Herrick’s Work on Behalf of Well-Renowned Bankruptcy Professors Supported Dismissal

In October 2021, LTL Management LLC (“LTL”), an entity created by Johnson & Johnson (“J&J”) to hold its liabilities to cancer victims exposed to talc in J&J’s products, filed for Chapter 11 bankruptcy protection. The Herrick team filed amicus briefs on behalf of a group of well-renowned bankruptcy professors in support of the Official Committee of Talc Claimants’ motion to dismiss LTL’s chapter 11 case.

The matter was originally heard before the Bankruptcy Court, where the court denied a motion seeking to dismiss LTL’s Chapter 11 case on the basis that it was brought in bad faith. The appeal from that decision was then heard directly by the Third Circuit Court of Appeals. We are pleased to share that the Third Circuit reversed the Bankruptcy Court’s decision and dismissed the LTL Chapter 11 case.

Herrick’s amicus briefs argued that J&J created LTL with the sole intention of protecting J&J’s assets from its talc victims. While this was not the first time a company has sought bankruptcy relief to address its mass tort litigation exposure, the briefs emphasized that the strategy in this case—namely, J&J’s use of a divisive merger mechanism referred to as the “Texas Two-Step” to funnel all of its talc liabilities into a non-operating entity only for that entity to file for bankruptcy—was an egregious misuse of the bankruptcy system.

The Third Circuit stated in its opinion, “We start, and stay, with good faith. Good intentions—such as to protect 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 purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus we dismiss its petition.”

The Herrick team included Sean E. O’DonnellStephen B. SelbstSteven B. Smith and Silvia Stockman.

A copy of the Third Circuit opinion is available here.

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Sean O'Donnell

Sean O’Donnell focuses on complex commercial litigation with a concentration in finance and real estate related litigations, including financial restructurings, valuation disputes and other corporate and capital markets disputes, including lender/creditor litigation, purchase price adjustments, capital structure disputes, M&A litigation, employment, partnership and…

Sean O’Donnell focuses on complex commercial litigation with a concentration in finance and real estate related litigations, including financial restructurings, valuation disputes and other corporate and capital markets disputes, including lender/creditor litigation, purchase price adjustments, capital structure disputes, M&A litigation, employment, partnership and investor disputes and insurance related matters.

Sean’s clients include hedge funds and private equity funds, creditor committees, debtors, public and privately held companies, real estate developers, insurance and financial advisors, venture capitalists and other individual professionals.

Sean has extensive trial experience and has been selected as a “Trial Pro” by Law360, and as a “Winning Litigator” by The National Law Journal in its special section “Winning: Profiles of Successful Attorneys and Their Strategies.”

Prior to joining Herrick, Sean was a partner at Akin Gump Strauss Hauer & Feld LLP.

Stephen Selbst

Stephen Selbst is the co-chair of Herrick’s Restructuring & Finance Litigation Group. He has more than 30 years of experience representing debtors, creditors, official committees, distressed investors and asset purchasers in bankruptcies and out-of-court restructurings. Stephen advises clients from a wide range of…

Stephen Selbst is the co-chair of Herrick’s Restructuring & Finance Litigation Group. He has more than 30 years of experience representing debtors, creditors, official committees, distressed investors and asset purchasers in bankruptcies and out-of-court restructurings. Stephen advises clients from a wide range of industries, including financial services, telecommunications, government agencies and real estate. A skilled commercial litigator, Stephen also has significant experience in district and state courts, where he regularly represents clients in separate litigation arising out of bankruptcy.  He also advises clients on structured finance and derivative transactions.

He is a frequent lecturer on bankruptcy and restructuring topics and has published articles and book chapters on bankruptcy-related topics. He has been frequently quoted in newspaper articles on insolvency related topics and has appeared on CNBC.

Steven Smith

Steven B. Smith focuses his practice on complex corporate restructuring, liquidations and bankruptcy litigation, including in-court Chapter 11 and Chapter 15 cases and out-of-court workouts. He has extensive experience representing distressed debt investors, bondholders, official and ad-hoc creditor committees, administrative and collateral agents,

Steven B. Smith focuses his practice on complex corporate restructuring, liquidations and bankruptcy litigation, including in-court Chapter 11 and Chapter 15 cases and out-of-court workouts. He has extensive experience representing distressed debt investors, bondholders, official and ad-hoc creditor committees, administrative and collateral agents, indenture trustees, stalking horse and other asset purchasers, trade and tort claimants, and other significant parties-in-interest in a variety of jurisdictions across the United States.

Steve is also experienced in the analysis of true sale, non-consolidation, and bankruptcy remoteness principles in opinion and related contexts and has lectured on the topic on numerous occasions.

Steve played an active role in the following reported decisions:

  • Bricklayers and Trowel Trades International Pension Fund v. Wasco, Inc., 2015 WL 9459945 (M.D. Tenn. 2015)
  • In re TS Employment, Inc., 2015 WL 4940348 (Bankr. S.D.N.Y. 2015)
  • In re Intermet Corp., 2009 WL 2868749 (Bankr. D.Del. 2009)
  • In re XO Communications, Inc., 2008 WL 4587118 (C.A.2 (N.Y.) 2008)
  • In re Whitehall Jewelers Holdings, Inc., 2008 WL 2951974 (Bankr. D.Del. 2008)
  • Houlihan Lokey Howard & Zukin v. High River Limited Partnership, 369 B.R. 111 (S.D.N.Y. 2007)
  • In re Muscletech Research and Development, Inc., (2006), 19 C.B.R. (5TH) 57 (Canada)
  • In re Ad Hoc Committee of Tort Victims, 327 B.R. 138 (S.D.N.Y. 2005)
  • In re XO Communications, Inc., 323 B.R. 330 (Bankr. S.D.N.Y. 2005)
  • In re XO Communications, Inc., 330 B.R. 394 (Bankr. S.D.N.Y. 2005)
  • In re Exide Technologies, Inc., 299 B.R. 732 (Bankr. D. Del. 2003)

While in law school, Steve served as a judicial intern to Chief Judge William H. Gindin of the U.S. Bankruptcy Court for the District of New Jersey.

Silvia Stockman

Silvia Stockman is an associate in Herrick’s Litigation Department where she focuses her practice on complex commercial litigation, employment litigation and counseling, restructuring and bankruptcy, as well as other litigation matters.

Prior to joining Herrick, Silvia was an associate at Wollmuth Maher & Deutsch LLP.