USA – NEW JERSEY Trends and Developments Contributed by: Brett S. Theisen, John S. Mairo, Robert K. Malone and David N. Crapo, Gibbons P.C.
Introduction In recent years, New Jersey has emerged as a signifi - cant forum in corporate restructuring, with the United States Bankruptcy Court for the District of New Jersey handling a growing number of high-profile Chapter 11 filings. This shift has important implications for venue strategy, corporate reorganisation and legal prec - edent. Equally consequential are landmark decisions from the Third Circuit that affect doctrines such as good faith filing, examiner appointment, comity under Chapter 15, and set-off disputes. This chapter of the guide surveys these recent trends and highlights how legal professionals in the region should adapt. New Jersey as a Rising Chapter 11 Venue For many years, large New Jersey-based companies often chose alternative venues (most prominently the United States Bankruptcy Court for the District of Delaware) for their Chapter 11 cases. However, in the last few years that has changed markedly. A pivotal moment came when Johnson & Johnson’s LTL Man- agement case was transferred from North Carolina to New Jersey in late 2021, dramatically raising the profile of the District of New Jersey under then-Chief Judge Michael Kaplan’s stewardship. Since then, sig - nificant restructurings – including those of LTL Man- agement II , Bed Bath & Beyond , Careismatic , David’s Bridal , Rite Aid , WeWork , BlockFi , Whittaker, Clark & Daniels , Invitae , BowFlex , Powin and Del Monte Foods – have filed in New Jersey, marking a surge in filings that places the state among the most popular venues for mega Chapter 11 cases, along with Delaware and the Southern District of Texas. Troubled companies and their financial and legal pro - fessionals are drawn to several key benefits New Jer - sey offers, including its proximity to Manhattan, a sta - ble and well-respected bench of bankruptcy judges, and predictable outcomes (New Jersey and Delaware are both Third Circuit jurisdictions). In addition, Judge Kaplan has emphasised fairness: judges are assigned based on vicinages, and no centralised “complex case assignment” system is employed. While some local entities like CarePoint Health have recently opted for Delaware, New Jersey continues to attract numer - ous large corporate debtors.
The spike in Chapter 11 filings in New Jersey mirrors national trends. Elevated interest rates, inflation and diminished post-pandemic liquidity have pushed mul - tiple sectors – particularly retail, healthcare, real estate and energy – into distress. Nationally, 2024 saw near- record filing volumes, and PwC forecasted the elevat - ed pace continuing into mid 2025, which was borne out (see “Restructuring 2025 Outlook” at PWC.com). Key Third Circuit Developments on Chapter 11 Issues As noted above, debtors have been drawn to New Jersey as a Chapter 11 venue in no small part because it provides an alternative venue to Delaware, but still within the Third Circuit. Notably, the Third Circuit has released several important recent bankruptcy decisions, including on good faith filings ( LTL ), the appointment of examiners ( FTX ), Chapter 15 comity ( Vertiv ), and direct versus derivative claims ( Whittaker Daniels ). Each decision is discussed below in detail. Good faith and the “Texas Two-Step”: In re LTL Management (Third Circuit, 2024) At the forefront of New Jersey’s venue ascendance was the LTL saga. The Third Circuit dismissed LTL’s two Chapter 11 filings, ruling that the filing lacked good faith and a valid bankruptcy purpose because the debtor was not in financial distress. • In re LTL Management, LLC , 64 F.4th 84 (3d Cir. 2023) ( LTL 1.0 ): LTL had a USD61.5 billion funding agreement (exceeding liability estimations). The court determined that insolvency was not required to satisfy the good faith standard, but “apparent distress” was required. • In re LTL Management, LLC , 2024 U.S. App. LEXIX 18437 (3d Cir. 25 July 2023) ( LTL 2.0 ): The refil - ing (with about USD30 billion funding) also failed because LTL’s assets exceeded its liabilities, so the court found good faith was absent. • The Section 1112 (b)(2) “unusual circumstances” exception did not apply because of the absence of financial distress. LTL 1.0 and LTL 2.0 demonstrate the Third Circuit’s scepticism towards strategic bankruptcy filings that function as liability shields rather than genuine restruc - turings. The LTL doctrine diverges from the Fourth Cir -
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