going concern or maximizing estate value for creditors), not merely confer a litigation advantage.
- Use of Chapter 11 primarily to invoke the automatic stay, centralize pending civil litigation, or pressure adversaries—without genuine financial distress or reorganization need—supports dismissal for bad faith.
- Bankruptcy courts may dismiss Chapter 11 cases when the filing functions mainly as a device to resolve what is essentially ordinary civil litigation rather than to address bankruptcy objectives.

## Conclusion

The Third Circuit required that Chapter 11 petitions be filed in good faith and dismissed SGL’s case because a solvent debtor may not use Chapter 11 principally as a tactical tool to control and gain leverage in major antitrust litigation absent a legitimate reorganizational need.


In re SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999)