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Abstract: 

In 2023, the Third Circuit Court of Appeals made headlines by dismissing a Chapter 11 bankruptcy filing by a Johnson & Johnson subsidiary, LTL Management, LLC, on “bad faith” grounds. The LTL Management decision helped to provide some clarity around the traditionally poorly defined “bad faith” filing doctrine by holding that, at a minimum, a bankruptcy petition must be dismissed on “bad faith” grounds if the debtor is not “financially distressed.” However, the LTL Management decision also raised many new questions. Will courts outside the Third Circuit adopt the Third Circuit’s “financial distress” requirement? Is it possible for corporate parents to artificially “manufacture” the required “financial distress”? Is mere “financial distress” actually distinguishable from true insolvency? And how does the Third Circuit’s “bad faith” dismissal standard differ from the Fourth Circuit’s standard, which requires “objective futility” as a prerequisite for a “bad faith” dismissal? This article discusses important cases decided in the wake of LTL Management that have started to answer some of these questions.

Keywords: Bankruptcy Act’s “Good Faith” Doctrine; In re LTL Mgmt; In re Aearo Techs. LLC

Affiliations:  1: Cadwalader, Wickersham & Taft LLP.