By Jin Lee and Amelia Ricketts (Harvard Law School)
Note: This is the first in a series of posts on the Texas Two Step, the bankruptcy of LTL Management, and the future of mass tort bankruptcies. Check the HLS Bankruptcy Roundtable throughout the summer for additional contributing posts by academics from institutions across the country.
Judge Kaplan’s recent decision not to dismiss the LTL Management (LTL)/Johnson & Johnson (J&J) bankruptcy has further stirred controversy about the hotly debated Texas Two-Step Maneuver, and put an end to speculation on how the bankruptcy court would rule on J&J’s Texas Two-Step bankruptcy filing. (The decision has been appealed directly to the Third Circuit).
The court rejected tort claimants’ arguments that LTL’s filing violated the good faith requirement for Chapter 11 filings or warranted “for cause” dismissal under Section 1112. Judge Kaplan held that the filing was an appropriate use of the Bankruptcy Code to maximize value available to creditors, commenting that the bankruptcy court would be the “optimal” venue to resolve tort claimants’ treatment. The judge emphasized compliance with the terms of the Texas divisional merger statute as evidence of J&J’s good faith. He also viewed the funding agreement among LTL, J&J, and J&J’s consumer division subsidiary as providing LTL with appropriate capitalization to meet the talc claimants’ needs. As a result, Judge Kaplan concluded that the talc claimants’ interests would be best served by the bankruptcy process and denied their motion to dismiss.
The full post discussing the case is available here: Introduction to LTL Management’s Bankruptcy.