Good Intentions Do Not Suffice: The Third Circuit Insists That a Mass Tort Debtor Seeking Chapter 11 Protection Be in Immediate Financial Distress

Schnader published an alert, “Good Intentions Do Not Suffice: The Third Circuit Insists That a Mass Tort Debtor Seeking Chapter 11 Protection Be in Immediate Financial Distress.”

Decision: In re LTL Management, LLC, Nos. 22-2003 to 22-2011 (3rd Cir. Jan. 30, 2023)
This is an important opinion for litigants in class actions and mass torts where the defendant seeks to reorganize and restructure its liabilities, as the Third Circuit has now clearly held good faith – and a successful petition – under the Bankruptcy Code require imminent financial distress.

The Need for Reorganization
Johnson & Johnson’s (J&J’s) subsidiary, Johnson & Johnson Consumer Inc. (Old Consumer), produced body powders that contained talc. After allegations of asbestos in talcum powder arose, Old Consumer became subject to a tidal wave of lawsuits, and by 2021, there were over 38,000 separate actions that, for the most part, had been consolidated in multi-district litigation in New Jersey.

As Old Consumer had expended approximately $4.5 billion in judgments and fees by 2021 – and anticipated its contingent loss over the next two years at $2.4 billion and that its ongoing losses would be equally as substantial – it determined restructuring of its debt was required.

Click here to read the full alert.