PRECEDENTIAL
`
`
`
`
`UNITED STATES COURT OF APPEALS
`FOR THE THIRD CIRCUIT
`________________
`
`Nos. 22-2003, 22-2004, 22-2005, 22-2006, 22-0007,
`22-2008, 22-2009, 22-2010, 22-2011
`________________
`
`In re: LTL MANAGEMENT, LLC
`
`
`
`
`Debtor
`
`LTL MANAGEMENT, LLC
`
`v.
`
`THOSE PARTIES LISTED ON APPENDIX A TO
`COMPLAINT
`AND JOHN AND JANE DOES 1-1000
`
`*OFFICIAL COMMITTEE OF TALC CLAIMANTS,
`Appellant in case Nos. 22-2003, 22-2004 and 22-2005
`
`*OFFICIAL COMMITTEE OF TALC CLAIMANTS;
`PATRICIA COOK;
`EVAN PLOTKIN; RANDY DEROUEN; KRISTIE DOYLE,
`as estate representative of Dan Doyle; KATHERINE
`TOLLEFSON;
`TONYA WHETSEL, as estate representative of Brandon
`Wetsel;
`GIOVANNI SOSA; JAN DEBORAH MICHELSON-
`BOYLE,
`
`
`
`
`
`
`UNITED STATES COURT OF APPEALS
`FOR THE THIRD CIRCUIT
`________________
`
`Nos. 22-2003, 22-2004, 22-2005, 22-2006, 22-0007,
`22-2008, 22-2009, 22-2010, 22-2011
`________________
`
`In re: LTL MANAGEMENT, LLC
`
`
`
`
`Debtor
`
`LTL MANAGEMENT, LLC
`
`v.
`
`THOSE PARTIES LISTED ON APPENDIX A TO
`COMPLAINT
`AND JOHN AND JANE DOES 1-1000
`
`*OFFICIAL COMMITTEE OF TALC CLAIMANTS,
`Appellant in case Nos. 22-2003, 22-2004 and 22-2005
`
`*OFFICIAL COMMITTEE OF TALC CLAIMANTS;
`PATRICIA COOK;
`EVAN PLOTKIN; RANDY DEROUEN; KRISTIE DOYLE,
`as estate representative of Dan Doyle; KATHERINE
`TOLLEFSON;
`TONYA WHETSEL, as estate representative of Brandon
`Wetsel;
`GIOVANNI SOSA; JAN DEBORAH MICHELSON-
`BOYLE,
`
`
`
` Appellants in case Nos. 22-2006, 22-2007 and 22-2008
`
`ARNOLD & ITKIN LLP, on behalf of certain personal injury
`claimants represented by Arnold & Itkin,
` Appellant in case No. 22-2009
`
`AYLSTOCK WITKIN KREIS & OVERHOLTZ PLLC, on
`behalf of more
`than three thousand holders of talc claims,
` Appellant in case Nos. 22-2010 and 22-2011
`
`*(Amended per Court’s Order dated 06/10/2022)
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Appeal from the United States Bankruptcy Court
`for the District of New Jersey
`(District Court No.: 21-bk-30589; 21-ap-03032)
`Bankruptcy Judge: Honorable Michael B. Kaplan
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Argued September 19, 2022
`
`Before AMBRO, RESTREPO, and FUENTES, Circuit
`Judges
`
`(Opinion filed: January 30, 2023)
`
`
`
`
`
`
`
`
`2
`
`
`
`Brad J. Axelrod
`Skadden Arps Slate Meagher & Flom
`One Rodney Square
`920 North King Street, 7th Floor
`Wilmington, DE 19801
`
`Caitlin K. Cahow
`Brad B. Erens
`Jones Day
`110 North Wacker Drive
`Suite 4800
`Chicago, IL 60606
`
`Paul R. DeFilippo
`Wollmuth, Maher & Deutsch
`500 Fifth Avenue
`12th Floor
`New York, NY 10110
`
`Kristen R. Fournier
`King & Spalding
`1185 Avenue of the Americas
`New York, NY 10036
`
`Kathleen A. Frazier
`Shook, Hardy & Bacon
`600 Travis Street
`JP Morgan Chase Tower, Suite 3400
`Houston, TX 77002
`
`
`
`
`
`
`3
`
`
`
`Gregory M. Gordon
`Daniel B. Prieto
`Mark W. Rasmussen
`Amanda Rush
`Jones Day
`2727 North Harwood Street
`Suite 600
`Dallas, TX 75201
`
`Robert W. Hamilton
`Jones Day
`901 Lakeside Avenue
`North Point
`Cleveland, OH 44114
`
`James M. Jones
`Jones Day
`500 Grant Street
`Suite 4500
`Pittsburgh, PA 15219
`
`Neal K. Katyal (Argued)
`Sean M. Marotta
`Hogan Lovells US
`555 Thirteenth Street, N.W.
`Columbia Square
`Washington, DC 20004
`
`
`
`
`
`
`
`
`4
`
`
`
`Glenn M. Kurtz
`Jessica C. Lauria
`White & Case
`1221 Avenue of the Americas
`New York, NY 10020
`
`James N. Lawlor
`Joseph F. Pacelli
`Wollmuth, Maher & Deutsch
`500 Fifth Avenue
`12th Floor
`New York, NY 10110
`
`C. Kevin Marshall
`Jones Day
`51 Louisiana Avenue, N. W.
`Washington, DC 20001
`
`John R. Miller, Jr.
`Miller, Kistler, Campbell, Miller, Williams & Benson
`124 North Allegheny Street
`Bellefonte, PA 16823
`
`Matthew L. Tomsic
`Rayburn, Cooper, Durham
`227 West Trade Street
`Suite 1200
`Charlotte, NC 28202
`
`
`
`
`
`
`5
`
`
`
`Counsel for Debtor-Appellee
`
`
`
`Lyndon M. Treeter
`Wollmuth, Maher & Deutsch
`12th Floor
`New York, NY 10110
`
`
`
`Melanie L. Cyganowski
`Adam C. Silverstein
`Otterbourg
`230 Park Avenue
`29th Floor
`New York, NY 10169
`
`Angelo J. Genova
`Genova Burns
`494 Broad Street
`Newark, NJ 07102
`
`Jeffrey A. Lamken (Argued)
`MoloLamken
`600 New Hampshire Avenue, N. W.
`The Watergate
`Washington, DC 20037
`
`Jonathan S. Massey
`Massey & Gail
`1000 Maine Avenue, S. W.
`Suite 450
`Washington, DC 20024
`
`
`
`
`
`
`6
`
`
`
`
`
`
`Counsel for Petitioner-Appellant Official
`Committee of Talc Claimants
`
`
`
`
`David J. Molton
`Michael S. Winograd
`Brown Rudnick
`7 Times Square
`47th Floor
`New York, NY 10036
`
`
`
`
`Matthew I.W. Baker
`Genova Burns
`494 Broad Street
`Newark, NJ 07102
`
`Sunni P. Beville
`Shari I. Dwoskin
`Jeffrey L. Jonas
`Brown Rudnick
`One Financial Center
`Boston, MA 02111
`
`Donald W. Clarke
`Wasserman, Jurista & Stolz
`110 Allen Road
`Suite 304
`Basking Ridge, NJ 07920
`
`Daniel Stolz
`Genova Burns LLC
`110 Allen Road
`Suite 304
`Basking Ridge, NJ 07920
`
`
`
`7
`
`
`
`Jennifer S. Feeney
`Otterbourg
`230 Park Avenue
`29th Floor
`New York, NY 10169
`
`Leonard M. Parkins
`Charles M. Rubio
`Parkins & Rubio
`700 Milam Street
`Pennzoil Place, Suite 1300
`Houston, TX 77002
`
`Robert J. Stark
`Brown Rudnick
`7 Times Square
`47th Floor
`New York, New York 10036
`
`
`
`
`Ellen Relkin
`Weitz & Luxemberg
`700 Broadway
`New York, NY 10003
`
`
`
`Deepak Gupta
`Jonathan E. Taylor
`Matthew W.H. Wessler
`Gupta Wessler
`
`
`
`
`
`
`Counsel for Petitioner Official Committee of
`Talc Claimants I
`
`Counsel for Petitioner Patricia Cook
`
`
`
`8
`
`
`
`Counsel for Petitioners Evan Plotkin, Katherine
`Tollefson, Giovanni Sosa, Jan Deborah Michelson-
`Boyle
`
`2001 K Street, N.W.
`Suite 850 North
`Washington, D.C. 20006
`
`
`
`
`
`Jerome Block
`Amber Long
`Moshe Maimon
`Levy Konigsberg
`605 Third Avenue
`33rd Foor
`New York, NY 10158
`
`
`
`John M. August
`Saiber
`18 Columbia Turnpike
`Suite 200
`Florham Park, NJ 07932
`
`
`
`
`
`
`
`
`Counsel for Petitioner Randy Derouen
`
`Counsel for Petitioner Kristie Doyle, as estate
`representative of Dan Doyle
`
`
`
`9
`
`
`
`Counsel for Petitioner Katherine Tollefson
`
`Counsel for Petitioner Tonya Whetsel
`
`Suzanne Ratcliffe
`Clay Thompson
`Maune Raichle Hartley French & Mudd
`150 West 30th Street
`Suite 201
`New York, NY 10001
`
`
`
`David A. Chandler
`Karst & von Oiste
`505 Main Street
`Port Jefferson, NY 11777
`
`
`
`Jeffrey M. Dine
`Karen B. Dine
`Pachulski Stang Ziehl & Jones
`780 Third Avenue
`34th Floor
`New York, NY 10017
`
`Matthew Drecun
`David C. Frederick (Argued)
`Ariela Migdal
`Gregory G. Rapawy
`Kellogg Hansen Todd Figel & Frederick
`1615 M Street, N.W.
`Sumner Square, Suite 400
`Washington, DC 20036
`
`
`
`
`
`
`
`10
`
`
`
`Laura D. Jones
`Peter J. Keane
`Colin R. Robinson
`Pachulski Stang Ziehl & Jones
`919 North Market Street
`P. O. Box 8705, 17th Floor
`Wilmington, DE 19801
`
`Isaac M. Pachulski
`Pachulski Stang Ziehl & Jones
`10100 Santa Monica Boulevard
`Suite 2300
`Los Angeles, CA 00067
`
`
`
`
`Samuel M. Kidder
`Nir Maoz
`Robert J. Pfister
`Michael L. Tuchin
`Klee, Tuchin, Bogdanoff & Stern
`1801 Century Park East
`26th Floor
`Los Angeles, CA 90067
`
`
`
`
`
`
`Counsel for Respondent Arnold & Itkin,
`LLP
`
`
`
`
`
`11
`
`
`
`Paul J. Winterhalter
`Offit Kurman
`99 Wood Avenue South
`Suite 302
`Iselin, NJ 08830
`
`
`Counsel for Respondent Aylstock, Witkin,
`Kreis & Overholtz, PLLC
`
`
`Allen J. Underwood, II
`Lite, DePalma, Greenberg & Afanador
`570 Broad Street
`Suite 1201
`Newark, NJ 07102
`
`
`
`
`Mark Tsukerman
`Cole Schotz
`1325 Avenue of the Americas
`19th Floor
`New York, NY 10019
`Felice C. Yudkin
`Cole Schotz
`25 Main Street
`Court Plaza North, P.O. Box 800
`Hackensack, NJ 07601
`
`
`
`
`
`
`
`
`
`
`
`Counsel for Respondent DeSanto Canadian
`Class Action Creditors
`
`Counsel for Respondent Claimants
`Represented by Barnes Law Group
`
`
`
`
`
`12
`
`
`
`Arthur J. Abramowitz
`Alan I. Moldoff
`Ross J. Switkes
`Sherman, Silverstein, Kohl, Rose & Podolsky
`308 Harper Drive
`Suite 200, Eastgate Corporate Center
`Moorestown, NJ 08057
`
`Kevin W. Barrett
`Maigreade B. Burrus
`Bailey & Glasser
`209 Capitol Street
`Charleston, WV 25301
`
`Thomas B. Bennett
`Brian A. Glasser
`Bailey & Glasser
`1055 Thomas Jefferson Street, N.W.
`Suite 540
`Washington, DC 20007
`
`Michael Klein
`Evan M. Lazerowitz
`Lauren A. Reichardt
`Erica J. Richards
`Cullen D. Speckhart
`Cooley
`55 Hudson Yards
`New York, NY 10001
`
`
`
`
`
`
`
`13
`
`
`
`James C. Lanik
`Jennifer B. Lyday
`Thomas W. Waldrep
`Waldrep, Wall, Babcock & Bailey
`370 Knollwood Street
`Suite 600
`Winston-Salem, NC 27103
`
`Kevin L. Sink
`Waldrep, Wall, Babcock & Bailey
`3600 Glenwood Avenue
`Suite 210
`Raleigh, NC 27612
`
`
`
`
`Lauren Bielskie
`Jeffrey M. Sponder
`Office of United States Trustee
`1085 Raymond Boulevard
`One Newark Center, Suite 2100
`Newark, NJ 07102
`Sean Janda (Argued)
`United States Department of Justice
`Appellate Section
`Room 720
`950 Pennsylvania Avenue, N. W.
`Washington, D. C. 20530
`
`
`
`
`
`Counsel for Respondent Official Committee
`of Talc Claimants II
`
`Counsel for Amicus Appellant United States
`Trustee
`
`
`
`14
`
`
`
`Cory L. Andrews
`John M. Masslon, II
`Washington Legal Foundation
`2009 Massachusetts Avenue, N. W.
`Washington, D. C. 20036
`
`
`Counsel for Amicus Appellee Washington
`Legal Foundation
`
`
`R. Craig Martin
`DLA Piper
`1202 North Market Street
`Suite 2100
`Wilmington, DE 19801
`
`Ilana H. Eisenstein
`DLA Piper
`1650 Market Street
`One Liberty Place, Suite 5000
`Philadelphia, PA 19103
`
`
`Counsel for Amici Appellees United States
`Chamber of Commerce and American Tort
`Reform Association
`
`
`Natalie D. Ramsey
`Robinson & Cole
`1650 Market Street
`One Liberty Place, Suite 3030
`Philadelphia, PA 19103
`
`
`
`
`
`
`
`Counsel for Amicus Appellant Erwin
`Chemerinsky
`
`
`
`
`
`15
`
`
`
`Jaime A. Santos
`Benjamin T. Hayes
`Goodwin Procter
`1900 N. Street, N. W.
`Washington, D. C. 20036
`
`
`Counsel for Amici Appellees National
`Association of Manufacturers and Product
`Liability Advisory Council, Inc.
`
`
`Sean E. O’Donnell
`Stephen B. Selbst
`Steven B. Smith
`Herrick Feinstein
`2 Park Avenue
`New York, NY 10016
`
`
`Counsel for Amici Appellants Kenneth Ayotte,
`Susan Block-Lieb, Jared Ellias, Bruce A.
`Markell, Yesha Yadav, Robert K. Rasmussen
`and Diane Lourdes Dick
`
`
`Peter M. Friedman
`O’Melveny & Myers
`1625 Eye Street, N. W.
`Washington, D. C. 2006
`
`Emma L. Persson
`Laura L. Smith, Esq.
`O’Melveny & Myers
`2501 North Harwood Street
`Suite 1700
`Dallas, TX 75201
`
`
`
`16
`
`
`
`Daniel S. Shamah
`O'Melveny & Myers
`7 Times Square
`Time Square Tower, 33rd Floor
`New York, NY 10036
`
`
`Counsel for Amici Appellees Samir Parikh,
`Anthony Casey, Joshua C. Macey and Edward
`Morrison
`
`Glen Chappell
`Allison W. Parr
`Hassan A. Zavareei
`Tycko & Zavareei
`2000 Pennsylvania Avenue, N.W.
`Suite 1010
`Washington, DC 20006
`
`
`
`
`Jeffrey R. White
`American Association for Justice
`777 6th Street, N.W.
`Suite 200
`Washington, DC 20001
`
`
`
`
`
`
`Counsel for Amicus Appellant American
`Association of Justice
`
`
`
`Counsel for Amicus Appellant Public
`Justice
`
`
`
`
`
`
`
`
`
`
`
`17
`
`
`
`Thomas A. Pitta
`Emmet, Marvin & Martin
`120 Broadway
`32nd Floor
`New York, NY 10005
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Counsel for Amici Appellants Maria Glover,
`Andrew Bradt, Brooke Coleman, Robin Effron,
`D. Theodore Rave, Alan M. Trammell, and
`Adam Zimmerman
`
`
`
`_________________
`
`OPINION OF THE COURT
`__________________
`
`
`
`AMBRO, Circuit Judge
`
`
`Johnson & Johnson Consumer Inc. (“Old Consumer”),
`a wholly owned subsidiary of Johnson & Johnson (“J&J”), sold
`healthcare products with iconic names branded on consumers’
`consciousness—Band-Aid, Tylenol, Aveeno, and Listerine, to
`list but a few. It also produced Johnson’s Baby Powder,
`equally recognizable for well over a century as a skincare
`product. Its base was talc, a mineral mined and milled into a
`fine powder. Concerns that the talc contained traces of
`asbestos spawned in recent years a torrent of lawsuits against
`Old Consumer and J&J alleging Johnson’s Baby Powder has
`caused ovarian cancer and mesothelioma. Some of those suits
`
`
`
`18
`
`
`
`succeeded in verdicts, some failed (outright or on appeal), and
`others settled. But more followed into the tens of thousands.
`
`With mounting payouts and litigation costs, Old
`Consumer, through a series of intercompany transactions
`primarily under Texas state law, split into two new entities:
`LTL Management LLC (“LTL”), holding principally Old
`Consumer’s liabilities relating to talc litigation and a funding
`support agreement from LTL’s corporate parents; and Johnson
`& Johnson Consumer Inc. (“New Consumer”), holding
`virtually all the productive business assets previously held by
`Old Consumer. J&J’s stated goal was to isolate the talc
`liabilities in a new subsidiary so that entity could file for
`Chapter 11 without subjecting Old Consumer’s entire
`operating enterprise to bankruptcy proceedings.
`
`Two days later, LTL filed a petition for Chapter 11
`
`relief in the Bankruptcy Court for the Western District of North
`Carolina. That Court, however, transferred the case to the
`Bankruptcy Court for the District of New Jersey.
`
`to dismiss LTL’s
`there moved
`Talc claimants
`
`bankruptcy case as not filed in good faith. The Bankruptcy
`Court, in two thorough opinions, denied those motions and
`extended the automatic stay of actions against LTL to hundreds
`of nondebtors that included J&J and New Consumer. Appeals
`followed and are consolidated before us.
`
`
`We start, and stay, with good faith. Good intentions—
`such as to protect the J&J brand or comprehensively resolve
`litigation—do not suffice alone. What counts to access the
`Bankruptcy Code’s safe harbor is to meet its intended
`
`
`
`19
`
`
`
`purposes. Only a putative debtor in financial distress can do
`so. LTL was not. Thus we dismiss its petition.
`
`I. BACKGROUND
`
`A. J&J, Baby Powder, and Old Consumer
`
`The story of LTL begins with its parent company, J&J.
`
`It is a global company and household brand well-known to the
`public for its wide range of products relating to health and well-
`being. Many are consumer staples, filling pharmacies,
`supermarkets, and medicine cabinets throughout the country
`and beyond.
`
`One of these products was Johnson’s Baby Powder, first
`
`sold by J&J in 1894. It became particularly popular, being
`used by or on hundreds of millions of people at all stages of
`life.
`
`
`J&J has not always sold baby powder directly, though.
`In 1979, it transferred all assets associated with its Baby
`Products division, including Johnson’s Baby Powder, to
`Johnson & Johnson Baby Products Company (“J&J Baby
`Products”), a wholly owned subsidiary (the “1979 Spin-Off”).
`A series of further intercompany transactions in ensuing
`decades ultimately transferred Johnson’s Baby Powder to Old
`Consumer.
`
`So since 1979 only Old Consumer and its predecessors,
`and not J&J, have directly sold Johnson’s Baby Powder. LTL
`maintains that the 1979 Spin-Off included an agreement
`between J&J and J&J Baby Products that makes Old
`Consumer, as successor
`to
`the
`latter, responsible for
`
`
`
`20
`
`
`
`indemnifying J&J for all past, present, and future liabilities
`stemming from Johnson’s Baby Powder. Thus, according to
`LTL, Old Consumer was liable for all claims relating to
`Johnson’s Baby Powder, either directly or indirectly through
`its responsibility to indemnify J&J.
`
`
`B. Baby Powder Litigation
`
`Talc triggered little litigation against J&J entities before
`
`2010. There had been but a small number of isolated claims
`alleging the products caused harms such as talcosis (a lung
`disease caused by inhalation of talc dust or talc), mesothelioma
`(a cancer of organ membranes, typically in the lungs,
`associated with exposure to asbestos), and rashes. But trials in
`2013 and 2016 resulted in jury verdicts for plaintiffs alleging
`Old Consumer’s talc-based products caused ovarian cancer.
`Despite the first resulting in no monetary award, and the
`second being reversed on appeal, these trials ushered in a wave
`of lawsuits alleging Johnson’s Baby Powder caused ovarian
`cancer and mesothelioma.1 Governmental actions, including
`the U.S. Food and Drug Administration’s finding of asbestos
`traces in a sample of Johnson’s Baby Powder in 2019 and
`Health Canada’s confirmation in 2021 of its 2018 finding of a
`significant association between exposure to talc and ovarian
`
`
`1 The talc litigation also involves claims regarding Shower to
`Shower, a different talc-containing product initially produced
`by J&J and later by Old Consumer and its predecessors. LTL
`maintains intercompany transactions involving J&J and Old
`Consumer ultimately made the latter responsible for all claims
`stemming from Shower to Shower. Because the talc litigation
`concerns mainly Johnson’s Baby Powder, for convenience
`references herein to that name may include other talc products.
`
`
`
`21
`
`
`
`cancer, also heightened J&J’s and Old Consumer’s potential
`exposure.
`
`With the door wide open, over 38,000 ovarian cancer
`
`actions (most consolidated in federal multidistrict litigation in
`New Jersey) and over 400 mesothelioma actions were pending
`against Old Consumer and J&J when LTL filed its Chapter 11
`petition. Expectations were for the lawsuits to continue, with
`thousands more in decades to come. The magnitude of the
`award in one case also raised the stakes. There, a Missouri jury
`awarded $4.69 billion to 22 ovarian cancer plaintiffs, reduced
`on appeal to $2.24 billion to 20 plaintiffs who were not
`dismissed. Ingham v. Johnson & Johnson, 608 S.W.3d 663
`(Mo. Ct. App. 2020), cert. denied, 141 S. Ct. 2716 (2021).
`
`
`Yet other trials reaching verdicts for plaintiffs were not
`so damaging to J&J entities. Since 2018, damages in all other
`monetary awards to plaintiffs that were not reversed averaged
`about $39.7 million per claim. Moreover, Old Consumer and
`J&J often succeeded at trial. According to LTL’s expert, of 15
`completed ovarian cancer trials, only Ingham resulted in a
`monetary award for the plaintiffs that was not reversed; and of
`28 completed mesothelioma trials, fewer than half resulted in
`monetary awards for the plaintiffs that were not reversed (and
`many of those were on appeal at the time of LTL’s bankruptcy
`filing). In addition, Old Consumer and J&J often avoided trial
`before bankruptcy, settling roughly 6,800 talc-related claims
`for just under $1 billion in total and successfully obtaining
`dismissals without payment of about 1,300 ovarian cancer, and
`over 250 mesothelioma, actions.
`
`Undoubtedly, the talc litigation put financial pressure
`
`on Old Consumer.
` Before LTL’s petition,
`it paid
`
`
`
`22
`
`
`
`approximately $3.5 billion for talc-related verdicts and
`settlements. It also paid nearly $1 billion in defense costs, and
`the continuing run rate was between $10 million to $20 million
`per month. LTL’s expert identified talc-related costs as a
`primary driver that caused the income before tax of J&J’s
`Consumer Health business segment (for which Old Consumer
`was the primary operating company in the U.S.) to drop from
`a $2.1 billion profit in 2019 to a $1.1 billion loss in 2020.
`
`
`in contested
`Old Consumer also faced billions
`indemnification obligations to its bankrupt talc supplier,
`Imerys Talc America, Inc. and affiliates (collectively
`“Imerys”), as well as parties who had owned certain of
`Imerys’s talc mines. These remained after J&J’s settlement
`proposal of about $4 billion to $5 billion in the Imerys
`bankruptcy case—which, per LTL, had been tentatively agreed
`by attorneys for talc plaintiffs—ultimately fell through by June
`2021. An LTL representative testified that, if that proposal
`succeeded, it would have settled (subject to an opt-out)
`virtually all ovarian cancer claims in the multidistrict tort
`litigation and corresponding additional claims against J&J
`entities in the Imerys case. Old Consumer was also the target
`of both state and federal talc-related governmental complaints
`and investigations, as well as securities and shareholder
`actions, that could result in their own financial penalties and
`defense costs. LTL’s expert opined, and the Bankruptcy Court
`accepted, that the total talc-related liabilities threatened Old
`Consumer’s ability to make substantial talc-related payments
`from working capital or other readily marketable assets while
`funding
`its costs of operations (including marketing,
`distribution, research and development).
`
`
`
`
`23
`
`
`
` Still, Old Consumer was a highly valuable enterprise,
`estimated by LTL to be worth $61.5 billion (excluding future
`talc liabilities), with many profitable products and brands. And
`much of its pre-filing talc costs were attributable to the
`payment of one verdict, Ingham, a liability J&J described in
`public securities filings as “unique” and “not representative of
`other claims.” App. 2692-93. Further, while it allocated all
`talc-related payments to Old Consumer per the 1979 Spin-Off,
`J&J functionally made talc payments from its accounts and
`received an intercompany payable from Old Consumer in
`return. Addressing the scope of its litigation exposure in an
`October 2021 management representation letter to its auditors,
`J&J valued its and its subsidiaries’ probable and reasonably
`estimable contingent loss for products liability litigation,
`including for talc, under Generally Accepted Accounting
`Principles (“GAAP”), at $2.4 billion for the next 24 months.2
`It also continued to stand by the safety of its talc products and
`deny liability relating to their use.
`
`Consistent with their fiduciary duties, and likely spurred
`by the U.S. Supreme Court’s denial of certiorari in Ingham,
`members of J&J’s management explored ways to mitigate Old
`Consumer’s exposure to talc litigation. In a July 2021 email
`with a ratings agency, J&J’s treasurer described a potential
`restructuring that would capture all asbestos liability in a
`subsidiary to be put into bankruptcy.
`
`
`
`2 Adam Lisman, assistant controller for J&J, suggested in his
`trial testimony that it was J&J’s general policy to consider the
`next 24 months when calculating contingent costs under
`GAAP.
`
`
`
`24
`
`
`
`C. Corporate Restructuring and Divisional Merger
`
`On October 12, 2021, Old Consumer moved forward
`
`with this plan, undergoing a corporate restructuring relying
`principally on a merger under Texas law. Counterintuitively,
`this type of merger involves “the division of a [Texas] entity
`into two or more new . . . entities.” Tex. Bus. Orgs. Code Ann.
`§ 1.002(55)(A); see generally id. §§ 10.001 et seq. When the
`original entity does not survive the merger, it allocates its
`property, liabilities, and obligations among the new entities
`according to a plan of merger and, on implementation, its
`separate existence ends. Id. §§ 10.003, 10.008(a)(1). Except
`as otherwise provided by law or contract, no entity created in
`the merger is “liable for the debt or other obligation” allocated
`to any other new entity. Id. § 10.008(a)(4). In simplified
`terms, the merger splits a legal entity into two, divides its assets
`and liabilities between the two new entities, and terminates the
`original entity. While some pejoratively refer to it as the first
`step in a “Texas Two-Step” when followed by a bankruptcy
`filing, we more benignly call it a “divisional merger.”
`
`In our case, Old Consumer’s restructuring was designed
`
`as a series of reorganizational steps with the divisional merger
`at center.3 Ultimately, the restructuring created two new
`
`
`3 A slightly abbreviated summary of the many steps is as
`follows. Old Consumer merged into Chenango Zero, LLC, a
`Texas limited liability company and indirect, wholly owned
`subsidiary of J&J (“Chenango Zero”), with Chenango Zero
`surviving the merger.
` Chenango Zero (formerly Old
`Consumer) effected a divisional merger under the Texas
`Business Organizations Code by which two new Texas limited
`liability companies were created, Chenango One LLC
`
`
`
`25
`
`
`
`entities, LTL and New Consumer, and on its completion Old
`Consumer ceased to exist. It also featured the creation of a
`Funding Agreement, which had Old Consumer stand in
`momentarily as the payee, but ultimately (after some corporate
`maneuvers4) gave LTL rights to funding from New Consumer
`and J&J.
`
`
`As the most important step, the merger allocated LTL
`responsibility for essentially all liabilities of Old Consumer
`tied to talc-related claims.5 This meant, among other things, it
`would take the place of Old Consumer in current and future
`talc lawsuits and be responsible for their defense.
`
`
`
`(“Chenango One”) and Chenango Two LLC (“Chenango
`Two”), and Chenango Zero ceased to exist. Chenango One
`then converted into a North Carolina limited liability company
`and changed its name to “LTL Management LLC.” Chenango
`Two merged into Curahee Holding Company Inc., the direct
`parent company of LTL (“Curahee”). Curahee survived the
`merger and changed its name to “Johnson & Johnson
`Consumer Inc.” (now New Consumer).
`4 On the day of the divisional merger, the Funding Agreement
`was executed by Chenango Zero (formerly Old Consumer), as
`payee, along with J&J and Curahee, as payors. Then, per the
`divisional merger, LTL was allocated rights as payee under the
`Funding Agreement, replacing Chenango Zero. Chenango
`Two (which assumed Old Consumer’s assets not allocated to
`LTL) then merged into Curahee, one of the two original payors,
`and became New Consumer.
`5 LTL’s liability was for all talc claims except those where the
`exclusive remedy existed under a workers’ compensation
`statute or similar laws.
`
`
`
`26
`
`
`
`Old Consumer also transferred to LTL assets in the
`merger, including principally the former’s contracts related to
`talc litigation, indemnity rights, its equity interests in Royalty
`A&M LLC (“Royalty A&M”), and about $6 million in cash.
`Carved out from Old Consumer and its affiliates just before the
`divisional merger, Royalty A&M owns a portfolio of royalty
`streams that derive from consumer brands and was valued by
`LTL at approximately $367.1 million.
`
`Of the assets Old Consumer passed to LTL, most
`
`important were Old Consumer’s rights as a payee under the
`Funding Agreement with J&J and New Consumer. On its
`transfer, that gave LTL, outside of bankruptcy, the ability to
`cause New Consumer and J&J, jointly and severally, to pay it
`cash up to the value of New Consumer for purposes of
`satisfying any talc-related costs as well as normal course
`expenses. In bankruptcy, the Agreement gave LTL the right to
`cause New Consumer and J&J, jointly and severally, to pay it
`cash in the same amount to satisfy its administrative costs and
`to fund a trust, created in a plan of reorganization, to address
`talc liability for the benefit of existing and future claimants. In
`either scenario, there were few conditions to funding and no
`repayment obligation.6 The value of the payment right could
`
`
`6 For LTL to require J&J and New Consumer to fund, certain
`customary representations and warranties made by LTL must
`be true, such as those addressing its good standing under state
`law, the due authorization of the Funding Agreement, and the
`absence of any required governmental approval. And LTL
`must not have violated its covenants, specifically, that it will
`use the funds for only permitted uses and materially perform
`its indemnification obligations owed to New Consumer for all
`talc liabilities as set out in the plan of divisional merger.
`
`
`
`27
`
`
`
`not drop below a floor defined as the value of New Consumer
`measured as of the time of the divisional merger, estimated by
`LTL at $61.5 billion, and was subject to increase as the value
`of New Consumer increased after it.7
`
`On the other side of the divisional-merger ledger, New
`
`Consumer received all assets and liabilities of Old Consumer
`not allocated to LTL. It thus held Old Consumer’s productive
`business assets, including its valuable consumer products, and,
`critically, none of its talc-related liabilities (except those
`related
`to workers’ compensation).
` After
`this,
`the
`organizational chart was reshuffled to make New Consumer
`the direct parent company of LTL.
`
`When the ink dried, LTL—having received Old
`
`Consumer’s talc liability, rights under the Funding Agreement,
`a royalties business, and cash—was prepared to fulfill its
`reason for being: a bankruptcy filing. Meanwhile, New
`Consumer began operating the business formerly held by Old
`Consumer and would essentially remain unaffected (save for
`its funding obligation) by any bankruptcy filing of LTL.
`
`
`LTL became in bankruptcy talk the “bad company,” and
`New Consumer became the “good company.” This completed
`the first steps toward J&J’s goal of “globally resolv[ing] talc-
`related claims through a chapter 11 reorganization without
`subjecting
`the entire Old [Consumer] enterprise
`to a
`bankruptcy proceeding.” App. 450 (Decl. of John Kim 6).
`
`
`
`7 In each calculation of New Consumer’s value, its obligation
`under the Funding Agreement is not included.
`
`
`
`28
`
`
`
`D. LTL Bankruptcy Filing and Procedural History
`
`On October 14, 2021, two days after the divisional
`
`merger, LTL filed a petition for Chapter 11 relief in the
`Bankruptcy Court for the Western District of North Carolina.
`It also sought (1) to extend the automatic stay afforded to it
`under the Bankruptcy Code to talc claims arising from
`Johnson’s Baby Powder asserted against over six hundred
`nondebtors (the “Third-Party Claims”), including affiliates
`such as J&J and New Consumer, as well as insurers and third-
`party retailers (all nondebtors collectively the “Protected
`Parties”), or alternatively, (2) a preliminary injunction
`enjoining those claims. LTL’s first-day filings described the
`bankruptcy as an effort to “equitably and permanently resolve
`all current and future talc-related claims against it through the
`consummation of a plan of reorganization that includes the
`establishment of a [funding] trust.” App. 3799 (LTL’s Compl.
`for Decl. and Inj. Relief 2); App. 316 (LTL’s Info. Br. 1).
`
`A month later, the North Carolina Bankruptcy Court
`
`issued an order enjoining Third-Party Claims against the
`Protected Parties. But the order expired after 60 days and
`would not bind a subsequent court. The next day, following
`motions from interested parties (including representatives for
`talc claimants) and a Show Cause Order, the Court transferred
`LTL’s Chapter 11 case to the District of New Jersey under 28
`U.S.C. § 1412. It rejected what it viewed as LTL’s effort to
`“manufacture venue” and held that a preference to be subject
`to the Fourth Circuit’s two-prong bankruptcy dismissal
`
`
`
`29
`
`
`
`standard8 could not justify its filing in North Carolina. App.
`1515 (N.C. Transfer Order 10).
`
`
`With the case pending in the Bankruptcy Court for the
`District of New Jersey, the Official Committee of Talc
`Claimants (the “Talc Claimants’ Committee”) moved to
`dismiss LTL’s petition under § 1112(b) of the Bankruptcy
`Code as not filed in good faith. Soon after, Arnold & Itkin
`LLP, on behalf of talc claimants it represented (“A&I”), also
`moved for dismissal on the same basis. LTL opposed the
`motions. Two other law firms—including Aylstock, Witkin,
`Kreis & Overholtz, PLLC, on behalf of talc claimants
`(“AWKO”)—joined the motions. For ease of reference, we
`refer collectively to the Talc Claimants’ Committee, A&I, and
`AWKO as the “Talc Claimants.”
`
`
`8 In the Fourth Circuit, a court can only dismiss a bankruptcy
`petition for lack of good faith on a showing of the debtor’s
`“subjective bad faith” and the “objective futility of any
`possible reorganization.” Carolin Corp. v. Miller, 886 F.2d
`693, 694 (4th Cir. 1989). The Bankruptcy Court in the District
`of New Jersey described this as a “much more stringent
`standard for dismissal of a case for lacking good faith” than the
`Third Circuit’s test. App. 13 (Mot. to Dismiss Op. 13).
`Perhaps not by coincidence then, debtors formed by divisional
`mergers and bearing substantial asbestos liability seem to
`prefer filing in the Fourth Circuit, with four such cases being
`filed in the Western District of North Carolina in the years
`before LTL’s filing. See In re Bestwall LLC, Case No. 17-
`31795 (Bankr. W.D.N.C.); In re DBMP LLC, Case No. 20-
`30080 (Bankr. W.D.N.C.); In re Aldrich Pump LLC, Case No.
`20-30608 (Bankr. W.D.N.C.); In re Murray Boiler LLC, Case
`No. 20-30609 (Bankr. W.D.N.C.).
`
`
`
`30
`
`
`
`
`At the same time, LTL urged the New Jersey
`Bankruptcy Court to extend the soon-to-expire order enjoining
`Third-Party Claims against the Protected Parties. The Talc
`Claimants’ Committee and AWKO opposed this motion.
`
`In February 2022, the Bankruptcy Court held a five-day
`trial on the motions to dismiss and LTL’s third-party injunction
`motion. It denied soon thereafter the motions to dismiss and
`granted the injunction motion. App. 1, 57, 140, 194 (Mot. to
`Dismiss Op.; Mot. to Dismiss Order; Third-Party Inj. Op.;
`Third-Party Inj. Order).
`
`In its opinion addressing the motions to dismiss, the
`
`Bankruptcy Court applied Third Circuit case law and held that
`LTL filed its bankruptcy petition in good faith. The Court
`ruled the filing served a valid bankruptcy purpose because it
`sought to resolve talc liability by creating a trust for the benefit
`o
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