J&J Bankruptcy Ruling Knocks Money Deal in ‘Texas Two-Step’ (1)

The Third Circuit’s decision to create a new “financial distress” standard for bankruptcy eligibility creates legal uncertainty for profitable companies eyeing Chapter 11 to head off mass tort liability.

A US Court of Appeals for the Third Circuit panel ruled Monday that Johnson & Johnson unit LTL Management LLC wasn’t in financial distress when it filed for bankruptcy because of a funding agreement it had with J&J that allowed it payment rights to the tune of $61.5 billion. A unanimous three-judge panel rejected the bankruptcy bid.

The decision has upended J&J’s attempt to consolidate and resolve more than 40,000 lawsuits ...