In re: LTL Management LLC, No. 22-2003 (3d Cir. 2023)Annotate this Case
“Old Consumer,” a wholly owned subsidiary of J&J, sold healthcare products such as Band-Aid, Tylenol, Aveeno, and Listerine, and produced Johnson’s Baby Powder for over a century. The Powder’s base was talc. Concerns that the talc contained asbestos resulted in lawsuits alleging that it has caused ovarian cancer and mesothelioma. With mounting payouts and litigation costs, Old Consumer, through a series of intercompany transactions, split into LTL, holding Old Consumer’s liabilities relating to talc litigation and a funding support agreement from LTL’s corporate parents, and “New Consumer,” holding virtually all the productive business assets previously held by Old Consumer. J&J’s goal was to isolate the talc liabilities in a new subsidiary that could file for Chapter 11 without subjecting Old Consumer’s entire operating enterprise to bankruptcy proceedings.
Talc claimants moved to dismiss LTL’s subsequent bankruptcy case as not filed in good faith. The Bankruptcy Court denied those motions and extended the automatic stay of actions against LTL to hundreds of non-debtors, including J&J and New Consumer. In consolidated appeals, the Third Circuit dismissed the petition. Good intentions— such as to protect the J&J brand or comprehensively resolve litigation—do not suffice. The Bankruptcy Code’s safe harbor is intended for debtors in financial distress. LTL was not. Ignoring a parent company’s safety net shielding all foreseen liability would create a legal blind spot.