LTL Management, Inc. filed a petition for a rehearing en banc with the U.S. Court of Appeals for the Third Circuit on Feb. 13, following the Third Circuit’s recent opinion dismissing LTL’s talc bankruptcy case in New Jersey on grounds that it was filed in bad faith.
LTL, a unit of Johnson & Johnson (“J&J”) that was created in 2022 under a Texas divisive merger statute, argues that a rehearing is necessary because the Third Circuit broke from precedent in assessing if its bankruptcy was filed in good faith and for contravening the standard of financial distress by a debtor under Section 524(g) of the U.S. Bankruptcy Code. In a precedent ruling on Jan. 30, the Third Circuit issued an opinion mandating the dismissal of LTL’s bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey.
In its petition, LTL cites several decisions by the Third and Fourth Circuit appellate courts that it believes set the standard for a good faith bankruptcy filing. LTL argues that the Third Circuit erred by examining the financial distress of the debtor in a vacuum, and in light of its history in the tort system where it faced 38,000 talc lawsuits and had spent billions of dollars in indemnity and defense costs.
Per the court’s opinion, “The upshot is that the panel has made this the first Section 524(g) petition ever dismissed for bad faith. And the panel’s reason for finding bad faith is that LTL had too realistic a prospect of proving ‘fair and equitable’ treatment for future claimants. That is upside down. The panel’s reasoning subjects plaintiffs to the lottery of individual litigation where far less than $61.5 billion will be available given JJCI’s $10-20 million monthly defense costs, where blockbuster judgments for early claimants will threaten recovery for later ones. Unlike other contexts, the number of later claimants here is massive given the disease’s 50-year latency period. The panel’s opinion grappled with none of this; it never mentioned the latency period; and it never acknowledged that preserving value for future claimants in asbestos cases is the entire reason Congress enacted 524(g).”
During a bankruptcy hearing in New Jersey on Feb. 14, attorneys for LTL said that the debtor was still exploring ways to resolve the talc claims against it, including preliminarily preparing to a return of defending the cases in the tort system.
On Feb. 21, the U.S. Chamber of Commerce and the American Tort Reform Association filed amicus briefs with the Third Circuit, urging the appellate court to revisit its ruling and rehear the case en banc.