LTL Management LLC v.

Summary

**Key Legal Topics:** Chapter 11 good faith dismissal; financial distress requirement; divisional merger ("Texas Two-Step"); mass tort bankruptcy; entity separateness; funding agreement as asset; § 1112(b) "unusual circumstances" exception. **Holdings:** The Third Circuit reversed the bankruptcy court's denial of motions to dismiss LTL's Chapter 11 petition, holding that LTL was not in financial distress because it held a $61.5 billion funding agreement from Johnson & Johnson and New Consumer, making it highly solvent and able to pay liabilities as they came due. The court ruled that financial distress is a prerequisite for good faith under § 1112(b), and that a debtor's financial condition must be evaluated based on its own assets and liabilities—not those of its defunct predecessor—respecting entity separateness. Because LTL lacked financial distress, its petition served no valid bankruptcy purpose and was filed in bad faith; the "unusual circumstances" exception did not apply. **Key Concepts:** Good faith requires "some degree of financial distress"; a funding backstop from a solvent parent can preclude a finding of financial distress; premature filing based on attenuated future possibility is insufficient; courts must respect state-law entity separateness when evaluating a debtor's financial condition.

Questions Presented

1. Whether LTL's Chapter 11 petition was filed in good faith under 11 U.S.C. § 1112(b) when LTL was not in financial distress due to a $61.5 billion funding backstop.
2. Whether 'unusual circumstances' under § 1112(b)(2) could preclude dismissal despite lack of good faith.