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 MICHELSONBOYLE,
2

 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)
3

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
4

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
5

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
6

Lyndon M. Treeter

Wollmuth, Maher & Deutsch

12th Floor

New York, NY 10110

Counsel for Debtor-Appellee

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
7

David J. Molton

Michael S. Winograd

Brown Rudnick

7 Times Square

47th Floor

New York, NY 10036

Counsel for Petitioner-Appellant Official 

Committee of Talc Claimants

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
8

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

Counsel for Petitioner Official Committee of 

Talc Claimants I 

Ellen Relkin

Weitz & Luxemberg

700 Broadway

New York, NY 10003

Counsel for Petitioner Patricia Cook

Deepak Gupta

Jonathan E. Taylor

Matthew W.H. Wessler

Gupta Wessler
9

2001 K Street, N.W. 

Suite 850 North

Washington, D.C. 20006

Counsel for Petitioners Evan Plotkin, Katherine

Tollefson, Giovanni Sosa, Jan Deborah MichelsonBoyle

Jerome Block

Amber Long

Moshe Maimon

Levy Konigsberg

605 Third Avenue

33rd Foor

New York, NY 10158

Counsel for Petitioner Randy Derouen

John M. August

Saiber

18 Columbia Turnpike

Suite 200

Florham Park, NJ 07932

Counsel for Petitioner Kristie Doyle, as estate 

representative of Dan Doyle
10

Suzanne Ratcliffe

Clay Thompson

Maune Raichle Hartley French & Mudd

150 West 30th Street

Suite 201

New York, NY 10001

Counsel for Petitioner Katherine Tollefson

David A. Chandler

Karst & von Oiste

505 Main Street

Port Jefferson, NY 11777

Counsel for Petitioner Tonya Whetsel

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
11

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

Counsel for Respondent Arnold & Itkin, 

LLP

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
12

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

Counsel for Respondent DeSanto Canadian 

Class Action Creditors

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 Claimants 

Represented by Barnes Law Group
13

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
14

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

Counsel for Respondent Official Committee 

of Talc Claimants II

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 Amicus Appellant United States 

Trustee 
15

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
16

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
17

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

Counsel for Amicus Appellant Public 

Justice

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
18

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 
19

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. 

Talc claimants there moved to dismiss LTL’s 

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 
20

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 wellbeing. 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
21

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.
22

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 
23

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.

Old Consumer also faced billions in contested

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).
24

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.
25

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, dividesits 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 
26

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.
27

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.
28

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] talcrelated 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.
29

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 thirdparty 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 
30

standard8could 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.).
31

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 

of claimants under § 524(g) of the Bankruptcy Code. At a high 

level, that provision allows a debtor satisfying certain 

conditions to establish, in a plan of reorganization, a trust for 

the benefit of current and future claimants against which an 

injunction channels all asbestos litigation.

9 The Court 

highlighted what it viewed as several benefits of claims

administration through a § 524(g) trust, compared to mass 

asbestos litigation in trial courts, including the possibility it

could resolve claims more efficiently (from both a cost and 

time perspective), ensure more balanced recoveries among 

claimants, and preserve funds for future claimants. 

9 Under certain conditions, the injunction can also channel to 

the trust claims against third parties affiliated with the debtor. 

11 U.S.C. § 524(g)(4).
32

The Court also held LTL was in financial distress. It

focused on the scope of litigation faced by Old Consumer (and 

transferred to LTL), the historic costs incurred by Old 

Consumer in connection with talc litigation, and the effect of 

these costs on its business. It suggested that extrapolating this 

talc liability into the future showed the “continued viability of 

all J&J companies [was] imperiled.” App. 36 (Mot. to Dismiss 

Op. 36). Yet it appeared to doubt LTL would completely 

exhaust its payment right under the Funding Agreement. App. 

35 (Id. at 35).

Finally, the Court determined LTL’s corporate 

restructuring and bankruptcy were not undertaken to secure an 

unfair tactical litigation advantage against talc claimants, but 

constituted “a single integrated transaction” that did not 

prejudice creditors and eliminated costs that would otherwise 

be imposed on Old Consumer’s operating business had it been

subject to bankruptcy. App. 43 (Id. at 43). The Court 

ultimately saw the bankruptcy forum as having a superior 

ability, compared to trial courts, to protect the talc claimants’ 

interests, viewing this as an “unusual circumstance[]” that

precluded dismissal under 11 U.S.C. § 1112(b)(2). App. 13

(Id. at 13 n.8).

At the same time the Bankruptcy Court grappled

substantively with existing Circuit case law, it made much of 

LTL’s novel design and the reasons for it. Its bankruptcy, the 

Court believed, presented a “far more significant issue” than 

equitable limitations on bankruptcy filings: “which judicial 

system [better served talc claimants]—the state/federal court 

trial system, or a trust vehicle established under a chapter 11

reorganization plan . . . [in Bankruptcy Court].” App. 12-13
33

(Id. at 12-13). Answering this question, it provided a full

defense of its “strong conviction that the bankruptcy court is 

the optimal venue for redressing the harms of both present and 

future talc claimants in this case.” App. 19 (Id. at 19).

10

The Talc Claimants timely appealed the Bankruptcy 

Court’s order denying the motions to dismiss. The Talc 

Claimants’ Committee and AWKO also appealed the order 

enjoining Third-Party Claims against the Protected Parties. On

request of the Talc Claimants, the Bankruptcy Court certified 

the challenged orders to our Court under 28 U.S.C. § 158(d)(2).

In May 2022, we authorized direct appeal of the orders under 

the same statute.

The Bankruptcy Court had jurisdiction of the 

bankruptcy case under, inter alia, 28 U.S.C. §§ 157(a) and 

1334(a).

11 We have jurisdiction of the appeals under 28 U.S.C. 

§ 158(d)(2)(A).

10 In the separate opinion explaining its order preserving the 

injunction of Third-Party Claims against Protected Parties, the 

Court held that “unusual circumstances” warranted extension 

of the automatic stay to those claims under Bankruptcy Code 

§§ 362(a)(1) and 362(a)(3). It also held that Bankruptcy Code 

§ 105(a) provided it independent authority to issue a 

preliminary injunction enjoining them. App. 140 (Third-Party 

Inj. Op.).

11 The parties contest whether the Bankruptcy Court had 

jurisdiction to issue the order enjoining the Third-Party Claims 

against the Protected Parties. Dismissing LTL’s petition 

obviates the need to reach that question.
34

II. ANALYSIS

A. Standard of Review

We review for an abuse of discretion the Bankruptcy 

Court’s denial of the motionsto dismiss the Chapter 11 petition 

for lack of good faith. In re 15375 Mem’l Corp. v. BEPCO, 

L.P., 589 F.3d 605, 616 (3d Cir. 2009). That exists when the

decision “rests upon a clearly erroneous finding of fact, an 

errant conclusion of law, or an improper application of law to 

fact.” Id. (citation omitted). We give fresh (i.e., plenary or de 

novo) review to a conclusion of law and review for clear error

findings of fact leading to the decision. Id.

Facts subject to clear-error review include those that are 

basic, “the historical and narrative events elicited from the 

evidence presented at trial . . .,” and those that are inferred, 

which are “drawn from basic facts and are permitted only 

when, and to the extent that, logic and human experience 

indicate a probability that certain consequences can and do 

follow from the basic facts.” Universal Mins., Inc. v. C.A. 

Hughes & Co., 669 F.2d 98, 102 (3d Cir. 1981). These are 

distinguished from an “ultimate fact,” which is a “legal concept 

with a factual component.” Id. at 103. Examples include 

negligence or reasonableness. Wells Fargo, N.A. v. Bear 

Stearns & Co. (In re HomeBanc Mortg. Corp.), 945 F.3d 801, 

810 (3d Cir. 2019). Reviewing an ultimate fact, “we separate 

[its] distinct factual and legal elements . . . and apply the 

appropriate standard to each component.” Universal Mins.,

669 F.2d at 103.

Concluding a bankruptcy petition is filed in good faith 

is an “ultimate fact.” BEPCO, 589 F.3d at 616. While the 
35

underlying basic and inferred facts require clear-error review, 

the culminating determination of whether those facts support a 

conclusion of good faith gets plenary review as “essentially[]

a conclusion of law.” Id. A conclusion of financial distress, 

like the broader good-faith inquiry of which it is a part,

likewise is subject to mixed review. Whether financial distress 

exists depends on the underlying basic facts, such as the

debtor’s ability to pay its current debts, and inferred facts, such 

as projections of how much pending and future liabilities (like 

litigation) could cost it in the future. But the conclusion, like 

good faith, gets a fresh look.

B. Good Faith

Chapter 11 bankruptcy petitions are “subject to 

dismissal under 11 U.S.C. § 1112(b) unless filed in good 

faith.” BEPCO, 589 F.3d at 618 (citing NMSBPCSLDHB, L.P. 

v. Integrated Telecom Express, Inc. (In re Integrated Telecom 

Express, Inc.), 384 F.3d 108, 118 (3d Cir. 2004)). Section 

1112(b) provides for dismissal for “cause.” A lack of good 

faith constitutes “cause,” though it does not fall into one of the 

examples of cause specifically listed in the statute. See In re 

SGL Carbon Corp., 200 F.3d 154, 159-62 (3d Cir. 1999). 

Because the Code’s text neither sets nor bars explicitly a goodfaith requirement, we have grounded it in the “equitable nature 

of bankruptcy” and the “purposes underlying Chapter 11.” Id. 

at 161-62 (“A debtor who attempts to garner shelter under the 

Bankruptcy Code . . . must act in conformity with the Code’s 

underlying principles.”).

Once at issue, the burden to establish good faith is on 

the debtor. BEPCO, 589 F.3d at 618 (citing Integrated 

Telecom, 384 F.3d at 118); SGL Carbon, 200 F.3d at 162 n.10. 
36

We “examine the totality of facts and circumstances and 

determine where a petition falls along the spectrum ranging 

from the clearly acceptable to the patently abusive.” BEPCO, 

589 F.3d at 618 (internal quotation marks omitted) (citing 

Integrated Telecom, 384 F.3d at 118). Though a debtor’s

subjective intent may be relevant, good faith falls “more on 

[an] objective analysis of whether the debtor has sought to step 

outside the ‘equitable limitations’ of Chapter 11.” Id. at 618

n.8 (citing SGL Carbon, 200 F.3d at 165).

“[T]wo inquiries . . . are particularly relevant”: “(1) 

whether the petition serves a valid bankruptcy purpose[;] and 

(2) whether [it] is filed merely to obtain a tactical litigation 

advantage.” Id. at 618 (internal quotation marks omitted) 

(citing Integrated Telecom, 384 F.3d at 119-20). Valid 

bankruptcy purposes include “preserv[ing] a going concern” or 

“maximiz[ing] the value of the debtor’s estate.” Id. at 619.

Further, a valid bankruptcy purpose “assumes a debtor in 

financial distress.” Integrated Telecom, 384 F.3d at 128.

C. Financial Distress as a Requirement of Good Faith

Our precedents show a debtor who does not suffer from 

financial distress cannot demonstrate its Chapter 11 petition 

serves a valid bankruptcy purpose supporting good faith. We

first applied this principle in SGL Carbon. The debtor there

filed for Chapter 11 protection in the face of many antitrust 

lawsuits—in its words, to “protect itself against excessive 

demands made by plaintiffs” and “achieve an expeditious 

resolution of the claims.” 200 F.3d at 157. But we dismissed 

the petition for lack of good faith, relying on the debtor’sstrong 

financial health. Id. at 162-70. We rejected arguments that the 

suits seriously threatened the company and could force it out 
37

of business, suggesting the magnitude of potential liability 

would not likely render it insolvent. Id. at 162-64. And the

filing was premature, as one could be later made—without 

risking the debtor’s ability to reorganize—at a time a companythreatening judgment occurred. Id. at 163. Finally, in 

considering whether the petition served a valid bankruptcy

purpose, we discerned none in light of the debtor’s substantial 

equity cushion and a lack of evidence suggesting it had trouble 

paying debts or impaired access to capital markets. Id. at 166.

Were the debtor facing “serious financial and/or managerial 

difficulties at the time of filing,” the result may have been 

different. Id. at 164.

Integrated Telecom made clear that “good faith 

necessarily requires some degree of financial distress on the 

part of a debtor.” 384 F.3d at 121 (emphasis added). That

debtor was a non-operating, nearly liquidated shell company 

that was “highly solvent and cash rich at the time of the 

bankruptcy.” Id. at 124. And its financial condition was key 

to the petition’s dismissal. We said that Chapter 11 could not

improve its failing business model nor resolve pending 

securities litigation in a way that increased recoveries for 

creditors. Id. at 120-26. Thus the proceeding could preserve 

no “value that otherwise would be lost outside of bankruptcy,” 

showing those problems were not the kinds of financial issues

Chapter 11 aimed to address. Id. at 120, 129. And absent 

financial distress, the debtor’s desire to benefit from certain 

Code provisions (such as those capping claims for future rents) 

could not justify its presence in bankruptcy. Id. at 126-29.

We note that, when considering the whole of the 

circumstances in these decisions, we evaluated rationales for 

filing offered by the debtor that were only modestly related to 
38

its financial health—even after recognizing it was not in 

financial distress. Yet we rejected all of them and stuck to the 

debtor’s financial condition. Id.; SGL Carbon, 200 F.3d at 

167-68. 

The theme is clear: absent financial distress, there is no 

reason for Chapter 11 and no valid bankruptcy purpose.

“Courts, therefore, have consistently dismissed . . . petitions 

filed by financially healthy companies with no need to 

reorganize under the protection of Chapter 11. . . . [I]f a 

petitioner has no need to rehabilitate or reorganize, its petition 

cannot serve the rehabilitative purpose for which Chapter 11 

was designed.” Integrated Telecom, 384 F.3d at 122 (quoting 

SGL Carbon, 200 F.3d at 166). 

But what degree of financial distress justifies a debtor’s 

filing? To say, for example, that a debtor must be in financial

distress is not to say it must necessarily be insolvent. We

recognize as much, as the Code conspicuously does not contain 

any particular insolvency requirement. See SGL Carbon, 200 

F.3d at 163; Integrated Telecom, 384 F.3d at 121. And we need 

not set out any specific test to apply rigidly when evaluating

financial distress. Nor does the Code direct us to apply one.

Instead, the good-faith gateway asks whether the debtor 

faces the kinds of problems that justify Chapter 11 relief. 

Though insolvency is not strictly required, and “no list is 

exhaustive of all the factors which could be relevant when 

analyzing a particular debtor’s good faith,” SGL Carbon, 200 

F.3d at 166 n.16, we cannot ignore that a debtor’s balancesheet insolvency or insufficient cash flows to pay liabilities (or 

the future likelihood of these issues occurring) are likely 

always relevant. This is because they pose a problem Chapter 
39

11 is designed to address: “that the system of individual 

creditor remedies may be bad for the creditors as a group when 

there are not enough assets to go around.” Integrated Telecom,

384 F.3d at 121 (second set of italics added) (quoting Thomas 

H. Jackson, The Logic and Limits of Bankruptcy Law 10 

(1986)).

Still, we cannot today predict all forms of financial 

difficulties that may in some cases justify a debtor’s presence 

in Chapter 11. Financial health can be threatened in other 

ways; for instance, uncertain and unliquidated future liabilities 

could pose an obstacle to a debtor efficiently obtaining

financing and investment. As we acknowledged in SGL 

Carbon, certain financial problems or litigation may require 

significant attention, resulting in “serious . . . managerial 

difficulties.” 200 F.3d at 164. Mass tort cases may present 

these issues and others as well, like the exodus of customers 

and suppliers wary of a firm’s credit-risk. See, e.g., Mark J. 

Roe, Bankruptcy and Mass Tort, 84 Colum. L. Rev. 846, 855 

(1984) (describing the “adverse” and “severe” effects largescale, future tort claims may have on a firm). So many spokes 

can lead to financial distress in the right circumstances that we 

cannot divine them all. What we can do, case-by-case, is 

consider all relevant facts in light of the purposes of the Code.

Financial distress must not only be apparent, but it must 

be immediate enough to justify a filing. “[A]n attenuated 

possibility standing alone” that a debtor “may have to file for 

bankruptcy in the future” does not establish good faith. SGL 

Carbon, 200 F.3d at 164; see, e.g., Baker v. Latham 

Sparrowbush Assocs. (In re Cohoes Indus. Terminal, Inc.), 931 

F.2d 222, 228 (2d Cir. 1991) (“Although a debtor need not be 

in extremis in order to file[,] . . . it must, at least, face such 
40

financial difficulty that, if it did not file at that time, it could 

anticipate the need to file in the future.”). Yet we recognize

the Code contemplates “the need for early access to bankruptcy 

relief to allow a debtor to rehabilitate its business before it is 

faced with a hopeless situation.” SGL Carbon, 200 F.3d at 163.

A “financially troubled” debtor facing mass tort liability, for 

example, may require bankruptcy to “enable a continuation of 

[its] business and to maintain access to the capital markets” 

even before it is insolvent. Id. at 169.

Still, encouragement of early filing “does not open the 

door to premature filing.” Id. at 163. This may be a fine line 

in some cases, but our bankruptcy system puts courts, vested

with equitable powers, in the best position to draw it.

Risks associated with premature filing may be

particularly relevant in the context of a mass tort bankruptcy. 

Inevitably those cases will involve a bankruptcy court 

estimating claims on a great scale—introducing the possibility 

of undervaluing future claims (and underfunding assets left to 

satisfy them)12 and the difficulty of fairly compensating

claimants with wide-ranging degrees of exposure and injury. 

On the other hand, a longer history of litigation outside of 

12 See Report of the National Bankruptcy Review Commission 

343-44 (Oct. 20, 1997) (recognizing claims-estimation 

accuracy is an important component of the integrity of the mass 

tort bankruptcy process and noting underestimation of claims 

occurred in the Johns-Manville case, one of the earliest 

asbestos bankruptcy cases, while also pointing to the adequate 

funding of trusts in subsequent cases to show those risks are

surmountable).
41

bankruptcy may provide a court with better guideposts when

tackling these issues.13

To take a step back, testing the nature and immediacy 

of a debtor’s financial troubles, and examining its good faith 

more generally, are necessary because bankruptcy significantly 

disrupts creditors’ existing claims against the debtor: “Chapter 

11 vests petitioners with considerable powers—the automatic 

stay, the exclusive right to propose a reorganization plan, the 

discharge of debts, etc.—that can impose significant hardship 

on particular creditors. When financially troubled petitioners 

seek a chance to remain in business, the exercise of those 

powers is justified.” Integrated Telecom, 384 F.3d at 120 

(emphasis added) (citing SGL Carbon, 200 F.3d at 165-66).

Accordingly, we have said the availability of certain debtorfavored Code provisions “assume[s] the existence of a valid 

bankruptcy, which, in turn, assumes a debtor in financial 

distress.” Id. at 128. Put another way, “Congress designed 

Chapter 11 to give those businesses teetering on the verge of a 

13 For instance, the A.H. Robins claimants’ trust has been 

recognized as one that functioned effectively and remained 

solvent for years. There the Court and stakeholders had the 

benefit of data from 15 years of tort litigation by A.H. Robins 

before its filing. See Report of the National Bankruptcy

Review Commission 328 n.813, 344-45 (Oct. 20, 1997) (citing

Jack B. Weinstein, Individual Justice in Mass Tort Litigation: 

The Effect of Class Actions, Consolidations, and other 

Multiparty Devices 280 n.88, 326 n.149 (Northwestern Press 

1995), and Ralph R. Mabey & Peter A. Zisser, Improving 

Treatment of Future Claims: The Unfinished Business Left by 

the Manville Amendments, 69 Am. Bankr. L.J. 487, 497 n.45 

(1995)).
42

fatal financial plummet an opportunity to reorganize on solid 

ground and try again, not to give profitable enterprises an 

opportunity to evade contractual or other liability.” Cedar 

Shore Resort, Inc v. Mueller (In re Cedar Shore Resort, Inc.),

235 F.3d 375, 381 (8th Cir. 2000) (internal quotation marks 

omitted).

Our confidence in the conclusion that financial distress 

is vital to good faith is reinforced by the central role it plays in

other courts’ inquiries.14 Chapter 11’s legislative history also 

14 See, e.g., Little Creek Dev. Co. v. Commonw. Mortg. Corp.

(In re Little Creek Dev. Co.), 779 F.2d 1068, 1072 (5th Cir. 

1986) (“Determining whether the debtor’s filing for relief is in 

good faith depends largely upon the bankruptcy court’s on-thespot evaluation of the debtor’s financial condition, motives, 

and the local financial realities.”); Cedar Shore Resort, Inc., 

235 F.3d at 379-80 (in evaluating good faith, courts “consider 

the totality of the circumstances, including . . . the debtor’s 

financial condition, motives, and the local financial realities”; 

dismissing petition, in part, because the debtor was “not in dire 

financial straits”); In re James Wilson Assocs., 965 F.2d 160, 

170 (7th Cir. 1992) (recognizing that, while the Code permits 

a firm to file though it is not insolvent, such filings usually 

involve “impending insolvency”); Cohoes Indus. Terminal, 

931 F.2d at 228 (in the context of whether a petition was 

frivolous under Bankruptcy Rule 9011, stating “[a]lthough a 

debtor need not be in extremis in order to file[,] . . . it must, at 

least, face such financial difficulty that, if it did not file at that 

time, it could anticipate the need to file in the future”);see also, 

e.g., Barclays-Am./Bus. Credit, Inc. v. Radio WBHP, Inc. (In 

re Dixie Broad., Inc.), 871 F.2d 1023, 1027-28 (11th Cir. 1989) 

(stating that whether a debtor is “financially distressed” is one 
43

suggests it was meant to “deal[] with the reorganization of a 

financially distressed enterprise.” SGL Carbon, 200 F.3d at 

166 (quoting S. Rep. No. 95-989, at 9, reprinted in 1978 

U.S.C.C.A.N. 5787, 5795).

The takeaway here is that when financial distress is 

present, bankruptcy may be an appropriate forum for a debtor 

to address mass tort liability. Our SGL Carbon decision

specifically addressed this in distinguishing the financial 

distress faced by Johns-Manville in its Chapter 11 case. It was 

prompted by a tide of asbestos litigation that, but for its filing, 

would have forced the debtor to book a $1.9 billion liability 

reserve “trigger[ing] the acceleration of approximately $450 

million of outstanding debt, [and] possibly resulting in a forced 

liquidation of key business segments.” In re Johns-Manville 

Corp., 36 B.R. 727, 730 (Bankr. S.D.N.Y. 1984). That created

a “compelling need [for the debtor] to reorganize in order to 

meet” its obligations to creditors. Id. This urgency stood in 

stark contrast to the circumstances in SGL Carbon, where the 

debtor faced no suits, or even liquidated judgments, that 

threatened its ongoing operations.

A.H. Robins Company, before its bankruptcy, faced 

financial woes like Johns-Manville’s, in both cases caused by 

factor evidencing bad faith and that “the Bankruptcy Code is 

not intended to insulate ‘financially secure’ [debtors]”);

Carolin Corp., 886 F.2d at 701 (one prong of the good-faith 

inquiry is meant to ensure the petition bears “some relation to 

the statutory objective of resuscitating a financially troubled 

[debtor]”) (brackets in original) (citing Connell v. Coastal 

Cable T.V., Inc. (In re Coastal Cable T.V., Inc.), 709 F.2d 762, 

765 (1st Cir. 1983)).
44

mass product liabilities litigation. Before filing, Robins had 

only $5 million in unrestricted funds and a “financial 

picture . . . so bleak that financial institutions were unwilling

to lend it money.” In re A.H. Robins Co., Inc., 89 B.R. 555, 

558 (Bankr. E.D.V.A. 1988). The Court concluded Robins

“had no choice but to file for relief under Chapter 11.” Id.

And in Dow Corning’s Chapter 11 case, the Court 

described the company’s resolve to address mass tort liability

as “a legitimate effort to rehabilitate a solvent but financiallydistressed corporation.” In re Dow Corning Corp., 244 B.R. 

673, 676-77 (Bankr. E.D. Mich. 1999) (emphasis added). It 

specifically recognized that “the legal costs and logistics of 

defending the worldwide product liability lawsuits against the 

[d]ebtor threatened its vitality by depleting its financial

resources and preventing its management from focusing on 

core business matters.” Id. at 677.

These cases show that mass tort liability can push a 

debtor to the brink. But to measure the debtor’s distance to it, 

courts must always weigh not just the scope of liabilities the 

debtor faces, but also the capacity it has to meet them. We now 

go there, but only after detouring to a problem particular to our 

case: For good-faith purposes, should we judge the financial 

condition of LTL by looking to Old Consumer—the operating 

business with valuable assets, but damaging tort liability, that 

the restructuring and filing here aimed to protect? Or should 

we look to LTL, the entity that actually filed for bankruptcy? 

Or finally, like the Bankruptcy Court, should we consider “the 

financial risks and burdens facing both Old [Consumer] and 

[LTL]”? App. 14 (Mot. to Dismiss Op. 14).
45

D. Only LTL’s Financial Condition is Determinative.

Weighing the totality of facts and circumstances might

seem on the surface to require that we evaluate the state of 

affairs of both Old Consumer and LTL when judging the 

latter’s financial distress. That said, we must not 

underappreciate the financial reality of LTL while unduly 

elevating the comparative relevance of its pre-bankruptcy 

predecessor that no longer exists. Even were we unable to

distinguish the financial burdens facing the two entities, we can

distinguish their vastly different sets of available assets to 

address those burdens. On this we part from the Bankruptcy 

Court.

Thus for us, the financial state of LTL—a North 

Carolina limited liability company formed under state law and 

existing separate from both its predecessor company (Old 

Consumer) and its newly incorporated counterpart company

(New Consumer)—should be tested independent of any other 

entity. That means we focus on its assets, liabilities, and, 

critically, the funding backstop it has in place to pay those 

liabilities.

Doing so reflects the principle that state-law property

interests should generally be given the same effect inside and 

outside bankruptcy: “Property interests are created and defined 

by state law. Unless some federal interest requires a different 

result, there is no reason why such interests should be analyzed 

differently simply because an interested party is involved in a 

bankruptcy proceeding.” Butner v. United States, 440 U.S. 48, 

55 (1979). No one doubts that the state-law divisional merger 

passed talc liabilities to LTL. Why in bankruptcy would we 

recognize the effectiveness of this state-law transaction, but at 
46

the same time ignore others that augment LTL’s assets, such as 

its birth gift of the Funding Agreement? To say the financial 

condition of Old Consumer prior to the restructuring—which 

was not bolstered by such a contractual payment right—

determines the availability of Chapter 11 to LTL would impose 

on the latter a lookback focused on the nonavailability of a

funding backstop to what is now a nonentity.

Instead, we must evaluate the full set of state-law 

transactions involving LTL to understand the makeup of its 

financial rights and obligationsthat, in turn, dictate its financial 

condition. Even were we to agree that the full suite of 

reorganizational steps was a “single integrated transaction,”

App. 43 (Mot. to Dismiss Op. 43), this conclusion does not 

give us license to look past its effect: the creation of a new 

entity with a unique set of assets and liabilities, and the 

elimination of another. Only the former is in bankruptcy and 

subject to its good-faith requirement. See Ralph Brubaker, 

Assessing the Legitimacy of the “Texas Two-Step” Mass-Tort 

Bankruptcy, 42 No. 8 Bankr. L. Letter NL 1 (Aug. 2022) 

(observing that the Bankruptcy Code is designed to address the 

financial distress of the entity in bankruptcy).

We cannot say a “federal interest requires a different 

result.” See Butner, 440 U.S. at 55. That is because the 

Bankruptcy Code is an amalgam of creditor-debtor tradeoffs 

balanced by a Congress that assumed courts applying it would 

respect the separateness of legal entities (and their respective 

assets and liabilities). “[T]he general expectation of state law 

and of the Bankruptcy Code . . . is that courts respect entity 

separateness absent compelling circumstances calling 

equity . . . into play.” In re Owens Corning, 419 F.3d 195, 211 

(3d Cir. 2005). Put differently, as separateness is foundational 
47

to corporate law, which in turn is a predicate to bankruptcy law, 

it is not easily ignored. It is especially hard to ignore when

J&J’s pre-bankruptcy restructuring—ring-fencing talc 

liabilities in LTL and forming the basis for this filing—

depended on courts honoring this principle.

The Bankruptcy Code is designed in important part to

protect and distribute a debtor’s assets to satisfy its liabilities.

It strains logic then to say the condition of a defunct entity 

should determine the availability of Chapter 11 to the only 

entity subject to it. To do so would introduce uncertainty

regarding how far back and to what entities a court can look 

when evaluating a debtor’s financial distress.

Thus, while we agree with the Bankruptcy Court that 

both entities are part of our discussion of financial distress, the 

financial condition of Old Consumer is relevant only to the 

extent it informs our view of the financial condition of LTL

itself.

E. LTL Was Not in Financial Distress.

With our focus properly set, we now evaluate the 

financial condition of LTL. It is here we most disagree with 

the Bankruptcy Court, as it erred by overemphasizing the 

relevance of Old Consumer’s financial condition. And while 

we do not second-guess its findings on the scope and costs of

talc exposure up to the filing date, we do not accept its

projections of future liability derived from those facts. 

After these course corrections, we cannot agree LTL 

was in financial distress when it filed its Chapter 11 petition. 

The value and quality of its assets, which include a roughly 
48

$61.5 billion payment right against J&J and New Consumer, 

make this holding untenable.

The Funding Agreement merits special mention. To 

recap, under it LTL had the right, outside of bankruptcy, to 

cause J&J and New Consumer, jointly and severally, to pay it 

cash up to the value of New Consumer as of the petition date 

(estimated at $61.5 billion) to satisfy any talc-related costs and 

normal course expenses. Plus this value would increase as the 

value of New Consumer’s business and assets increased. App. 

4316-17 (Funding Agreement 4-5, § 1 Definition of “JJCI 

Value”).

15 The Agreement provided LTL a right to cash that 

was very valuable, likely to grow, and minimally conditional. 

And this right was reliable, as J&J and New Consumer were 

highly creditworthy counterparties (an understatement) with 

the capacity to satisfy it. 

As for New Consumer, it had access to Old Consumer’s

cash-flowing brands and products along with the profits they 

produced, which underpinned the $61.5 billion enterprise value

of New Consumer as of LTL’s filing. And the sales and 

adjusted income of the consumer health business showed 

steady growth in the last several years when talc costs were 

excluded. Most important, though, the payment right gave 

LTL direct access to J&J’s exceptionally strong balance sheet. 

At the time of LTL’s filing, J&J had well over $400 billion in 

equity value with a AAA credit rating and $31 billion just in 

15 While, as described above, the uses for which LTL may draw 

on the payment right change in bankruptcy (i.e., LTL is 

permitted to draw on it to fund a claimant trust and satisfy 

administrative expenses), we focus on the rights available to it 

just prior to its filing for good-faith purposes.
49

cash and marketable securities. It distributed over $13 billion 

to shareholders in each of 2020 and 2021. It is hard to imagine 

a scenario where J&J and New Consumer would be unable to 

satisfy their joint obligations under the Funding Agreement. 

And, of course, J&J’s primary, contractual obligation to fund 

talc costs was one never owed to Old Consumer (save for the 

short moment during the restructuring that it was technically a 

party to the Funding Agreement).

Yet the Bankruptcy Court hardly considered the value 

of LTL’s payment right to its financial condition. True, it 

noted its jurisdictional authority could “ensure that [LTL] 

pursue[d] its available rights” under the Funding Agreement.

App. 43 (Mot. to Dismiss Op. 43). But, in discussing LTL’s 

financial condition, the Court was “at a loss to understand, 

why—merely because [LTL] contractually has the right to

exhaust its funding options [under the Funding Agreement]”—

it was “not to be regarded as being in ‘financial distress.’” 

App. 35 (Id. at 35). It speculated that a draw on the payment 

right could force J&J to deplete its available cash or pursue a 

forced liquidation of New Consumer and have a “horrific 

impact” on those companies. Id. The assumption seems to be 

that, out of concern for its affiliates, LTL may avoid drawing

on the payment right to its full amount. But this is unsupported 

and disregards the duty of LTL to access its payment assets.

Ultimately, whether this assumption was made or not, 

the Bankruptcy Court did not consider the full value of LTL’s

backstop when judging itsfinancial condition. And at the same 

time it acutely focused on how talc litigation affected Old 

Consumer. See, e.g., App. 34 (Mot. to Dismiss Op. 34) (“The 

evidence confirms that the talc litigation . . . forced Old 

[Consumer] into a loss position in 2020”); App. 36 (Id. at 36)
50

(“Old [Consumer] was not positioned to continue making 

substantial [t]alc [l]itigation payments”); App. 38 (Id. at 38)

(“Old [Consumer] need not have waited until its viable 

business operations were threatened past the breaking point”)

(emphasis added in each citation). Directing its sight to Old 

Consumer and away from the Funding Agreement’s benefit to 

LTL essentially made the financial means of Old Consumer, 

and not LTL, the lodestar of the Court’s financial-distress 

analysis. This misdirection was legal error.

We also find a variable missing in the Bankruptcy 

Court’s projections of future liability for LTL extrapolated 

from the history of Old Consumer’s talc litigation: the latter’s

successes. To reiterate, before bankruptcy Old Consumer had 

settled about 6,800 talc-related claims for under $1 billion and 

obtained dismissals of about 1,300 ovarian cancer and over 250 

mesothelioma claims without payment. And a minority of the 

completed trials resulted in verdicts against it (with some of 

those verdicts reversed on appeal). Yet the Court invoked 

calculations that just the legal fees to defend all existing 

ovarian cancer claims (each through trial) would cost up to 

$190 billion. App. 37 (Id. at 37). It surmised “one could 

argue” the exposure from the existing mesothelioma claims 

alone exceeded $15 billion. App. 17 (Id. at 17). These 

conjectures ballooned its conclusion that, “[e]ven without a 

calculator or abacus, one can multiply multi-million dollar or 

multi-billion dollar verdicts by tens of thousands of existing 

claims, let alone future claims,” to see that “the continued 

viability of all J&J companies is imperiled.” App. 36 (Id. at 

36).

What these projections ignore is the possibility of 

meaningful settlement, as well as successful defense and 
51

dismissal, of claims by assuming most, if not all, would go to 

and succeed at trial. In doing so, these projections contradict 

the record. And while the Bankruptcy Court questioned the 

continuing relevance of the past track record after Ingham and 

the breakdown of the Imerys settlement talks, this assumes too 

much too early. Nothing in the record suggests Ingham—one

of 49 pre-bankruptcy trials and described even by J&J as 

“unique” and “not representative,” App. 2692-93—was the 

new norm. Nor is there anything that shows all hope of a 

meaningful global or near-global settlement was lost after the 

initial Imerys offer was rebuffed. The Imerys bankruptcy 

remained a platform to negotiate settlement. And the

progression of the multidistrict litigation on a separate track 

would continue to sharpen all interested parties’ views of 

mutually beneficial settlement values.

Finally, we cannot help noting that the casualness of the 

calculations supporting the Court’s projections engenders

doubt as to whether they were factual findings at all, but instead

back-of-the-envelope forecasts of hypothetical worst-case 

scenarios. Still, to the extent they were findings of fact, we 

cannot say these were inferences permissibly drawn and 

entitled to deference. See Universal Mins., 669 F.2d at 102. 

And as we locate no other inferences or support in the record 

to bear the Court’s assertion that the “talc liabilities” “far 

exceed [LTL’s] capacity to satisfy [them],” we cannot accept 

this conclusion either.

16

 App. 23 (Mot. to Dismiss Op. 23).

16 Because we arrive at the same result assuming the 

Bankruptcy Court was correct to determine LTL was 

responsible to indemnify J&J for all talc costs it incurs, we 

need not opine on this conclusion. Still, we note certain 

pertinent factors lack full discussion in the Court’s analysis of 
52

In this context, it becomes clear that, on its filing, LTL

did not have any likely need in the present or the near-term, or 

even in the long-term, to exhaust its funding rights to pay talc 

liabilities. In the over five years of litigation to date, the 

aggregate costs had reached $4.5 billion (less than 7.5% of the 

$61.5 billion value on the petition date), with about half of 

these costs attributable to one ovarian cancer verdict, Ingham, 

to date an outlier victory for plaintiffs. While the number of 

talc claims had surged in recent years, still J&J, as of October 

2021, valued the probable and reasonably estimable contingent 

loss for its products liability litigation, including for talc, under 

GAAP, at $2.4 billion for the next two years. Further, though 

settlement offers are only that, we do not disregard LTL’s 

suggestion that $4 billion to $5 billion was at one time 

considered by plaintiffs’ lawyers to be in the ballpark to resolve 

virtually all multidistrict ovarian cancer claims as well as 

the indemnity agreement relating to Johnson’s Baby Powder in 

the 1979 Spin Off. App. 163-69 (Third-Party Inj. Op. 24-30). 

For example, it is not obvious LTL must indemnify J&J for the 

latter’s independent, post-1979 conduct that is the basis of a 

verdict rendered against it. See App. 4957 (Agreement for 

Transfer of Assets and Bill of Sale 5 ¶ 4) (Old Consumer’s 

predecessor agrees to assume and indemnify J&J against 

“all . . . liabilities and obligations of every kind and description 

which are allocated on the books or records of J&J as 

pertaining to the BABY Division.”) (emphasis added). It is 

also not clear the indemnity should be read to reach punitive 

damage verdicts rendered against J&J for its own conduct. 

Additionally, the Court never discussed how it reached its 

conclusion that Old Consumer assumed responsibility from 

J&J for all claims relating to Shower to Shower.
53

corresponding additional claims in the Imerys bankruptcy.

And as noted, we view all this against a pre-bankruptcy 

backdrop where Old Consumer had success settling claims or 

obtaining dismissal orders, and where, at trial, ovarian cancer 

plaintiffs never won verdicts that withstood appeal outside of 

Ingham and mesothelioma plaintiffs had odds of prevailing 

that were less than stellar.

From these facts—presented by J&J and LTL 

themselves—we can infer only that LTL, at the time of its 

filing, was highly solvent with access to cash to meet 

comfortably its liabilities as they came due for the foreseeable 

future. It looks correct to have implied, in a prior court filing, 

that there was not “any imminent or even likely need of [it] to 

invoke the Funding Agreement to its maximum amount or

anything close to it.” App. 3747 (LTL’s Obj. to Mots. for Cert.

of Direct Appeal 22) (emphasis added). Indeed, the Funding 

Agreement itself recited that LTL, after the divisional merger 

and assumption of that Agreement, held “assets having a value 

at least equal to its liabilities and had financial capacity 

sufficient to satisfy its obligations as they become due in the 

ordinary course of business, including any [t]alc [r]elated

[l]iabilities.” App. 4313 (Funding Agreement 1, ¶ E)

(emphasis added).

We take J&J and LTL at their word and agree. LTL has 

a funding backstop, not unlike an ATM disguised as a contract, 

that it can draw on to pay liabilities without any disruption to 

its business or threat to its financial viability. It may be that a

draw under the Funding Agreement results in payments by 

New Consumer that in theory might someday threaten its 

ability to sustain its operational costs. But those risks do not 

affect LTL, for J&J remains its ultimate safeguard. And we 
54

cannot say any potential liquidation by LTL of Royalty 

A&M—a collection of bare rights to streams of payments

cobbled together on the eve of bankruptcy—to pay talc costs

would amount to financial distress. Plus LTL had no 

obligation, outside of bankruptcy, to sell those assets for cash

before drawing on the Funding Agreement.

At base level, LTL, whose employees are all J&J 

employees, is essentially a shell company “formed,” almost 

exclusively, “to manage and defend thousands of talc-related 

claims” while insulating at least the assets now in New 

Consumer. App. 449 (Decl. of John Kim 5). And LTL was 

well-funded to do this. As of the time of its filing, we cannot 

say there was any sign on the horizon it would be anything but 

successful in the enterprise. It is even more difficult to say it 

faced any “serious financial and/or managerial difficulties”

calling for the need to reorganize during its short life outside 

of bankruptcy. SGL Carbon, 200 F.3d at 164.17

But what if, contrary to J&J’s statements, Ingham is not 

an anomaly but a harbinger of things to come? What if time 

shows, with the progression of litigation outside of bankruptcy, 

that cash available under the Funding Agreement cannot 

adequately address talc liability? Perhaps at that time LTL 

could show it belonged in bankruptcy. But it could not do so 

in October 2021. While LTL inherited massive liabilities, its 

17 In saying the nature of the payment right and a lack of 

meaningful operations show that LTL did not suffer from 

sufficient kinds of financial distress, we focus on the special 

circumstances here and do not suggest the presence of these 

characteristics would preclude a finding of financial distress in 

every case.
55

call on assets to fund them exceeded any reasonable 

projections available on the record before us. The “attenuated 

possibility” that talc litigation may require it to file for 

bankruptcy in the future does not establish its good faith as of 

its petition date. Id. at 164. At best the filing was premature.

18

In sum, while it is unwise today to attempt a tidy

definition of financial distress justifying in all cases resort to 

Chapter 11, we can confidently say the circumstances here fall 

outside those bounds. Because LTL was not in financial 

distress, it cannot show its petition served a valid bankruptcy 

purpose and was filed in good faith under Code § 1112(b).19

18 Some might read our logic to suggest LTL need only part 

with its funding backstop to render itself fit for a renewed 

filing. While this question is also premature, we note 

interested parties may seek to “avoid any transfer” made within 

two years of any bankruptcy filing by a debtor who “receive[s] 

less than a reasonably equivalent value in exchange for such 

transfer” and “became insolvent as a result of [it].” 11 U.S.C. 

§ 548(a). So if the question becomes ripe, the next one might 

be: Did LTL receive reasonably equivalent value in exchange 

for forgoing its rights under the Funding Agreement?

19 Because we conclude LTL’s petition has no valid bankruptcy 

purpose, we need not ask whether it was filed “merely to obtain 

a tactical litigation advantage.” BEPCO, 589 F.3d at 618. Yet

it is clear LTL’s bankruptcy filing aimed to beat back talc 

litigation in trial courts. Still “[i]t is not bad faith to seek to 

gain an advantage from declaring bankruptcy—why else 

would one declare it?” James Wilson Assoc., 965 F.2d at 170. 

While we ultimately leave the question unaddressed, a filing to 

change the forum of litigation where there is no financial 

distress raises, as it did in SGL Carbon, the specter of “abuse
56

F. “Unusual Circumstances” Do Not Preclude Dismissal

The Bankruptcy Court held, as an independent basis for 

its decision, that even if LTL’s petition were not filed in good 

faith, § 1112(b)(2) of the Code authorized it nonetheless to 

deny dismissal. For a petition to be saved under that provision, 

a court must identify “unusual circumstances establishing that

. . . [dismissal] is not in the best interests of creditors and the 

estate.” 11 U.S.C. § 1112(b)(2). The debtor (or any other party

in interest) must also establish “the grounds for . . . [dismissal]

include an act or omission” (1) “for which there exists a 

reasonable justification” and (2) “that will be cured within a 

reasonable period of time.” Id.

The Bankruptcy Court ruled that “the interests of 

current tort creditors and the absence of viable protections for 

future tort claimants outside of bankruptcy . . . constitute such 

‘unusual circumstances’ as to preclude . . . dismissal.” App. 

13 (Mot. to Dismiss Op. 13 n.8). But what is unusual instead 

is that a debtor comes to bankruptcy with the insurance 

accorded LTL. Our ground for dismissal is LTL’s lack of 

financial distress. No “reasonable justification” validates that 

missing requirement in this case. And we cannot currently see 

how its lack of financial distress could be overcome. For these 

reasons, we go counter to the Bankruptcy Court’s conclusion 

that “unusual circumstances” sanction LTL’s Chapter 11 

petition.

which must be guarded against to protect the integrity of the 

bankruptcy system.” 200 F.3d at 169.
57

III. CONCLUSION

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.

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 
58

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.