January 30, 2023
In a stunning ruling from the United States Court of Appeal for the Third Circuit – the Johnson & Johnson (fake) Bankruptcy has been DISMISSED. Johnson & Johnson had been sued is thousands and thousands of Talc and Asbestos-Related cases and created a subsidiary (LTL Management LLC.) who filed for Bankruptcy. This “Sham” Bankruptcy by Johnson & Johnson has now been dismissed….You can read about it here….
Here is the ORDER from the 3rd Circuit Captioned – In re: LTL MANAGEMENT, LLC
Debtor (Case Nos. Nos. 22-2003, 22-2004, 22-2005, 22-2006, 22-0007,
22-2008, 22-2009, 22-2010, 22-2011) – ORDER – Johnson & Johnson Bankruptcy DISMISSED – 3rd Circuit – LTL Management, LCC order 1.30.23 document-In re LTL MANAGEMENT, LLC –
The 3rd Circuit found that that Johnson & Johnson is not suffering from “financial distress” (i.e. they can cover their asbestos liabilities). Here is the United States Court of Appeal – 3rd Circuit Court’s Finding –
Our decision dismisses the bankruptcy filing of a
company created to file for bankruptcy. It restricts J&J’s
ability to move thousands of claims out of trial courts and into
bankruptcy court so they may be resolved, in J&J’s words,
“equitably” and “efficiently.” LTL Br. 8. But given Chapter
11’s ability to redefine fundamental rights of third parties, only
those facing financial distress can call on bankruptcy’s tools to
do so. Applied here, while LTL faces substantial future talc
liability, its funding backstop plainly mitigates any financial
distress foreseen on its petition date.
We do not duck an apparent irony: that J&J’s triple Arated payment obligation for LTL’s liabilities, which it views
as a generous protection it was never required to provide to
claimants, weakened LTL’s case to be in bankruptcy. Put
another way, the bigger a backstop a parent company provides
a subsidiary, the less fit that subsidiary is to file. But when the
backstop provides ample financial support to a debtor who then
seeks shelter in a system designed to protect those without it,
we see this perceived incongruity dispelled.
Case: 22-2003 Document: 150 Page: 55 Date Filed: 01/30/2023
That said, we mean not to discourage lawyers from
being inventive and management from experimenting with
novel solutions. Creative crafting in the law can at times
accrue to the benefit of all, or nearly all, stakeholders. Thus
we need not lay down a rule that no nontraditional debtor could
ever satisfy the Code’s good-faith requirement.
But here J&J’s belief that this bankruptcy creates the
best of all possible worlds for it and the talc claimants is not
enough, no matter how sincerely held. Nor is the Bankruptcy
Court’s commendable effort to resolve a more-than-thorny
problem. These cannot displace the rule that resort to Chapter
11 is appropriate only for entities facing financial distress.
This safeguard ensures that claimants’ pre-bankruptcy
remedies—here, the chance to prove to a jury of their peers
injuries claimed to be caused by a consumer product—are
disrupted only when necessary.
Some may argue any divisional merger to excise the
liability and stigma of a product gone bad contradicts the
principles and purposes of the Bankruptcy Code. But even that
is a call that awaits another day and another case. For here the
debtor was in no financial distress when it sought Chapter 11
protection. To ignore a parent (and grandparent) safety net
shielding all liability then foreseen would allow tunnel vision
to create a legal blind spot. We will not do so.
We thus reverse the Bankruptcy Court’s order denying
the motions to dismiss and remand this case with the
instruction to dismiss LTL’s Chapter 11 petition. Dismissing
its case annuls the litigation stay ordered by the Court and
makes moot the need to decide that issue.
So What Happens Now?
Is the “Stay” lifted so all pending cases against Johnson & Johnson and all pending cases can resume? Is Johnson & Johnson going to Appeal to the United States Supreme Court? My prediction is the latter…but time will tell…
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