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24-2211", "paragraph_id": "para_12" }, { "text": "________________", "paragraph_id": "para_13" }, { "text": "On Appeal from the United States District Court", "paragraph_id": "para_14" }, { "text": "for the District of New Jersey", "paragraph_id": "para_15" }, { "text": "(D.C. Nos. 3:23-cv-04151; 3:23-cv-04156)", "paragraph_id": "para_16" }, { "text": "District Judge: Honorable Zahid N. Quraishi", "paragraph_id": "para_17" }, { "text": "________________", "paragraph_id": "para_18" }, { "text": "2", "paragraph_id": "para_19" }, { "text": "No. 25-1044", "paragraph_id": "para_20", "court_paragraph": 2 }, { "text": "In re: WHITTAKER CLARK & DANIELS INC.,", "paragraph_id": "para_21" }, { "text": "Debtor", "paragraph_id": "para_22" }, { "text": "WHITTAKER CLARK & DANIELS INC; BRILLIANT", "paragraph_id": "para_23" }, { "text": "NATIONAL SERVICES INC; L.A. TERMINALS INC.;", "paragraph_id": "para_24" }, { "text": "SOCO WEST INC.", "paragraph_id": "para_25" }, { "text": "v.", "paragraph_id": "para_26" }, { "text": "BRENNTAG AG; BRENNTAG CANADA INC.;", "paragraph_id": "para_27" }, { "text": "BRENNTAG GREAT LAKES LLC;", "paragraph_id": "para_28" }, { "text": "BRENNTAG MID-SOUTH INC.; BRENNTAG NORTH", "paragraph_id": "para_29" }, { "text": "AMERICA INC.; BRENNTAG NORTHEAST INC.;", "paragraph_id": "para_30" }, { "text": "BRENNTAG PACIFIC INC.; BRENNTAG SOUTHEAST", "paragraph_id": "para_31" }, { "text": "INC.; BRENNTAG SOUTHWEST INC.; BRENNTAG SPE-", "paragraph_id": "para_32" }, { "text": "CIALTIES LLC (f/k/a Brenntag Specialties, Inc., and as Min-", "paragraph_id": "para_33" }, { "text": "eral and Pigment Solutions, Inc.); COASTAL CHEMICAL", "paragraph_id": "para_34" }, { "text": "CO. LLC; MINERAL PIGMENT SOLUTIONS INC.;", "paragraph_id": "para_35" }, { "text": "THOSE PARTIES LISTED ON APPENDIX A TO THE", "paragraph_id": "para_36" }, { "text": "COMPLAINT; JOHN AND JANE DOES 1-1000; JULIET", "paragraph_id": "para_37" }, { "text": "M. GRAY; KYUNG H. LEE", "paragraph_id": "para_38" }, { "text": "Official Committee of Talc Claimants,", "paragraph_id": "para_39" }, { "text": "Appellant", "paragraph_id": "para_40" }, { "text": "3", "paragraph_id": "para_41" }, { "text": "________________", "paragraph_id": "para_42", "court_paragraph": 3 }, { "text": "On Appeal from the United States Bankruptcy Court", "paragraph_id": "para_43" }, { "text": "for the District of New Jersey", "paragraph_id": "para_44" }, { "text": "(Bankr. Ct. Adv. Pro. No. 23-01245)", "paragraph_id": "para_45" }, { "text": "Bankruptcy Judge: Honorable Michael B. Kaplan", "paragraph_id": "para_46" }, { "text": "________________", "paragraph_id": "para_47" }, { "text": "Argued on April 1, 2025", "paragraph_id": "para_48" }, { "text": "Before: KRAUSE, MATEY, and AMBRO, Circuit Judges", "paragraph_id": "para_49" }, { "text": "(Opinion filed: September 10, 2025)", "paragraph_id": "para_50" }, { "text": "Bryan Killian", "paragraph_id": "para_51" }, { "text": "MORGAN, LEWIS & BOCKIUS LLP", "paragraph_id": "para_52" }, { "text": "1111 Pennsylvania Avenue NW", "paragraph_id": "para_53" }, { "text": "Washington, DC 20004", "paragraph_id": "para_54" }, { "text": "Andrew J. Gallo", "paragraph_id": "para_55" }, { "text": "MORGAN, LEWIS & BOCKIUS LLP", "paragraph_id": "para_56" }, { "text": "One Federal Street", "paragraph_id": "para_57" }, { "text": "Boston, MA 02110", "paragraph_id": "para_58" }, { "text": "Counsel for Appellant Peter Protopapas", "paragraph_id": "para_59" }, { "text": "Matthew Kutcher", "paragraph_id": "para_60" }, { "text": "Miriam Peguero Medrano", "paragraph_id": "para_61" }, { "text": "COOLEY LLP", "paragraph_id": "para_62" }, { "text": "110 North Wacker Drive, Suite 4200", "paragraph_id": "para_63" }, { "text": "Chicago, IL 60606", "paragraph_id": "para_64" }, { "text": "4", "paragraph_id": "para_65" }, { "text": "Cullen D. Speckhart", "paragraph_id": "para_66", "court_paragraph": 4 }, { "text": "Patrick J. Hayden", "paragraph_id": "para_67" }, { "text": "Michael Klein", "paragraph_id": "para_68" }, { "text": "Evan M. Lazerowitz", "paragraph_id": "para_69" }, { "text": "Jeremiah P. Ledwidge", "paragraph_id": "para_70" }, { "text": "Arielle Ambra-Juarez", "paragraph_id": "para_71" }, { "text": "COOLEY LLP", "paragraph_id": "para_72" }, { "text": "55 Hudson Yards", "paragraph_id": "para_73" }, { "text": "New York, NY 10001", "paragraph_id": "para_74" }, { "text": "Benjamin B. Sweeney", "paragraph_id": "para_75" }, { "text": "COOLEY LLP", "paragraph_id": "para_76" }, { "text": "1333 2nd Street, Suite 400", "paragraph_id": "para_77" }, { "text": "Santa Monica, CA 90401", "paragraph_id": "para_78" }, { "text": "Kathleen R. Hartnett [ARGUED]", "paragraph_id": "para_79" }, { "text": "COOLEY LLP", "paragraph_id": "para_80" }, { "text": "3 Embarcadero Center, 20th Floor", "paragraph_id": "para_81" }, { "text": "San Francisco, CA 94111", "paragraph_id": "para_82" }, { "text": "Cullen D. Speckhart", "paragraph_id": "para_83" }, { "text": "Carlton E. Forbes", "paragraph_id": "para_84" }, { "text": "Dale A. Davis", "paragraph_id": "para_85" }, { "text": "COOLEY LLP", "paragraph_id": "para_86" }, { "text": "1299 Pennsylvania Avenue NW, Suite 700", "paragraph_id": "para_87" }, { "text": "Washington, DC 20004", "paragraph_id": "para_88" }, { "text": "Allison W. O’Neill", "paragraph_id": "para_89" }, { "text": "COOLEY LLP", "paragraph_id": "para_90" }, { "text": "10265 Science Center Drive", "paragraph_id": "para_91" }, { "text": "San Diego, CA 92121", "paragraph_id": "para_92" }, { "text": "5", "paragraph_id": "para_93" }, { "text": "Arthur J. Abramowitz", "paragraph_id": "para_94", "court_paragraph": 5 }, { "text": "Ross J. Switkes", "paragraph_id": "para_95" }, { "text": "SHERMAN, SILVERSTEIN, KOHL, ROSE & PODOLSKY, P.A.", "paragraph_id": "para_96" }, { "text": "308 Harper Drive, Suite 200", "paragraph_id": "para_97" }, { "text": "Moorestown, NJ 08057", "paragraph_id": "para_98" }, { "text": "Kevin C. Maclay", "paragraph_id": "para_99" }, { "text": "Todd E. Phillips", "paragraph_id": "para_100" }, { "text": "Kevin M. Davis", "paragraph_id": "para_101" }, { "text": "Serafina A. Concannon", "paragraph_id": "para_102" }, { "text": "CAPLIN & DRYSDALE, CHARTERED", "paragraph_id": "para_103" }, { "text": "1200 New Hampshire Avenue NW, 8th Floor", "paragraph_id": "para_104" }, { "text": "Washington, DC 20036", "paragraph_id": "para_105" }, { "text": "Counsel for Appellant Official Committee of", "paragraph_id": "para_106" }, { "text": "Talc Claimants", "paragraph_id": "para_107" }, { "text": "Rex W. Manning", "paragraph_id": "para_108" }, { "text": "Joseph M. Capobianco", "paragraph_id": "para_109" }, { "text": "KIRKLAND & ELLIS LLP", "paragraph_id": "para_110" }, { "text": "1301 Pennsylvania Ave., N.W.", "paragraph_id": "para_111" }, { "text": "Washington, D.C. 20004", "paragraph_id": "para_112" }, { "text": "Michael D. Sirota", "paragraph_id": "para_113" }, { "text": "Warren A. Usatine", "paragraph_id": "para_114" }, { "text": "Felice R. Yudkin", "paragraph_id": "para_115" }, { "text": "COLE SCHOTZ P.C.", "paragraph_id": "para_116" }, { "text": "25 Main Street, 4th Floor", "paragraph_id": "para_117" }, { "text": "Hackensack, NJ 07601", "paragraph_id": "para_118" }, { "text": "6", "paragraph_id": "para_119" }, { "text": "G. David Dean", "paragraph_id": "para_120", "court_paragraph": 6 }, { "text": "COLE SCHOTZ P.C.", "paragraph_id": "para_121" }, { "text": "500 Delaware Avenue, Suite 1410", "paragraph_id": "para_122" }, { "text": "Wilmington, Delaware 19801", "paragraph_id": "para_123" }, { "text": "Seth Van Aalten", "paragraph_id": "para_124" }, { "text": "Anthony De Leo", "paragraph_id": "para_125" }, { "text": "COLE SCHOTZ P.C.", "paragraph_id": "para_126" }, { "text": "1325 Avenue of the Americas, 19th Floor", "paragraph_id": "para_127" }, { "text": "New York, New York 10019", "paragraph_id": "para_128" }, { "text": "Paul D. Clement [ARGUED]", "paragraph_id": "para_129" }, { "text": "C. Harker Rhodes IV", "paragraph_id": "para_130" }, { "text": "Nicholas A. Aquart", "paragraph_id": "para_131" }, { "text": "CLEMENT & MURPHY, PLLC", "paragraph_id": "para_132" }, { "text": "706 Duke Street", "paragraph_id": "para_133" }, { "text": "Alexandria, VA 22314", "paragraph_id": "para_134" }, { "text": "Counsel for Appellees Whittaker, Clark & Dan-", "paragraph_id": "para_135" }, { "text": "iels, Inc., Brilliant National Services, Inc., L. A.", "paragraph_id": "para_136" }, { "text": "Terminals, Inc., and Soco West, Inc.", "paragraph_id": "para_137" }, { "text": "Seth Goldman", "paragraph_id": "para_138" }, { "text": "Bradley R. Schneider", "paragraph_id": "para_139" }, { "text": "Alexis Campbell", "paragraph_id": "para_140" }, { "text": "MUNGER, TOLLES & OLSON LLP", "paragraph_id": "para_141" }, { "text": "350 South Grand Avenue, 50th Floor", "paragraph_id": "para_142" }, { "text": "Los Angeles, CA 90071", "paragraph_id": "para_143" }, { "text": "7", "paragraph_id": "para_144" }, { "text": "Rachel G. Miller-Ziegler", "paragraph_id": "para_145", "court_paragraph": 7 }, { "text": "Daniel J. Kane", "paragraph_id": "para_146" }, { "text": "MUNGER, TOLLES & OLSON LLP", "paragraph_id": "para_147" }, { "text": "601 Massachusetts Ave. NW, Suite 500E", "paragraph_id": "para_148" }, { "text": "Washington, DC 20001", "paragraph_id": "para_149" }, { "text": "Counsel for Intervenor-Appellees Berkshire", "paragraph_id": "para_150" }, { "text": "Hathaway, Inc., National Indemnity Company,", "paragraph_id": "para_151" }, { "text": "National Liability & Fire Insurance Company,", "paragraph_id": "para_152" }, { "text": "BH Columbia Inc., Columbia Insurance Com-", "paragraph_id": "para_153" }, { "text": "pany, Ringwalt & Liesche Co., and Resolute", "paragraph_id": "para_154" }, { "text": "Management, Inc.", "paragraph_id": "para_155" }, { "text": "________________", "paragraph_id": "para_156" }, { "text": "OPINION OF THE COURT", "paragraph_id": "para_157" }, { "text": "________________", "paragraph_id": "para_158" }, { "text": "AMBRO, Circuit Judge", "paragraph_id": "para_159" }, { "text": "Plagued by tort liability claims for distributing asbestos-", "paragraph_id": "para_160" }, { "text": "contaminated talc, Whittaker, Clark & Daniels, Inc. (“Whit-", "paragraph_id": "para_161" }, { "text": "taker”) and its debtor affiliates filed for bankruptcy in 2023", "paragraph_id": "para_162" }, { "text": "seeking to dispose finally of those claims. Like many mass-", "paragraph_id": "para_163" }, { "text": "tort bankruptcies, counsel contested Whittaker’s from the be-", "paragraph_id": "para_164" }, { "text": "ginning. On appeal, Appellants—the receiver appointed for", "paragraph_id": "para_165" }, { "text": "Whittaker by a South Carolina Court and the Official Commit-", "paragraph_id": "para_166" }, { "text": "tee of Talc Claimants—raise two fundamental questions about", "paragraph_id": "para_167" }, { "text": "Whittaker’s bankruptcy: Should we be here at all given that,", "paragraph_id": "para_168" }, { "text": "in their view, Whittaker’s petition was improperly filed, and if", "paragraph_id": "para_169" }, { "text": "rightly in bankruptcy, do its assets include certain tort claims", "paragraph_id": "para_170" }, { "text": "relating to asbestos liability?", "paragraph_id": "para_171" }, { "text": "8", "paragraph_id": "para_172" }, { "text": "We conclude that Whittaker properly filed for bank-", "paragraph_id": "para_173", "court_paragraph": 8 }, { "text": "ruptcy and the Bankruptcy and District Courts correctly de-", "paragraph_id": "para_174" }, { "text": "clined to dismiss its petition. We also determine that successor", "paragraph_id": "para_175" }, { "text": "liability claims Appellants seek to assert against a nondebtor", "paragraph_id": "para_176" }, { "text": "belong to the bankruptcy estates rather than individual credi-", "paragraph_id": "para_177" }, { "text": "tors. Therefore, Whittaker may pursue those claims for the", "paragraph_id": "para_178" }, { "text": "benefit of the estates. Accordingly, we affirm.", "paragraph_id": "para_179" }, { "text": "I. BACKGROUND", "paragraph_id": "para_180" }, { "text": "A. The Debtors’ Corporate History.", "paragraph_id": "para_181" }, { "text": "Whittaker and its three affiliated debtors—Brilliant Na-", "paragraph_id": "para_182" }, { "text": "tional Services, Inc., L.A. Terminals, Inc., and Soco West, Inc.", "paragraph_id": "para_183" }, { "text": "(collectively with Whittaker, the “Debtors”)—were proces-", "paragraph_id": "para_184" }, { "text": "sors, manufacturers, and distributors of various industrial", "paragraph_id": "para_185" }, { "text": "chemicals and minerals, including talc. Through a series of", "paragraph_id": "para_186" }, { "text": "corporate transactions—too tortured to recount in full here—", "paragraph_id": "para_187" }, { "text": "the Debtors sold substantially all of their operating assets in", "paragraph_id": "para_188" }, { "text": "2004 to subsidiaries of Brenntag North America. As part of", "paragraph_id": "para_189" }, { "text": "that transaction, the Debtors ceased to be operating entities,", "paragraph_id": "para_190" }, { "text": "and Whittaker and Soco were left as shell companies to man-", "paragraph_id": "para_191" }, { "text": "age asbestos liability from the Debtors’ operating businesses.", "paragraph_id": "para_192" }, { "text": "Whittaker, Brilliant, and Soco also took on the obligation to", "paragraph_id": "para_193" }, { "text": "indemnify Brenntag and its affiliates for any liabilities it ac-", "paragraph_id": "para_194" }, { "text": "crued from asbestos-related tort claims.", "paragraph_id": "para_195" }, { "text": "Three years later, National Indemnity Company—a", "paragraph_id": "para_196" }, { "text": "subsidiary of Berkshire Hathaway Inc.—acquired Brilliant and", "paragraph_id": "para_197" }, { "text": "L.A. Terminals, thereby indirectly acquiring Whittaker and", "paragraph_id": "para_198" }, { "text": "9", "paragraph_id": "para_199" }, { "text": "Soco.1 Through a chain of indemnity agreements and obliga-", "paragraph_id": "para_200", "court_paragraph": 9 }, { "text": "tions, National Indemnity now backstops asbestos-related suc-", "paragraph_id": "para_201" }, { "text": "cessor liability claims against Brenntag.", "paragraph_id": "para_202" }, { "text": "B. Proceedings in South Carolina.", "paragraph_id": "para_203" }, { "text": "Prior to the Debtors’ bankruptcy, plaintiffs across the", "paragraph_id": "para_204" }, { "text": "country filed approximately 2,700 suits against the Debtors for", "paragraph_id": "para_205" }, { "text": "asbestos-related torts. Our case concerns Sarah Plant’s lawsuit", "paragraph_id": "para_206" }, { "text": "in the South Carolina Court of Common Pleas. The suit fol-", "paragraph_id": "para_207" }, { "text": "lowed Plant’s diagnosis of mesothelioma (a form of cancer af-", "paragraph_id": "para_208" }, { "text": "fecting the protective lining of the lungs) from asbestos-con-", "paragraph_id": "para_209" }, { "text": "taminated talc produced by Whittaker. In March 2023, a jury", "paragraph_id": "para_210" }, { "text": "awarded her a $29 million verdict against it.", "paragraph_id": "para_211" }, { "text": "Days later, Plant moved the South Carolina Court to", "paragraph_id": "para_212" }, { "text": "place Whittaker into receivership. The Court granted Plant’s", "paragraph_id": "para_213" }, { "text": "motion and entered an order (the “Receivership Order” or “Or-", "paragraph_id": "para_214" }, { "text": "der”) appointing Peter Protopapas (the “South Carolina Re-", "paragraph_id": "para_215" }, { "text": "ceiver”) as Whittaker’s receiver. The Receivership Order,", "paragraph_id": "para_216" }, { "text": "among other things, vested the South Carolina Receiver “with", "paragraph_id": "para_217" }, { "text": "the power and authority [to] fully administer all assets of", "paragraph_id": "para_218" }, { "text": "[Whittaker], accept service on behalf of [it], engage counsel on", "paragraph_id": "para_219" }, { "text": "behalf of [it] and take any and all steps necessary to protect the", "paragraph_id": "para_220" }, { "text": "interests of [Whittaker] whatever they may be.” Appellants’", "paragraph_id": "para_221" }, { "text": "Consolidated J.A. 217.", "paragraph_id": "para_222" }, { "text": "Whittaker promptly moved the South Carolina Court to", "paragraph_id": "para_223" }, { "text": "reconsider. It held a hearing on Whittaker’s motion, during", "paragraph_id": "para_224" }, { "text": "1 National Indemnity assigned its acquisition rights to another", "paragraph_id": "para_225" }, { "text": "Berkshire affiliate, Ringwalt & Liesche Co., who is now the", "paragraph_id": "para_226" }, { "text": "Debtors’ ultimate parent.", "paragraph_id": "para_227" }, { "text": "10", "paragraph_id": "para_228" }, { "text": "which, in response to counsel’s suggestion that Whittaker had", "paragraph_id": "para_229", "court_paragraph": 10 }, { "text": "the “authority to enter into voluntary bankruptcy,” the Court", "paragraph_id": "para_230" }, { "text": "stated:", "paragraph_id": "para_231" }, { "text": "I’m well aware, that was the main factor in my", "paragraph_id": "para_232" }, { "text": "signing the order so quickly is that I wanted to be", "paragraph_id": "para_233" }, { "text": "sure that something other than [a] kind of amor-", "paragraph_id": "para_234" }, { "text": "phous organization I wasn’t quite sure about in", "paragraph_id": "para_235" }, { "text": "terms of asset picture, control[,] or anything", "paragraph_id": "para_236" }, { "text": "else[,] would not simply declare bankruptcy and", "paragraph_id": "para_237" }, { "text": "that entity would still be controlling things. I", "paragraph_id": "para_238" }, { "text": "wanted a receiver that I knew would take it seri-", "paragraph_id": "para_239" }, { "text": "ously, to look at the asset picture and see what", "paragraph_id": "para_240" }, { "text": "was going on.", "paragraph_id": "para_241" }, { "text": "Id. at 423. The Court denied Whittaker’s motion and directed", "paragraph_id": "para_242" }, { "text": "the parties to submit a proposed form of order to memorialize", "paragraph_id": "para_243" }, { "text": "its ruling.", "paragraph_id": "para_244" }, { "text": "C. The Debtors Petition for Bankruptcy.", "paragraph_id": "para_245" }, { "text": "The Debtors soon thereafter filed for bankruptcy in the", "paragraph_id": "para_246" }, { "text": "United States Bankruptcy Court for the District of New Jersey.", "paragraph_id": "para_247" }, { "text": "Whittaker’s board passed a resolution beforehand authorizing", "paragraph_id": "para_248" }, { "text": "the filing without gaining the approval of the South Carolina", "paragraph_id": "para_249" }, { "text": "Receiver or consulting him. He promptly moved in the Bank-", "paragraph_id": "para_250" }, { "text": "ruptcy Court to dismiss Whittaker’s bankruptcy as an unau-", "paragraph_id": "para_251" }, { "text": "thorized petition, arguing that the Receivership Order “di-", "paragraph_id": "para_252" }, { "text": "vested [its] board of the authority to approve a bankruptcy fil-", "paragraph_id": "para_253" }, { "text": "ing on [its] behalf and instead gave such authority to the Re-", "paragraph_id": "para_254" }, { "text": "ceiver alone.” Appellants’ Consolidated Opening Br. 13.", "paragraph_id": "para_255" }, { "text": "11", "paragraph_id": "para_256" }, { "text": "The Bankruptcy Court denied the South Carolina Re-", "paragraph_id": "para_257", "court_paragraph": 11 }, { "text": "ceiver’s motion, concluding that the Receivership Order did", "paragraph_id": "para_258" }, { "text": "not remove the authority of Whittaker’s board to file a bank-", "paragraph_id": "para_259" }, { "text": "ruptcy petition because its terms did not demonstrate the South", "paragraph_id": "para_260" }, { "text": "Carolina Receiver displaced the board. He appealed to the Dis-", "paragraph_id": "para_261" }, { "text": "trict Court, which affirmed the Bankruptcy Court’s ruling for", "paragraph_id": "para_262" }, { "text": "substantially the same reasons. A timely appeal to our Court", "paragraph_id": "para_263" }, { "text": "followed.", "paragraph_id": "para_264" }, { "text": "Parallel with the South Carolina Receiver’s appeal,", "paragraph_id": "para_265" }, { "text": "Whittaker’s bankruptcy proceeded in the Bankruptcy Court. In", "paragraph_id": "para_266" }, { "text": "light of the substantial talc-related asbestos liability the Debt-", "paragraph_id": "para_267" }, { "text": "ors face, the United States Trustee appointed the Official Com-", "paragraph_id": "para_268" }, { "text": "mittee of Talc Claimants (the “Committee”) to represent that", "paragraph_id": "para_269" }, { "text": "constituency’s interests during the bankruptcy proceedings.", "paragraph_id": "para_270" }, { "text": "In September 2023, the Debtors began an adversary pro-", "paragraph_id": "para_271" }, { "text": "ceeding—naming as defendants Brenntag, related entities, and", "paragraph_id": "para_272" }, { "text": "hundreds of individual talc plaintiffs—seeking a declaratory", "paragraph_id": "para_273" }, { "text": "judgment that successor liability claims against Brenntag", "paragraph_id": "para_274" }, { "text": "premised on a “product line” theory of liability2 (the “Succes-", "paragraph_id": "para_275" }, { "text": "sor Liability Claims”) are property of the Debtors’ estates", "paragraph_id": "para_276" }, { "text": "2 The “product line” theory of liability “imposes strict liability", "paragraph_id": "para_277" }, { "text": "for injuries caused by defects of a product line on a corporation", "paragraph_id": "para_278" }, { "text": "that acquires the manufacturing assets of another corporation", "paragraph_id": "para_279" }, { "text": "and undertakes essentially the same manufacturing operation", "paragraph_id": "para_280" }, { "text": "and practices.” Appellant Committee’s Opening Br. 33 (citing", "paragraph_id": "para_281" }, { "text": "Ramirez v. Amsted Indus., Inc., 431 A.2d 811, 820 (N.J.", "paragraph_id": "para_282" }, { "text": "1981)).", "paragraph_id": "para_283" }, { "text": "12", "paragraph_id": "para_284" }, { "text": "under 11 U.S.C. § 541(a)(1).3 The Committee intervened in the", "paragraph_id": "para_285", "court_paragraph": 12 }, { "text": "adversary proceeding, and the Debtors moved for summary", "paragraph_id": "para_286" }, { "text": "judgment. In their briefing, the Debtors argued that our deci-", "paragraph_id": "para_287" }, { "text": "sion in In re Emoral, 740 F.3d 875 (3d Cir. 2014), requires", "paragraph_id": "para_288" }, { "text": "treating the Successor Liability Claims as property of the Debt-", "paragraph_id": "para_289" }, { "text": "ors’ bankruptcy estates.", "paragraph_id": "para_290" }, { "text": "After rounds of unsuccessful mediation, in August 2024", "paragraph_id": "para_291" }, { "text": "the Bankruptcy Court granted summary judgment to the Debt-", "paragraph_id": "para_292" }, { "text": "ors. It agreed that, under Emoral, the Committee’s Successor", "paragraph_id": "para_293" }, { "text": "Liability Claims are property of the Debtors’ estates and alter-", "paragraph_id": "para_294" }, { "text": "natively held that 11 U.S.C. § 544(a)(1) provides an additional", "paragraph_id": "para_295" }, { "text": "basis for drawing those claims into the estates.4 Recognizing", "paragraph_id": "para_296" }, { "text": "3 In the Bankruptcy Court, the Committee distinguished be-", "paragraph_id": "para_297" }, { "text": "tween claims premised on the “product line” theory generally", "paragraph_id": "para_298" }, { "text": "and those claims governed by California law. The latter, the", "paragraph_id": "para_299" }, { "text": "Committee contended, cannot be property of the estate because", "paragraph_id": "para_300" }, { "text": "the “Debtors are precluded by California law from bringing", "paragraph_id": "para_301" }, { "text": "successor liability claims against Brenntag.” In re Whittaker,", "paragraph_id": "para_302" }, { "text": "Clark, & Daniels, 663 B.R. 1, 12 (Bankr. D.N.J. 2024). As the", "paragraph_id": "para_303" }, { "text": "“California Claims” comprise a subset of the Successor Liabil-", "paragraph_id": "para_304" }, { "text": "ity Claims, and the parties place no meaningful significance on", "paragraph_id": "para_305" }, { "text": "the distinction between the two on appeal, we refer simply to", "paragraph_id": "para_306" }, { "text": "the Successor Liability Claims.", "paragraph_id": "para_307" }, { "text": "4 Section 544(a) vests a trustee with the rights and powers of a", "paragraph_id": "para_308" }, { "text": "hypothetical lien creditor who extended credit at the time of the", "paragraph_id": "para_309" }, { "text": "debtor’s petition, and under 11 U.S.C. § 1107(a), a debtor in a", "paragraph_id": "para_310" }, { "text": "Chapter 11 case (technically called a debtor in possession) has", "paragraph_id": "para_311" }, { "text": "essentially the rights of a trustee ordered to be appointed by the", "paragraph_id": "para_312" }, { "text": "bankruptcy court. Hence here the Debtors’ rights are coexten-", "paragraph_id": "para_313" }, { "text": "sive with those of a trustee.", "paragraph_id": "para_314" }, { "text": "13", "paragraph_id": "para_315" }, { "text": "the uncertainty of the law governing its decision, the Bank-", "paragraph_id": "para_316", "court_paragraph": 13 }, { "text": "ruptcy Court certified its decision for direct appeal to our Court", "paragraph_id": "para_317" }, { "text": "under 28 U.S.C. § 158(d)(2). The Committee timely sought a", "paragraph_id": "para_318" }, { "text": "direct appeal, and we granted its petition to do so on December", "paragraph_id": "para_319" }, { "text": "2, 2024. Given the Receiver’s pending appeal and the im-", "paragraph_id": "para_320" }, { "text": "portance of the issues raised in the Committee’s appeal, we or-", "paragraph_id": "para_321" }, { "text": "dered expedited briefing and consolidated the two. We now", "paragraph_id": "para_322" }, { "text": "consider both appeals together.5", "paragraph_id": "para_323" }, { "text": "II. JURISDICTION AND STANDARD OF REVIEW", "paragraph_id": "para_324" }, { "text": "The Bankruptcy Court had jurisdiction under 28 U.S.C.", "paragraph_id": "para_325" }, { "text": "§§ 1334 and 157(b), and in the South Carolina Receiver’s ap-", "paragraph_id": "para_326" }, { "text": "peal the District Court had jurisdiction under 28 U.S.C.", "paragraph_id": "para_327" }, { "text": "§ 158(a). We have jurisdiction under 28 U.S.C. § 158(d). We", "paragraph_id": "para_328" }, { "text": "review without deference both the Bankruptcy Court’s and the", "paragraph_id": "para_329" }, { "text": "District Court’s legal conclusions, while our review of their", "paragraph_id": "para_330" }, { "text": "factual findings is for clear error. In re Trans World Airlines,", "paragraph_id": "para_331" }, { "text": "Inc., 145 F.3d 124, 131 (3d Cir. 1998).", "paragraph_id": "para_332" }, { "text": "III. DISCUSSION", "paragraph_id": "para_333" }, { "text": "5 In the meantime, the Debtors have sought approval from the", "paragraph_id": "para_334" }, { "text": "Bankruptcy Court to settle the Successor Liability Claims for", "paragraph_id": "para_335" }, { "text": "approximately $535 million. That settlement amount includes", "paragraph_id": "para_336" }, { "text": "$50 million in debtor-in-possession financing provided by", "paragraph_id": "para_337" }, { "text": "Berkshire Hathaway, which the Bankruptcy Court approved on", "paragraph_id": "para_338" }, { "text": "October 15, 2024. The Bankruptcy Court held a trial the week", "paragraph_id": "para_339" }, { "text": "of March 3, 2025, on, inter alia, the Debtors’ settlement mo-", "paragraph_id": "para_340" }, { "text": "tion. A decision remains pending.", "paragraph_id": "para_341" }, { "text": "14", "paragraph_id": "para_342" }, { "text": "Before us are two issues, each with accompanying nu-", "paragraph_id": "para_343", "court_paragraph": 14 }, { "text": "ance. First, the South Carolina Receiver and the Committee", "paragraph_id": "para_344" }, { "text": "contend that Whittaker improperly filed for bankruptcy be-", "paragraph_id": "para_345" }, { "text": "cause the South Carolina Court vested that authority exclu-", "paragraph_id": "para_346" }, { "text": "sively in the South Carolina Receiver, meaning Whittaker’s", "paragraph_id": "para_347" }, { "text": "bankruptcy must be dismissed. Second, the Committee argues", "paragraph_id": "para_348" }, { "text": "that the Bankruptcy Court incorrectly concluded that the Suc-", "paragraph_id": "para_349" }, { "text": "cessor Liability Claims belong to the Debtors’ bankruptcy es-", "paragraph_id": "para_350" }, { "text": "tates under our decision in Emoral. We review each in turn.", "paragraph_id": "para_351" }, { "text": "A. A Properly Filed Petition Is Not a Jurisdic-", "paragraph_id": "para_352" }, { "text": "tional Prerequisite.", "paragraph_id": "para_353" }, { "text": "Before considering whether Whittaker properly entered", "paragraph_id": "para_354" }, { "text": "bankruptcy, we encounter a predicate question: Does a", "paragraph_id": "para_355" }, { "text": "properly filed petition affect a court’s subject matter jurisdic-", "paragraph_id": "para_356" }, { "text": "tion? Or is a valid petition instead a non-jurisdictional—but", "paragraph_id": "para_357" }, { "text": "nonetheless integral—component of a bankruptcy case? We", "paragraph_id": "para_358" }, { "text": "conclude it is the latter.", "paragraph_id": "para_359" }, { "text": "The Bankruptcy Code provides that, except in narrow", "paragraph_id": "para_360" }, { "text": "circumstances, “on request of a party in interest, and after no-", "paragraph_id": "para_361" }, { "text": "tice and a hearing, the court shall . . . dismiss a case under", "paragraph_id": "para_362" }, { "text": "[Chapter 11] . . . for cause.” 11 U.S.C. § 1112(b)(1). “Cause”", "paragraph_id": "para_363" }, { "text": "typically includes things like “gross mismanagement of the es-", "paragraph_id": "para_364" }, { "text": "tate,” “failure to comply with an order of the court,” and “ma-", "paragraph_id": "para_365" }, { "text": "terial default by the debtor with respect to a confirmed plan.”", "paragraph_id": "para_366" }, { "text": "Id. § 1112(b)(4)(B), (E), (N). But it also includes occasions", "paragraph_id": "para_367" }, { "text": "when a debtor “did not have the proper authority to commence", "paragraph_id": "para_368" }, { "text": "the . . . bankruptcy proceeding.” In re 3P Highstown, LLC, 631", "paragraph_id": "para_369" }, { "text": "B.R. 205, 209 (Bankr. D.N.J. 2021). In those cases, the court", "paragraph_id": "para_370" }, { "text": "“has no alternative but to dismiss the petition.” Price v. Gur-", "paragraph_id": "para_371" }, { "text": "ney, 324 U.S. 100, 106 (1945).", "paragraph_id": "para_372" }, { "text": "15", "paragraph_id": "para_373" }, { "text": "The Supreme Court previously described this necessary", "paragraph_id": "para_374", "court_paragraph": 15 }, { "text": "component of the bankruptcy case as a limitation on courts’", "paragraph_id": "para_375" }, { "text": "“jurisdiction,” stating, in interpreting the predecessor statute to", "paragraph_id": "para_376" }, { "text": "the Bankruptcy Code, “nowhere is there any indication that", "paragraph_id": "para_377" }, { "text": "Congress bestowed on the bankruptcy court jurisdiction to de-", "paragraph_id": "para_378" }, { "text": "termine that those who in fact do not have the authority to", "paragraph_id": "para_379" }, { "text": "speak for the corporation . . . should be empowered to file a", "paragraph_id": "para_380" }, { "text": "petition on behalf of the corporation.” Id. at 107 (emphasis", "paragraph_id": "para_381" }, { "text": "added).", "paragraph_id": "para_382" }, { "text": "“Jurisdiction,” however, “is a word of many, too many,", "paragraph_id": "para_383" }, { "text": "meanings.” Steel Co. v. Citizens for Better Env’t, 523 U.S. 83,", "paragraph_id": "para_384" }, { "text": "90 (1998) (quoting United States v. Vanness, 85 F.3d 661, 663", "paragraph_id": "para_385" }, { "text": "n.2 (D.C. Cir. 1996)). And some courts have taken Price’s", "paragraph_id": "para_386" }, { "text": "mention of “jurisdiction” to mean a limitation on bankruptcy", "paragraph_id": "para_387" }, { "text": "courts’ subject matter jurisdiction. See, e.g., In re Parks Di-", "paragraph_id": "para_388" }, { "text": "versified, L.P., 661 B.R. 401, 415–420 (C.D. Cal. 2024) (col-", "paragraph_id": "para_389" }, { "text": "lecting cases); In re Mach I Aviation, Inc., No. 10-01225, 2011", "paragraph_id": "para_390" }, { "text": "WL 5838520, at *4 n.11 (B.A.P. 9th Cir. Sept. 15, 2011). Fol-", "paragraph_id": "para_391" }, { "text": "lowing that understanding, the absence of a properly filed pe-", "paragraph_id": "para_392" }, { "text": "tition would extinguish “a court’s power to hear a case,” leav-", "paragraph_id": "para_393" }, { "text": "ing it no choice but to dismiss it for lack of jurisdiction. Ar-", "paragraph_id": "para_394" }, { "text": "baugh v. Y&H Corp., 546 U.S. 500, 514 (2006) (quoting", "paragraph_id": "para_395" }, { "text": "United States v. Cotton, 535 U.S. 625, 630 (2002)).", "paragraph_id": "para_396" }, { "text": "But in recognition of jurisdictional limitations’ “unique", "paragraph_id": "para_397" }, { "text": "potential to disrupt the orderly course of litigation,” recent Su-", "paragraph_id": "para_398" }, { "text": "preme Court cases exercise greater care before hanging the “ju-", "paragraph_id": "para_399" }, { "text": "risdictional label” on a statutory provision. Wilkins v. United", "paragraph_id": "para_400" }, { "text": "States, 598 U.S. 152, 157–58 (2023). Today the standard for", "paragraph_id": "para_401" }, { "text": "concluding a statute limits federal courts’ subject matter juris-", "paragraph_id": "para_402" }, { "text": "diction is an exacting one. While Congress need not employ", "paragraph_id": "para_403" }, { "text": "16", "paragraph_id": "para_404" }, { "text": "any specific formulation or “incant magic words,” “the ‘tradi-", "paragraph_id": "para_405", "court_paragraph": 16 }, { "text": "tional tools of statutory construction must plainly show that", "paragraph_id": "para_406" }, { "text": "Congress imbued a procedural bar with jurisdictional conse-", "paragraph_id": "para_407" }, { "text": "quences.’” Boechler, P.C., v. Comm’r, 596 U.S. 199, 203", "paragraph_id": "para_408" }, { "text": "(2022) (first quoting Sebelius v. Auburn Reg’l Med. Ctr., 568", "paragraph_id": "para_409" }, { "text": "U.S. 145, 154 (2013); then quoting United States v. Kwai Fun", "paragraph_id": "para_410" }, { "text": "Wong, 575 U.S. 402, 410 (2015)). Anything short of a clear", "paragraph_id": "para_411" }, { "text": "indication will not do.", "paragraph_id": "para_412" }, { "text": "The statutes granting federal courts jurisdiction over", "paragraph_id": "para_413" }, { "text": "bankruptcy cases do not attach jurisdictional significance to the", "paragraph_id": "para_414" }, { "text": "propriety of a debtor’s petition. The governing provision, 28", "paragraph_id": "para_415" }, { "text": "U.S.C. § 1334(a), provides only that, absent exceptions not rel-", "paragraph_id": "para_416" }, { "text": "evant here, “the district courts shall have original and exclusive", "paragraph_id": "para_417" }, { "text": "jurisdiction of all cases under title 11.” In addition, “district", "paragraph_id": "para_418" }, { "text": "court[s] may provide that any or all cases under title 11 . . .", "paragraph_id": "para_419" }, { "text": "shall be referred to the bankruptcy judges for the district” who", "paragraph_id": "para_420" }, { "text": "“may hear and determine all cases under title 11 . . . and may", "paragraph_id": "para_421" }, { "text": "enter appropriate orders and judgments.” Id. § 157(a), (b)(1).", "paragraph_id": "para_422" }, { "text": "These statutes establish the jurisdictional grant for district and", "paragraph_id": "para_423" }, { "text": "bankruptcy courts over bankruptcy cases, and neither they, nor", "paragraph_id": "para_424" }, { "text": "any other provision, condition that grant on a properly filed pe-", "paragraph_id": "para_425" }, { "text": "tition.", "paragraph_id": "para_426" }, { "text": "Code § 301(a), which does deal with bankruptcy peti-", "paragraph_id": "para_427" }, { "text": "tions, provides only that a voluntary bankruptcy “is com-", "paragraph_id": "para_428" }, { "text": "menced by the filing with the bankruptcy court of a petition", "paragraph_id": "para_429" }, { "text": "under such chapter by an entity that may be a debtor under such", "paragraph_id": "para_430" }, { "text": "chapter.” This provision focuses on the commencement of a", "paragraph_id": "para_431" }, { "text": "bankruptcy case by a debtor, not on the power to decide of the", "paragraph_id": "para_432" }, { "text": "court. Simply put, § 301(a) “does not speak in jurisdictional", "paragraph_id": "para_433" }, { "text": "terms,” Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 394", "paragraph_id": "para_434" }, { "text": "(1982), and we “will not lightly apply” the jurisdictional label", "paragraph_id": "para_435" }, { "text": "17", "paragraph_id": "para_436" }, { "text": "to a provision absent a “clear statement” to the contrary, Wil-", "paragraph_id": "para_437", "court_paragraph": 17 }, { "text": "kins, 598 U.S. at 158.", "paragraph_id": "para_438" }, { "text": "Accordingly, an improperly filed bankruptcy petition", "paragraph_id": "para_439" }, { "text": "constitutes “cause” to dismiss a bankruptcy case, 11 U.S.C.", "paragraph_id": "para_440" }, { "text": "§ 1112(b)(1), but it does not strip bankruptcy courts of subject", "paragraph_id": "para_441" }, { "text": "matter jurisdiction.", "paragraph_id": "para_442" }, { "text": "B. Whittaker Properly Filed Its Bankruptcy Pe-", "paragraph_id": "para_443" }, { "text": "tition.", "paragraph_id": "para_444" }, { "text": "The Supreme Court has long held that, “[i]n the absence", "paragraph_id": "para_445" }, { "text": "of federal incorporation,” “local law” governs a corporate", "paragraph_id": "para_446" }, { "text": "debtor’s authority to petition for bankruptcy. Price, 324 U.S.", "paragraph_id": "para_447" }, { "text": "at 106. As corporations act through agents, “local law” is the", "paragraph_id": "para_448" }, { "text": "non-federal rule that gives a corporation’s agents—typically in", "paragraph_id": "para_449" }, { "text": "those circumstances its board of directors—the “authority . . .", "paragraph_id": "para_450" }, { "text": "to act.” Id. And because “[c]orporations are creatures of state", "paragraph_id": "para_451" }, { "text": "law,” Burks v. Lasker, 441 U.S. 471, 478 (1979) (quoting Cort", "paragraph_id": "para_452" }, { "text": "v. Ash, 422 U.S. 66, 84 (1975)), “it is state law which is the font", "paragraph_id": "para_453" }, { "text": "of corporate directors’ powers,” id. So we look to governing", "paragraph_id": "para_454" }, { "text": "state law to determine the propriety of a corporation’s bank-", "paragraph_id": "para_455" }, { "text": "ruptcy petition. In re Franchise Servs. of N. Am., Inc., 891 F.3d", "paragraph_id": "para_456" }, { "text": "198, 206 (5th Cir. 2018).", "paragraph_id": "para_457" }, { "text": "But which state’s law governs? More precisely, in a sit-", "paragraph_id": "para_458" }, { "text": "uation such as this, where a South Carolina court has putatively", "paragraph_id": "para_459" }, { "text": "exercised authority over the assets of a New Jersey corpora-", "paragraph_id": "para_460" }, { "text": "tion, do we assess the authority of Whittaker’s board to file for", "paragraph_id": "para_461" }, { "text": "bankruptcy with reference to New Jersey or South Carolina", "paragraph_id": "para_462" }, { "text": "law?", "paragraph_id": "para_463" }, { "text": "18", "paragraph_id": "para_464" }, { "text": "Fortunately, the parties make answering this question", "paragraph_id": "para_465", "court_paragraph": 18 }, { "text": "easy. They agree that New Jersey law governs the authority of", "paragraph_id": "para_466" }, { "text": "Whittaker’s board over its internal affairs, like petitioning for", "paragraph_id": "para_467" }, { "text": "bankruptcy. Appellants’ Second Supp. Br. 1; Appellees’ Sec-", "paragraph_id": "para_468" }, { "text": "ond Supp. Br. 2, 11; Williams v. BASF Catalysts LLC, 765 F.3d", "paragraph_id": "para_469" }, { "text": "306, 317 (3d Cir. 2014) (where parties do not dispute govern-", "paragraph_id": "para_470" }, { "text": "ing law, we need not conduct a choice-of-law analysis). So the", "paragraph_id": "para_471" }, { "text": "question becomes whether, under New Jersey law, the Receiv-", "paragraph_id": "para_472" }, { "text": "ership Order stripped Whittaker’s board of the authority to file", "paragraph_id": "para_473" }, { "text": "for bankruptcy. It did not.", "paragraph_id": "para_474" }, { "text": "While we stand far removed in time from the zenith of", "paragraph_id": "para_475" }, { "text": "equity receiverships in this country, see David A. Skeel, Jr.,", "paragraph_id": "para_476" }, { "text": "Debt’s Dominion: A History of Bankruptcy Law in America", "paragraph_id": "para_477" }, { "text": "56–60 (2001) (describing the rise of equity receivership in the", "paragraph_id": "para_478" }, { "text": "late nineteenth century as a device for resolving corporate in-", "paragraph_id": "para_479" }, { "text": "solvency), this case proves that state courts retain the tradi-", "paragraph_id": "para_480" }, { "text": "tional equitable authority to appoint receivers for insolvent cor-", "paragraph_id": "para_481" }, { "text": "porations. But that authority is not without limits, as this case", "paragraph_id": "para_482" }, { "text": "also proves.", "paragraph_id": "para_483" }, { "text": "New Jersey law recognizes that “comity requires that [a", "paragraph_id": "para_484" }, { "text": "foreign receiver] should be acknowledged and aided” to the", "paragraph_id": "para_485" }, { "text": "extent that doing so is not “to the disadvantage of creditors res-", "paragraph_id": "para_486" }, { "text": "ident [in New Jersey].” Stone v. N.J. & H. R. Ry. & Ferry Co.,", "paragraph_id": "para_487" }, { "text": "66 A. 1072, 1073 (N.J. 1907). So where a foreign court ap-", "paragraph_id": "para_488" }, { "text": "points a receiver, New Jersey courts generally “will appoint an", "paragraph_id": "para_489" }, { "text": "ancillary receiver, [and] the assets will be so administered that", "paragraph_id": "para_490" }, { "text": "creditors in [New Jersey] and in the foreign jurisdiction shall", "paragraph_id": "para_491" }, { "text": "fare alike.” Id.; accord Clark v. Painted Post Lumber Co., 104", "paragraph_id": "para_492" }, { "text": "A. 728, 728 (N.J. Ch. 1918) (recognizing that “after the ap-", "paragraph_id": "para_493" }, { "text": "pointment of the receiver in New York, [an ancillary receiver]", "paragraph_id": "para_494" }, { "text": "was appointed” by a New Jersey court); Ware v. Supreme", "paragraph_id": "para_495" }, { "text": "19", "paragraph_id": "para_496" }, { "text": "Sitting of Order of Iron Hall, 28 A. 1041, 1043 (N.J. Ch. 1894)", "paragraph_id": "para_497", "court_paragraph": 19 }, { "text": "(recognizing that an ancillary receiver was appointed in New", "paragraph_id": "para_498" }, { "text": "Jersey and “should be regarded as auxiliary to the [foreign] re-", "paragraph_id": "para_499" }, { "text": "ceiver”).", "paragraph_id": "para_500" }, { "text": "New Jersey law authorizes its Superior Court to appoint", "paragraph_id": "para_501" }, { "text": "receivers for New Jersey corporations. See N.J. Stat. Ann. §", "paragraph_id": "para_502" }, { "text": "14A:14-2(3) (“The court . . . shall have power to appoint and", "paragraph_id": "para_503" }, { "text": "remove one or more receivers of the corporation.”). That pro-", "paragraph_id": "para_504" }, { "text": "vision also permits the court to “enjoin the corporation, its of-", "paragraph_id": "para_505" }, { "text": "ficers and agents, from exercising any of its privileges and", "paragraph_id": "para_506" }, { "text": "franchises, and from collecting or receiving any debts, or pay-", "paragraph_id": "para_507" }, { "text": "ing out, selling, assigning or transferring any of its property,", "paragraph_id": "para_508" }, { "text": "except to a receiver, and except as the court may otherwise or-", "paragraph_id": "para_509" }, { "text": "der.” Id. This statute suggests that New Jersey has licensed its", "paragraph_id": "para_510" }, { "text": "courts to exercise broad authority over domestic corporations", "paragraph_id": "para_511" }, { "text": "consistent with its corporate law. Thus, on our reading, New", "paragraph_id": "para_512" }, { "text": "Jersey law permits its courts to recognize foreign receivership", "paragraph_id": "para_513" }, { "text": "orders and appoint an ancillary receiver to aid in the execution", "paragraph_id": "para_514" }, { "text": "of foreign judgments, including by enjoining the corporation", "paragraph_id": "para_515" }, { "text": "and its board from taking specific actions and exercising spe-", "paragraph_id": "para_516" }, { "text": "cific powers.", "paragraph_id": "para_517" }, { "text": "The Restatement (Second) of Conflict of Laws supports", "paragraph_id": "para_518" }, { "text": "as much. In recognizing that courts may appoint a receiver", "paragraph_id": "para_519" }, { "text": "over a foreign corporation, the Restatement observes that", "paragraph_id": "para_520" }, { "text": "“[w]hen a principal receiver of a corporation has been ap-", "paragraph_id": "para_521" }, { "text": "pointed by a court of a state other than the state of incorpora-", "paragraph_id": "para_522" }, { "text": "tion, and it is intended to dissolve the corporation . . . , an an-", "paragraph_id": "para_523" }, { "text": "cillary receiver should be appointed for those purposes by a", "paragraph_id": "para_524" }, { "text": "court of the state of incorporation.” Restatement (Second) of", "paragraph_id": "para_525" }, { "text": "Conflict of Laws § 367 cmt. d (Am. L. Inst. 1971). This is so", "paragraph_id": "para_526" }, { "text": "because “only a receiver appointed by a court in the state where", "paragraph_id": "para_527" }, { "text": "20", "paragraph_id": "para_528" }, { "text": "the corporation was incorporated can institute action to dis-", "paragraph_id": "para_529", "court_paragraph": 20 }, { "text": "solve a corporation.”6 Id.", "paragraph_id": "para_530" }, { "text": "Accordingly, under New Jersey law and settled choice-", "paragraph_id": "para_531" }, { "text": "of-law principles, the South Carolina Receiver needed to move", "paragraph_id": "para_532" }, { "text": "for, and be granted, recognition in New Jersey and the appoint-", "paragraph_id": "para_533" }, { "text": "ment of an ancillary receiver to displace Whittaker’s board’s", "paragraph_id": "para_534" }, { "text": "control over, inter alia, the company’s privileges, franchises", "paragraph_id": "para_535" }, { "text": "and assets. It did not do so, meaning Whittaker’s board re-", "paragraph_id": "para_536" }, { "text": "tained authority over those corporate decisions reserved to it", "paragraph_id": "para_537" }, { "text": "by New Jersey law, including the decision whether to reorgan-", "paragraph_id": "para_538" }, { "text": "ize by filing for bankruptcy.", "paragraph_id": "para_539" }, { "text": "Appellants respond by invoking one of our Nation’s", "paragraph_id": "para_540" }, { "text": "oldest laws—the Full Faith and Credit statute, 28 U.S.C.", "paragraph_id": "para_541" }, { "text": "§ 1738. They contend that, under obligations imposed by that", "paragraph_id": "para_542" }, { "text": "provision, “New Jersey would not ignore the Receivership Or-", "paragraph_id": "para_543" }, { "text": "der, just as the Bankruptcy Court could not ignore it.” Appel-", "paragraph_id": "para_544" }, { "text": "lants’ Second Supp. Br. 6–7. This argument falters on three", "paragraph_id": "para_545" }, { "text": "fronts.", "paragraph_id": "para_546" }, { "text": "6 Of course, neither New Jersey law nor the Restatement con-", "paragraph_id": "para_547" }, { "text": "templates a state’s authority over domestic corporations in in-", "paragraph_id": "para_548" }, { "text": "stances of bankruptcy, as that power is an area of exclusive", "paragraph_id": "para_549" }, { "text": "federal competence. Hanover Nat’l Bank v. Moyses, 186 U.S.", "paragraph_id": "para_550" }, { "text": "181, 187 (1902) (“The framers of the Constitution . . . granted", "paragraph_id": "para_551" }, { "text": "plenary power to Congress over the whole subject of ‘bank-", "paragraph_id": "para_552" }, { "text": "ruptcies.’”). But the scenarios these authorities posit are suffi-", "paragraph_id": "para_553" }, { "text": "ciently analogous in character to bankruptcy—in that they in-", "paragraph_id": "para_554" }, { "text": "volve fundamental changes to a corporation’s structure (or, in", "paragraph_id": "para_555" }, { "text": "the instance of dissolution, existence)—that their precepts ap-", "paragraph_id": "para_556" }, { "text": "ply to the same extent when a board seeks to enter bankruptcy.", "paragraph_id": "para_557" }, { "text": "21", "paragraph_id": "para_558" }, { "text": "First, on its face, the Receivership Order does not reach", "paragraph_id": "para_559", "court_paragraph": 21 }, { "text": "as far as Appellants insist. Rather than extending to displace", "paragraph_id": "para_560" }, { "text": "Whittaker’s board’s authority over corporate affairs, it purports", "paragraph_id": "para_561" }, { "text": "only to give the South Carolina Receiver control of Whittaker’s", "paragraph_id": "para_562" }, { "text": "“assets” and the power and authority to “take any and all steps", "paragraph_id": "para_563" }, { "text": "necessary to protect the interests of [Whittaker] whatever they", "paragraph_id": "para_564" }, { "text": "may be.” Appellants’ Consolidated J.A. 217. Nowhere does", "paragraph_id": "para_565" }, { "text": "the Order speak to Whittaker’s corporate affairs, including the", "paragraph_id": "para_566" }, { "text": "board’s authority under New Jersey law to decide whether to", "paragraph_id": "para_567" }, { "text": "file for bankruptcy.7 And in the absence of anything to the", "paragraph_id": "para_568" }, { "text": "contrary in it, the default rule discussed above controls—", "paragraph_id": "para_569" }, { "text": "namely, Whittaker’s board controls the entity’s corporate af-", "paragraph_id": "para_570" }, { "text": "fairs, subject to lawful displacement under New Jersey law.", "paragraph_id": "para_571" }, { "text": "Thus, because the Receivership Order on its own terms does", "paragraph_id": "para_572" }, { "text": "not dictate the result Appellants assert, affording it full faith", "paragraph_id": "para_573" }, { "text": "and credit under § 1738 does not lead to a different outcome.", "paragraph_id": "para_574" }, { "text": "Second, even if we assume the Receivership Order ex-", "paragraph_id": "para_575" }, { "text": "tended to corporate affairs, Appellees still did not attempt to", "paragraph_id": "para_576" }, { "text": "7 Appellants have also argued that this type of interpretation is", "paragraph_id": "para_577" }, { "text": "effectively an appeal of the Receivership Order and thus barred", "paragraph_id": "para_578" }, { "text": "by the Rooker-Feldman doctrine, which essentially prohibits", "paragraph_id": "para_579" }, { "text": "federal courts, save the Supreme Court, from reviewing final", "paragraph_id": "para_580" }, { "text": "state court judgments. But if an order is interlocutory, the", "paragraph_id": "para_581" }, { "text": "Rooker-Feldman doctrine applies only to those that are", "paragraph_id": "para_582" }, { "text": "“effectively final” because, among other things, the parties", "paragraph_id": "para_583" }, { "text": "have abandoned further litigation. Cf. Malhan v. Sec’y U.S.", "paragraph_id": "para_584" }, { "text": "Dep’t of State, 938 F.3d 453, 459 (3d Cir. 2019). And here,", "paragraph_id": "para_585" }, { "text": "state-court litigation over the Order is not abandoned—it is", "paragraph_id": "para_586" }, { "text": "merely stayed. See 11 U.S.C. § 362(a). Indeed, Appellants", "paragraph_id": "para_587" }, { "text": "expressed their intention to continue to litigate the Order if the", "paragraph_id": "para_588" }, { "text": "stay were lifted.", "paragraph_id": "para_589" }, { "text": "22", "paragraph_id": "para_590" }, { "text": "enforce it against Whittaker. While an order rendered by a for-", "paragraph_id": "para_591", "court_paragraph": 22 }, { "text": "eign court may warrant recognition and enforcement under", "paragraph_id": "para_592" }, { "text": "§ 1738, “[e]nforcement measures do not travel with the sister", "paragraph_id": "para_593" }, { "text": "state judgment,” and full faith and credit “does not mean that", "paragraph_id": "para_594" }, { "text": "States must adopt the practices of other States regarding the", "paragraph_id": "para_595" }, { "text": "time, manner, and mechanisms for enforcing judgments.”", "paragraph_id": "para_596" }, { "text": "Baker ex rel. Thomas v. Gen. Motors Corp., 522 U.S. 222, 235", "paragraph_id": "para_597" }, { "text": "(1998). So even spotting Appellants the enforceability of the", "paragraph_id": "para_598" }, { "text": "Order, they needed to employ the enforcement mechanisms", "paragraph_id": "para_599" }, { "text": "provided under New Jersey law outlined above, which they did", "paragraph_id": "para_600" }, { "text": "not do (e.g., not securing the appointment of an ancillary re-", "paragraph_id": "para_601" }, { "text": "ceiver in New Jersey),8 meaning their § 1738 argument fails on", "paragraph_id": "para_602" }, { "text": "this basis too.", "paragraph_id": "para_603" }, { "text": "Third, and more fundamentally, were the South Caro-", "paragraph_id": "para_604" }, { "text": "lina Court to issue an order purporting to place the control of", "paragraph_id": "para_605" }, { "text": "Whittaker’s corporate affairs in the hands of the South Carolina", "paragraph_id": "para_606" }, { "text": "Receiver, we doubt its ability to do so. Our system of federal-", "paragraph_id": "para_607" }, { "text": "ism embodies “the fundamental principle of equal sovereignty”", "paragraph_id": "para_608" }, { "text": "among the states. Nw. Austin Mun. Util. Dist. No. One v.", "paragraph_id": "para_609" }, { "text": "Holder, 557 U.S. 193, 203 (2009). Implicit in that foundational", "paragraph_id": "para_610" }, { "text": "8 The Receiver contends that he should not have been required", "paragraph_id": "para_611" }, { "text": "to seek appointment of an ancillary receiver in New Jersey be-", "paragraph_id": "para_612" }, { "text": "cause Whittaker “itself made [doing so] impossible” by “filing", "paragraph_id": "para_613" }, { "text": "for bankruptcy before the South Carolina Court could even is-", "paragraph_id": "para_614" }, { "text": "sue a written order memorializing its denial of [Whittaker]’s", "paragraph_id": "para_615" }, { "text": "motion for reconsideration,” characterizing Whittaker’s posi-", "paragraph_id": "para_616" }, { "text": "tion as “Kafka-esque.” Appellants’ Consolidated Reply Br. 21.", "paragraph_id": "para_617" }, { "text": "But without an order lawfully preventing it from doing so,", "paragraph_id": "para_618" }, { "text": "Whittaker’s board was free to exercise its authority under New", "paragraph_id": "para_619" }, { "text": "Jersey law to enter bankruptcy. The fact that the Receiver lost", "paragraph_id": "para_620" }, { "text": "the race to the courthouse does not render the results invalid.", "paragraph_id": "para_621" }, { "text": "23", "paragraph_id": "para_622" }, { "text": "organization of co-equal sovereigns is “the usual legislative", "paragraph_id": "para_623", "court_paragraph": 23 }, { "text": "power of a State to act upon persons and property within the", "paragraph_id": "para_624" }, { "text": "limits of its own territory,” permitting “different communities", "paragraph_id": "para_625" }, { "text": "to live with different local standards.” Nat’l Pork Producers", "paragraph_id": "para_626" }, { "text": "Council v. Ross, 598 U.S. 356, 375 (2023) (cleaned up).", "paragraph_id": "para_627" }, { "text": "But states’ power to exercise control over actors within", "paragraph_id": "para_628" }, { "text": "their respective borders is not without limits. Indeed, the Con-", "paragraph_id": "para_629" }, { "text": "stitution has a great deal to say about the relations between", "paragraph_id": "para_630" }, { "text": "states, their authority to decide the rights of foreign parties, and", "paragraph_id": "para_631" }, { "text": "the application of their laws in instances of conflict. For in-", "paragraph_id": "para_632" }, { "text": "stance, the Due Process Clause of the Fourteenth Amendment", "paragraph_id": "para_633" }, { "text": "is long understood to impose limitations on state courts’ au-", "paragraph_id": "para_634" }, { "text": "thority to determine non-resident parties’ rights. See, e.g., Pen-", "paragraph_id": "para_635" }, { "text": "noyer v. Neff, 95 U.S. (5 Otto) 714, 723–43 (1877); Int’l Shoe", "paragraph_id": "para_636" }, { "text": "Co. v. Washington, 326 U.S. 310, 323–24 (1945); World-Wide", "paragraph_id": "para_637" }, { "text": "Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980);", "paragraph_id": "para_638" }, { "text": "Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 592 U.S. 351,", "paragraph_id": "para_639" }, { "text": "358 (2021). Likewise, the dormant Commerce Clause prohib-", "paragraph_id": "para_640" }, { "text": "its, among other things, “the enforcement of state laws ‘driven", "paragraph_id": "para_641" }, { "text": "by . . . economic protectionism—that is, regulatory measures", "paragraph_id": "para_642" }, { "text": "designed to benefit in-state economic interests by burdening", "paragraph_id": "para_643" }, { "text": "out-of-state competitors.’” Ross, 598 U.S. at 369 (omission in", "paragraph_id": "para_644" }, { "text": "original) (quoting Dep’t of Revenue v. Davis, 553 U.S. 328,", "paragraph_id": "para_645" }, { "text": "337–38 (2008)).", "paragraph_id": "para_646" }, { "text": "So it is no surprise that the Constitution limits the au-", "paragraph_id": "para_647" }, { "text": "thority a state court can exercise over a corporation incorpo-", "paragraph_id": "para_648" }, { "text": "rated in a sister state. Those limitations are as intuitive as they", "paragraph_id": "para_649" }, { "text": "make good sense. A corporation’s state of incorporation or", "paragraph_id": "para_650" }, { "text": "24", "paragraph_id": "para_651" }, { "text": "principal place of business determines its domicile.9 See", "paragraph_id": "para_652", "court_paragraph": 24 }, { "text": "Daimler AG v. Bauman, 571 U.S. 117, 137 (2014). And dom-", "paragraph_id": "para_653" }, { "text": "icile has long carried with it great significance for states’ au-", "paragraph_id": "para_654" }, { "text": "thority. See id.; Pennoyer, 95 U.S. at 723. Among the many", "paragraph_id": "para_655" }, { "text": "powers over their domiciliaries, states may determine “‘any", "paragraph_id": "para_656" }, { "text": "and all claims’ brought against a [resident] defendant.” Ford", "paragraph_id": "para_657" }, { "text": "Motor Co., 592 U.S. at 358 (quoting Goodyear Dunlop Tires", "paragraph_id": "para_658" }, { "text": "Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). But", "paragraph_id": "para_659" }, { "text": "“the very nature of the federal union of states, to which are re-", "paragraph_id": "para_660" }, { "text": "served some of the attributes of sovereignty, precludes resort", "paragraph_id": "para_661" }, { "text": "to the full faith and credit clause as the means for compelling a", "paragraph_id": "para_662" }, { "text": "state to substitute the statutes of other states for its own statutes", "paragraph_id": "para_663" }, { "text": "dealing with a subject matter concerning which it is competent", "paragraph_id": "para_664" }, { "text": "to legislate.” Pac. Emps. Ins. Co. v. Indus. Accident Comm’n,", "paragraph_id": "para_665" }, { "text": "306 U.S. 493, 501 (1939). Thus, when it comes to control over", "paragraph_id": "para_666" }, { "text": "corporate decision-making, a state “has no interest in regulat-", "paragraph_id": "para_667" }, { "text": "ing the internal affairs of foreign corporations.” Edgar v. MITE", "paragraph_id": "para_668" }, { "text": "Corp., 457 U.S. 624, 645–46 (1982).", "paragraph_id": "para_669" }, { "text": "But as Appellants would have it, that is precisely what", "paragraph_id": "para_670" }, { "text": "the South Carolina Court did in this case. They contend that", "paragraph_id": "para_671" }, { "text": "the Receivership Order, properly construed, “divest[ed]” Whit-", "paragraph_id": "para_672" }, { "text": "taker’s board of authority to conduct the internal affairs of the", "paragraph_id": "para_673" }, { "text": "9 Whittaker’s principal place of business is in Connecticut. We", "paragraph_id": "para_674" }, { "text": "take no position on the authority a state in which a corporation", "paragraph_id": "para_675" }, { "text": "has a principal place of business may exert over that", "paragraph_id": "para_676" }, { "text": "corporation when it is incorporated in a different state. Neither", "paragraph_id": "para_677" }, { "text": "party has argued that Connecticut is the proper forum to", "paragraph_id": "para_678" }, { "text": "enforce the Receivership Order or that its law governs.", "paragraph_id": "para_679" }, { "text": "Accordingly, we limit our discussion to New Jersey and South", "paragraph_id": "para_680" }, { "text": "Carolina laws, as the parties have framed this case.", "paragraph_id": "para_681" }, { "text": "25", "paragraph_id": "para_682" }, { "text": "corporation—including the authority to file for bankruptcy.10", "paragraph_id": "para_683", "court_paragraph": 25 }, { "text": "Oral Arg. Tr. 15:17. As explained above, the Order, reasona-", "paragraph_id": "para_684" }, { "text": "bly interpreted, does not extend so far. And if it did, it would", "paragraph_id": "para_685" }, { "text": "be an unprecedented exertion of power over a foreign corpora-", "paragraph_id": "para_686" }, { "text": "tion whose internal affairs are governed by the laws of a sister", "paragraph_id": "para_687" }, { "text": "state, and a radical intrusion into the province of a co-equal", "paragraph_id": "para_688" }, { "text": "sovereign.", "paragraph_id": "para_689" }, { "text": "These constitutional infirmities provide an independent", "paragraph_id": "para_690" }, { "text": "basis to reject Appellants’ appeal to § 1738. Rendering full", "paragraph_id": "para_691" }, { "text": "faith and credit to foreign judgments does not entail blind def-", "paragraph_id": "para_692" }, { "text": "erence in the face of constitutional limitations. Just as “[a]", "paragraph_id": "para_693" }, { "text": "State may not grant preclusive effect in its own courts to a con-", "paragraph_id": "para_694" }, { "text": "stitutionally infirm judgment, . . . other state and federal courts", "paragraph_id": "para_695" }, { "text": "are not required to accord full faith and credit to such a judg-", "paragraph_id": "para_696" }, { "text": "ment.” Kremer v. Chem. Constr. Corp., 456 U.S. 461, 482", "paragraph_id": "para_697" }, { "text": "(1982) (footnote omitted). So where, as here, the parties did", "paragraph_id": "para_698" }, { "text": "not litigate the constitutionality of the state-court judgment,", "paragraph_id": "para_699" }, { "text": "§ 1738 does not require New Jersey to acquiesce in the en-", "paragraph_id": "para_700" }, { "text": "forcement of the Receivership Order without assessing its", "paragraph_id": "para_701" }, { "text": "(doubtful) constitutionality.", "paragraph_id": "para_702" }, { "text": "* * * * *", "paragraph_id": "para_703" }, { "text": "10 Appellants seemingly take the position that the Receivership", "paragraph_id": "para_704" }, { "text": "Order did far more than merely attempt to prevent Whittaker", "paragraph_id": "para_705" }, { "text": "from filing for bankruptcy. At oral argument, when asked", "paragraph_id": "para_706" }, { "text": "whether, in their view, the Receivership Order authorized the", "paragraph_id": "para_707" }, { "text": "South Carolina Receiver “to amend the bylaws of the corpora-", "paragraph_id": "para_708" }, { "text": "tion, to enter into mergers,” or to “[c]hange domicile,” counsel", "paragraph_id": "para_709" }, { "text": "for Appellants neither disavowed those actions nor offered a", "paragraph_id": "para_710" }, { "text": "limiting principle for their interpretation of the Order. Oral", "paragraph_id": "para_711" }, { "text": "Arg. Tr. 14:1–3.", "paragraph_id": "para_712" }, { "text": "26", "paragraph_id": "para_713" }, { "text": "“Our Constitution ‘was framed upon the theory that the", "paragraph_id": "para_714", "court_paragraph": 26 }, { "text": "peoples of the several states must sink or swim together.’” Am.", "paragraph_id": "para_715" }, { "text": "Trucking Ass’n, Inc. v. Mich. Pub. Serv. Comm’n, 545 U.S.", "paragraph_id": "para_716" }, { "text": "429, 433 (2005) (quoting Baldwin v. G.A.F. Seelig, Inc., 294", "paragraph_id": "para_717" }, { "text": "U.S. 511, 523 (1935)). But while bound together in a federal", "paragraph_id": "para_718" }, { "text": "union, certain powers are reserved to states’ respective prov-", "paragraph_id": "para_719" }, { "text": "inces to the exclusion of sister states. Among others, the state", "paragraph_id": "para_720" }, { "text": "of incorporation enjoys the exclusive authority to govern the", "paragraph_id": "para_721" }, { "text": "internal affairs of its corporations. Thus, consistent with con-", "paragraph_id": "para_722" }, { "text": "stitutional constraints, New Jersey law governs and sanctions", "paragraph_id": "para_723" }, { "text": "the Whittaker board’s authority to petition for bankruptcy.", "paragraph_id": "para_724" }, { "text": "And in any event, the Receivership Order did not purport to", "paragraph_id": "para_725" }, { "text": "divest that body of the authority to seek bankruptcy protection,", "paragraph_id": "para_726" }, { "text": "as the Bankruptcy and District Courts correctly concluded.", "paragraph_id": "para_727" }, { "text": "C. Successor Liability Claims Are Property of", "paragraph_id": "para_728" }, { "text": "the Debtors’ Estates.", "paragraph_id": "para_729" }, { "text": "As Whittaker properly entered bankruptcy, we now turn", "paragraph_id": "para_730" }, { "text": "to consider whether the Successor Liability Claims belong to", "paragraph_id": "para_731" }, { "text": "the Debtors’ estates. We conclude they do.", "paragraph_id": "para_732" }, { "text": "At the outset of a bankruptcy case, Code § 541(a)(1) es-", "paragraph_id": "para_733" }, { "text": "tablishes an estate comprised of “all legal or equitable interests", "paragraph_id": "para_734" }, { "text": "of the debtor in property,” including causes of action, “wher-", "paragraph_id": "para_735" }, { "text": "ever located and by whomever held.” This feature of bank-", "paragraph_id": "para_736" }, { "text": "ruptcy law can have significant repercussions, for “once a", "paragraph_id": "para_737" }, { "text": "cause of action becomes the estate’s property, the Bankruptcy", "paragraph_id": "para_738" }, { "text": "Code gives the trustee, and only the trustee, the statutory", "paragraph_id": "para_739" }, { "text": "27", "paragraph_id": "para_740" }, { "text": "authority to pursue it.”11 In re Wilton Armetale, Inc., 968 F.3d", "paragraph_id": "para_741", "court_paragraph": 27 }, { "text": "273, 280 (3d Cir. 2020). So whether a claim is in or out of the", "paragraph_id": "para_742" }, { "text": "estate determines who can pursue (and recover on) that", "paragraph_id": "para_743" }, { "text": "claim—a difference, as this case demonstrates, with significant", "paragraph_id": "para_744" }, { "text": "consequences.", "paragraph_id": "para_745" }, { "text": "In order for a claim putatively held by a creditor to be-", "paragraph_id": "para_746" }, { "text": "long to the estate, two conditions must be met: (1) it must have", "paragraph_id": "para_747" }, { "text": "existed at the outset of the bankruptcy, and (2) it must be a", "paragraph_id": "para_748" }, { "text": "“general” claim, meaning one “with no particularized injury", "paragraph_id": "para_749" }, { "text": "arising from it.” Emoral, 740 F.3d at 879 (quoting Bd. of Trs.", "paragraph_id": "para_750" }, { "text": "of Teamsters Loc. 863 Pension Fund v. Foodtown, Inc., 296", "paragraph_id": "para_751" }, { "text": "F.3d 164, 169 (3d Cir. 2002)). Whether a claim is “general” to", "paragraph_id": "para_752" }, { "text": "all creditors or “personal” to a specific creditor calls for an “ex-", "paragraph_id": "para_753" }, { "text": "amin[ation of] the nature of the cause of action itself.” Id. In", "paragraph_id": "para_754" }, { "text": "doing so, “we focus not on the nature of the injury, but on the", "paragraph_id": "para_755" }, { "text": "‘theory of liability.’” Wilton Armetale, 968 F.3d at 282 (quot-", "paragraph_id": "para_756" }, { "text": "ing Emoral, 740 F.3d at 879).", "paragraph_id": "para_757" }, { "text": "“General” claims are ones “based on facts generally", "paragraph_id": "para_758" }, { "text": "available to any creditor, and [for which] recovery would serve", "paragraph_id": "para_759" }, { "text": "to increase the pool of assets available to all creditors.”", "paragraph_id": "para_760" }, { "text": "Emoral, 740 F.3d at 881. Contrast this with “personal” claims,", "paragraph_id": "para_761" }, { "text": "which are “specific to the creditor” and in which “other credi-", "paragraph_id": "para_762" }, { "text": "tors generally have no interest.” Id. at 879 (quoting Foodtown,", "paragraph_id": "para_763" }, { "text": "296 F.3d at 170). A claim is “personal” when the creditor’s", "paragraph_id": "para_764" }, { "text": "injury can be “directly traced” to wrongful conduct committed", "paragraph_id": "para_765" }, { "text": "by the defendant, whether that be the debtor or a third party.", "paragraph_id": "para_766" }, { "text": "11 As mentioned already, supra note 4, in Chapter 11 cases", "paragraph_id": "para_767" }, { "text": "(where there is seldom a trustee) the debtor in possession en-", "paragraph_id": "para_768" }, { "text": "joys “all the rights . . . and powers . . . of a trustee,” save for", "paragraph_id": "para_769" }, { "text": "exceptions not relevant here. 11 U.S.C § 1107(a).", "paragraph_id": "para_770" }, { "text": "28", "paragraph_id": "para_771" }, { "text": "Wilton Armetale, 968 F.3d at 283 (quoting In re Tronox Inc.,", "paragraph_id": "para_772", "court_paragraph": 28 }, { "text": "855 F.3d 84, 100 (2d Cir. 2017)). A claim is “general” if the", "paragraph_id": "para_773" }, { "text": "creditor’s theory of liability depends on facts concerning the", "paragraph_id": "para_774" }, { "text": "relationship between the defendant and another party—that is,", "paragraph_id": "para_775" }, { "text": "“facts generally available to any creditor.” Emoral, 740 F.3d", "paragraph_id": "para_776" }, { "text": "at 881.", "paragraph_id": "para_777" }, { "text": "In Emoral, we applied this standard to a case that shares", "paragraph_id": "para_778" }, { "text": "many similarities with this one. The debtor (Emoral) manufac-", "paragraph_id": "para_779" }, { "text": "tured diacetyl, a chemical used in the food flavoring industry", "paragraph_id": "para_780" }, { "text": "that was later found to cause various lung ailments. Id. at 877.", "paragraph_id": "para_781" }, { "text": "Through a complicated procedural history, a group of plaintiffs", "paragraph_id": "para_782" }, { "text": "eventually sued Aaroma Holdings LLC—a company that", "paragraph_id": "para_783" }, { "text": "bought some of Emoral’s assets and assumed some of its lia-", "paragraph_id": "para_784" }, { "text": "bilities in the bankruptcy case—for diacetyl-related injuries", "paragraph_id": "para_785" }, { "text": "they suffered from Emoral’s products. Id. The plaintiffs pro-", "paragraph_id": "para_786" }, { "text": "ceeded against Aaroma on the theory that it was the “mere con-", "paragraph_id": "para_787" }, { "text": "tinuation” of Emoral and thus liable for the plaintiffs’ diacetyl-", "paragraph_id": "para_788" }, { "text": "related personal injury and product liability claims as Emoral’s", "paragraph_id": "para_789" }, { "text": "successor. Id.", "paragraph_id": "para_790" }, { "text": "We held that the plaintiffs’ successor liability claims", "paragraph_id": "para_791" }, { "text": "against Aaroma were “general” claims and belonged to", "paragraph_id": "para_792" }, { "text": "Emoral’s bankruptcy estate rather than individual creditors. Id.", "paragraph_id": "para_793" }, { "text": "at 880. Because they had not alleged “any direct injury” caused", "paragraph_id": "para_794" }, { "text": "to them by Aaroma, the plaintiffs “fail[ed] to demonstrate how", "paragraph_id": "para_795" }, { "text": "any of the factual allegations” were “unique to them as com-", "paragraph_id": "para_796" }, { "text": "pared to other creditors of Emoral.” Id. at 879–80. While the", "paragraph_id": "para_797" }, { "text": "plaintiffs “focus[ed] on the individualized nature of their per-", "paragraph_id": "para_798" }, { "text": "sonal injury claims against Emoral,” the same could not be said", "paragraph_id": "para_799" }, { "text": "about their claims against Aaroma. Id. at 879. Their only the-", "paragraph_id": "para_800" }, { "text": "ory of liability as to those claims depended on Aaroma’s status", "paragraph_id": "para_801" }, { "text": "29", "paragraph_id": "para_802" }, { "text": "as Emoral’s successor, not its relationship with or conduct to-", "paragraph_id": "para_803", "court_paragraph": 29 }, { "text": "ward the plaintiffs.", "paragraph_id": "para_804" }, { "text": "This case mirrors Emoral, and that sounds the death", "paragraph_id": "para_805" }, { "text": "knell for the Committee’s argument.12 Start from the begin-", "paragraph_id": "para_806" }, { "text": "ning: The Committee’s theory of liability against Brenntag de-", "paragraph_id": "para_807" }, { "text": "pends exclusively on the latter’s relationship with the Debtors,", "paragraph_id": "para_808" }, { "text": "not on any interaction with the individual claimants them-", "paragraph_id": "para_809" }, { "text": "selves. It attempts to hold Brenntag liable under a “product", "paragraph_id": "para_810" }, { "text": "line” tort theory, which, to repeat note 2 above, “imposes strict", "paragraph_id": "para_811" }, { "text": "liability for injuries caused by defects of a product line on a", "paragraph_id": "para_812" }, { "text": "corporation that acquires the manufacturing assets of another", "paragraph_id": "para_813" }, { "text": "corporation and undertakes essentially the same manufacturing", "paragraph_id": "para_814" }, { "text": "operation and practices.” Appellant Committee’s Opening Br.", "paragraph_id": "para_815" }, { "text": "33. While that theory of liability is distinct from the “mere", "paragraph_id": "para_816" }, { "text": "continuation” theory advanced in Emoral, the Committee", "paragraph_id": "para_817" }, { "text": "here—just as the plaintiffs in Emoral—seeks to impose the", "paragraph_id": "para_818" }, { "text": "Debtors’ liability onto Brenntag solely due to its status as the", "paragraph_id": "para_819" }, { "text": "Debtors’ successor, not because of any “particularized injury", "paragraph_id": "para_820" }, { "text": "that can be ‘directly traced’ to [its] conduct.” Wilton Armetale,", "paragraph_id": "para_821" }, { "text": "968 F.3d at 283 (quoting Tronox, 855 F.3d at 100). So the", "paragraph_id": "para_822" }, { "text": "Successor Liability Claims against Brenntag belong to the", "paragraph_id": "para_823" }, { "text": "Debtors’ estates, meaning they are for the Debtors to pursue or", "paragraph_id": "para_824" }, { "text": "settle, not the Committee.", "paragraph_id": "para_825" }, { "text": "The Committee challenges this logic on two fronts. It", "paragraph_id": "para_826" }, { "text": "contends that “[t]he absence of an independent right under state", "paragraph_id": "para_827" }, { "text": "12 All agree the Successor Liability Claims existed as of the", "paragraph_id": "para_828" }, { "text": "Debtors filing bankruptcy, so Emoral’s first prong is satisfied", "paragraph_id": "para_829" }, { "text": "and we focus on the second. See Appellant Committee’s", "paragraph_id": "para_830" }, { "text": "Opening Br. 25 (not disputing this element); Appellees’", "paragraph_id": "para_831" }, { "text": "Answering Br. 20.", "paragraph_id": "para_832" }, { "text": "30", "paragraph_id": "para_833" }, { "text": "law for the Debtors to bring on their own behalf at least a subset", "paragraph_id": "para_834", "court_paragraph": 30 }, { "text": "of the Successor Liability Claims . . . demonstrates that the", "paragraph_id": "para_835" }, { "text": "Debtors cannot satisfy the first part of the Emoral test.” Ap-", "paragraph_id": "para_836" }, { "text": "pellant Committee’s Opening Br. 32 (quoting Emoral, 740", "paragraph_id": "para_837" }, { "text": "F.3d at 879). For this assertion, the Committee calls out lan-", "paragraph_id": "para_838" }, { "text": "guage from a footnote in Foodtown that “[a] cause of action is", "paragraph_id": "para_839" }, { "text": "considered property of the estate if [1] the claim existed at the", "paragraph_id": "para_840" }, { "text": "commencement of the filing and [2] the debtor could have as-", "paragraph_id": "para_841" }, { "text": "serted the claim on his own behalf under state law.” 296 F.3d", "paragraph_id": "para_842" }, { "text": "at 169 n.5 (citing Butner v. United States, 440 U.S. 48, 54", "paragraph_id": "para_843" }, { "text": "(1979)). From this statement, the Committee seeks to add a", "paragraph_id": "para_844" }, { "text": "third prong to that property-of-the-estate test, namely that a", "paragraph_id": "para_845" }, { "text": "debtor must have a state cause of action to assert before filing", "paragraph_id": "para_846" }, { "text": "for bankruptcy in order for a claim to be property of the estate.", "paragraph_id": "para_847" }, { "text": "But this argument divines too much from too little.", "paragraph_id": "para_848" }, { "text": "Elsewhere in Foodtown itself, we recited the now-familiar", "paragraph_id": "para_849" }, { "text": "standard noted above governing when claims become property", "paragraph_id": "para_850" }, { "text": "of the estate: “In order for the claim to be the ‘legal or equitable", "paragraph_id": "para_851" }, { "text": "interest of the debtor in property,’ the claim must be a ‘general", "paragraph_id": "para_852" }, { "text": "one, with no particularized injury arising from it.’” Id. at 170", "paragraph_id": "para_853" }, { "text": "(quoting St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884", "paragraph_id": "para_854" }, { "text": "F.2d 688, 701 (2d Cir. 1989)). We reiterated that test in both", "paragraph_id": "para_855" }, { "text": "Emoral and Wilton Armetale, see 740 F.3d at 879 & 968 F.3d", "paragraph_id": "para_856" }, { "text": "at 282, and neither time did we impose an additional, freestand-", "paragraph_id": "para_857" }, { "text": "ing condition that a debtor be able to pursue the cause of action", "paragraph_id": "para_858" }, { "text": "under state law for it to become property of the estate. So while", "paragraph_id": "para_859" }, { "text": "the ability to “assert[] the claim on his own behalf under state", "paragraph_id": "para_860" }, { "text": "law” is enough to become property of the estate, it is not nec-", "paragraph_id": "para_861" }, { "text": "essary. Foodtown, 296 F.3d at 169 n.5. Thus, any inability by", "paragraph_id": "para_862" }, { "text": "the Debtors to assert the Successor Liability Claims against", "paragraph_id": "para_863" }, { "text": "31", "paragraph_id": "para_864" }, { "text": "Brenntag outside of bankruptcy does not affect whether those", "paragraph_id": "para_865", "court_paragraph": 31 }, { "text": "claims are property of the estate inside bankruptcy.13", "paragraph_id": "para_866" }, { "text": "The Committee also argues that the Successor Liability", "paragraph_id": "para_867" }, { "text": "Claims are not “general” because the theory of liability against", "paragraph_id": "para_868" }, { "text": "Brenntag (the product-line theory) involves “specific claims", "paragraph_id": "para_869" }, { "text": "exclusively belonging to victims injured by defective prod-", "paragraph_id": "para_870" }, { "text": "ucts,” and “[t]hey arise from harms unique to those victims . . .", "paragraph_id": "para_871" }, { "text": "based on conduct of the successor entity.” Appellant Commit-", "paragraph_id": "para_872" }, { "text": "tee’s Opening Br. 33. Those claims do not inure to the benefit", "paragraph_id": "para_873" }, { "text": "of all creditors, the Committee asserts, because they are only", "paragraph_id": "para_874" }, { "text": "available to “personal-injury and environmental tort creditors;", "paragraph_id": "para_875" }, { "text": "they do not include, for example, the Debtors’ various com-", "paragraph_id": "para_876" }, { "text": "mercial and contract creditors.” Id. at 36.", "paragraph_id": "para_877" }, { "text": "While this argument may have intuitive appeal, our", "paragraph_id": "para_878" }, { "text": "precedent has already rejected it. When assessing whether a", "paragraph_id": "para_879" }, { "text": "claim is “general” or “personal,” we “focus not on the nature", "paragraph_id": "para_880" }, { "text": "of the injury, but on the ‘theory of liability.’” Wilton Armetale,", "paragraph_id": "para_881" }, { "text": "968 F.3d at 282 (quoting Emoral, 740 F.3d at 879). As the", "paragraph_id": "para_882" }, { "text": "Committee presses a “product line” theory, we evaluate", "paragraph_id": "para_883" }, { "text": "whether the facts necessary to establish liability under that the-", "paragraph_id": "para_884" }, { "text": "ory are “generally available to any creditor.” Emoral, 740 F.3d", "paragraph_id": "para_885" }, { "text": "at 881.", "paragraph_id": "para_886" }, { "text": "13 In Emoral we expressed doubt that such an inability made a", "paragraph_id": "para_887" }, { "text": "difference to whether a claim was properly characterized as", "paragraph_id": "para_888" }, { "text": "“general.” 740 F.3d at 881 (“As a practical matter, it is difficult", "paragraph_id": "para_889" }, { "text": "to imagine a factual scenario in which a solvent Emoral, out-", "paragraph_id": "para_890" }, { "text": "side of the bankruptcy context, would or could bring a claim", "paragraph_id": "para_891" }, { "text": "for successor liability against Aaroma.”).", "paragraph_id": "para_892" }, { "text": "32", "paragraph_id": "para_893" }, { "text": "The product-line theory depends entirely on the succes-", "paragraph_id": "para_894", "court_paragraph": 32 }, { "text": "sor’s relationship with the manufacturer because it is the suc-", "paragraph_id": "para_895" }, { "text": "cessor’s acquisition and continuation of the “same manufactur-", "paragraph_id": "para_896" }, { "text": "ing operation and practices” as the manufacturer that seeds po-", "paragraph_id": "para_897" }, { "text": "tential successor liability to individual claimants. Appellant", "paragraph_id": "para_898" }, { "text": "Committee’s Opening Br. 33 (citing Ramirez, 431 A.2d at", "paragraph_id": "para_899" }, { "text": "820). That sort of pass-through liability—using the manufac-", "paragraph_id": "para_900" }, { "text": "turer as a conduit to reach the successor—was rejected in", "paragraph_id": "para_901" }, { "text": "Emoral because the facts on which liability depended—the", "paragraph_id": "para_902" }, { "text": "successor’s relationship with the manufacturer—do not impli-", "paragraph_id": "para_903" }, { "text": "cate a claim that is “specific to the creditor.” Emoral, 740 F.3d", "paragraph_id": "para_904" }, { "text": "at 879 (quoting Foodtown, 296 F.3d at 170).", "paragraph_id": "para_905" }, { "text": "So too here. The talc claimants’ injuries do not stem", "paragraph_id": "para_906" }, { "text": "from the nucleus of facts that underlay Brenntag’s status as a", "paragraph_id": "para_907" }, { "text": "successor to the Debtors. They trace only to the exposure to", "paragraph_id": "para_908" }, { "text": "asbestos-contaminated products manufactured by the Debtors", "paragraph_id": "para_909" }, { "text": "at a time before Brenntag was even in the picture. This obvi-", "paragraph_id": "para_910" }, { "text": "ates their being “directly traced” to it. Wilton Armetale, 968", "paragraph_id": "para_911" }, { "text": "F.3d at 283 (quoting Tronox, 855 F.3d at 100). Those claims", "paragraph_id": "para_912" }, { "text": "are quintessentially “general.”14", "paragraph_id": "para_913" }, { "text": "14 At oral argument, the Committee gestured at the prospect of", "paragraph_id": "para_914" }, { "text": "conceiving its constituents’ claims as “direct” and stemming", "paragraph_id": "para_915" }, { "text": "from Brenntag’s own conduct, namely its status as “a successor", "paragraph_id": "para_916" }, { "text": "who continues to manufacture the product.” Oral Arg. Tr.", "paragraph_id": "para_917" }, { "text": "77:6–7. But this characterization merely repackages the prod-", "paragraph_id": "para_918" }, { "text": "uct-line theory and runs into the same problems. True, the", "paragraph_id": "para_919" }, { "text": "Committee’s product-line claims depend, in some measure, on", "paragraph_id": "para_920" }, { "text": "Brenntag’s conduct. In order to be a successor susceptible to", "paragraph_id": "para_921" }, { "text": "the product-line theory, Brenntag must have actually continued", "paragraph_id": "para_922" }, { "text": "the product line, which it has. But that fact was equally present", "paragraph_id": "para_923" }, { "text": "33", "paragraph_id": "para_924" }, { "text": "To be sure, the Committee correctly points out that its", "paragraph_id": "para_925", "court_paragraph": 33 }, { "text": "constituents have each suffered “harms unique to [them].” Ap-", "paragraph_id": "para_926" }, { "text": "pellant Committee’s Opening Br. 33. Indeed, this echoes ar-", "paragraph_id": "para_927" }, { "text": "guments raised in the Emoral dissent, which would have held", "paragraph_id": "para_928" }, { "text": "that “[b]ecause the Diacetyl Plaintiffs’ underlying allegations", "paragraph_id": "para_929" }, { "text": "are clearly individualized in nature, their claims against", "paragraph_id": "para_930" }, { "text": "Aaroma—which seek to hold this third party liable for their", "paragraph_id": "para_931" }, { "text": "alleged injuries as the ‘mere continuation’ of Emoral—must", "paragraph_id": "para_932" }, { "text": "also be considered as individualized claims.” Emoral, 740 F.3d", "paragraph_id": "para_933" }, { "text": "at 883 (Cowen, J., dissenting). The Emoral majority, however,", "paragraph_id": "para_934" }, { "text": "rejected that focus on “the nature of the [underlying] injury,”", "paragraph_id": "para_935" }, { "text": "instead returning to consideration of “the ‘theory of liability’”", "paragraph_id": "para_936" }, { "text": "and the facts on which it relies. Wilton Armetale, 968 F.3d at", "paragraph_id": "para_937" }, { "text": "282 (quoting Emoral, 740 F.3d at 879). And that analysis con-", "paragraph_id": "para_938" }, { "text": "trols even though the harm suffered by some creditors “might", "paragraph_id": "para_939" }, { "text": "be worse in degree than that suffered by other[s].”15 Id. at 283.", "paragraph_id": "para_940" }, { "text": "in Emoral, where the diacetyl plaintiffs’ “mere continuation”", "paragraph_id": "para_941" }, { "text": "claims depended in part of Aaroma’s purchase of Emoral’s as-", "paragraph_id": "para_942" }, { "text": "sets and continuation of its business enterprise. Emoral, 740", "paragraph_id": "para_943" }, { "text": "F.3d at 880. So while successor liability claims at some level", "paragraph_id": "para_944" }, { "text": "depend on actions by the successor, the injuries to the Commit-", "paragraph_id": "para_945" }, { "text": "tee’s constituents cannot be “directly traced” to Brenntag’s", "paragraph_id": "para_946" }, { "text": "conduct because they stem from the Debtors’ manufacture and", "paragraph_id": "para_947" }, { "text": "sale of asbestos-contaminated products. Wilton Armetale, 968", "paragraph_id": "para_948" }, { "text": "F.3d at 283 (quoting Tronox, 855 F.3d at 100).", "paragraph_id": "para_949" }, { "text": "15 The Bankruptcy Court held in the alternative that", "paragraph_id": "para_950" }, { "text": "§ 544(a)(1), coupled with § 541(a)(7), brought the Successor", "paragraph_id": "para_951" }, { "text": "Liability Claims into the Debtors’ estates. Section 541(a)(7)", "paragraph_id": "para_952" }, { "text": "provides that “[a]ny interest in property that the estate acquires", "paragraph_id": "para_953" }, { "text": "after the commencement of the case” becomes property of the", "paragraph_id": "para_954" }, { "text": "34", "paragraph_id": "para_955" }, { "text": "IV. CONCLUSION", "paragraph_id": "para_956", "court_paragraph": 34 }, { "text": "Whittaker filed for bankruptcy after its board exercised", "paragraph_id": "para_957" }, { "text": "its power to authorize the petition. The South Carolina Court", "paragraph_id": "para_958" }, { "text": "could not divest Whittaker’s board of that authority on its own,", "paragraph_id": "para_959" }, { "text": "and, once appointed, the South Carolina Receiver had to move", "paragraph_id": "para_960" }, { "text": "successfully a New Jersey court to displace the board. That did", "paragraph_id": "para_961" }, { "text": "not occur (indeed, the attempt was not made), and Whittaker", "paragraph_id": "para_962" }, { "text": "properly entered bankruptcy. Once there, Code § 541(a)(1)", "paragraph_id": "para_963" }, { "text": "and Emoral brought the Successor Liability Claims into the", "paragraph_id": "para_964" }, { "text": "Debtors’ estates.16 For these reasons, we affirm the judgments", "paragraph_id": "para_965" }, { "text": "estate. So because the debtor in possession enjoys the rights of", "paragraph_id": "para_966" }, { "text": "a trustee under the Code—including the right to pursue estate", "paragraph_id": "para_967" }, { "text": "causes of action, Wilton Armetale, 968 F.3d at 282—the Bank-", "paragraph_id": "para_968" }, { "text": "ruptcy Court reasoned that the post-petition cause of action", "paragraph_id": "para_969" }, { "text": "conferred on the trustee by § 544(a)(1) is after-acquired prop-", "paragraph_id": "para_970" }, { "text": "erty of the estate under § 541(a)(7). See In re Whittaker, Clark,", "paragraph_id": "para_971" }, { "text": "& Daniels, 663 B.R. at 14. Thus, because, in the Bankruptcy", "paragraph_id": "para_972" }, { "text": "Court’s view, the Successor Liability Claims could be asserted", "paragraph_id": "para_973" }, { "text": "by a trustee under § 544(a)(1), § 541(a)(7) drew those claims", "paragraph_id": "para_974" }, { "text": "into the Debtors’ estates. While the parties have devoted por-", "paragraph_id": "para_975" }, { "text": "tions of their briefs and arguments to address this alternative", "paragraph_id": "para_976" }, { "text": "holding, we need not consider it because we conclude that our", "paragraph_id": "para_977" }, { "text": "decision in Emoral makes the Successor Liability Claims prop-", "paragraph_id": "para_978" }, { "text": "erty of the estate under § 541(a)(1).", "paragraph_id": "para_979" }, { "text": "16 Supplementing note 5 above, we are aware that the Debtors,", "paragraph_id": "para_980" }, { "text": "having prevailed in the Bankruptcy Court, have moved for", "paragraph_id": "para_981" }, { "text": "approval of a settlement of the Successor Liability Claims with", "paragraph_id": "para_982" }, { "text": "Brenntag, National Indemnity, and others. Naturally, our", "paragraph_id": "para_983" }, { "text": "conclusion that the Successor Liability Claims are property of", "paragraph_id": "para_984" }, { "text": "35", "paragraph_id": "para_985" }, { "text": "of the District and Bankruptcy Courts.", "paragraph_id": "para_986", "court_paragraph": 35 }, { "text": "the estate under § 541(a)(1) puts the ball in the Debtors’ court,", "paragraph_id": "para_987" }, { "text": "and it is their prerogative to pursue or settle those claims. But", "paragraph_id": "para_988" }, { "text": "we note that the Debtors do not enjoy unbounded discretion.", "paragraph_id": "para_989" }, { "text": "As debtors-in-possession, they owe fiduciary duties to all cred-", "paragraph_id": "para_990" }, { "text": "itors, including the Committee’s constituents, to maximize the", "paragraph_id": "para_991" }, { "text": "value of the estate. In re Marvel Ent. Grp., Inc., 140 F.3d 463,", "paragraph_id": "para_992" }, { "text": "471 (3d Cir. 1998). Sometimes the most beneficial course may", "paragraph_id": "para_993" }, { "text": "be to settle claims and avoid the cost and uncertainty of litiga-", "paragraph_id": "para_994" }, { "text": "tion. Other times it may not. For that reason, bankruptcy", "paragraph_id": "para_995" }, { "text": "courts must scrutinize proposed settlements under Bankruptcy", "paragraph_id": "para_996" }, { "text": "Rule 9019 “to determine what course of action will be in the", "paragraph_id": "para_997" }, { "text": "best interest of the estate.” In re Martin, 91 F.3d 389, 394 (3d", "paragraph_id": "para_998" }, { "text": "Cir. 1996). And that scrutiny is “rigorous[]” when the debtor", "paragraph_id": "para_999" }, { "text": "looks to settle with an insider. In re Winstar Commc’ns, Inc.,", "paragraph_id": "para_1000" }, { "text": "554 F.3d 382, 412 (3d Cir. 2009) (quotation omitted). We have", "paragraph_id": "para_1001" }, { "text": "no doubt the Bankruptcy Court will evaluate the Debtors’ pro-", "paragraph_id": "para_1002" }, { "text": "posed settlement with these precepts in mind.", "paragraph_id": "para_1003" }, { "text": "1", "paragraph_id": "para_1004" }, { "text": "KRAUSE, Circuit Judge, concurring.", "paragraph_id": "para_1005", "court_paragraph": 1 }, { "text": "I join the majority opinion in full. As it persuasively", "paragraph_id": "para_1006" }, { "text": "explains, New Jersey law governs the authority of Whittaker’s", "paragraph_id": "para_1007" }, { "text": "board to exercise corporate authority, and the South Carolina", "paragraph_id": "para_1008" }, { "text": "Court did not—and likely could not—unilaterally divest the", "paragraph_id": "para_1009" }, { "text": "board of that authority. Once in bankruptcy, moreover, our", "paragraph_id": "para_1010" }, { "text": "decisions in In re Emoral, 740 F.3d 875 (3d Cir. 2014), and In", "paragraph_id": "para_1011" }, { "text": "re Wilton Armetale, Inc., 968 F.3d 273 (3d Cir. 2020),", "paragraph_id": "para_1012" }, { "text": "straightforwardly dictate that the Successor Liability Claims", "paragraph_id": "para_1013" }, { "text": "are property of the estate under 11 U.S.C. § 541(a)(1). I write", "paragraph_id": "para_1014" }, { "text": "separately, however, to address which choice-of-law rules", "paragraph_id": "para_1015" }, { "text": "govern in bankruptcy—an issue that both looms in the", "paragraph_id": "para_1016" }, { "text": "background of this case and that has divided courts for decades.", "paragraph_id": "para_1017" }, { "text": "Both parties ultimately agree that New Jersey law", "paragraph_id": "para_1018" }, { "text": "governs Whittaker’s authority to petition for bankruptcy", "paragraph_id": "para_1019" }, { "text": "protection, but they also recognize that there are two distinct", "paragraph_id": "para_1020" }, { "text": "paths to that choice of law—the “forum state” rule of Klaxon", "paragraph_id": "para_1021" }, { "text": "Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941), on the one", "paragraph_id": "para_1022" }, { "text": "hand, and a federal common law choice of law rule,", "paragraph_id": "para_1023" }, { "text": "incorporating the internal affairs doctrine, on the other. Here,", "paragraph_id": "para_1024" }, { "text": "because the forum state is New Jersey and because Whittaker", "paragraph_id": "para_1025" }, { "text": "is a New Jersey corporation, those paths converge. But, as", "paragraph_id": "para_1026" }, { "text": "highlighted in the parties’ briefing and argument on this", "paragraph_id": "para_1027" }, { "text": "question, each rule involves a different analysis and is capable", "paragraph_id": "para_1028" }, { "text": "of producing a different outcome. And confusion about how", "paragraph_id": "para_1029" }, { "text": "to resolve this conflict-of-laws question in bankruptcy cases", "paragraph_id": "para_1030" }, { "text": "will persist in our Circuit absent guidance from our Court. I", "paragraph_id": "para_1031" }, { "text": "write here with an eye towards that eventual resolution. As it", "paragraph_id": "para_1032" }, { "text": "turns out, the answer lies in established doctrine. For the", "paragraph_id": "para_1033" }, { "text": "reasons explained more thoroughly below, the Bankruptcy", "paragraph_id": "para_1034" }, { "text": "Code; Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), and the", "paragraph_id": "para_1035" }, { "text": "2", "paragraph_id": "para_1036" }, { "text": "Rules of Decision Act; and the grant of bankruptcy jurisdiction", "paragraph_id": "para_1037", "court_paragraph": 2 }, { "text": "to federal courts all support employing the choice-of-law rules", "paragraph_id": "para_1038" }, { "text": "of the state in which the bankruptcy court sits.", "paragraph_id": "para_1039" }, { "text": "I. The Puzzle: Choice of Law in Bankruptcy", "paragraph_id": "para_1040" }, { "text": "Federal courts are most often called on to resolve", "paragraph_id": "para_1041" }, { "text": "choice-of-law questions while exercising diversity jurisdiction.", "paragraph_id": "para_1042" }, { "text": "In those cases, non-federal law (usually state law) provides the", "paragraph_id": "para_1043" }, { "text": "rule of decision, Erie, 304 U.S. 64, and diverse parties might", "paragraph_id": "para_1044" }, { "text": "dispute which law governs their claims. When those candidate", "paragraph_id": "para_1045" }, { "text": "laws conflict, courts must decide which one controls. To", "paragraph_id": "para_1046" }, { "text": "answer that question, a federal court sitting in diversity uses", "paragraph_id": "para_1047" }, { "text": "the choice-of-law rules of the state in which it sits. Klaxon,", "paragraph_id": "para_1048" }, { "text": "313 U.S. at 496.", "paragraph_id": "para_1049" }, { "text": "Our Court has not previously determined whether the", "paragraph_id": "para_1050" }, { "text": "same rule applies in bankruptcy proceedings.1 But some of our", "paragraph_id": "para_1051" }, { "text": "sister circuits have entered this fray, coming to differing", "paragraph_id": "para_1052" }, { "text": "conclusions. The Eighth Circuit applies Klaxon in bankruptcy", "paragraph_id": "para_1053" }, { "text": "cases, directing that “bankruptcy court[s] appl[y] the choice of", "paragraph_id": "para_1054" }, { "text": "law rules of the state in which it sits,” In re Payless Cashways,", "paragraph_id": "para_1055" }, { "text": "203 F.3d 1081, 1084 (8th Cir. 2000), and that “when some", "paragraph_id": "para_1056" }, { "text": "federal interest requires a different result,” the “appropriate", "paragraph_id": "para_1057" }, { "text": "question” is not choice-of-law but rather rule of decision, i.e.,", "paragraph_id": "para_1058" }, { "text": "“whether the state [law] can trump the federal [law],” which it", "paragraph_id": "para_1059" }, { "text": "obviously cannot, In re Schriock Constr., Inc., 104 F.3d 200,", "paragraph_id": "para_1060" }, { "text": "201–02 (8th Cir. 1997) (quoting Butner v. United States, 440", "paragraph_id": "para_1061" }, { "text": "1 See In re Abeinsa Holding Inc., No. 20-3333, 2021 WL", "paragraph_id": "para_1062" }, { "text": "3909984, at *3 (3d Cir. Sept. 1, 2021) (noting that our Court", "paragraph_id": "para_1063" }, { "text": "has “not yet precedentially resolved the choice-of-law rules", "paragraph_id": "para_1064" }, { "text": "applicable in bankruptcy proceedings”).", "paragraph_id": "para_1065" }, { "text": "3", "paragraph_id": "para_1066" }, { "text": "U.S. 48, 54 (1979)).2 The Ninth Circuit (and possibly the", "paragraph_id": "para_1067", "court_paragraph": 3 }, { "text": "Fifth), on the other hand, have rejected Klaxon in bankruptcy", "paragraph_id": "para_1068" }, { "text": "cases and instead require a federal common law choice-of-law", "paragraph_id": "para_1069" }, { "text": "rule. See In re Lindsay, 59 F.3d 942, 948 (9th Cir. 1995);", "paragraph_id": "para_1070" }, { "text": "Wallace Lincoln-Mercury Co. v. Gentry, 469 F.2d 396, 400 n.1", "paragraph_id": "para_1071" }, { "text": "(5th Cir. 1972). But see Fishback Nursery, Inc. v. PNC Bank,", "paragraph_id": "para_1072" }, { "text": "N.A., 920 F.3d 932, 935 (5th Cir. 2019) (describing Klaxon’s", "paragraph_id": "para_1073" }, { "text": "application in bankruptcy as “an open question”). Finally, the", "paragraph_id": "para_1074" }, { "text": "Second and Fourth Circuits take a hybrid approach—applying", "paragraph_id": "para_1075" }, { "text": "Klaxon “in the absence of a compelling federal interest which", "paragraph_id": "para_1076" }, { "text": "dictates otherwise.” In re Merritt Dredging Co., 839 F.2d 203,", "paragraph_id": "para_1077" }, { "text": "205–06 (4th Cir. 1989); see also In re Gaston & Snow, 243", "paragraph_id": "para_1078" }, { "text": "F.3d 599, 607 (2d Cir. 2001) (applying Klaxon unless", "paragraph_id": "para_1079" }, { "text": "“significant federal policy, calling for the imposition of a", "paragraph_id": "para_1080" }, { "text": "federal conflicts rule, exists”). In other words, in contrast to", "paragraph_id": "para_1081" }, { "text": "the Eighth Circuit, which would accommodate any overriding", "paragraph_id": "para_1082" }, { "text": "federal interest by applying a federal rule of decision, these", "paragraph_id": "para_1083" }, { "text": "courts would reach the same result but under the auspices of a", "paragraph_id": "para_1084" }, { "text": "choice-of-law rule.", "paragraph_id": "para_1085" }, { "text": "This tripartite circuit split has persisted for decades and", "paragraph_id": "para_1086" }, { "text": "created disparities in how bankruptcy courts determine which", "paragraph_id": "para_1087" }, { "text": "law governs parties’ rights and obligations. As I explain", "paragraph_id": "para_1088" }, { "text": "below, however, there is no basis to depart from the established", "paragraph_id": "para_1089" }, { "text": "rule from Klaxon, and, consistent with the Eighth Circuit’s", "paragraph_id": "para_1090" }, { "text": "approach, any conflict-of-laws issue is properly resolved as a", "paragraph_id": "para_1091" }, { "text": "matter of rule of decision, not choice of law.", "paragraph_id": "para_1092" }, { "text": "2 To be sure, the Eighth Circuit adopted Klaxon’s rule in", "paragraph_id": "para_1093" }, { "text": "bankruptcy without much reasoning. See In re Payless", "paragraph_id": "para_1094" }, { "text": "Cashways, 203 F.3d at 1084.", "paragraph_id": "para_1095" }, { "text": "4", "paragraph_id": "para_1096" }, { "text": "II. The Affirmative Case for Applying Klaxon in", "paragraph_id": "para_1097", "court_paragraph": 4 }, { "text": "Bankruptcy", "paragraph_id": "para_1098" }, { "text": "The reasons for extending Klaxon to bankruptcy are", "paragraph_id": "para_1099" }, { "text": "many and exceedingly strong. All relate to the structure of the", "paragraph_id": "para_1100" }, { "text": "Bankruptcy Code, the purposes the Code serves, and Erie and", "paragraph_id": "para_1101" }, { "text": "the Rules of Decision Act. I consider them in turn.", "paragraph_id": "para_1102" }, { "text": "First, while bankruptcy provides an “orderly and", "paragraph_id": "para_1103" }, { "text": "centralized” process to restructure the debts of the honest but", "paragraph_id": "para_1104" }, { "text": "unfortunate debtor, 1 Collier on Bankruptcy ¶ 1.01[1] (16th ed.", "paragraph_id": "para_1105" }, { "text": "2025), it does not create substantive property rights. Instead,", "paragraph_id": "para_1106" }, { "text": "consistent with the Rules of Decision Act, 28 U.S.C. § 1652, it", "paragraph_id": "para_1107" }, { "text": "is non-bankruptcy law that defines parties’ property interests,3", "paragraph_id": "para_1108" }, { "text": "Butner, 440 U.S. at 55; accord In re Boy Scouts of Am., 137", "paragraph_id": "para_1109" }, { "text": "F.4th 126, 164 (3d Cir. 2025). Accordingly, courts exercising", "paragraph_id": "para_1110" }, { "text": "bankruptcy jurisdiction regularly look to governing non-", "paragraph_id": "para_1111" }, { "text": "bankruptcy law—often “state law”—to determine parties’", "paragraph_id": "para_1112" }, { "text": "“rights and obligations when the Code does not supply a", "paragraph_id": "para_1113" }, { "text": "federal rule.” In re Wright, 492 F.3d 829, 832 (7th Cir. 2007)", "paragraph_id": "para_1114" }, { "text": "(Easterbrook, J.). And in doing so, those courts frequently", "paragraph_id": "para_1115" }, { "text": "encounter the same dilemma they do when sitting in diversity:", "paragraph_id": "para_1116" }, { "text": "conflicting laws that purport to govern parties’ rights and", "paragraph_id": "para_1117" }, { "text": "interests.", "paragraph_id": "para_1118" }, { "text": "As bankruptcy law takes parties’ property rights as it", "paragraph_id": "para_1119" }, { "text": "finds them, Butner, 440 U.S. at 55; Mission Prod. Holdings,", "paragraph_id": "para_1120" }, { "text": "Inc. v. Tempnology, LLC, 587 U.S. 370, 381 (2019), the fact", "paragraph_id": "para_1121" }, { "text": "3 While “property” generally conjures images of real property", "paragraph_id": "para_1122" }, { "text": "or tangible items, in bankruptcy (and elsewhere), various", "paragraph_id": "para_1123" }, { "text": "intangibles, such as causes of action, similarly constitute", "paragraph_id": "para_1124" }, { "text": "property. See, e.g., In re Kane, 628 F.3d 631, 637 (3d Cir.", "paragraph_id": "para_1125" }, { "text": "2010).", "paragraph_id": "para_1126" }, { "text": "5", "paragraph_id": "para_1127" }, { "text": "that parties find themselves wound up in a bankruptcy case", "paragraph_id": "para_1128", "court_paragraph": 5 }, { "text": "should not work to alter the law that would otherwise govern", "paragraph_id": "para_1129" }, { "text": "their rights, cf. Phillips Petroleum Co. v. Shutts, 472 U.S. 797,", "paragraph_id": "para_1130" }, { "text": "820 (1985) (rejecting notion that participation in a class action", "paragraph_id": "para_1131" }, { "text": "changes the substantive law governing individual plaintiffs’", "paragraph_id": "para_1132" }, { "text": "disputes). But adopting a choice-of-law rule unique to", "paragraph_id": "para_1133" }, { "text": "bankruptcy risks just that and would subject identically", "paragraph_id": "para_1134" }, { "text": "situated parties to different governing laws simply by virtue of", "paragraph_id": "para_1135" }, { "text": "one dispute occurring in bankruptcy court while the other", "paragraph_id": "para_1136" }, { "text": "unfolds in run-of-the-mill civil litigation.4 Our bankruptcy", "paragraph_id": "para_1137" }, { "text": "4 In addition to diversity cases, Klaxon governs choice-of-law", "paragraph_id": "para_1138" }, { "text": "questions where jurisdiction is anchored on other bases,", "paragraph_id": "para_1139" }, { "text": "including federal questions under 28 U.S.C. § 1331, Shields v.", "paragraph_id": "para_1140" }, { "text": "Consol. Rail Corp., 810 F.2d 397, 399 (3d Cir. 1987) (ancillary", "paragraph_id": "para_1141" }, { "text": "(now supplemental) jurisdiction); Sys. Operations, Inc. v. Sci.", "paragraph_id": "para_1142" }, { "text": "Games Dev. Corp., 555 F.2d 1131, 1136 (3d Cir. 1977)", "paragraph_id": "para_1143" }, { "text": "(“Although Klaxon was a diversity jurisdiction case, the same", "paragraph_id": "para_1144" }, { "text": "principle holds true with respect to pendent jurisdiction", "paragraph_id": "para_1145" }, { "text": "claims.”); accord Elliott v. Cartagena, 84 F.4th 481, 496 n.14", "paragraph_id": "para_1146" }, { "text": "(2d Cir. 2023); Osborn v. Griffin, 865 F.3d 417, 443 (6th Cir.", "paragraph_id": "para_1147" }, { "text": "2017); BancOklahoma Mortg. Corp. v. Cap. Title Co., 194", "paragraph_id": "para_1148" }, { "text": "F.3d 1089, 1103 (10th Cir. 1999); Ideal Elec. Sec. Co. v. Int’l", "paragraph_id": "para_1149" }, { "text": "Fidelity Ins. Co., 129 F.3d 143, 148 (D.C. Cir. 1997); Paracor", "paragraph_id": "para_1150" }, { "text": "Fin., Inc. v. Gen. Elec. Cap. Corp., 96 F.3d 1151, 1164 (9th", "paragraph_id": "para_1151" }, { "text": "Cir. 1996); Sommers Drug Stores Co. Emp. Profit Sharing Tr.", "paragraph_id": "para_1152" }, { "text": "v. Corrigan, 883 F.2d 345, 353 (5th Cir. 1989); Bi-Rite Enters.,", "paragraph_id": "para_1153" }, { "text": "Inc. v. Bruce Miner Co., 757 F.2d 440, 442 (1st Cir. 1985);", "paragraph_id": "para_1154" }, { "text": "ITCO Corp. v. Michelin Tire Corp., Com. Div., 722 F.2d 42,", "paragraph_id": "para_1155" }, { "text": "49 n.11 (4th Cir. 1983), and interpleader under 28 U.S.C.", "paragraph_id": "para_1156" }, { "text": "§ 1335, Griffin v. McCoach, 313 U.S. 498, 503 (1941).", "paragraph_id": "para_1157" }, { "text": "Moreover, outside of federal court, state courts employ the", "paragraph_id": "para_1158" }, { "text": "6", "paragraph_id": "para_1159" }, { "text": "system does not demand—and, indeed, militates against—such", "paragraph_id": "para_1160", "court_paragraph": 6 }, { "text": "a disparity. See BFP v. Resol. Tr. Corp., 511 U.S. 531, 544–", "paragraph_id": "para_1161" }, { "text": "45 (1994) (absent a clear and manifest conflict, “the", "paragraph_id": "para_1162" }, { "text": "Bankruptcy Code will be construed to adopt, rather than to", "paragraph_id": "para_1163" }, { "text": "displace, pre-existing state law”). And nothing in the text of", "paragraph_id": "para_1164" }, { "text": "the Code or the statutes granting bankruptcy jurisdiction", "paragraph_id": "para_1165" }, { "text": "warrants a departure from the ordinary rule of Klaxon. See", "paragraph_id": "para_1166" }, { "text": "Zachary D. Clopton, Horizontal Choice of Law in Federal", "paragraph_id": "para_1167" }, { "text": "Courts, 169 U. Pa. L. Rev. 2193, 2212 (2021).", "paragraph_id": "para_1168" }, { "text": "Second, influential bankruptcy scholarship buttresses", "paragraph_id": "para_1169" }, { "text": "this conclusion. As renowned scholars have advocated, the", "paragraph_id": "para_1170" }, { "text": "bankruptcy system in many ways “mirror[s] the agreement one", "paragraph_id": "para_1171" }, { "text": "would expect the creditors to form among themselves were", "paragraph_id": "para_1172" }, { "text": "they able to negotiate such an agreement from an ex ante", "paragraph_id": "para_1173" }, { "text": "position.” Thomas H. Jackson, Bankruptcy, Non-Bankruptcy", "paragraph_id": "para_1174" }, { "text": "Entitlements, and the Creditors’ Bargain, 91 Yale L.J. 857,", "paragraph_id": "para_1175" }, { "text": "860 (1982). This view, coined the “creditors’ bargain” theory,", "paragraph_id": "para_1176" }, { "text": "conceptualizes bankruptcy’s primary role as a means to resolve", "paragraph_id": "para_1177" }, { "text": "the collective action problem posed by self-interested creditors", "paragraph_id": "para_1178" }, { "text": "who, absent a centralized insolvency resolution system, would", "paragraph_id": "para_1179" }, { "text": "engage in individual collection actions under applicable non-", "paragraph_id": "para_1180" }, { "text": "bankruptcy law, inefficiently picking the debtor apart and", "paragraph_id": "para_1181" }, { "text": "“destroying value for the collective body of creditors.”", "paragraph_id": "para_1182" }, { "text": "Kenneth Ayotte & David A. Skeel Jr., Bankruptcy Law as a", "paragraph_id": "para_1183" }, { "text": "Liquidity Provider, 80 U. Chi. L. Rev. 1557, 1564 (2013).", "paragraph_id": "para_1184" }, { "text": "Without bankruptcy’s centralization, “[a]n unsecured creditor", "paragraph_id": "para_1185" }, { "text": "forum’s choice-of-law rules, see Restatement (Second) of", "paragraph_id": "para_1186" }, { "text": "Conflict of L. § 5 cmt. b (A.L.I. 1971) (“A court applies the", "paragraph_id": "para_1187" }, { "text": "law of its own state, as it understands it, including its own", "paragraph_id": "para_1188" }, { "text": "conception of Conflict of Laws.”)—the practice that Klaxon", "paragraph_id": "para_1189" }, { "text": "aims to mirror.", "paragraph_id": "para_1190" }, { "text": "7", "paragraph_id": "para_1191" }, { "text": "who seizes the debtor’s assets early enough in time, when the", "paragraph_id": "para_1192", "court_paragraph": 7 }, { "text": "debtor has enough to pay, will receive full payment,” while", "paragraph_id": "para_1193" }, { "text": "“[l]ate-arriving creditors are left out in the cold when the assets", "paragraph_id": "para_1194" }, { "text": "are not sufficient to pay the firm’s debts.” Id.", "paragraph_id": "para_1195" }, { "text": "Viewed through this lens, among its other features,", "paragraph_id": "para_1196" }, { "text": "bankruptcy facilitates the orderly resolution of competing", "paragraph_id": "para_1197" }, { "text": "creditor entitlements that exist under governing non-", "paragraph_id": "para_1198" }, { "text": "bankruptcy law. Such a system takes as a given creditors’", "paragraph_id": "para_1199" }, { "text": "preexisting property interests and “does not . . . justify the", "paragraph_id": "para_1200" }, { "text": "implementation of a different set of relative entitlements,", "paragraph_id": "para_1201" }, { "text": "unless doing so is necessary as a part of the move from the", "paragraph_id": "para_1202" }, { "text": "individual remedies system” that exists outside of bankruptcy.", "paragraph_id": "para_1203" }, { "text": "Thomas H. Jackson, The Logic and Limits of Bankruptcy Law", "paragraph_id": "para_1204" }, { "text": "21 (1986).", "paragraph_id": "para_1205" }, { "text": "True, the Bankruptcy Code does change parties’", "paragraph_id": "para_1206" }, { "text": "“relative entitlements” in some circumstances in aid of debtor", "paragraph_id": "para_1207" }, { "text": "rehabilitation. See, e.g., 11 U.S.C. §§ 364(d); 365(e), (i);", "paragraph_id": "para_1208" }, { "text": "502(b); see also Daniel J. Bussel et al., Bankruptcy 33 (11th", "paragraph_id": "para_1209" }, { "text": "ed. 2021). But among the Code’s voluminous rules, these", "paragraph_id": "para_1210" }, { "text": "8", "paragraph_id": "para_1211" }, { "text": "provisions fall in the minority.5 And as the creditors’ bargain", "paragraph_id": "para_1212", "court_paragraph": 8 }, { "text": "theory advances, non-bankruptcy entitlements generally", "paragraph_id": "para_1213" }, { "text": "should endure within bankruptcy, see Ayotte & Skeel, supra,", "paragraph_id": "para_1214" }, { "text": "at 1564–65 (“The second element of the Creditors’ Bargain", "paragraph_id": "para_1215" }, { "text": "theory is the claim that resolution of common-pool problems", "paragraph_id": "para_1216" }, { "text": "may require altering the procedural rights of creditors, but that", "paragraph_id": "para_1217" }, { "text": "it typically does not require altering the substantive values of", "paragraph_id": "para_1218" }, { "text": "those rights as established by nonbankruptcy law.”); see also 7", "paragraph_id": "para_1219" }, { "text": "Collier on Bankruptcy ¶ 1100.01 (16th ed. 2025) (noting the", "paragraph_id": "para_1220" }, { "text": "5 To be sure, bankruptcy does not have to work this way. The", "paragraph_id": "para_1221" }, { "text": "Constitution reserves to Congress the authority to legislate for", "paragraph_id": "para_1222" }, { "text": "“the entire ‘subject of Bankruptcies,’” Cent. Va. Cmty. Coll. v.", "paragraph_id": "para_1223" }, { "text": "Katz, 546 U.S. 356, 370 (2006) (quoting U.S. Const. art. I, § 8,", "paragraph_id": "para_1224" }, { "text": "cl. 4), which encompasses “nothing less than . . . the relations", "paragraph_id": "para_1225" }, { "text": "between . . . [a] debtor, and [its] creditors,” Wright v. Union", "paragraph_id": "para_1226" }, { "text": "Cent. Life Ins. Co., 304 U.S. 502, 513–14 (1938) (internal", "paragraph_id": "para_1227" }, { "text": "quotation marks omitted). Congress could enact legislation", "paragraph_id": "para_1228" }, { "text": "that impairs any number of entitlements created by non-", "paragraph_id": "para_1229" }, { "text": "bankruptcy law. In this way, Butner is merely descriptive of", "paragraph_id": "para_1230" }, { "text": "the bankruptcy system that Congress has chosen to enact:", "paragraph_id": "para_1231" }, { "text": "“Congress has generally left the determination of property", "paragraph_id": "para_1232" }, { "text": "rights in the assets of a bankrupt’s estate to state law.” 440", "paragraph_id": "para_1233" }, { "text": "U.S. at 54. It does not stand for the proposition that our", "paragraph_id": "para_1234" }, { "text": "Nation’s bankruptcy laws cannot determine parties’ relative", "paragraph_id": "para_1235" }, { "text": "entitlements, as scholars have pointed out. See, e.g., Anthony", "paragraph_id": "para_1236" }, { "text": "J. Casey, Chapter 11’s Renegotiation Framework and the", "paragraph_id": "para_1237" }, { "text": "Purpose of Corporate Bankruptcy, 120 Colum. L. Rev. 1709,", "paragraph_id": "para_1238" }, { "text": "1751 (2020) (advancing a theory of Chapter 11 that “support[s]", "paragraph_id": "para_1239" }, { "text": "a soft version of Butner” positing that, “[i]n the absence of any", "paragraph_id": "para_1240" }, { "text": "evidence of hold up, nonbankruptcy provisions should remain", "paragraph_id": "para_1241" }, { "text": "intact . . . simply because in the absence of hold up there is no", "paragraph_id": "para_1242" }, { "text": "role for bankruptcy law”).", "paragraph_id": "para_1243" }, { "text": "9", "paragraph_id": "para_1244" }, { "text": "importance of “preserv[ing] creditors’ and stakeholders’", "paragraph_id": "para_1245", "court_paragraph": 9 }, { "text": "existing legal rights to the greatest extent possible”),", "paragraph_id": "para_1246" }, { "text": "counseling in favor of adopting Klaxon to preserve parity with", "paragraph_id": "para_1247" }, { "text": "parties’ pre-bankruptcy positions vis-à-vis one another.", "paragraph_id": "para_1248" }, { "text": "Third, extending Klaxon to the bankruptcy context is", "paragraph_id": "para_1249" }, { "text": "fully consistent with—and supported by—Erie and the Rules", "paragraph_id": "para_1250" }, { "text": "of Decision Act. Klaxon is a product of Erie, which announced", "paragraph_id": "para_1251" }, { "text": "“[t]here is no federal general common law.” 304 U.S. at 78.", "paragraph_id": "para_1252" }, { "text": "Instead, where federal law does not govern, “[t]he laws of the", "paragraph_id": "para_1253" }, { "text": "several states” are “regarded as rules of decision . . . in cases", "paragraph_id": "para_1254" }, { "text": "where they apply.” 28 U.S.C. § 1652. While Erie itself was a", "paragraph_id": "para_1255" }, { "text": "diversity case, it “reflects the principle now well established", "paragraph_id": "para_1256" }, { "text": "that federal courts should apply state law to legal issues, unless", "paragraph_id": "para_1257" }, { "text": "there is some definable federal interest sufficient to justify", "paragraph_id": "para_1258" }, { "text": "applying corresponding and possibly inconsistent federal rules", "paragraph_id": "para_1259" }, { "text": "of decision.” 19 Wright & Miller’s Federal Practice &", "paragraph_id": "para_1260" }, { "text": "Procedure § 4520 (3d ed. May 2025 update). Klaxon reflects", "paragraph_id": "para_1261" }, { "text": "the same principle, for “[a] choice-of-law rule is no less a rule", "paragraph_id": "para_1262" }, { "text": "of state law than any other.” A.I. Trade Fin., Inc. v. Petra Int’l", "paragraph_id": "para_1263" }, { "text": "Banking Corp., 62 F.3d 1454, 1464 (D.C. Cir. 1995); see also", "paragraph_id": "para_1264" }, { "text": "Russell J. Weintraub, The Erie Doctrine and State Conflict of", "paragraph_id": "para_1265" }, { "text": "Laws Rules, 39 Ind. L.J. 228, 242 (1964) (“[T]he choice-of-law", "paragraph_id": "para_1266" }, { "text": "rules of a state are important expressions of its domestic", "paragraph_id": "para_1267" }, { "text": "policy.”). Thus, it would seem that wherever Erie travels,", "paragraph_id": "para_1268" }, { "text": "Klaxon ought to follow. See Clopton, supra, at 2198 (“In short,", "paragraph_id": "para_1269" }, { "text": "Klaxon all the way down.”).", "paragraph_id": "para_1270" }, { "text": "In the bankruptcy arena, the Bankruptcy Code supplies", "paragraph_id": "para_1271" }, { "text": "the federal rules of decision that Congress has deemed", "paragraph_id": "para_1272" }, { "text": "necessary to effectively govern the relationship between the", "paragraph_id": "para_1273" }, { "text": "debtor and its creditors. Even a cursory review of the Code’s", "paragraph_id": "para_1274" }, { "text": "“hundreds of interlocking rules,” Harrington v. Purdue", "paragraph_id": "para_1275" }, { "text": "10", "paragraph_id": "para_1276" }, { "text": "Pharma L.P., 603 U.S. 204, 209 (2024), reveals that Congress", "paragraph_id": "para_1277", "court_paragraph": 10 }, { "text": "took care to include many provisions that aim “to protect []", "paragraph_id": "para_1278" }, { "text": "national” interests, In re Trib. Co. Fraudulent Conveyance", "paragraph_id": "para_1279" }, { "text": "Litig., 946 F.3d 66, 94 (2d Cir. 2019); see, e.g., 11 U.S.C.", "paragraph_id": "para_1280" }, { "text": "§§ 362(a) (automatic stay of collection of prepetition debts,", "paragraph_id": "para_1281" }, { "text": "including state-court litigation); 365(e) (invalidating ipso facto", "paragraph_id": "para_1282" }, { "text": "clauses); 546(e) (safe harbor for certain pre-petition securities", "paragraph_id": "para_1283" }, { "text": "transactions); 555–56, 559–61 (protections for post-petition", "paragraph_id": "para_1284" }, { "text": "securities, commodities, repurchase, swap, and netting", "paragraph_id": "para_1285" }, { "text": "transactions); 1110 (providing preferred rights to aircraft and", "paragraph_id": "para_1286" }, { "text": "vessel lessors).", "paragraph_id": "para_1287" }, { "text": "As these provisions illustrate, Congress identified and", "paragraph_id": "para_1288" }, { "text": "manifested in the Code the specific federal interests it wished", "paragraph_id": "para_1289" }, { "text": "to protect; it did not leave readers to divine untold rules from", "paragraph_id": "para_1290" }, { "text": "some brooding cloud of federal interests hanging over", "paragraph_id": "para_1291" }, { "text": "bankruptcy. As we invariably do when construing federal", "paragraph_id": "para_1292" }, { "text": "statutes, we look to its text to discern meaning, In re Imerys", "paragraph_id": "para_1293" }, { "text": "Talc Am., Inc., 38 F.4th 361, 375 (3d Cir. 2022), and we", "paragraph_id": "para_1294" }, { "text": "“presume that [Congress] says in a statute what it means and", "paragraph_id": "para_1295" }, { "text": "means in a statute what it says,” Conn. Nat’l Bank v. Germain,", "paragraph_id": "para_1296" }, { "text": "503 U.S. 249, 253–54 (1992). So while “the Bankruptcy", "paragraph_id": "para_1297" }, { "text": "Clause confers broad authority on Congress,” Siegel v.", "paragraph_id": "para_1298" }, { "text": "Fitzgerald, 596 U.S. 464, 476 (2022), to establish “uniform", "paragraph_id": "para_1299" }, { "text": "Laws on the subject of Bankruptcies,” U.S. Const. art. I, § 8,", "paragraph_id": "para_1300" }, { "text": "cl. 4, Congress has not dictated a particular choice-of-law rule", "paragraph_id": "para_1301" }, { "text": "to govern in bankruptcy cases.", "paragraph_id": "para_1302" }, { "text": "This is a glaring omission in a sea of provisions relating", "paragraph_id": "para_1303" }, { "text": "to bankruptcies and not one we should presume Congress", "paragraph_id": "para_1304" }, { "text": "simply overlooked. To the contrary, we must respect the", "paragraph_id": "para_1305" }, { "text": "presumption that state law governs “until Congress strikes a", "paragraph_id": "para_1306" }, { "text": "different accommodation.” United States v. Kimbell Foods,", "paragraph_id": "para_1307" }, { "text": "11", "paragraph_id": "para_1308" }, { "text": "Inc., 440 U.S. 715, 740 (1979). It is not the role of federal", "paragraph_id": "para_1309", "court_paragraph": 11 }, { "text": "courts to extend federal interests beyond those Congress has", "paragraph_id": "para_1310" }, { "text": "prescribed. See Tex. Indus., Inc. v. Radcliff Materials, Inc., 451", "paragraph_id": "para_1311" }, { "text": "U.S. 630, 641 (1981); In re One2One Commc’ns, LLC, 805", "paragraph_id": "para_1312" }, { "text": "F.3d 428, 444 (3d Cir. 2015) (Krause, J., concurring); cf.", "paragraph_id": "para_1313" }, { "text": "Cassirer v. Thyssen-Bornemisza Collection Found., 596 U.S.", "paragraph_id": "para_1314" }, { "text": "107, 116 (2022) (concluding that, when an exception to foreign", "paragraph_id": "para_1315" }, { "text": "sovereign immunity applies under the Foreign Sovereign", "paragraph_id": "para_1316" }, { "text": "Immunities Act, federal courts must apply Klaxon because the", "paragraph_id": "para_1317" }, { "text": "statute already protects the unique federal interest of foreign", "paragraph_id": "para_1318" }, { "text": "relations). Instead, “the issue of whether to displace state law", "paragraph_id": "para_1319" }, { "text": ". . . is primarily a decision for Congress,” Miree v. Dekalb", "paragraph_id": "para_1320" }, { "text": "Cnty., 433 U.S. 25, 32 (1977), and “[w]e should not assume", "paragraph_id": "para_1321" }, { "text": "that Congress intended to set the courts completely adrift from", "paragraph_id": "para_1322" }, { "text": "state law with regard to questions for which it has not provided", "paragraph_id": "para_1323" }, { "text": "a specific and definite answer in an act . . . so intimately related", "paragraph_id": "para_1324" }, { "text": "to state law,” Richards v. United States, 369 U.S. 1, 11 (1962).", "paragraph_id": "para_1325" }, { "text": "In these circumstances, with a “federal statutory regulation [so]", "paragraph_id": "para_1326" }, { "text": "comprehensive and detailed,” the usual rule applies that", "paragraph_id": "para_1327" }, { "text": "“matters left unaddressed in such a scheme are presumably left", "paragraph_id": "para_1328" }, { "text": "subject to the disposition provided by state law,” negating the", "paragraph_id": "para_1329" }, { "text": "need to “adopt a court-made rule to supplement” the Code.", "paragraph_id": "para_1330" }, { "text": "O’Melveny & Myers v. FDIC, 512 U.S. 79, 85 (1994).", "paragraph_id": "para_1331" }, { "text": "Accordingly, there is no need to craft a choice-of-law", "paragraph_id": "para_1332" }, { "text": "rule unique to bankruptcy to preserve some “undefined federal", "paragraph_id": "para_1333" }, { "text": "12", "paragraph_id": "para_1334" }, { "text": "interests” that do not appear in the Code.6 CoreCivic, Inc. v.", "paragraph_id": "para_1335", "court_paragraph": 12 }, { "text": "Governor of N.J., No. 23-2598, 2025 WL 2046488, at *10 (3d", "paragraph_id": "para_1336" }, { "text": "Cir. July 22, 2025) (Ambro, J., dissenting). Rather, when a", "paragraph_id": "para_1337" }, { "text": "provision of the Bankruptcy Code governs, the Supremacy", "paragraph_id": "para_1338" }, { "text": "Clause obviates any choice-of-law analysis, for federal law", "paragraph_id": "para_1339" }, { "text": "always trumps conflicting state law. U.S. Const. art. VI, cl. 2;", "paragraph_id": "para_1340" }, { "text": "see also infra Section IV. And when the Code or other federal", "paragraph_id": "para_1341" }, { "text": "law does not supply the rule of decision, the Rules of Decision", "paragraph_id": "para_1342" }, { "text": "Act commands that governing non-federal law fills the gap. 28", "paragraph_id": "para_1343" }, { "text": "U.S.C. § 1652. Outside of bankruptcy, that means Klaxon", "paragraph_id": "para_1344" }, { "text": "controls, and nothing about the bankruptcy context warrants", "paragraph_id": "para_1345" }, { "text": "departing from that rule.", "paragraph_id": "para_1346" }, { "text": "Of course, Erie, and consequently Klaxon, arose in the", "paragraph_id": "para_1347" }, { "text": "context of diversity jurisdiction, so the extension of the policies", "paragraph_id": "para_1348" }, { "text": "those cases embody to other contexts is not obvious. And that", "paragraph_id": "para_1349" }, { "text": "uncertainty has caused some of our sister circuits to either", "paragraph_id": "para_1350" }, { "text": "reject Klaxon in bankruptcy cases or hedge on its application.", "paragraph_id": "para_1351" }, { "text": "See, e.g., In re Lindsay, 59 F.3d at 948; In re Gaston & Snow,", "paragraph_id": "para_1352" }, { "text": "243 F.3d at 601–02; In re Merritt Dredging, 839 F.2d at 206.", "paragraph_id": "para_1353" }, { "text": "To be sure, that hesitation is not unfounded. As scholars have", "paragraph_id": "para_1354" }, { "text": "noted, “[p]art of the explanation for the departures from", "paragraph_id": "para_1355" }, { "text": "Klaxon can be found in Supreme Court dicta” in Vanston", "paragraph_id": "para_1356" }, { "text": "Bondholders Protective Committee v. Green, 329 U.S. 156", "paragraph_id": "para_1357" }, { "text": "6 This is not to say that the Bankruptcy Code can never embody", "paragraph_id": "para_1358" }, { "text": "federal rules that do not appear in its specific provisions.", "paragraph_id": "para_1359" }, { "text": "Indeed, the Code can, and does, provide such rules of decision,", "paragraph_id": "para_1360" }, { "text": "such as where “pre-Code practice” has not been expressly", "paragraph_id": "para_1361" }, { "text": "abrogated by statute, In re Hertz Corp., 120 F.4th 1181, 1198", "paragraph_id": "para_1362" }, { "text": "(3d Cir. 2024), or where a rule “has long been considered", "paragraph_id": "para_1363" }, { "text": "fundamental to the Bankruptcy Code’s operation,” Czyzewski", "paragraph_id": "para_1364" }, { "text": "v. Jevic Holding Corp., 580 U.S. 451, 465 (2017).", "paragraph_id": "para_1365" }, { "text": "13", "paragraph_id": "para_1366" }, { "text": "(1946). Clopton, supra, at 2204; see also Tobias Barrington", "paragraph_id": "para_1367", "court_paragraph": 13 }, { "text": "Wolff, Choice of Law and Jurisdictional Policy in the Federal", "paragraph_id": "para_1368" }, { "text": "Courts, 165 U. Pa. L. Rev. 1847, 1875–78 (2017). There, the", "paragraph_id": "para_1369" }, { "text": "Supreme Court considered whether, and to what extent, an", "paragraph_id": "para_1370" }, { "text": "insolvent debtor must pay interest on delinquent interest", "paragraph_id": "para_1371" }, { "text": "payments due under a prepetition bond indenture under", "paragraph_id": "para_1372" }, { "text": "Chapter X of the Bankruptcy Act. Vanston, 329 U.S. at 159.", "paragraph_id": "para_1373" }, { "text": "In doing so, the Supreme Court admonished:", "paragraph_id": "para_1374" }, { "text": "[O]bligations, such as the one here for interest,", "paragraph_id": "para_1375" }, { "text": "often have significant contacts in many states so", "paragraph_id": "para_1376" }, { "text": "that the question of which particular state’s law", "paragraph_id": "para_1377" }, { "text": "should measure the obligation seldom lends", "paragraph_id": "para_1378" }, { "text": "itself to simple solution. In determining which", "paragraph_id": "para_1379" }, { "text": "contact is the most significant in a particular", "paragraph_id": "para_1380" }, { "text": "transaction, courts can seldom find a complete", "paragraph_id": "para_1381" }, { "text": "solution in the mechanical formulae of the", "paragraph_id": "para_1382" }, { "text": "conflicts of law. . . . In determining what claims", "paragraph_id": "para_1383" }, { "text": "are allowable and how a debtor’s assets shall be", "paragraph_id": "para_1384" }, { "text": "distributed, a bankruptcy court does not apply", "paragraph_id": "para_1385" }, { "text": "the law of the state where it sits.", "paragraph_id": "para_1386" }, { "text": "Id. at 161–62. And it is this language upon which some courts", "paragraph_id": "para_1387" }, { "text": "have seized to conclude Klaxon has no application in", "paragraph_id": "para_1388" }, { "text": "bankruptcy cases because it is inconsistent with some", "paragraph_id": "para_1389" }, { "text": "amorphous federal interest. See, e.g., In re SMEC, Inc., 160", "paragraph_id": "para_1390" }, { "text": "B.R. 86, 91 (M.D. Tenn. 1993); In re McCorhill Publ’g, Inc.,", "paragraph_id": "para_1391" }, { "text": "86 B.R. 783, 792 (Bankr. S.D.N.Y. 1988).", "paragraph_id": "para_1392" }, { "text": "But on closer inspection, Vanston says nothing about", "paragraph_id": "para_1393" }, { "text": "what choice-of-law rule a court should employ in bankruptcy", "paragraph_id": "para_1394" }, { "text": "cases when non-federal law provides the rule of decision.", "paragraph_id": "para_1395" }, { "text": "Rather than rejecting Klaxon’s application in favor of", "paragraph_id": "para_1396" }, { "text": "fashioning a bespoke federal choice-of-law rule for bankruptcy", "paragraph_id": "para_1397" }, { "text": "14", "paragraph_id": "para_1398" }, { "text": "cases, the Supreme Court concluded that the bankruptcy courts", "paragraph_id": "para_1399", "court_paragraph": 14 }, { "text": "“administer and enforce the Bankruptcy Act . . . in accordance", "paragraph_id": "para_1400" }, { "text": "with authority granted by Congress to determine how and what", "paragraph_id": "para_1401" }, { "text": "claims shall be allowed under equitable principles,” whereas", "paragraph_id": "para_1402" }, { "text": "“[w]hen and under what circumstances federal courts will", "paragraph_id": "para_1403" }, { "text": "allow interest on claims against debtors’ estates being", "paragraph_id": "para_1404" }, { "text": "administered by them has long been decided by federal law.”", "paragraph_id": "para_1405" }, { "text": "Vanston, 329 U.S. at 162–63 (emphasis added). Thus, Vanston", "paragraph_id": "para_1406" }, { "text": "did not resolve the question of what choice-of-law rule courts", "paragraph_id": "para_1407" }, { "text": "employ when non-federal law governs a dispute in a", "paragraph_id": "para_1408" }, { "text": "bankruptcy case. Instead, it merely determined that when", "paragraph_id": "para_1409" }, { "text": "federal law provides a rule of decision that conflicts with state", "paragraph_id": "para_1410" }, { "text": "law, federal law controls—a proposition that flows directly", "paragraph_id": "para_1411" }, { "text": "from the Constitution. U.S. Const. art. VI, cl. 2; see also In re", "paragraph_id": "para_1412" }, { "text": "Gaston & Snow, 243 F.3d at 607 (interpreting Vanston in this", "paragraph_id": "para_1413" }, { "text": "way). Vanston, then, embodies nothing more than", "paragraph_id": "para_1414" }, { "text": "foundational and uncontroversial principle that federal law", "paragraph_id": "para_1415" }, { "text": "reigns supreme.", "paragraph_id": "para_1416" }, { "text": "In sum, the structure of the Bankruptcy Code, the", "paragraph_id": "para_1417" }, { "text": "purposes of our bankruptcy system, and federal courts’", "paragraph_id": "para_1418" }, { "text": "obligation to respect the application of state law under Erie and", "paragraph_id": "para_1419" }, { "text": "the Rules of Decision Act all support Klaxon’s extension to", "paragraph_id": "para_1420" }, { "text": "bankruptcy cases.", "paragraph_id": "para_1421" }, { "text": "III. Nothing Requires a Federal Choice-of-Law Rule in", "paragraph_id": "para_1422" }, { "text": "Place of Klaxon", "paragraph_id": "para_1423" }, { "text": "Aside from seemingly the Eighth Circuit, no other Court", "paragraph_id": "para_1424" }, { "text": "of Appeals has extended Klaxon—without reservation—to the", "paragraph_id": "para_1425" }, { "text": "bankruptcy context. The Ninth Circuit, as well as the Second", "paragraph_id": "para_1426" }, { "text": "and Fourth Circuits, have also addressed the question, taking", "paragraph_id": "para_1427" }, { "text": "different approaches but each evincing an unwarranted", "paragraph_id": "para_1428" }, { "text": "15", "paragraph_id": "para_1429" }, { "text": "suspicion of Klaxon’s relevance beyond diversity cases. I", "paragraph_id": "para_1430", "court_paragraph": 15 }, { "text": "address each approach in turn.", "paragraph_id": "para_1431" }, { "text": "The Ninth Circuit has long eschewed Klaxon’s rule in", "paragraph_id": "para_1432" }, { "text": "favor of federal choice-of-law rules. In re Lindsay, 59 F.3d at", "paragraph_id": "para_1433" }, { "text": "948. In doing so, it stated that “the risk of forum shopping", "paragraph_id": "para_1434" }, { "text": "which is avoided by applying state law has no application [in", "paragraph_id": "para_1435" }, { "text": "bankruptcy cases], because [they] can only be litigated in", "paragraph_id": "para_1436" }, { "text": "federal court,” and instead “[t]he value of national uniformity", "paragraph_id": "para_1437" }, { "text": "of approach” on this question prevails over a patchwork of state", "paragraph_id": "para_1438" }, { "text": "choice-of-law regimes. Id. Thus, “[i]n federal question cases", "paragraph_id": "para_1439" }, { "text": "with exclusive jurisdiction in federal court, such as bankruptcy,", "paragraph_id": "para_1440" }, { "text": "the court should apply federal, not forum state, choice of law", "paragraph_id": "para_1441" }, { "text": "rules.” Id.", "paragraph_id": "para_1442" }, { "text": "There are two flaws in this reasoning. First, it confuses", "paragraph_id": "para_1443" }, { "text": "the basis for federal jurisdiction with the question of governing", "paragraph_id": "para_1444" }, { "text": "law. A “federal jurisdictional grant . . . is not in itself a", "paragraph_id": "para_1445" }, { "text": "mandate for applying federal law in all circumstances.” United", "paragraph_id": "para_1446" }, { "text": "States v. Little Lake Misere Land Co., 412 U.S. 580, 591", "paragraph_id": "para_1447" }, { "text": "(1973). Instead, as is by now clear, “it is the source of the right", "paragraph_id": "para_1448" }, { "text": "sued upon, and not the ground on which federal jurisdiction", "paragraph_id": "para_1449" }, { "text": "over the case is founded, which determines the governing", "paragraph_id": "para_1450" }, { "text": "law.” Maternally Yours v. Your Maternity Shop, 234 F.2d 538,", "paragraph_id": "para_1451" }, { "text": "16", "paragraph_id": "para_1452" }, { "text": "540 n.1 (2d Cir. 1956).7 In other words, the observation that", "paragraph_id": "para_1453", "court_paragraph": 16 }, { "text": "federal courts possess exclusive jurisdiction over bankruptcy", "paragraph_id": "para_1454" }, { "text": "cases is correct as far as it goes, but it merely identifies a", "paragraph_id": "para_1455" }, { "text": "potential choice-of-law question—it does nothing to resolve", "paragraph_id": "para_1456" }, { "text": "it. Instead, the existence of federal jurisdiction begets the", "paragraph_id": "para_1457" }, { "text": "downstream question of which law governs the dispute and", "paragraph_id": "para_1458" }, { "text": "how to decide that question in instances of conflict. That is a", "paragraph_id": "para_1459" }, { "text": "question of parties’ rights, not federal courts’ jurisdiction. See", "paragraph_id": "para_1460" }, { "text": "Shutts, 472 U.S. at 818. But by reflexively employing a federal", "paragraph_id": "para_1461" }, { "text": "common law choice-of-law rule, the Ninth Circuit’s approach", "paragraph_id": "para_1462" }, { "text": "risks altering parties’ rights by selecting different law than", "paragraph_id": "para_1463" }, { "text": "would govern outside of bankruptcy.", "paragraph_id": "para_1464" }, { "text": "That points up the second problem with the Ninth", "paragraph_id": "para_1465" }, { "text": "Circuit’s approach. The Lindsay court touts a federal choice-", "paragraph_id": "para_1466" }, { "text": "of-law rule as carrying a great deal of “value” without greater", "paragraph_id": "para_1467" }, { "text": "explanation, seemingly elevating “national uniformity” for", "paragraph_id": "para_1468" }, { "text": "uniformity’s sake. 59 F.3d at 948. But uniformity at what", "paragraph_id": "para_1469" }, { "text": "cost? Even accepting the premise that national uniformity has", "paragraph_id": "para_1470" }, { "text": "7 See also DelCostello v. Int’l Bhd. of Teamsters, 462 U.S. 151,", "paragraph_id": "para_1471" }, { "text": "159 n.13 (1983) (“[W]here Congress directly or impliedly", "paragraph_id": "para_1472" }, { "text": "directs the courts to look to state law to fill in details of federal", "paragraph_id": "para_1473" }, { "text": "law, Erie will ordinarily provide the framework for doing", "paragraph_id": "para_1474" }, { "text": "so.”); 19 Wright & Miller’s Federal Practice & Procedure", "paragraph_id": "para_1475" }, { "text": "§ 4520 (3d ed. May 2025 update) (“[T]he law to be applied is", "paragraph_id": "para_1476" }, { "text": "not selected by reference to the basis of the court’s subject", "paragraph_id": "para_1477" }, { "text": "matter jurisdiction . . . . In other words, the choice of applicable", "paragraph_id": "para_1478" }, { "text": "law turns upon the source or genesis of the right or issue being", "paragraph_id": "para_1479" }, { "text": "adjudicated.”)", "paragraph_id": "para_1480" }, { "text": "17", "paragraph_id": "para_1481" }, { "text": "inherent value,8 the value in uniformity does not outweigh the", "paragraph_id": "para_1482", "court_paragraph": 17 }, { "text": "significant incongruities a bespoke bankruptcy choice-of-law", "paragraph_id": "para_1483" }, { "text": "rule portends. A federal choice-of-law rule in bankruptcy", "paragraph_id": "para_1484" }, { "text": "cases risks altering parties’ substantive rights. State law", "paragraph_id": "para_1485" }, { "text": "governs many issues in bankruptcy cases, but none arises more", "paragraph_id": "para_1486" }, { "text": "frequently than property interests. See, e.g., Butner, 440 U.S.", "paragraph_id": "para_1487" }, { "text": "at 55. And the fact that a dispute turns up “in the context of a", "paragraph_id": "para_1488" }, { "text": "federal bankruptcy” proceeding “doesn’t change much.”", "paragraph_id": "para_1489" }, { "text": "Rodriguez v. FDIC, 589 U.S. 132, 137 (2020). So “[s]ince", "paragraph_id": "para_1490" }, { "text": "state, rather than federal, substantive law is at issue there is no", "paragraph_id": "para_1491" }, { "text": "need for a uniform federal rule.” Semtek Int’l Inc. v. Lockheed", "paragraph_id": "para_1492" }, { "text": "8 In Gaston & Snow, the Second Circuit gestured at the notion", "paragraph_id": "para_1493" }, { "text": "that “an interest in uniformity can justify the creation of federal", "paragraph_id": "para_1494" }, { "text": "common law,” 243 F.3d at 606, and cited the Supreme Court’s", "paragraph_id": "para_1495" }, { "text": "decision in Kimbell Foods for that proposition. But Kimbell", "paragraph_id": "para_1496" }, { "text": "Foods does not speak to whether a federal choice-of-law rule", "paragraph_id": "para_1497" }, { "text": "should govern in bankruptcy. There, the Supreme Court", "paragraph_id": "para_1498" }, { "text": "determined that “the priority of liens stemming from federal", "paragraph_id": "para_1499" }, { "text": "lending programs must be determined with reference to federal", "paragraph_id": "para_1500" }, { "text": "law,” Kimbell Foods, 440 U.S. at 726, which obviates the need", "paragraph_id": "para_1501" }, { "text": "of a choice-of-law inquiry because the Supremacy Clause", "paragraph_id": "para_1502" }, { "text": "requires application of federal rules of decision. Having", "paragraph_id": "para_1503" }, { "text": "concluded that federal law, rather than state law, provides the", "paragraph_id": "para_1504" }, { "text": "governing rule, the Court went on to define the content of that", "paragraph_id": "para_1505" }, { "text": "federal common law rule. And at that second step, the Court", "paragraph_id": "para_1506" }, { "text": "noted that “[c]ontroversies directly affecting the operations of", "paragraph_id": "para_1507" }, { "text": "federal programs, although governed by federal law, do not", "paragraph_id": "para_1508" }, { "text": "inevitably require resort to uniform federal rules” before", "paragraph_id": "para_1509" }, { "text": "“reject[ing] generalized pleas for uniformity” in favor of a", "paragraph_id": "para_1510" }, { "text": "federal common law rule that “adopt[s] the readymade body of", "paragraph_id": "para_1511" }, { "text": "state law as the federal rule of decision.” Id. at 727–28, 730,", "paragraph_id": "para_1512" }, { "text": "740.", "paragraph_id": "para_1513" }, { "text": "18", "paragraph_id": "para_1514" }, { "text": "Martin Corp., 531 U.S. 497, 508 (2001). Indeed, as the Fourth", "paragraph_id": "para_1515", "court_paragraph": 18 }, { "text": "Circuit rightly noted, “[i]t would be anomalous to have the", "paragraph_id": "para_1516" }, { "text": "same property interest governed by the laws of one state in", "paragraph_id": "para_1517" }, { "text": "federal diversity proceedings and by the laws of another state", "paragraph_id": "para_1518" }, { "text": "where a federal court is sitting in bankruptcy.” In re Merritt", "paragraph_id": "para_1519" }, { "text": "Dredging, 839 F.2d at 206. But that disparity is exactly what", "paragraph_id": "para_1520" }, { "text": "the Ninth Circuit’s approach invites, and it does so with no", "paragraph_id": "para_1521" }, { "text": "basis in the Code or the statutes granting federal courts", "paragraph_id": "para_1522" }, { "text": "jurisdiction over bankruptcy cases. Parties’ property rights do", "paragraph_id": "para_1523" }, { "text": "not depend on the basis for a court’s jurisdiction.", "paragraph_id": "para_1524" }, { "text": "The approaches of the Second and Fourth Circuits are", "paragraph_id": "para_1525" }, { "text": "flawed as a doctrinal matter, though difficult to distinguish", "paragraph_id": "para_1526" }, { "text": "from the Eighth Circuit’s in practice. Those courts have rightly", "paragraph_id": "para_1527" }, { "text": "observed that, in the ordinary course, the fact that a choice-of-", "paragraph_id": "para_1528" }, { "text": "law question arises in bankruptcy does not provide sufficient", "paragraph_id": "para_1529" }, { "text": "reason to depart from Klaxon because state law generally", "paragraph_id": "para_1530" }, { "text": "provides the substantive law governing a dispute, so Erie and", "paragraph_id": "para_1531" }, { "text": "the Rules of Decision Act control. See In re Gaston & Snow,", "paragraph_id": "para_1532" }, { "text": "243 F.3d at 607; In re Merritt Dredging, 839 F.2d at 206.", "paragraph_id": "para_1533" }, { "text": "They also theorize, however, that there may be", "paragraph_id": "para_1534" }, { "text": "exceptional cases when a “compelling federal interest,” In re", "paragraph_id": "para_1535" }, { "text": "Merritt Dredging, 839 F.2d at 206, would require the", "paragraph_id": "para_1536" }, { "text": "application of a federal common law choice-of-law rule. Thus,", "paragraph_id": "para_1537" }, { "text": "they purport to adopt a safety valve by applying Klaxon only", "paragraph_id": "para_1538" }, { "text": "“in the absence of a compelling federal interest which dictates", "paragraph_id": "para_1539" }, { "text": "otherwise.” Id.; see also In re Gaston & Snow, 243 F.3d at 607", "paragraph_id": "para_1540" }, { "text": "(“We necessarily limit our holding to cases where no", "paragraph_id": "para_1541" }, { "text": "significant federal policy, calling for the imposition of a federal", "paragraph_id": "para_1542" }, { "text": "conflicts rule, exists.”). In positing that carveout, these courts", "paragraph_id": "para_1543" }, { "text": "hypothesize a scenario where some federal interest compels", "paragraph_id": "para_1544" }, { "text": "abandonment of Klaxon. Though this rule may appear on its", "paragraph_id": "para_1545" }, { "text": "19", "paragraph_id": "para_1546" }, { "text": "face to conflict with the rule from Klaxon, in practice, it does", "paragraph_id": "para_1547", "court_paragraph": 19 }, { "text": "not. Tellingly, neither court has actually identified—much less", "paragraph_id": "para_1548" }, { "text": "confronted—such a situation. And the prospect of them ever", "paragraph_id": "para_1549" }, { "text": "doing so seems fanciful because their hypothesis runs headlong", "paragraph_id": "para_1550" }, { "text": "into the presumption against, and stringent criteria for, the", "paragraph_id": "para_1551" }, { "text": "making of federal common law.", "paragraph_id": "para_1552" }, { "text": "At the outset, it is not clear whether the federal interest", "paragraph_id": "para_1553" }, { "text": "the Fourth and Second Circuits hypothesize would need to", "paragraph_id": "para_1554" }, { "text": "conflict with a state’s choice-of-law rule or the substantive law", "paragraph_id": "para_1555" }, { "text": "that choice-of-law rule selects. If the former, it is particularly", "paragraph_id": "para_1556" }, { "text": "difficult to imagine what federal interest would conflict with", "paragraph_id": "para_1557" }, { "text": "the use of a specific choice-of-law rule given the absence of a", "paragraph_id": "para_1558" }, { "text": "federal choice-of-law rule provision in the Bankruptcy Code", "paragraph_id": "para_1559" }, { "text": "and the Code’s indifference to the law that determines parties’", "paragraph_id": "para_1560" }, { "text": "rights and interests. See infra pp. 21–23. If it is the latter, then", "paragraph_id": "para_1561" }, { "text": "the real problem is not the use of a state’s choice-of-law rule at", "paragraph_id": "para_1562" }, { "text": "all. Rather, as the Eighth Circuit has properly characterized it,", "paragraph_id": "para_1563" }, { "text": "the problem is the incompatibility between the non-bankruptcy", "paragraph_id": "para_1564" }, { "text": "law chosen to govern a dispute and the federal interest, because", "paragraph_id": "para_1565" }, { "text": "permitting a state law to “trump” the federal interest expressed", "paragraph_id": "para_1566" }, { "text": "in the Bankruptcy Code “would effectively convert the []", "paragraph_id": "para_1567" }, { "text": "choice of law [question] to an ‘anti-preemption’ [question].”", "paragraph_id": "para_1568" }, { "text": "In re Schriock Constr., 104 F.3d at 202. In short, the resolution", "paragraph_id": "para_1569" }, { "text": "to that conflict is application of a federal rule of decision and", "paragraph_id": "para_1570" }, { "text": "its priority over state law pursuant to the Supremacy Clause,", "paragraph_id": "para_1571" }, { "text": "not abandonment of Klaxon.", "paragraph_id": "para_1572" }, { "text": "Even moving past this ambiguity, embracing the", "paragraph_id": "para_1573" }, { "text": "alternative to Klaxon—a federal choice-of-law rule—must", "paragraph_id": "para_1574" }, { "text": "“begin[] with the recognition that federal choice of law rules", "paragraph_id": "para_1575" }, { "text": "are a species of federal common law.” In re Gaston & Snow,", "paragraph_id": "para_1576" }, { "text": "243 F.3d at 605. But “those cases in which judicial creation of", "paragraph_id": "para_1577" }, { "text": "20", "paragraph_id": "para_1578" }, { "text": "a special federal rule would be justified . . . [are] ‘few and", "paragraph_id": "para_1579", "court_paragraph": 20 }, { "text": "restricted.’” O’Melveny, 512 U.S. at 87 (quoting Wheeldin v.", "paragraph_id": "para_1580" }, { "text": "Wheeler, 373 U.S. 647, 651 (1963)). Crucially, the creation of", "paragraph_id": "para_1581" }, { "text": "federal common law is appropriate only in “situations where", "paragraph_id": "para_1582" }, { "text": "there is a ‘significant conflict between some federal policy or", "paragraph_id": "para_1583" }, { "text": "interest and the use of state law.’” Id. (quoting Wallis v. Pan", "paragraph_id": "para_1584" }, { "text": "Am. Petroleum Corp., 384 U.S. 63, 68 (1966)). Indeed, “such", "paragraph_id": "para_1585" }, { "text": "a conflict [is] a precondition for” federal common law-making.", "paragraph_id": "para_1586" }, { "text": "Id. But where none exists, federal law “supplies no rule of", "paragraph_id": "para_1587" }, { "text": "decision,” leaving non-bankruptcy law to govern the", "paragraph_id": "para_1588" }, { "text": "controversy. Rodriguez, 589 U.S. at 138.", "paragraph_id": "para_1589" }, { "text": "In order to justify the Second and Fourth Circuits’", "paragraph_id": "para_1590" }, { "text": "approach that departs from Klaxon, yet requires a choice-of-", "paragraph_id": "para_1591" }, { "text": "law analysis—i.e., employing a federal common law choice-", "paragraph_id": "para_1592" }, { "text": "of-law rule—two conditions must be true: (1) there must be a", "paragraph_id": "para_1593" }, { "text": "sufficiently weighty federal interest in conflict with otherwise", "paragraph_id": "para_1594" }, { "text": "governing non-federal law to warrant fashioning a federal rule", "paragraph_id": "para_1595" }, { "text": "of decision to resolve conflicts among non-bankruptcy law, but", "paragraph_id": "para_1596" }, { "text": "(2) that interest must not be sufficiently weighty to justify", "paragraph_id": "para_1597" }, { "text": "fashioning a federal common law rule of decision. The former", "paragraph_id": "para_1598" }, { "text": "must be true to justify the “[j]udicial lawmaking” involved in", "paragraph_id": "para_1599" }, { "text": "crafting federal common law rules—lawmaking that “plays a", "paragraph_id": "para_1600" }, { "text": "necessarily modest role under a Constitution that vests the", "paragraph_id": "para_1601" }, { "text": "federal government’s ‘legislative Powers’ in Congress.” Id. at", "paragraph_id": "para_1602" }, { "text": "136 (quoting U.S. Const. art. I, § 1). The latter must be true in", "paragraph_id": "para_1603" }, { "text": "order to preserve any choice-of-law question at all, for if the", "paragraph_id": "para_1604" }, { "text": "federal interest is sufficiently important to justify creation of a", "paragraph_id": "para_1605" }, { "text": "federal rule of decision, then there is no “choice” among laws", "paragraph_id": "para_1606" }, { "text": "because the Constitution invariably resolves such conflicts in", "paragraph_id": "para_1607" }, { "text": "favor of federal law. U.S. Const. art. VI, cl. 2. In other words,", "paragraph_id": "para_1608" }, { "text": "for the Second and Fourth Circuits’ approach to be correct—as", "paragraph_id": "para_1609" }, { "text": "opposed to the Eighth Circuit’s, which accounts for an", "paragraph_id": "para_1610" }, { "text": "21", "paragraph_id": "para_1611" }, { "text": "overriding federal interest as a matter of rule of decision, see", "paragraph_id": "para_1612", "court_paragraph": 21 }, { "text": "In re Schriock Constr., 104 F.3d at 202—a federal interest has", "paragraph_id": "para_1613" }, { "text": "to fall into the goldilocks zone: not too strong, yet not too weak.", "paragraph_id": "para_1614" }, { "text": "Yet a review of the Bankruptcy Code and its policies", "paragraph_id": "para_1615" }, { "text": "establishes neither condition. The Code is agnostic about", "paragraph_id": "para_1616" }, { "text": "which body of non-bankruptcy law governs parties’ rights—it", "paragraph_id": "para_1617" }, { "text": "simply “takes the [interest] as it finds it.” Bartenwerfer v.", "paragraph_id": "para_1618" }, { "text": "Buckley, 598 U.S. 69, 82 (2023). That is to say, the Bankruptcy", "paragraph_id": "para_1619" }, { "text": "Code embodies no federal interest that favors the application", "paragraph_id": "para_1620" }, { "text": "of any particular non-bankruptcy law over another. And this", "paragraph_id": "para_1621" }, { "text": "makes good sense. It is “the basic federal rule” that", "paragraph_id": "para_1622" }, { "text": "“entitlements in bankruptcy arise in the first instance from the", "paragraph_id": "para_1623" }, { "text": "underlying substantive law creating the . . . obligation.”", "paragraph_id": "para_1624" }, { "text": "Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15, 20 (2000).", "paragraph_id": "para_1625" }, { "text": "Sometimes, federal non-bankruptcy law will control that issue.", "paragraph_id": "para_1626" }, { "text": "See, e.g., Bd. of Trs. of Teamsters Loc. 863 Pension Fund v.", "paragraph_id": "para_1627" }, { "text": "Foodtown, Inc., 296 F.3d 164, 168 (3d Cir. 2002). Other times,", "paragraph_id": "para_1628" }, { "text": "it may be state or foreign law that does. Either way, the", "paragraph_id": "para_1629" }, { "text": "Bankruptcy Code directs courts to consider parties’ interest", "paragraph_id": "para_1630" }, { "text": "under whichever law governs outside of bankruptcy, and it", "paragraph_id": "para_1631" }, { "text": "then establishes a collection of rules to deal with those", "paragraph_id": "para_1632" }, { "text": "interests.", "paragraph_id": "para_1633" }, { "text": "The Supreme Court’s decision in Butner is not to the", "paragraph_id": "para_1634" }, { "text": "contrary. There, the Court famously held that “[p]roperty", "paragraph_id": "para_1635" }, { "text": "interests are created and defined by state law. Unless some", "paragraph_id": "para_1636" }, { "text": "federal interest requires a different result, there is no reason", "paragraph_id": "para_1637" }, { "text": "why such interests should be analyzed differently simply", "paragraph_id": "para_1638" }, { "text": "because an interested party is involved in a bankruptcy", "paragraph_id": "para_1639" }, { "text": "proceeding.” 440 U.S. at 55. At first glance, this passage", "paragraph_id": "para_1640" }, { "text": "might seem to support the Second and Fourth Circuits’", "paragraph_id": "para_1641" }, { "text": "approach—after all, the Supreme Court included the proviso", "paragraph_id": "para_1642" }, { "text": "22", "paragraph_id": "para_1643" }, { "text": "“[u]nless some federal interest requires a different result.” Id.", "paragraph_id": "para_1644", "court_paragraph": 22 }, { "text": "But on closer inspection, this line from Butner cannot be read", "paragraph_id": "para_1645" }, { "text": "as suggesting the possibility of a different choice-of-law rule", "paragraph_id": "para_1646" }, { "text": "to apply in bankruptcy.", "paragraph_id": "para_1647" }, { "text": "Butner addressed whether “the right to the rents", "paragraph_id": "para_1648" }, { "text": "collected during the period between [a] mortgagor’s", "paragraph_id": "para_1649" }, { "text": "bankruptcy and the foreclosure sale of the mortgaged", "paragraph_id": "para_1650" }, { "text": "property . . . is determined by a federal rule of equity or by the", "paragraph_id": "para_1651" }, { "text": "law of the State where the property is located.” Id. at 49. In", "paragraph_id": "para_1652" }, { "text": "other words, the Supreme Court considered which body of", "paragraph_id": "para_1653" }, { "text": "law—state or federal—supplies the rule of decision for", "paragraph_id": "para_1654" }, { "text": "allocation of rents. It concluded, as a general matter,", "paragraph_id": "para_1655" }, { "text": "“[p]roperty interests are created and defined by state law.” Id.", "paragraph_id": "para_1656" }, { "text": "at 55. But it also recognized that, while uncommon, federal", "paragraph_id": "para_1657" }, { "text": "law can sometimes define parties’ property interests, especially", "paragraph_id": "para_1658" }, { "text": "where the United States is a party.9 See, e.g., Clearfield Tr.", "paragraph_id": "para_1659" }, { "text": "Co. v. United States, 318 U.S. 363, 366 (1943). For this reason,", "paragraph_id": "para_1660" }, { "text": "the Court acknowledged that where federal law does govern", "paragraph_id": "para_1661" }, { "text": "property rights, that law controls. But Butner cannot", "paragraph_id": "para_1662" }, { "text": "reasonably be read to suggest that federal law provides the", "paragraph_id": "para_1663" }, { "text": "choice-of-law rule to decide among conflicting non-federal", "paragraph_id": "para_1664" }, { "text": "laws when it is those laws that provide the rule of decision.", "paragraph_id": "para_1665" }, { "text": "That is because Butner posits a scenario in which state property", "paragraph_id": "para_1666" }, { "text": "law is displaced due to “some federal interest [that] requires a", "paragraph_id": "para_1667" }, { "text": "different result,” 440 U.S. at 55, not that this federal interest", "paragraph_id": "para_1668" }, { "text": "favors one state law over others. See Travelers Cas. & Sur.", "paragraph_id": "para_1669" }, { "text": "Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 451 (2007)", "paragraph_id": "para_1670" }, { "text": "9 The scenario is far from hypothetical, as the federal", "paragraph_id": "para_1671" }, { "text": "government is “one of the Nation’s largest lenders,” Dep’t of", "paragraph_id": "para_1672" }, { "text": "Agric. Rural Dev. Rural Housing Serv. v. Kirtz, 601 U.S. 42,", "paragraph_id": "para_1673" }, { "text": "45 (2024), and is a frequent creditor in bankruptcies.", "paragraph_id": "para_1674" }, { "text": "23", "paragraph_id": "para_1675" }, { "text": "(juxtaposing Butner and Vanston to illustrate this point). Put", "paragraph_id": "para_1676", "court_paragraph": 23 }, { "text": "another way, reading Butner to license creation of a federal", "paragraph_id": "para_1677" }, { "text": "common law choice-of-law rule renders the proviso", "paragraph_id": "para_1678" }, { "text": "meaningless because, read in such a way, state law still governs", "paragraph_id": "para_1679" }, { "text": "the substantive property interest while federal law simply", "paragraph_id": "para_1680" }, { "text": "chooses among conflicting state laws. That plainly is not the", "paragraph_id": "para_1681" }, { "text": "dichotomy Butner envisioned. Instead, Butner stands for the", "paragraph_id": "para_1682" }, { "text": "far more straightforward proposition that state law generally", "paragraph_id": "para_1683" }, { "text": "governs parties’ property interests except in the unusual case", "paragraph_id": "para_1684" }, { "text": "where federal law provides the rule of decision. It offers no", "paragraph_id": "para_1685" }, { "text": "insight, however, into how to choose among conflicting laws", "paragraph_id": "para_1686" }, { "text": "when non-federal law governs.10", "paragraph_id": "para_1687" }, { "text": "This result does not derogate those federal interests that", "paragraph_id": "para_1688" }, { "text": "do exist. To be sure, there are many areas of law in which", "paragraph_id": "para_1689" }, { "text": "Congress has legislated extensively. See, e.g., Sherman", "paragraph_id": "para_1690" }, { "text": "Antitrust Act, 15 U.S.C. §§ 1–7; Securities Act of 1933, 15", "paragraph_id": "para_1691" }, { "text": "U.S.C. § 77a et seq.; Securities Exchange Act of 1934, 15", "paragraph_id": "para_1692" }, { "text": "10 My concurring colleague disagrees, asserting that “[f]ederal", "paragraph_id": "para_1693" }, { "text": "courts can and do develop federal choice-of-law rules that", "paragraph_id": "para_1694" }, { "text": "select state substantive law.” Concurring Op. 13. But the cited", "paragraph_id": "para_1695" }, { "text": "cases do not support that proposition; they merely recognize", "paragraph_id": "para_1696" }, { "text": "that courts can create federal common law rules of decision—", "paragraph_id": "para_1697" }, { "text": "not choice-of-law rules—that incorporate the contents of state", "paragraph_id": "para_1698" }, { "text": "law. See Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 107–", "paragraph_id": "para_1699" }, { "text": "09 (1991) (creating a rule of decision for derivative actions that", "paragraph_id": "para_1700" }, { "text": "incorporates the contents of state law rather than “displac[ing]", "paragraph_id": "para_1701" }, { "text": "state law in this area”); Semtek, 531 U.S. at 508–09 (describing", "paragraph_id": "para_1702" }, { "text": "the issue as “a classic case for adopting, as the federally", "paragraph_id": "para_1703" }, { "text": "prescribed rule of decision, the law that would be applied by", "paragraph_id": "para_1704" }, { "text": "state courts,” rather than creating “a contrary federal rule”", "paragraph_id": "para_1705" }, { "text": "(emphasis added)); see also infra note 13.", "paragraph_id": "para_1706" }, { "text": "24", "paragraph_id": "para_1707" }, { "text": "U.S.C. § 78a et seq.; Investment Company Act of 1940, 15", "paragraph_id": "para_1708", "court_paragraph": 24 }, { "text": "U.S.C. §§ 80a-1 to 80a-64; Lanham Act, 15 U.S.C. § 1051 et", "paragraph_id": "para_1709" }, { "text": "seq.; Comprehensive Environmental Response,", "paragraph_id": "para_1710" }, { "text": "Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et", "paragraph_id": "para_1711" }, { "text": "seq. Perhaps none is a greater expression of a federal interest", "paragraph_id": "para_1712" }, { "text": "than those statutory provisions that completely preempt state", "paragraph_id": "para_1713" }, { "text": "law, i.e., those where a federal interest “is so powerful,”", "paragraph_id": "para_1714" }, { "text": "Franchise Tax Bd. v. Constr. Laborers Vacation Tr. for S. Cal.,", "paragraph_id": "para_1715" }, { "text": "463 U.S. 1, 23 (1983), that “federal law does not merely", "paragraph_id": "para_1716" }, { "text": "preempt a state law to some degree” but instead “substitutes a", "paragraph_id": "para_1717" }, { "text": "federal cause of action for the state cause of action,” 14C", "paragraph_id": "para_1718" }, { "text": "Wright & Miller’s Federal Practice & Procedure § 3722.2", "paragraph_id": "para_1719" }, { "text": "(Rev. 4th ed. May 2025 update). Those instances are few, but", "paragraph_id": "para_1720" }, { "text": "important. See Avco Corp. v. Aero Lodge No. 735, Int’l Ass’n", "paragraph_id": "para_1721" }, { "text": "of Machinists & Aerospace Workers, 390 U.S. 557, 560 (1968)", "paragraph_id": "para_1722" }, { "text": "(Section 301 of the Labor Management Relations Act); Metro.", "paragraph_id": "para_1723" }, { "text": "Life. Ins. Co. v. Taylor, 481 U.S. 58, 66 (1987) (Section 502(a)", "paragraph_id": "para_1724" }, { "text": "of the Employee Retirement Income Security Act); Beneficial", "paragraph_id": "para_1725" }, { "text": "Nat’l Bank v. Anderson, 539 U.S. 1, 11 (2003) (Sections 85 and", "paragraph_id": "para_1726" }, { "text": "86 of the National Bank Act).", "paragraph_id": "para_1727" }, { "text": "But again, in these instances—and all others where", "paragraph_id": "para_1728" }, { "text": "federal law supplies the rule of decision—there is no choice-", "paragraph_id": "para_1729" }, { "text": "of-law question, making Klaxon inapplicable. That is because", "paragraph_id": "para_1730" }, { "text": "the Constitution resolves vertical choice-of-law questions in", "paragraph_id": "para_1731" }, { "text": "absolute terms: “[I]f a state measure conflicts with a federal", "paragraph_id": "para_1732" }, { "text": "requirement, the state provision must give way.” Swift & Co.", "paragraph_id": "para_1733" }, { "text": "v. Wickham, 382 U.S. 111, 120 (1965). In all other cases, non-", "paragraph_id": "para_1734" }, { "text": "federal law enjoys the usual presumption against", "paragraph_id": "para_1735" }, { "text": "“displacement.” Boyle v. United Techs. Corp., 487 U.S. 500,", "paragraph_id": "para_1736" }, { "text": "507 (1988). So it is only in the absence of a federal rule of", "paragraph_id": "para_1737" }, { "text": "decision—that is, in the absence of a federal interest", "paragraph_id": "para_1738" }, { "text": "warranting displacement of non-federal law—that a choice-of-", "paragraph_id": "para_1739" }, { "text": "25", "paragraph_id": "para_1740" }, { "text": "law question arises. And at that juncture, the Bankruptcy Code", "paragraph_id": "para_1741", "court_paragraph": 25 }, { "text": "is agnostic about which law governs, leaving “no reason [for]", "paragraph_id": "para_1742" }, { "text": "such interests [to] be analyzed differently” than if they had", "paragraph_id": "para_1743" }, { "text": "arisen outside of bankruptcy. Butner, 440 U.S. at 55.", "paragraph_id": "para_1744" }, { "text": "* * *", "paragraph_id": "para_1745" }, { "text": "The daylight between these positions—especially", "paragraph_id": "para_1746" }, { "text": "between those of the Eighth Circuit and the Second and Fourth", "paragraph_id": "para_1747" }, { "text": "Circuits—can be elusive, and the debate can easily be labeled", "paragraph_id": "para_1748" }, { "text": "esoteric. Relative to the number of questions governed by state", "paragraph_id": "para_1749" }, { "text": "law that arise in bankruptcies across the country, those that", "paragraph_id": "para_1750" }, { "text": "present genuine choice-of-law questions are admittedly few.", "paragraph_id": "para_1751" }, { "text": "And those whose outcome would change depending on the", "paragraph_id": "para_1752" }, { "text": "application of Klaxon versus a federal choice-of-law rule are", "paragraph_id": "para_1753" }, { "text": "likely fewer still. But apart from doctrinal clarity, which", "paragraph_id": "para_1754" }, { "text": "carries its own virtue, resolution of this question in the manner", "paragraph_id": "para_1755" }, { "text": "I have proposed serves two important purposes.", "paragraph_id": "para_1756" }, { "text": "First, federal courts exercise limited powers. Perhaps", "paragraph_id": "para_1757" }, { "text": "nowhere is that power more at its nadir than in the area of", "paragraph_id": "para_1758" }, { "text": "fashioning federal common law. As the Supreme Court has", "paragraph_id": "para_1759" }, { "text": "admonished since Erie, those contexts that necessitate a federal", "paragraph_id": "para_1760" }, { "text": "common law rule are fleeting, and the criteria for recognizing", "paragraph_id": "para_1761" }, { "text": "such a rule are exacting. It is incumbent on us to candidly", "paragraph_id": "para_1762" }, { "text": "recognize the limits of our authority as a function of the", "paragraph_id": "para_1763" }, { "text": "Constitution’s separation of powers. After all, “[t]he Framers", "paragraph_id": "para_1764" }, { "text": "‘built into the tripartite Federal Government . . . a self-", "paragraph_id": "para_1765" }, { "text": "executing safeguard against the encroachment", "paragraph_id": "para_1766" }, { "text": "or aggrandizement of one branch at the expense of the other.’”", "paragraph_id": "para_1767" }, { "text": "Clinton v. Jones, 520 U.S. 681, 699 (1997) (omission in", "paragraph_id": "para_1768" }, { "text": "original) (quoting Buckley v. Valeo, 424 U.S. 1, 122 (1976)", "paragraph_id": "para_1769" }, { "text": "(per curiam)). Acknowledging that the federal courts’ role in", "paragraph_id": "para_1770" }, { "text": "crafting common law is necessarily “modest,” Rodriguez, 589", "paragraph_id": "para_1771" }, { "text": "26", "paragraph_id": "para_1772" }, { "text": "U.S. at 136, does much to guard against encroachment upon", "paragraph_id": "para_1773", "court_paragraph": 26 }, { "text": "Congress’s authority to legislate on the subject of bankruptcies.", "paragraph_id": "para_1774" }, { "text": "Second, with doctrinal clarity and the acknowledgment", "paragraph_id": "para_1775" }, { "text": "of federal courts’ limited authority comes clearer notice to", "paragraph_id": "para_1776" }, { "text": "litigants as to what rule they can expect to govern their rights.", "paragraph_id": "para_1777" }, { "text": "As discussed, the Ninth Circuit’s departure from Klaxon is", "paragraph_id": "para_1778" }, { "text": "misguided. As for the Second, Fourth, and Eighth Circuits,", "paragraph_id": "para_1779" }, { "text": "their approaches in practice always have, and always will, lead", "paragraph_id": "para_1780" }, { "text": "to the same result—Klaxon applies in bankruptcy, but federal", "paragraph_id": "para_1781" }, { "text": "law necessarily provides the rule of decision “when some", "paragraph_id": "para_1782" }, { "text": "federal interest requires a different result.” In re Schriock", "paragraph_id": "para_1783" }, { "text": "Constr., 104 F.3d at 202. But by framing the question as", "paragraph_id": "para_1784" }, { "text": "choice-of-law instead of rule-of-decision and leaving the door", "paragraph_id": "para_1785" }, { "text": "open for a different choice-of-law rule in theory, the Second", "paragraph_id": "para_1786" }, { "text": "and Fourth Circuits invite needless litigation over Klaxon’s", "paragraph_id": "para_1787" }, { "text": "applicability and leave lingering uncertainty about which law", "paragraph_id": "para_1788" }, { "text": "will govern parties’ disputes. They hypothesize a category of", "paragraph_id": "para_1789" }, { "text": "cases that, in reality, is a null set. No federal interest exists that", "paragraph_id": "para_1790" }, { "text": "will displace a state’s choice-of-law rule without", "paragraph_id": "para_1791" }, { "text": "simultaneously requiring displacement of state substantive law", "paragraph_id": "para_1792" }, { "text": "in favor of a federal rule of decision. Instead of perpetuating", "paragraph_id": "para_1793" }, { "text": "the uncertainty surrounding the choice-of-law rule that governs", "paragraph_id": "para_1794" }, { "text": "in bankruptcy, we should recognize what practice teaches and", "paragraph_id": "para_1795" }, { "text": "give courts and litigants alike notice of the governing", "paragraph_id": "para_1796" }, { "text": "27", "paragraph_id": "para_1797" }, { "text": "framework: The rule from Klaxon extends to bankruptcy", "paragraph_id": "para_1798", "court_paragraph": 27 }, { "text": "cases.11", "paragraph_id": "para_1799" }, { "text": "IV. Idiosyncratic State Choice-of-Law Rules Do Not", "paragraph_id": "para_1800" }, { "text": "License Abandoning Klaxon", "paragraph_id": "para_1801" }, { "text": "For their part, among the options in this three-way", "paragraph_id": "para_1802" }, { "text": "circuit split, the parties urge us to adopt the Second and Fourth", "paragraph_id": "para_1803" }, { "text": "Circuits’ hybrid approach to Klaxon, cautioning that we", "paragraph_id": "para_1804" }, { "text": "“should not adopt a rule that would require bankruptcy courts", "paragraph_id": "para_1805" }, { "text": "to follow idiosyncratic state choice-of-law rules even when", "paragraph_id": "para_1806" }, { "text": "doing so would create conflicts, encourage forum-shopping, or", "paragraph_id": "para_1807" }, { "text": "undermine significant federal interests.” Appellees’ Second", "paragraph_id": "para_1808" }, { "text": "Supp. Br. 11; see also Appellants’ Second Supp. Br. 4. And to", "paragraph_id": "para_1809" }, { "text": "illustrate their point, Appellees pose the example of “a", "paragraph_id": "para_1810" }, { "text": "hypothetical forum state . . . reject[ing] the internal-affairs", "paragraph_id": "para_1811" }, { "text": "doctrine [to] allow its own idiosyncratic rules to dictate who", "paragraph_id": "para_1812" }, { "text": "speaks for a foreign corporation.” Appellees’ Second Supp.", "paragraph_id": "para_1813" }, { "text": "Br. 10. They insist that in such a scenario, “the federal interest", "paragraph_id": "para_1814" }, { "text": "in preserving the internal-affairs doctrine and orderly", "paragraph_id": "para_1815" }, { "text": "11 My concurring colleague agrees that “state choice-of-law", "paragraph_id": "para_1816" }, { "text": "rules will almost always apply” in bankruptcy but insists that", "paragraph_id": "para_1817" }, { "text": "“[r]are is not never.” Concurring Op. at 9–10. It is telling,", "paragraph_id": "para_1818" }, { "text": "however, that the concurrence does not identify a single", "paragraph_id": "para_1819" }, { "text": "instance—even a hypothetical one—that would require the", "paragraph_id": "para_1820" }, { "text": "application of a federal common-law choice of law rule, but", "paragraph_id": "para_1821" }, { "text": "would not result, in any event, in the application of federal law", "paragraph_id": "para_1822" }, { "text": "as the rule of decision.", "paragraph_id": "para_1823" }, { "text": "28", "paragraph_id": "para_1824" }, { "text": "bankruptcy filings would warrant a federal choice-of-law rule", "paragraph_id": "para_1825", "court_paragraph": 28 }, { "text": "vindicating the internal affairs doctrine.”12 Id. at 11.", "paragraph_id": "para_1826" }, { "text": "But choice of law is not a panacea, nor need we make it", "paragraph_id": "para_1827" }, { "text": "one. Instead, among other constraints, the Constitution places", "paragraph_id": "para_1828" }, { "text": "limits on the extent to which states may exert regulatory", "paragraph_id": "para_1829" }, { "text": "authority over parties’ disputes and that resolve many of the", "paragraph_id": "para_1830" }, { "text": "concerns the parties raise here. Four constitutional provisions", "paragraph_id": "para_1831" }, { "text": "in particular—the Supremacy Clause, the Full Faith and Credit", "paragraph_id": "para_1832" }, { "text": "Clause, the Privileges and Immunities Clause, and the Due", "paragraph_id": "para_1833" }, { "text": "Process Clause of the Fourteenth Amendment, each of which", "paragraph_id": "para_1834" }, { "text": "is discussed below—provide a federal backstop to permissible", "paragraph_id": "para_1835" }, { "text": "state choice-of-law regimes.", "paragraph_id": "para_1836" }, { "text": "First, and most intuitively for choice-of-law purposes,", "paragraph_id": "para_1837" }, { "text": "is the Supremacy Clause. U.S. Const. art. VI, cl. 2. In", "paragraph_id": "para_1838" }, { "text": "“split[ting] the atom of sovereignty” for our federal union, U.S.", "paragraph_id": "para_1839" }, { "text": "Term Limits, Inc. v. Thornton, 514 U.S. 779, 838 (1995)", "paragraph_id": "para_1840" }, { "text": "(Kennedy, J., concurring), the Framers “provide[d] ‘a rule of", "paragraph_id": "para_1841" }, { "text": "decision’ for determining whether federal or state law applies", "paragraph_id": "para_1842" }, { "text": "in a particular situation,” Kansas v. Garcia, 589 U.S. 191, 202", "paragraph_id": "para_1843" }, { "text": "(2020) (quoting Armstrong v. Exceptional Child Ctr., Inc., 575", "paragraph_id": "para_1844" }, { "text": "U.S. 320, 324 (2015)). The Supremacy Clause supplies a", "paragraph_id": "para_1845" }, { "text": "bright-line rule to resolve “vertical” choice-of-law questions,", "paragraph_id": "para_1846" }, { "text": "i.e., those that implicate a conflict between federal and state", "paragraph_id": "para_1847" }, { "text": "law. Empire Healthchoice Assurance, Inc. v. McVeigh, 547", "paragraph_id": "para_1848" }, { "text": "12 Apart from the reasons I describe below, I agree with the", "paragraph_id": "para_1849" }, { "text": "majority that such a scenario is fanciful because it would", "paragraph_id": "para_1850" }, { "text": "violate the Constitution. Maj. Op. 24 (“[W]hen it comes to", "paragraph_id": "para_1851" }, { "text": "control over corporate decision-making, a state ‘has no interest", "paragraph_id": "para_1852" }, { "text": "in regulating the internal affairs of foreign corporations.’”", "paragraph_id": "para_1853" }, { "text": "(quoting Edgar v. MITE Corp., 457 U.S. 624, 645–46 (1982)).", "paragraph_id": "para_1854" }, { "text": "29", "paragraph_id": "para_1855" }, { "text": "U.S. 677, 691 (2006). When federal and state law are “in", "paragraph_id": "para_1856", "court_paragraph": 29 }, { "text": "conflict or at cross-purposes,” the Supremacy Clause embodies", "paragraph_id": "para_1857" }, { "text": "the “clear rule” that federal law prevails. Arizona v. United", "paragraph_id": "para_1858" }, { "text": "States, 567 U.S. 387, 399 (2012).", "paragraph_id": "para_1859" }, { "text": "Thus, when state courts consider which law governs a", "paragraph_id": "para_1860" }, { "text": "dispute, the existence of a controlling federal rule resolves any", "paragraph_id": "para_1861" }, { "text": "choice-of-law question, “[f]or the policy of the federal [law] is", "paragraph_id": "para_1862" }, { "text": "the prevailing policy in every state.” Testa v. Katt, 330 U.S.", "paragraph_id": "para_1863" }, { "text": "386, 393 (1947). In this way, the Supremacy Clause protects", "paragraph_id": "para_1864" }, { "text": "the federal authority to enact federal rules of decision to control", "paragraph_id": "para_1865" }, { "text": "in circumstances “necessary to protect uniquely federal", "paragraph_id": "para_1866" }, { "text": "interests.” Rodriguez, 589 U.S. at 136 (quoting Radcliff", "paragraph_id": "para_1867" }, { "text": "Materials, 451 U.S. at 640).", "paragraph_id": "para_1868" }, { "text": "Often, those federal interests will be embodied in a", "paragraph_id": "para_1869" }, { "text": "federal statute. But in few, yet important, contexts, federal", "paragraph_id": "para_1870" }, { "text": "courts have recognized the need to fashion “federal common", "paragraph_id": "para_1871" }, { "text": "law—substantive rules of decision not expressly authorized by", "paragraph_id": "para_1872" }, { "text": "either the Constitution or any Act of Congress—that supplant", "paragraph_id": "para_1873" }, { "text": "state law,” 19 Wright & Miller’s Federal Practice & Procedure", "paragraph_id": "para_1874" }, { "text": "§ 4514 (3d ed. May 2025 update), often when the", "paragraph_id": "para_1875" }, { "text": "controversy’s subject matter closely relates to the federal", "paragraph_id": "para_1876" }, { "text": "government or falls within an area of exclusive federal", "paragraph_id": "para_1877" }, { "text": "competence, see, e.g., Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14,", "paragraph_id": "para_1878" }, { "text": "23 (2004) (admiralty); Boyle, 487 U.S. at 505–06 (civil", "paragraph_id": "para_1879" }, { "text": "liabilities of contractors under federal procurement contracts);", "paragraph_id": "para_1880" }, { "text": "Clearfield Tr., 318 U.S. at 366 (rights and duties of the United", "paragraph_id": "para_1881" }, { "text": "States under federally issued commercial paper); Hinderlider", "paragraph_id": "para_1882" }, { "text": "v. La Plata River & Cherry Creek Ditch Co., 304 U.S. 92, 110", "paragraph_id": "para_1883" }, { "text": "(1938) (apportionment of water rights between states).", "paragraph_id": "para_1884" }, { "text": "To be sure, federal courts’ common law-making", "paragraph_id": "para_1885" }, { "text": "authority “plays a necessarily modest role,” and the Supreme", "paragraph_id": "para_1886" }, { "text": "30", "paragraph_id": "para_1887" }, { "text": "Court has “underscore[d] the care federal courts should", "paragraph_id": "para_1888", "court_paragraph": 30 }, { "text": "exercise before taking up an invitation to try their hand at", "paragraph_id": "para_1889" }, { "text": "common lawmaking.” Rodriguez, 589 U.S. at 136, 138. But", "paragraph_id": "para_1890" }, { "text": "in the narrow circumstances that command a federal rule of", "paragraph_id": "para_1891" }, { "text": "decision absent constitutional or statutory authority, the", "paragraph_id": "para_1892" }, { "text": "Supremacy Clause ensures that federal courts may still fashion", "paragraph_id": "para_1893" }, { "text": "such a rule and that contrary state law will yield.13 See Banco", "paragraph_id": "para_1894" }, { "text": "Nacional de Cuba v. Sabbatino, 376 U.S. 398, 427 (1964)", "paragraph_id": "para_1895" }, { "text": "(recognizing the preemptive force of federal common law),", "paragraph_id": "para_1896" }, { "text": "superseded on other grounds by statute, Pub. L. 88-633, 78", "paragraph_id": "para_1897" }, { "text": "Stat. 1013, as recognized in, Fed. Republic of Ger. v. Philipp,", "paragraph_id": "para_1898" }, { "text": "592 U.S. 169, 179 (2021). After all, “exclusive state power", "paragraph_id": "para_1899" }, { "text": "takes up only where federal power leaves off.” John Hart Ely,", "paragraph_id": "para_1900" }, { "text": "The Irrepressible Myth of Erie, 87 Harv. L. Rev. 693, 705", "paragraph_id": "para_1901" }, { "text": "(1974). So that vertical choice-of-law rule, enshrined in our", "paragraph_id": "para_1902" }, { "text": "Constitution, does much to ensure that state choice-of-law", "paragraph_id": "para_1903" }, { "text": "rules do not unduly “undermine significant federal interests.”", "paragraph_id": "para_1904" }, { "text": "Appellees’ Second Supp. Br. 11.", "paragraph_id": "para_1905" }, { "text": "Second, the Full Faith and Credit Clause occupies a", "paragraph_id": "para_1906" }, { "text": "modest, but important, position among the constitutional", "paragraph_id": "para_1907" }, { "text": "provisions bearing on choice of law. In relevant part, it", "paragraph_id": "para_1908" }, { "text": "13 When adopting a federal common law rule, federal courts", "paragraph_id": "para_1909" }, { "text": "must assess both “(1) the competence of federal courts to", "paragraph_id": "para_1910" }, { "text": "formulate a federal rule of decision, and (2) the appropriateness", "paragraph_id": "para_1911" }, { "text": "of declaring a federal rule rather than borrowing,", "paragraph_id": "para_1912" }, { "text": "incorporating, or adopting state law in point.” McVeigh, 547", "paragraph_id": "para_1913" }, { "text": "U.S. at 692. So in some circumstances, federal courts may", "paragraph_id": "para_1914" }, { "text": "“adopt the readymade body of state law as the federal rule of", "paragraph_id": "para_1915" }, { "text": "decision until Congress strikes a different accommodation,”", "paragraph_id": "para_1916" }, { "text": "and state law yields only in the sense that it is supplanted by an", "paragraph_id": "para_1917" }, { "text": "identical federal rule. Kimbell Foods, 440 U.S. 740.", "paragraph_id": "para_1918" }, { "text": "31", "paragraph_id": "para_1919" }, { "text": "provides that “Full Faith and Credit shall be given in each State", "paragraph_id": "para_1920", "court_paragraph": 31 }, { "text": "to the public Acts, Records, and judicial Proceedings of every", "paragraph_id": "para_1921" }, { "text": "other State.” U.S. Const. art. IV, § 1, cl. 1. As the Supreme", "paragraph_id": "para_1922" }, { "text": "Court has recognized, the Clause’s purpose “was to alter the", "paragraph_id": "para_1923" }, { "text": "status of the several states as independent foreign sovereignties", "paragraph_id": "para_1924" }, { "text": ". . . and to make them integral parts of a single nation", "paragraph_id": "para_1925" }, { "text": "throughout which a remedy upon a just obligation might be", "paragraph_id": "para_1926" }, { "text": "demanded as of right, irrespective of the state of its origin.”", "paragraph_id": "para_1927" }, { "text": "Milwaukee Cnty. v. M.E. White Co., 296 U.S. 268, 277 (1935);", "paragraph_id": "para_1928" }, { "text": "see also Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 439", "paragraph_id": "para_1929" }, { "text": "(1943).", "paragraph_id": "para_1930" }, { "text": "In modern jurisprudence, much of the Full Faith and", "paragraph_id": "para_1931" }, { "text": "Credit Clause’s function—and that of the statute with which it", "paragraph_id": "para_1932" }, { "text": "shares a name, 28 U.S.C. § 1738—occurs in the recognition of", "paragraph_id": "para_1933" }, { "text": "judgments rendered by foreign states. See, e.g., Baker v. Gen.", "paragraph_id": "para_1934" }, { "text": "Motors Corp., 522 U.S. 222, 233 (1998). But as the Supreme", "paragraph_id": "para_1935" }, { "text": "Court has recognized, the Full Faith and Credit Clause", "paragraph_id": "para_1936" }, { "text": "continues to have an enduring role in the regulation of “credit", "paragraph_id": "para_1937" }, { "text": "owed to [foreign] laws.” Id. at 232. Indeed, “where the policy", "paragraph_id": "para_1938" }, { "text": "of one state statute comes into conflict with that of another, the", "paragraph_id": "para_1939" }, { "text": "necessity of some accommodation of the conflicting interests", "paragraph_id": "para_1940" }, { "text": "of the two states is . . . apparent.” Alaska Packers Ass’n v.", "paragraph_id": "para_1941" }, { "text": "Indus. Accident Comm’n of Cal., 294 U.S. 532, 547 (1935).", "paragraph_id": "para_1942" }, { "text": "Apart from its other commands, the Full Faith and", "paragraph_id": "para_1943" }, { "text": "Credit Clause, at a minimum, requires that a forum state", "paragraph_id": "para_1944" }, { "text": "confronting a horizontal choice-of-law question have “some", "paragraph_id": "para_1945" }, { "text": "rational basis” for applying its law over that of a sister state.", "paragraph_id": "para_1946" }, { "text": "Id. at 547–48. That basis must be above and beyond mere", "paragraph_id": "para_1947" }, { "text": "favoritism toward forum law, for a state does not have a", "paragraph_id": "para_1948" }, { "text": "legitimate interest in discriminating against another state’s law", "paragraph_id": "para_1949" }, { "text": "simply by virtue of its foreign origin. See First Nat’l Bank of", "paragraph_id": "para_1950" }, { "text": "32", "paragraph_id": "para_1951" }, { "text": "Chi. v. United Air Lines, 342 U.S. 396, 398 (1952); Hughes v.", "paragraph_id": "para_1952", "court_paragraph": 32 }, { "text": "Fetter, 341 U.S. 609, 613 (1951); cf. Metro. Life Ins. Co. v.", "paragraph_id": "para_1953" }, { "text": "Ward, 470 U.S. 869, 878 (1985) (holding that a state does not", "paragraph_id": "para_1954" }, { "text": "have a legitimate interest purely in favoring domestic", "paragraph_id": "para_1955" }, { "text": "economic interests over foreign ones).", "paragraph_id": "para_1956" }, { "text": "Of course, the Full Faith and Credit Clause “does not", "paragraph_id": "para_1957" }, { "text": "require one state to substitute for its own statute, applicable to", "paragraph_id": "para_1958" }, { "text": "persons and events within it, the conflicting statute of another", "paragraph_id": "para_1959" }, { "text": "state, even though that statute is of controlling force in the", "paragraph_id": "para_1960" }, { "text": "courts of the state of its enactment with respect to the same", "paragraph_id": "para_1961" }, { "text": "persons and events.” Pac. Emps. Ins. Co. v. Indus. Accident", "paragraph_id": "para_1962" }, { "text": "Comm’n of Cal., 306 U.S. 493, 502 (1939). And no doubt, in", "paragraph_id": "para_1963" }, { "text": "many cases, forum states will have rational, nondiscriminatory", "paragraph_id": "para_1964" }, { "text": "reasons for applying their law over that of others. See, e.g.,", "paragraph_id": "para_1965" }, { "text": "Cardillo v. Liberty Mut. Ins. Co., 330 U.S. 469, 476 (1947).", "paragraph_id": "para_1966" }, { "text": "But the Full Faith and Credit Clause does “set[] certain", "paragraph_id": "para_1967" }, { "text": "minimum requirements which each state must observe when", "paragraph_id": "para_1968" }, { "text": "asked to apply the law of a sister state,” Wells v. Simonds", "paragraph_id": "para_1969" }, { "text": "Abrasive Co., 345 U.S. 514, 516 (1953), and it “requires that a", "paragraph_id": "para_1970" }, { "text": "state base its assertion of legislative jurisdiction on a claim that", "paragraph_id": "para_1971" }, { "text": "its interests are superior,” not simply that conflicting law is", "paragraph_id": "para_1972" }, { "text": "foreign, Kermit Roosevelt III, The Myth of Choice of Law:", "paragraph_id": "para_1973" }, { "text": "Rethinking Conflicts, 97 Mich. L. Rev. 2448, 2505 n.240", "paragraph_id": "para_1974" }, { "text": "(1999). This constitutional floor provides yet another", "paragraph_id": "para_1975" }, { "text": "constraint on state choice-of-law regimes.", "paragraph_id": "para_1976" }, { "text": "Third, the Privileges and Immunities Clause protects", "paragraph_id": "para_1977" }, { "text": "out-of-staters from discrimination on the basis of their foreign", "paragraph_id": "para_1978" }, { "text": "33", "paragraph_id": "para_1979" }, { "text": "citizenship.14 See Supreme Ct. of N.H. v. Piper, 470 U.S. 274,", "paragraph_id": "para_1980", "court_paragraph": 33 }, { "text": "285 (1985); see also Tyler Pipe Indus., Inc. v. Wash. State", "paragraph_id": "para_1981" }, { "text": "Dep’t of Revenue, 483 U.S. 232, 265 (1987) (Scalia, J.,", "paragraph_id": "para_1982" }, { "text": "concurring in part and dissenting in part) (grounding the", "paragraph_id": "para_1983" }, { "text": "protection “against rank discrimination against citizens of", "paragraph_id": "para_1984" }, { "text": "other States” in the Privileges and Immunities Clause). In full,", "paragraph_id": "para_1985" }, { "text": "it provides that “[t]he Citizens of each State shall be entitled to", "paragraph_id": "para_1986" }, { "text": "all Privileges and Immunities of Citizens in the several States.”", "paragraph_id": "para_1987" }, { "text": "U.S. Const. art. IV, § 2, cl. 1. Much like the Full Faith and", "paragraph_id": "para_1988" }, { "text": "Credit Clause, the Privileges and Immunities Clause was", "paragraph_id": "para_1989" }, { "text": "intended “to help fuse into one Nation a collection of", "paragraph_id": "para_1990" }, { "text": "independent, sovereign States.” Toomer v. Witsell, 334 U.S.", "paragraph_id": "para_1991" }, { "text": "385, 395 (1948).", "paragraph_id": "para_1992" }, { "text": "The Clause does not guarantee that citizens of each state", "paragraph_id": "para_1993" }, { "text": "are entitled to all of the same rights and benefits of citizens in", "paragraph_id": "para_1994" }, { "text": "other states, see Piper, 470 U.S. at 284, but only those that are", "paragraph_id": "para_1995" }, { "text": "“fundamental” to “the vitality of the Nation as a single entity,”", "paragraph_id": "para_1996" }, { "text": "Baldwin v. Fish & Game Comm’n of Mont., 436 U.S. 371, 382–", "paragraph_id": "para_1997" }, { "text": "83 (1978) (quotation omitted). It does, however, “bar", "paragraph_id": "para_1998" }, { "text": "14 This rule may sound identical to the constraint provided by", "paragraph_id": "para_1999" }, { "text": "the Full Faith and Credit Clause discussed above. But the two", "paragraph_id": "para_2000" }, { "text": "clauses play distinct roles. The Full Faith and Credit Clause", "paragraph_id": "para_2001" }, { "text": "concerns the respect owed by one state to the laws and", "paragraph_id": "para_2002" }, { "text": "judgments of another, while the Privileges and Immunities", "paragraph_id": "para_2003" }, { "text": "Clause concerns states’ treatment of citizens of foreign states.", "paragraph_id": "para_2004" }, { "text": "Compare U.S. Const. art. IV, § 1, cl. 1 (“Full Faith and Credit", "paragraph_id": "para_2005" }, { "text": "shall be given in each State to the public Acts, Records, and", "paragraph_id": "para_2006" }, { "text": "judicial Proceedings of every other State.” (emphasis added)),", "paragraph_id": "para_2007" }, { "text": "with U.S. Const. art. IV, § 2, cl. 1 (“The Citizens of each State", "paragraph_id": "para_2008" }, { "text": "shall be entitled to all Privileges and Immunities of Citizens in", "paragraph_id": "para_2009" }, { "text": "the several States.” (emphasis added)).", "paragraph_id": "para_2010" }, { "text": "34", "paragraph_id": "para_2011" }, { "text": "discrimination against citizens of other States where there is no", "paragraph_id": "para_2012", "court_paragraph": 34 }, { "text": "substantial reason for the discrimination beyond the mere fact", "paragraph_id": "para_2013" }, { "text": "that they are citizens of other States.” Toomer, 334 U.S. at 396.", "paragraph_id": "para_2014" }, { "text": "The Supreme Court has recognized that access to a", "paragraph_id": "para_2015" }, { "text": "state’s courts is among the privileges and immunities protected", "paragraph_id": "para_2016" }, { "text": "by the Constitution. McKnett v. St. Louis & S.F. Ry. Co., 292", "paragraph_id": "para_2017" }, { "text": "U.S. 230, 233 (1934); Canadian N. Ry. Co. v. Eggen, 252 U.S.", "paragraph_id": "para_2018" }, { "text": "553, 562 (1920). And implicit in that guarantee is the", "paragraph_id": "para_2019" }, { "text": "constituent promise that a state may not withhold the", "paragraph_id": "para_2020" }, { "text": "application of its law to a citizen of another state in a situation", "paragraph_id": "para_2021" }, { "text": "in which it would extend that law to one of its own citizens", "paragraph_id": "para_2022" }, { "text": "solely by virtue of the out-of-stater’s foreign citizenship. Paul", "paragraph_id": "para_2023" }, { "text": "v. Virginia, 75 U.S. (8 Wall.) 168, 180 (1868) (the Privileges", "paragraph_id": "para_2024" }, { "text": "and Immunities Clause “secures to [citizens of a foreign state]", "paragraph_id": "para_2025" }, { "text": "in other States the equal protection of their laws”); see also", "paragraph_id": "para_2026" }, { "text": "Douglas Laycock, Equal Citizens of Equal and Territorial", "paragraph_id": "para_2027" }, { "text": "States: The Constitutional Foundations of Choice of Law, 92", "paragraph_id": "para_2028" }, { "text": "Colum. L. Rev. 249, 265–66 (1992). Thus, the Privileges and", "paragraph_id": "para_2029" }, { "text": "Immunities Clause “place[s] the citizens of each State upon the", "paragraph_id": "para_2030" }, { "text": "same footing with citizens of other States,” thereby demanding", "paragraph_id": "para_2031" }, { "text": "citizens of foreign states derive the same benefit from a state’s", "paragraph_id": "para_2032" }, { "text": "law that it would extend to its own citizens and prohibiting", "paragraph_id": "para_2033" }, { "text": "discrimination against out-of-staters because of their foreign", "paragraph_id": "para_2034" }, { "text": "citizenship. Paul, 75 U.S. at 180.", "paragraph_id": "para_2035" }, { "text": "Fourth, and finally, the Due Process Clause of the", "paragraph_id": "para_2036" }, { "text": "Fourteenth Amendment substantively limits to which disputes", "paragraph_id": "para_2037" }, { "text": "states may extend their law.15 In providing that “[n]o State", "paragraph_id": "para_2038" }, { "text": "15 The Supreme Court’s articulation of the Fourteenth", "paragraph_id": "para_2039" }, { "text": "Amendment Due Process Clause’s limitations on state choice-", "paragraph_id": "para_2040" }, { "text": "35", "paragraph_id": "para_2041" }, { "text": "shall . . . deprive any person of life, liberty, or property,", "paragraph_id": "para_2042", "court_paragraph": 35 }, { "text": "without due process of law,” U.S. Const. amend. XIV, § 1, the", "paragraph_id": "para_2043" }, { "text": "Clause requires “that for a State’s substantive law to be", "paragraph_id": "para_2044" }, { "text": "selected in a constitutionally permissible manner, that State", "paragraph_id": "para_2045" }, { "text": "must have a significant contact or significant aggregation of", "paragraph_id": "para_2046" }, { "text": "contacts, creating state interests, such that choice of its law is", "paragraph_id": "para_2047" }, { "text": "neither arbitrary nor fundamentally unfair,” Allstate Ins. Co. v.", "paragraph_id": "para_2048" }, { "text": "Hague, 449 U.S. 302, 312–13 (1981) (plurality). Thus, where", "paragraph_id": "para_2049" }, { "text": "a state does not have sufficient contacts with a dispute, it lacks", "paragraph_id": "para_2050" }, { "text": "legitimate interests warranting extension of its law to the", "paragraph_id": "para_2051" }, { "text": "dispute, rendering application of its law “sufficiently arbitrary", "paragraph_id": "para_2052" }, { "text": "and unfair as to exceed constitutional limits.” Shutts, 472 U.S.", "paragraph_id": "para_2053" }, { "text": "at 822; accord John Hancock Mut. Life Ins. Co. v. Yates, 299", "paragraph_id": "para_2054" }, { "text": "U.S. 178, 182 (1936); Home Ins. Co. v. Dick, 281 U.S. 397,", "paragraph_id": "para_2055" }, { "text": "407–08 (1930). And in doing so, the Due Process Clause", "paragraph_id": "para_2056" }, { "text": "of-law rules has been subject to nearly universal criticism. See,", "paragraph_id": "para_2057" }, { "text": "e.g., Roosevelt, supra, at 2506–07; Louise Weinberg, Choice", "paragraph_id": "para_2058" }, { "text": "of Law and Minimal Scrutiny, 49 U. Chi. L. Rev. 440, 460–63", "paragraph_id": "para_2059" }, { "text": "(1982). In comparing choice of law with the Court’s personal", "paragraph_id": "para_2060" }, { "text": "jurisdiction jurisprudence, Professor Linda Silberman", "paragraph_id": "para_2061" }, { "text": "famously quipped, “[t]o believe that a defendant’s contacts", "paragraph_id": "para_2062" }, { "text": "with the forum state should be stronger under the due process", "paragraph_id": "para_2063" }, { "text": "clause for jurisdictional purposes than for choice of law is to", "paragraph_id": "para_2064" }, { "text": "believe that an accused is more concerned with where he will", "paragraph_id": "para_2065" }, { "text": "be hanged than whether.” Linda J. Silberman, Shaffer v.", "paragraph_id": "para_2066" }, { "text": "Heitner, The End of an Era, 53 N.Y.U. L. Rev. 32, 88 (1978).", "paragraph_id": "para_2067" }, { "text": "I do not take a side in this debate here. My point, rather, is that", "paragraph_id": "para_2068" }, { "text": "wherever the constitutional boundaries lie, so long a states’", "paragraph_id": "para_2069" }, { "text": "choice-of-law regimes fall within them, federal courts have no", "paragraph_id": "para_2070" }, { "text": "authority under the Bankruptcy Code, Rules of Decision Act,", "paragraph_id": "para_2071" }, { "text": "or statutes granting bankruptcy jurisdiction to supplant state", "paragraph_id": "para_2072" }, { "text": "choice-of-law rules in favor of federal ones.", "paragraph_id": "para_2073" }, { "text": "36", "paragraph_id": "para_2074" }, { "text": "protects litigants against “unfair surprise or frustration of", "paragraph_id": "para_2075", "court_paragraph": 36 }, { "text": "legitimate expectations” of the law governing their dealings.16", "paragraph_id": "para_2076" }, { "text": "Allstate, 449 U.S. at 318 n.24.", "paragraph_id": "para_2077" }, { "text": "By recounting these well-trodden constitutional", "paragraph_id": "para_2078" }, { "text": "constraints, I do not seek to “embark upon the enterprise of", "paragraph_id": "para_2079" }, { "text": "constitutionalizing choice-of-law rules.” Sun Oil, 486 U.S. at", "paragraph_id": "para_2080" }, { "text": "727–28. Rather, these constitutional safeguards demonstrate", "paragraph_id": "para_2081" }, { "text": "that by extending the rule of Klaxon to bankruptcy cases,", "paragraph_id": "para_2082" }, { "text": "federal courts are not bound to reflexively apply impermissibly", "paragraph_id": "para_2083" }, { "text": "parochial state choice-of-law rules as Appellees warn. See", "paragraph_id": "para_2084" }, { "text": "Appellees’ Second Supp. Br. 9–11. But absent running afoul", "paragraph_id": "para_2085" }, { "text": "of the limitations imposed by the Constitution, I find no basis", "paragraph_id": "para_2086" }, { "text": "(or authority) in federal bankruptcy law to constrain a state’s", "paragraph_id": "para_2087" }, { "text": "authority to prescribe the choice-of-law rules that shall govern", "paragraph_id": "para_2088" }, { "text": "in its courts. Indeed, it is a feature of our federal system that it", "paragraph_id": "para_2089" }, { "text": "16 The Supreme Court has somewhat collapsed the inquiries", "paragraph_id": "para_2090" }, { "text": "under the Full Faith and Credit Clause and the Due Process", "paragraph_id": "para_2091" }, { "text": "Clause for choice-of-law purposes. See, e.g., Sun Oil Co. v.", "paragraph_id": "para_2092" }, { "text": "Wortman, 486 U.S. 717, 729 n.3 (1988); see also Herma Hill", "paragraph_id": "para_2093" }, { "text": "Kay et al., Conflict of Laws 381 (10th ed. 2018) (noting the", "paragraph_id": "para_2094" }, { "text": "convergence in the two analyses). Yet each imposes a different", "paragraph_id": "para_2095" }, { "text": "command: As explained above, the Full Faith and Credit", "paragraph_id": "para_2096" }, { "text": "Clause governs the respect owed to laws among states, while", "paragraph_id": "para_2097" }, { "text": "the Due Process Clause confers an individual right to be free", "paragraph_id": "para_2098" }, { "text": "from application of a state’s law when that state has no", "paragraph_id": "para_2099" }, { "text": "meaningful connection to the dispute. Compare U.S. Const.", "paragraph_id": "para_2100" }, { "text": "art. IV, § 1, cl. 1 (“Full Faith and Credit shall be given in each", "paragraph_id": "para_2101" }, { "text": "State to the public Acts, Records, and judicial Proceedings of", "paragraph_id": "para_2102" }, { "text": "every other State.” (emphasis added)), with U.S. Const. amend.", "paragraph_id": "para_2103" }, { "text": "XIV, § 1 (“No State shall . . . deprive any person of life, liberty,", "paragraph_id": "para_2104" }, { "text": "or property, without due process of law.” (emphasis added)).", "paragraph_id": "para_2105" }, { "text": "37", "paragraph_id": "para_2106" }, { "text": "“leaves to a state, within the limits permitted by the", "paragraph_id": "para_2107", "court_paragraph": 37 }, { "text": "Constitution, the right to pursue local policies diverging from", "paragraph_id": "para_2108" }, { "text": "those of its neighbors,” and “it is not for the federal courts to", "paragraph_id": "para_2109" }, { "text": "thwart such local policies by enforcing an independent ‘general", "paragraph_id": "para_2110" }, { "text": "law’ of conflict of laws.” Klaxon, 313 U.S. at 496.", "paragraph_id": "para_2111" }, { "text": "Where states do not transcend constitutional barriers,", "paragraph_id": "para_2112" }, { "text": "Klaxon’s rule best serves the purposes of the Bankruptcy Code", "paragraph_id": "para_2113" }, { "text": "consistent with Erie, the Rules of Decision Act, and the", "paragraph_id": "para_2114" }, { "text": "presumption against federal common law-making. So just as", "paragraph_id": "para_2115" }, { "text": "Klaxon and Erie aim to preserve the substantive law governing", "paragraph_id": "para_2116" }, { "text": "a dispute notwithstanding the “accident of diversity,”17", "paragraph_id": "para_2117" }, { "text": "Klaxon, 313 U.S. at 496 (citing Erie, 304 U.S. at 74–77),", "paragraph_id": "para_2118" }, { "text": "extending Klaxon in this manner avoids altering the", "paragraph_id": "para_2119" }, { "text": "substantive law governing a dispute simply because of the", "paragraph_id": "para_2120" }, { "text": "“happenstance of bankruptcy,” Lewis v. Mfrs. Nat’l Bank of", "paragraph_id": "para_2121" }, { "text": "Detroit, 364 U.S. 603, 609 (1961).", "paragraph_id": "para_2122" }, { "text": "17 Of course, Klaxon’s interest in diminishing forum-shopping", "paragraph_id": "para_2123" }, { "text": "incentives between state and federal courts, see 313 U.S. at", "paragraph_id": "para_2124" }, { "text": "496, does not neatly map onto bankruptcy, as federal courts", "paragraph_id": "para_2125" }, { "text": "possess original and exclusive jurisdiction over bankruptcy", "paragraph_id": "para_2126" }, { "text": "cases, 28 U.S.C. § 1334(a). But just as plaintiffs may choose", "paragraph_id": "para_2127" }, { "text": "their favored forum in non-bankruptcy cases, consistent with", "paragraph_id": "para_2128" }, { "text": "proper venue, to gain a favorable choice-of-law rule, see", "paragraph_id": "para_2129" }, { "text": "Ferens v. John Deere Co., 494 U.S. 516, 523 (1990); Van", "paragraph_id": "para_2130" }, { "text": "Dusen v. Barrack, 376 U.S. 612, 639 (1964), debtors too may", "paragraph_id": "para_2131" }, { "text": "choose a forum for purposes of a specific choice-of-law regime", "paragraph_id": "para_2132" }, { "text": "in bankruptcy cases where venue properly lies. And that sort", "paragraph_id": "para_2133" }, { "text": "of horizontal forum shopping incentive is “attributable to,” and", "paragraph_id": "para_2134" }, { "text": "an irreducible component of, “our federal system.” Klaxon,", "paragraph_id": "para_2135" }, { "text": "313 U.S. at 496.", "paragraph_id": "para_2136" }, { "text": "38", "paragraph_id": "para_2137" }, { "text": "* * *", "paragraph_id": "para_2138", "court_paragraph": 38 }, { "text": "The question of Klaxon’s applicability to bankruptcy", "paragraph_id": "para_2139" }, { "text": "has persisted for nearly 80 years. This case, just as with others", "paragraph_id": "para_2140" }, { "text": "our Court has encountered, permits us to elide the question of", "paragraph_id": "para_2141" }, { "text": "which choice-of-law methodology to employ. But we have the", "paragraph_id": "para_2142" }, { "text": "responsibility not to perpetuate this uncertainty. I hope that, in", "paragraph_id": "para_2143" }, { "text": "the appropriate case, we will resolve this question and give", "paragraph_id": "para_2144" }, { "text": "guidance to bankruptcy and district courts in our Circuit in a", "paragraph_id": "para_2145" }, { "text": "way that is consistent with the Bankruptcy Code, Erie and the", "paragraph_id": "para_2146" }, { "text": "Rules of Decision Act, and the policies underlying the grant of", "paragraph_id": "para_2147" }, { "text": "bankruptcy jurisdiction to federal courts.", "paragraph_id": "para_2148" }, { "text": "1", "paragraph_id": "para_2149" }, { "text": "AMBRO, Circuit Judge, concurring", "paragraph_id": "para_2150", "court_paragraph": 1 }, { "text": "The Erie doctrine—taken from Erie Railroad Co. v.", "paragraph_id": "para_2151" }, { "text": "Tompkins, 304 U.S. 64 (1938), and its progeny—is the North", "paragraph_id": "para_2152" }, { "text": "Star for determining whether federal or state law should apply", "paragraph_id": "para_2153" }, { "text": "in federal court. The answer is state law unless the matter is", "paragraph_id": "para_2154" }, { "text": "governed by superseding federal law, such as the Constitution,", "paragraph_id": "para_2155" }, { "text": "a congressional enactment, or federal common law. See", "paragraph_id": "para_2156" }, { "text": "Charles A. Wright, Arthur R. Miller, & Edward H. Cooper, 19", "paragraph_id": "para_2157" }, { "text": "Federal Practice and Procedure § 4501 (3d ed. 2025). Erie", "paragraph_id": "para_2158" }, { "text": "questions occur most often when federal courts sit in diversity-", "paragraph_id": "para_2159" }, { "text": "of-citizenship jurisdiction because those disputes usually", "paragraph_id": "para_2160" }, { "text": "involve only state substantive law. State law, however, includes", "paragraph_id": "para_2161" }, { "text": "more than just the underlying substantive law. The Supreme", "paragraph_id": "para_2162" }, { "text": "Court told us in Klaxon v. Stentor Electric Manufacturing Co.,", "paragraph_id": "para_2163" }, { "text": "313 U.S. 487 (1941), that it includes choice-of-law rules as", "paragraph_id": "para_2164" }, { "text": "well.", "paragraph_id": "para_2165" }, { "text": "What force, if any, does Klaxon have in bankruptcy,", "paragraph_id": "para_2166" }, { "text": "where the parties’ primary rights and interests are often", "paragraph_id": "para_2167" }, { "text": "governed by state law? We need not answer that question in a", "paragraph_id": "para_2168" }, { "text": "holding, as the parties agree on the law that governs: New", "paragraph_id": "para_2169" }, { "text": "Jersey’s. See Wright, Miller & Cooper § 4506 (collecting cases", "paragraph_id": "para_2170" }, { "text": "for the proposition that courts need not determine which state’s", "paragraph_id": "para_2171" }, { "text": "choice-of-law regime applies when the parties do not dispute", "paragraph_id": "para_2172" }, { "text": "that question).", "paragraph_id": "para_2173" }, { "text": "Though “a pretty good reason for having ‘skimmed over", "paragraph_id": "para_2174" }, { "text": "the conflicts problem as if none existed’ was that none did", "paragraph_id": "para_2175" }, { "text": "exist,” Henry Friendly, In Praise of Erie – And the New", "paragraph_id": "para_2176" }, { "text": "Federal Common Law, 39 N.Y.U. L. REV. 383, 401 (1964)", "paragraph_id": "para_2177" }, { "text": "(citation omitted), the question whether Klaxon applies in", "paragraph_id": "para_2178" }, { "text": "bankruptcy has spawned interesting academic debate. Answers", "paragraph_id": "para_2179" }, { "text": "span the spectrum. Compare, e.g., Zachary D. Clopton,", "paragraph_id": "para_2180" }, { "text": "2", "paragraph_id": "para_2181" }, { "text": "Horizontal Choice of Law in Federal Court, 169 PA. L. REV.", "paragraph_id": "para_2182", "court_paragraph": 2 }, { "text": "2193, 2203–06 (2021) (Klaxon applies without exception), with", "paragraph_id": "para_2183" }, { "text": "Tobias Barrington Wolff, Choice of Law and Jurisdictional", "paragraph_id": "para_2184" }, { "text": "Policy in the Federal Courts, 165 PA. L. REV. 1847 (2017)", "paragraph_id": "para_2185" }, { "text": "(Klaxon applies only in diversity actions). Our concurring", "paragraph_id": "para_2186" }, { "text": "colleague has staked out her position that Klaxon always", "paragraph_id": "para_2187" }, { "text": "applies in bankruptcy, no exceptions. Because I am", "paragraph_id": "para_2188" }, { "text": "uncomfortable with that view, I instead take the opportunity to", "paragraph_id": "para_2189" }, { "text": "make some nonbinding observations about Erie and choice of", "paragraph_id": "para_2190" }, { "text": "law.", "paragraph_id": "para_2191" }, { "text": "I. ERIE AND KLAXON", "paragraph_id": "para_2192" }, { "text": "A brief refresher on the Erie doctrine. Despite the", "paragraph_id": "para_2193" }, { "text": "almost mystical fascination that has long surrounded Erie, it", "paragraph_id": "para_2194" }, { "text": "stands for three basic propositions.", "paragraph_id": "para_2195" }, { "text": "First, “[t]here is no federal general common law.” Erie,", "paragraph_id": "para_2196" }, { "text": "304 U.S. at 78 (emphasis added). “[N]either Congress nor the", "paragraph_id": "para_2197" }, { "text": "federal courts can, under the guise of formulating rules of", "paragraph_id": "para_2198" }, { "text": "decision for federal courts, fashion rules which are not", "paragraph_id": "para_2199" }, { "text": "supported by a grant of federal authority contained in Article I", "paragraph_id": "para_2200" }, { "text": "or some other section of the Constitution.” Hanna v. Plumer,", "paragraph_id": "para_2201" }, { "text": "380 U.S. 460, 471 (1965). When the Constitution does", "paragraph_id": "para_2202" }, { "text": "authorize Congress or courts to do so, however, Erie has no", "paragraph_id": "para_2203" }, { "text": "application, and federal law displaces contrary state law", "paragraph_id": "para_2204" }, { "text": "through the Supremacy Clause.", "paragraph_id": "para_2205" }, { "text": "Second, without a federal statute or constitutionally", "paragraph_id": "para_2206" }, { "text": "authorized federal common-law rule, the Rules of Decision", "paragraph_id": "para_2207" }, { "text": "Act, 28 U.S.C. § 1652, commands federal courts to apply the", "paragraph_id": "para_2208" }, { "text": "rules of decision of their forum states “in cases where they", "paragraph_id": "para_2209" }, { "text": "apply.” The Supreme Court has developed a framework for", "paragraph_id": "para_2210" }, { "text": "determining when a state law falls within the scope of the Rules", "paragraph_id": "para_2211" }, { "text": "of Decision Act. See Gasperini v. Ctr. For Humanities, Inc.,", "paragraph_id": "para_2212" }, { "text": "3", "paragraph_id": "para_2213" }, { "text": "518 U.S. 415, 427–28 (1996); Hanna, 380 U.S. at 468. The", "paragraph_id": "para_2214", "court_paragraph": 3 }, { "text": "specifics of that framework are irrelevant for our purposes.", "paragraph_id": "para_2215" }, { "text": "Third, when a Federal Rule (e.g., the Federal Rules of", "paragraph_id": "para_2216" }, { "text": "Civil Procedure) conflicts with state law, then the Rules", "paragraph_id": "para_2217" }, { "text": "Enabling Act, 28 U.S.C. § 2072, not the Rules of Decision Act", "paragraph_id": "para_2218" }, { "text": "as construed by Erie and other cases, determines which law", "paragraph_id": "para_2219" }, { "text": "applies. See Hanna, 380 U.S. at 463–64; Burlington N. R.R.", "paragraph_id": "para_2220" }, { "text": "Co. v. Woods, 480 U.S. 1, 4–5 (1987). The Rules Enabling Act", "paragraph_id": "para_2221" }, { "text": "is also irrelevant for our purposes.", "paragraph_id": "para_2222" }, { "text": "Klaxon followed Erie and held that a federal court", "paragraph_id": "para_2223" }, { "text": "sitting in general diversity-of-citizenship jurisdiction is", "paragraph_id": "para_2224" }, { "text": "required to use the choice-of-law rules of its forum state.", "paragraph_id": "para_2225" }, { "text": "Klaxon, 313 U.S. at 496–97. The Court’s reasoning was sparse,", "paragraph_id": "para_2226" }, { "text": "but its decision is best understood as falling into the Erie", "paragraph_id": "para_2227" }, { "text": "doctrine’s second bucket—absent some constitutionally", "paragraph_id": "para_2228" }, { "text": "authorized federal law, the Rules of Decision Act kicks in.", "paragraph_id": "para_2229" }, { "text": "State choice-of-law rules are state rules of decision under that", "paragraph_id": "para_2230" }, { "text": "statute. See A.I. Trade Fin., Inc. v. Petra Int’l Banking Corp.,", "paragraph_id": "para_2231" }, { "text": "62 F.3d 1454, 1464 (D.C. Cir. 1995) (“A choice-of-law rule is", "paragraph_id": "para_2232" }, { "text": "no less a rule of state law than any other ….”). But if Congress", "paragraph_id": "para_2233" }, { "text": "or federal courts invoke some source of constitutional authority", "paragraph_id": "para_2234" }, { "text": "to promulgate federal choice-of-law rules, then federal courts", "paragraph_id": "para_2235" }, { "text": "would instead find themselves in the first bucket. The Rules of", "paragraph_id": "para_2236" }, { "text": "Decision Act, and thus Klaxon, would no longer apply.", "paragraph_id": "para_2237" }, { "text": "II. FEDERAL COMMON LAW AFTER ERIE", "paragraph_id": "para_2238" }, { "text": "Although Erie ended the general federal common law,", "paragraph_id": "para_2239" }, { "text": "the Supreme Court has been unequivocal in recognizing that", "paragraph_id": "para_2240" }, { "text": "the Erie doctrine does not entirely displace federal common", "paragraph_id": "para_2241" }, { "text": "law. As Justice Brandeis acknowledged in a decision released", "paragraph_id": "para_2242" }, { "text": "on the same day as Erie, federal courts may still formulate", "paragraph_id": "para_2243" }, { "text": "special federal common law on issues of uniquely federal", "paragraph_id": "para_2244" }, { "text": "4", "paragraph_id": "para_2245" }, { "text": "interest. See Hinderlider v. La Plata River & Cherry Creek", "paragraph_id": "para_2246", "court_paragraph": 4 }, { "text": "Ditch Co., 304 U.S. 92, 110 (1938) (concluding that interstate", "paragraph_id": "para_2247" }, { "text": "water apportionment “is a question of ‘federal common law’", "paragraph_id": "para_2248" }, { "text": "upon which neither the statutes nor the decisions of either State", "paragraph_id": "para_2249" }, { "text": "can be conclusive”); see also Boyle v. United Techs. Corp., 487", "paragraph_id": "para_2250" }, { "text": "U.S. 500, 504 (1988) (noting that federal courts may still", "paragraph_id": "para_2251" }, { "text": "formulate federal common law in certain areas implicating", "paragraph_id": "para_2252" }, { "text": "“uniquely federal interests”).", "paragraph_id": "para_2253" }, { "text": "For example, federal courts may still generate common-", "paragraph_id": "para_2254" }, { "text": "law rules when “the policy of the law is so dominated by the", "paragraph_id": "para_2255" }, { "text": "sweep of federal statutes and doctrines developed under them", "paragraph_id": "para_2256" }, { "text": "that the legal relations they affect must be deemed governed by", "paragraph_id": "para_2257" }, { "text": "federal law.” Wright, Miller, & Cooper § 4514. Likewise, it can", "paragraph_id": "para_2258" }, { "text": "sometimes “be inferred from congressional or constitutional", "paragraph_id": "para_2259" }, { "text": "intent that the federal courts should supply the necessary rule", "paragraph_id": "para_2260" }, { "text": "of decision by pronouncing common law to fill the interstices", "paragraph_id": "para_2261" }, { "text": "of a pervasively federal substantive framework.” Id.", "paragraph_id": "para_2262" }, { "text": "To be sure, the “cases in which judicial creation of a", "paragraph_id": "para_2263" }, { "text": "special federal rule would be justified … are … ‘few and", "paragraph_id": "para_2264" }, { "text": "restricted.’” O’Melveny & Myers v. FDIC, 512 U.S. 79, 87", "paragraph_id": "para_2265" }, { "text": "(1994) (quoting Wheeldin v. Wheeler, 373 U.S. 647, 651", "paragraph_id": "para_2266" }, { "text": "(1963)). Before federal courts develop common-law rules, “a", "paragraph_id": "para_2267" }, { "text": "significant conflict between some federal policy or interest and", "paragraph_id": "para_2268" }, { "text": "the use of state law must first be specifically shown.” Atherton", "paragraph_id": "para_2269" }, { "text": "v. FDIC, 519 U.S. 213, 218 (1997) (quoting Wallis v. Pan Am.", "paragraph_id": "para_2270" }, { "text": "Petrol., 384 U.S. 63, 68 (1966)). But when that happens,", "paragraph_id": "para_2271" }, { "text": "federal courts no doubt have the power to create special federal", "paragraph_id": "para_2272" }, { "text": "common law, including choice-of-law rules.", "paragraph_id": "para_2273" }, { "text": "To recap: When Congress or federal courts validly", "paragraph_id": "para_2274" }, { "text": "promulgate some federal rule of decision under a source of", "paragraph_id": "para_2275" }, { "text": "constitutional authority, then federal law displaces contrary", "paragraph_id": "para_2276" }, { "text": "state law. Absent that kind of federal law, then the Rules of", "paragraph_id": "para_2277" }, { "text": "5", "paragraph_id": "para_2278" }, { "text": "Decision Act applies, which commands federal courts to apply", "paragraph_id": "para_2279", "court_paragraph": 5 }, { "text": "state rules of decision. Even after Erie, federal courts retain the", "paragraph_id": "para_2280" }, { "text": "power to promulgate special federal common-law rules when", "paragraph_id": "para_2281" }, { "text": "a strong federal interest requires such rules. Those cases,", "paragraph_id": "para_2282" }, { "text": "however, are rare.", "paragraph_id": "para_2283" }, { "text": "III. WHAT CHOICE-OF-LAW RULES GOVERN", "paragraph_id": "para_2284" }, { "text": "WHEN FEDERAL COURTS SIT IN BANKRUPTCY?", "paragraph_id": "para_2285" }, { "text": "This leaves our main questions: (1) Does Klaxon apply", "paragraph_id": "para_2286" }, { "text": "in federal bankruptcy litigation, and if so, (2) may federal", "paragraph_id": "para_2287" }, { "text": "courts ever use special federal common-law choice-of-law", "paragraph_id": "para_2288" }, { "text": "rules instead?", "paragraph_id": "para_2289" }, { "text": "The circuits are split. The Ninth Circuit limits Klaxon to", "paragraph_id": "para_2290" }, { "text": "diversity cases, and thus federal courts must apply federal", "paragraph_id": "para_2291" }, { "text": "choice-of-law principles in bankruptcy cases. In re Lindsay, 59", "paragraph_id": "para_2292" }, { "text": "F.3d 942, 948 (9th Cir. 1995).1 The Eighth Circuit has arguably", "paragraph_id": "para_2293" }, { "text": "held that Klaxon applies categorically in federal bankruptcy", "paragraph_id": "para_2294" }, { "text": "cases without exception. In re Payless Cashways, 203 F.3d", "paragraph_id": "para_2295" }, { "text": "1081, 1084 (8th Cir. 2000). I say “arguably” because that", "paragraph_id": "para_2296" }, { "text": "decision passes on the issue in a single conclusory sentence", "paragraph_id": "para_2297" }, { "text": "with no further analysis. It is thus hard to conclude that the", "paragraph_id": "para_2298" }, { "text": "1 The Fifth Circuit at one time took a similar view but seems", "paragraph_id": "para_2299" }, { "text": "more recently to have second-guessed whether it conclusively", "paragraph_id": "para_2300" }, { "text": "settled the question. Compare Wallace Lincoln-Mercury Co. v.", "paragraph_id": "para_2301" }, { "text": "Gentry, 469 F.2d 396, 400 n.1 (5th Cir. 1972) (“In this federal", "paragraph_id": "para_2302" }, { "text": "bankruptcy case the District Court is not obliged to use the", "paragraph_id": "para_2303" }, { "text": "choice-of-law methodology of the forum state, Louisiana.”),", "paragraph_id": "para_2304" }, { "text": "with Fishback Nursery, Inc. v. PNC Bank, N.A., 920 F.3d 932,", "paragraph_id": "para_2305" }, { "text": "935 (5th Cir. 2019) (“[I]t is an open question in this circuit as", "paragraph_id": "para_2306" }, { "text": "to whether courts exercising bankruptcy jurisdiction should", "paragraph_id": "para_2307" }, { "text": "apply forum or federal choice-of-law rules.”).", "paragraph_id": "para_2308" }, { "text": "6", "paragraph_id": "para_2309" }, { "text": "Eighth Circuit contemplated and rejected the possibility of", "paragraph_id": "para_2310", "court_paragraph": 6 }, { "text": "exceptions. Finally, the Second and Fourth Circuits have held", "paragraph_id": "para_2311" }, { "text": "that Klaxon applies in federal bankruptcy proceedings unless a", "paragraph_id": "para_2312" }, { "text": "strong federal interest justifies creating federal choice-of-law", "paragraph_id": "para_2313" }, { "text": "rules as a matter of federal common law. In re Merritt Dredging", "paragraph_id": "para_2314" }, { "text": "Co., 839 F.2d 203, 206 (4th Cir. 1988); In re Gaston & Snow,", "paragraph_id": "para_2315" }, { "text": "243 F.3d 599, 605–06 (2d Cir. 2001).", "paragraph_id": "para_2316" }, { "text": "I believe that the Second and Fourth Circuits have it", "paragraph_id": "para_2317" }, { "text": "right. The Ninth Circuit is wrong because Erie, and thus", "paragraph_id": "para_2318" }, { "text": "Klaxon, is not limited to federal diversity jurisdiction.", "paragraph_id": "para_2319" }, { "text": "Whenever federal courts encounter an issue whose resolution", "paragraph_id": "para_2320" }, { "text": "is not a matter of federal law, the Rules of Decision Act", "paragraph_id": "para_2321" }, { "text": "compels them to use state substantive law, which includes", "paragraph_id": "para_2322" }, { "text": "choice-of-law rules. If the Eighth Circuit held that Klaxon", "paragraph_id": "para_2323" }, { "text": "applies without exception in federal bankruptcy cases, it is", "paragraph_id": "para_2324" }, { "text": "wrong as well. Federal courts after Erie retain constitutional", "paragraph_id": "para_2325" }, { "text": "power to promulgate special federal common-law rules,", "paragraph_id": "para_2326" }, { "text": "including choice-of-law rules, when strong federal interests", "paragraph_id": "para_2327" }, { "text": "justify doing so. “Erie did not fence off a ‘local law field’", "paragraph_id": "para_2328" }, { "text": "constitutionally immune to federal influence; it was quite clear", "paragraph_id": "para_2329" }, { "text": "that exclusive state power takes up only where federal power", "paragraph_id": "para_2330" }, { "text": "leaves off.” John Hart Ely, The Irrepressible Myth of Erie, 87", "paragraph_id": "para_2331" }, { "text": "HARVARD L. REV. 693, 705 (1974).", "paragraph_id": "para_2332" }, { "text": "A. Erie and Klaxon Apply Outside General Diversity", "paragraph_id": "para_2333" }, { "text": "Jurisdiction.", "paragraph_id": "para_2334" }, { "text": "I believe it is wrong to conclude that Erie applies only", "paragraph_id": "para_2335" }, { "text": "in federal diversity cases. It applies to any “questions which", "paragraph_id": "para_2336" }, { "text": "arise in federal court but whose determination is not a matter", "paragraph_id": "para_2337" }, { "text": "of federal law.” Merritt Dredging, 839 F.2d at 206; see also", "paragraph_id": "para_2338" }, { "text": "Fagin v. Gilmartin, 432 F.3d 276, 285 n.2 (3d Cir. 2005)", "paragraph_id": "para_2339" }, { "text": "(Ambro, J.) (invoking Erie to apply New Jersey law in a federal", "paragraph_id": "para_2340" }, { "text": "securities-law case brought under federal-question", "paragraph_id": "para_2341" }, { "text": "7", "paragraph_id": "para_2342" }, { "text": "jurisdiction). Given the three-bucket framework I described", "paragraph_id": "para_2343", "court_paragraph": 7 }, { "text": "above, this makes sense. Without on-point federal law, the", "paragraph_id": "para_2344" }, { "text": "Rules of Decision Act governs. And that statute does not turn", "paragraph_id": "para_2345" }, { "text": "on the basis of federal jurisdiction. Erie applies just as much", "paragraph_id": "para_2346" }, { "text": "when a court is sitting in its federal-question or bankruptcy", "paragraph_id": "para_2347" }, { "text": "jurisdiction as it does in general diversity. See, e.g., United", "paragraph_id": "para_2348" }, { "text": "Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966) (applying", "paragraph_id": "para_2349" }, { "text": "Erie in pendent jurisdiction cases); Griffin v. McCoach, 313", "paragraph_id": "para_2350" }, { "text": "U.S. 498, 503 (1941) (applying Erie in interpleader cases).2", "paragraph_id": "para_2351" }, { "text": "If we accept that Erie applies whatever the basis of", "paragraph_id": "para_2352" }, { "text": "federal jurisdiction, then it does not take much more analysis", "paragraph_id": "para_2353" }, { "text": "to conclude that the same is true for Klaxon. Both Erie and", "paragraph_id": "para_2354" }, { "text": "Klaxon “make clear that federal law may not be applied to", "paragraph_id": "para_2355" }, { "text": "questions which arise in federal court but whose determination", "paragraph_id": "para_2356" }, { "text": "is not a matter of federal law.” Merritt Dredging, 839 F.2d at", "paragraph_id": "para_2357" }, { "text": "206. That includes in bankruptcy. As the Fourth Circuit", "paragraph_id": "para_2358" }, { "text": "explained, “[i]t would be anomalous to have the same property", "paragraph_id": "para_2359" }, { "text": "interest governed by the laws of one state in federal diversity", "paragraph_id": "para_2360" }, { "text": "2 Vanston Bondholders Protective Comm. v. Green suggests that", "paragraph_id": "para_2361" }, { "text": "federal courts have wide latitude to devise common-law", "paragraph_id": "para_2362" }, { "text": "choice-of-law rules in bankruptcy. 329 U.S. 156, 161–62", "paragraph_id": "para_2363" }, { "text": "(1946). When the Court decided that case, however, the Rules", "paragraph_id": "para_2364" }, { "text": "of Decision Act covered only common-law claims, and so it", "paragraph_id": "para_2365" }, { "text": "would not have applied to claims created by federal bankruptcy", "paragraph_id": "para_2366" }, { "text": "law. Clopton, supra, at 2205 n.76 (“For those who believe that", "paragraph_id": "para_2367" }, { "text": "the Rules of Decision Act plays an important role in Erie cases,", "paragraph_id": "para_2368" }, { "text": "that statute exclusively referred to common[-]law claims until", "paragraph_id": "para_2369" }, { "text": "two years after Vanston ….”). The Court’s mature Erie cases", "paragraph_id": "para_2370" }, { "text": "came only later. See, e.g., Day & Zimmermann, Inc. v.", "paragraph_id": "para_2371" }, { "text": "Challoner, 423 U.S. 3 (1975); Hanna, 380 U.S. 460; Byrd v.", "paragraph_id": "para_2372" }, { "text": "Blue Ridge Rural Elec., Inc., 356 U.S. 525, 537 (1958).", "paragraph_id": "para_2373" }, { "text": "8", "paragraph_id": "para_2374" }, { "text": "proceedings and by the laws of another state where a federal", "paragraph_id": "para_2375", "court_paragraph": 8 }, { "text": "court is sitting in bankruptcy.” Id.", "paragraph_id": "para_2376" }, { "text": "B. Federal Courts May Still Apply Federal Common-", "paragraph_id": "para_2377" }, { "text": "Law Choice-of-Law Rules in Bankruptcy Cases", "paragraph_id": "para_2378" }, { "text": "When Strong Federal Interests Warrant Doing So.", "paragraph_id": "para_2379" }, { "text": "Klaxon applies in bankruptcy proceedings when", "paragraph_id": "para_2380" }, { "text": "addressing state-law questions; that much we agree on. The", "paragraph_id": "para_2381" }, { "text": "sole remaining wrinkle is whether federal courts sitting in", "paragraph_id": "para_2382" }, { "text": "bankruptcy must always apply the forum state’s choice-of-law", "paragraph_id": "para_2383" }, { "text": "rules when the underlying issue is governed by state law. That", "paragraph_id": "para_2384" }, { "text": "is where I part with our concurring colleague. In Judge", "paragraph_id": "para_2385" }, { "text": "Krause’s view, federal courts sitting in bankruptcy jurisdiction", "paragraph_id": "para_2386" }, { "text": "can never create federal common-law choice-of-law rules for", "paragraph_id": "para_2387" }, { "text": "some combination of five reasons.3", "paragraph_id": "para_2388" }, { "text": "First, the Bankruptcy Code generally absorbs state laws", "paragraph_id": "para_2389" }, { "text": "to define the parties’ property interests, and so it follows that", "paragraph_id": "para_2390" }, { "text": "state choice-of-law rules must also apply. Conc. Op. 4–6.", "paragraph_id": "para_2391" }, { "text": "Second, the Bankruptcy Code is intended to facilitate the", "paragraph_id": "para_2392" }, { "text": "orderly resolution of competing creditors’ claims without", "paragraph_id": "para_2393" }, { "text": "significantly affecting their underlying entitlements, and", "paragraph_id": "para_2394" }, { "text": "federal choice-of-law rules, if allowed, could change the", "paragraph_id": "para_2395" }, { "text": "outcome. Id. at 6–9. Third, federal courts have limited power", "paragraph_id": "para_2396" }, { "text": "to make federal common law. Id. at 19–20. Fourth, if there", "paragraph_id": "para_2397" }, { "text": "were some reason to create a federal rule of decision in", "paragraph_id": "para_2398" }, { "text": "bankruptcy, federal courts would be better off creating a rule", "paragraph_id": "para_2399" }, { "text": "3 To avoid confusion on what follows, Judge Krause in part", "paragraph_id": "para_2400" }, { "text": "offers numbered reasons to extend Klaxon to the bankruptcy", "paragraph_id": "para_2401" }, { "text": "context. Those numbered reasons do not correspond to the", "paragraph_id": "para_2402" }, { "text": "numbered reasons I note below for why she believes federal", "paragraph_id": "para_2403" }, { "text": "courts in bankruptcy can never create special federal choice-", "paragraph_id": "para_2404" }, { "text": "of-law rules.", "paragraph_id": "para_2405" }, { "text": "9", "paragraph_id": "para_2406" }, { "text": "of decision rather than a choice-of-law rule. Id. at 19–21. And", "paragraph_id": "para_2407", "court_paragraph": 9 }, { "text": "fifth, any federal interest strong enough to generate a federal", "paragraph_id": "para_2408" }, { "text": "choice-of-law rule would be explicit in the Bankruptcy Code", "paragraph_id": "para_2409" }, { "text": "itself; the absence of choice-of-law rules in the Code means", "paragraph_id": "para_2410" }, { "text": "there is never any such interest. E.g. id. at 21.", "paragraph_id": "para_2411" }, { "text": "None of the first four arguments supports the claim that", "paragraph_id": "para_2412" }, { "text": "federal courts can never create choice-of-law rules in", "paragraph_id": "para_2413" }, { "text": "bankruptcy—they support only the lesser claim that state", "paragraph_id": "para_2414" }, { "text": "choice-of-law rules will almost always apply. As noted, I agree", "paragraph_id": "para_2415" }, { "text": "with that conclusion. My colleague’s fifth argument, however,", "paragraph_id": "para_2416" }, { "text": "is where we part, as the Supreme Court has recognized that", "paragraph_id": "para_2417" }, { "text": "even when bankruptcy otherwise looks to state law, sufficiently", "paragraph_id": "para_2418" }, { "text": "strong federal interests may warrant creating special federal", "paragraph_id": "para_2419" }, { "text": "common law.", "paragraph_id": "para_2420" }, { "text": "1. Bankruptcy typically absorbs state law.", "paragraph_id": "para_2421" }, { "text": "Our concurring colleagues observes, rightly, that federal", "paragraph_id": "para_2422" }, { "text": "courts sitting in bankruptcy “regularly look to governing non-", "paragraph_id": "para_2423" }, { "text": "bankruptcy law—often ‘state law’—to determine parties’", "paragraph_id": "para_2424" }, { "text": "‘rights and obligations when the Code does not supply a federal", "paragraph_id": "para_2425" }, { "text": "rule.’” Conc. Op. 4 (citation omitted). If federal courts in", "paragraph_id": "para_2426" }, { "text": "bankruptcy used special federal choice-of-law rules that", "paragraph_id": "para_2427" }, { "text": "differed from those of the forum state, then the parties’ choice", "paragraph_id": "para_2428" }, { "text": "of forum (or even the basis of federal jurisdiction) could", "paragraph_id": "para_2429" }, { "text": "change their primary rights.", "paragraph_id": "para_2430" }, { "text": "This is true, but it does not establish more than we", "paragraph_id": "para_2431" }, { "text": "already know—Klaxon should ordinarily apply in bankruptcy.", "paragraph_id": "para_2432" }, { "text": "That federal courts confronted with state-law questions should", "paragraph_id": "para_2433" }, { "text": "use state choice-of-law rules to avoid jurisdiction-shopping is", "paragraph_id": "para_2434" }, { "text": "not an interest unique to bankruptcy. Yet even federal courts", "paragraph_id": "para_2435" }, { "text": "sitting in diversity jurisdiction may theoretically formulate", "paragraph_id": "para_2436" }, { "text": "special federal common law to protect important federal", "paragraph_id": "para_2437" }, { "text": "10", "paragraph_id": "para_2438" }, { "text": "interests. See, e.g., Banco Nacional de Cuba v. Sabbatino, 376", "paragraph_id": "para_2439", "court_paragraph": 10 }, { "text": "U.S. 398 (1964) (applying act-of-state doctrine in diversity", "paragraph_id": "para_2440" }, { "text": "case). And when courts do so, neither Erie nor Klaxon prevents", "paragraph_id": "para_2441" }, { "text": "them from using those rules instead of state law.", "paragraph_id": "para_2442" }, { "text": "At most, that bankruptcy ordinarily absorbs state", "paragraph_id": "para_2443" }, { "text": "substantive law supports a background presumption that", "paragraph_id": "para_2444" }, { "text": "federal courts in bankruptcy will rarely have a good reason to", "paragraph_id": "para_2445" }, { "text": "create federal choice-of-law rules. It does not support the", "paragraph_id": "para_2446" }, { "text": "broader argument that federal courts can never create special", "paragraph_id": "para_2447" }, { "text": "choice-of-law rules in bankruptcy.", "paragraph_id": "para_2448" }, { "text": "2. Bankruptcy should rarely alter the parties’", "paragraph_id": "para_2449" }, { "text": "underlying entitlements.", "paragraph_id": "para_2450" }, { "text": "Our concurring colleague next cites “renowned", "paragraph_id": "para_2451" }, { "text": "scholars” endorsing the “‘creditors’[-]bargain’ theory,” which", "paragraph_id": "para_2452" }, { "text": "“conceptualizes bankruptcy’s primary role as a means to", "paragraph_id": "para_2453" }, { "text": "resolve the collective action problem posed by self-interested", "paragraph_id": "para_2454" }, { "text": "creditors who, absent a centralized insolvency resolution", "paragraph_id": "para_2455" }, { "text": "system, would engage in individual collection actions under", "paragraph_id": "para_2456" }, { "text": "applicable non-bankruptcy law.” Conc. Op. 6. On this view,", "paragraph_id": "para_2457" }, { "text": "bankruptcy ordinarily should not alter the parties’ underlying", "paragraph_id": "para_2458" }, { "text": "entitlements.", "paragraph_id": "para_2459" }, { "text": "I take no position on whether the creditors’-bargain", "paragraph_id": "para_2460" }, { "text": "theory is the best interpretation of the Bankruptcy Code as a", "paragraph_id": "para_2461" }, { "text": "whole. But even if it were, it would not provide an argument in", "paragraph_id": "para_2462" }, { "text": "support of the claim that federal courts sitting in bankruptcy", "paragraph_id": "para_2463" }, { "text": "lack the power to create federal choice-of-law rules. As above,", "paragraph_id": "para_2464" }, { "text": "this argument at most suggests that the circumstances are rare", "paragraph_id": "para_2465" }, { "text": "under which federal courts could justifiably create federal", "paragraph_id": "para_2466" }, { "text": "common law that affects the parties’ underlying rights and", "paragraph_id": "para_2467" }, { "text": "entitlements. Rare is not never. There may be times when the", "paragraph_id": "para_2468" }, { "text": "purpose of the Bankruptcy Code may be best served by special", "paragraph_id": "para_2469" }, { "text": "11", "paragraph_id": "para_2470" }, { "text": "federal choice-of-law rules. It may be unlikely that such a", "paragraph_id": "para_2471", "court_paragraph": 11 }, { "text": "circumstance would arise, but it strikes me as overconfident", "paragraph_id": "para_2472" }, { "text": "and unnecessary to disclaim the possibility once and for all.", "paragraph_id": "para_2473" }, { "text": "3. Federal common law is rare.", "paragraph_id": "para_2474" }, { "text": "Judge Krause next observes, again correctly, that “the", "paragraph_id": "para_2475" }, { "text": "creation of federal common law is appropriate only in", "paragraph_id": "para_2476" }, { "text": "‘situations where there is a significant conflict between some", "paragraph_id": "para_2477" }, { "text": "federal policy or interest and the use of state law.’” Conc.", "paragraph_id": "para_2478" }, { "text": "Op. 20 (quoting O’Melveny, 512 U.S. at 87). “‘[S]uch a", "paragraph_id": "para_2479" }, { "text": "conflict [is] a precondition for’ federal common law-making.”", "paragraph_id": "para_2480" }, { "text": "Id.", "paragraph_id": "para_2481" }, { "text": "Once again, the premise is true, but it does not support", "paragraph_id": "para_2482" }, { "text": "the conclusion. If anything, Judge Krause acknowledges that", "paragraph_id": "para_2483" }, { "text": "federal courts can create federal common-law rules when there", "paragraph_id": "para_2484" }, { "text": "is a sufficiently strong federal interest threatened by state law.", "paragraph_id": "para_2485" }, { "text": "As with her argument that bankruptcy should rarely change the", "paragraph_id": "para_2486" }, { "text": "parties’ underlying rights and interests, this argument mistakes", "paragraph_id": "para_2487" }, { "text": "rareness for impossibility. For common lawmaking to be rare,", "paragraph_id": "para_2488" }, { "text": "rather than impossible, courts must be able to do it in at least", "paragraph_id": "para_2489" }, { "text": "some cases.", "paragraph_id": "para_2490" }, { "text": "Judge Krause also appeals at times to separation-of-", "paragraph_id": "para_2491" }, { "text": "powers principles and cautions against leaving courts “to", "paragraph_id": "para_2492" }, { "text": "divine untold rules from some brooding cloud of federal", "paragraph_id": "para_2493" }, { "text": "interests.” Conc. Op. 10. But this misses the point. No one has", "paragraph_id": "para_2494" }, { "text": "suggested that federal courts can or should exercise", "paragraph_id": "para_2495" }, { "text": "freewheeling lawmaking power or identify federal interests", "paragraph_id": "para_2496" }, { "text": "without congressional guidance. See generally CoreCivic, Inc.", "paragraph_id": "para_2497" }, { "text": "v. Governor of N.J., 2025 WL 2046488 (3d Cir. July 22, 2025)", "paragraph_id": "para_2498" }, { "text": "(Ambro, J., dissenting) (rejecting that view). But Congress", "paragraph_id": "para_2499" }, { "text": "may express federal interests through statute—for example, the", "paragraph_id": "para_2500" }, { "text": "Bankruptcy Code—and courts may, in rare circumstances,", "paragraph_id": "para_2501" }, { "text": "12", "paragraph_id": "para_2502" }, { "text": "create federal common law to give effect to those", "paragraph_id": "para_2503", "court_paragraph": 12 }, { "text": "congressionally endorsed interests, particularly when applying", "paragraph_id": "para_2504" }, { "text": "state law would undermine Congress’s objectives.", "paragraph_id": "para_2505" }, { "text": "4. Federal courts should create substantive rules", "paragraph_id": "para_2506" }, { "text": "of decision instead of choice-of-law rules.", "paragraph_id": "para_2507" }, { "text": "Next, Judge Krause claims that it is hard to imagine a", "paragraph_id": "para_2508" }, { "text": "case involving a federal interest strong enough to justify", "paragraph_id": "para_2509" }, { "text": "federal common law, but not strong enough to justify a", "paragraph_id": "para_2510" }, { "text": "substantive rule of decision rather than a choice-of-law rule. In", "paragraph_id": "para_2511" }, { "text": "her view, “for the Second and Fourth Circuits’ approach to be", "paragraph_id": "para_2512" }, { "text": "correct, … a federal interest has to fall into the goldilocks", "paragraph_id": "para_2513" }, { "text": "zone.” Conc. Op. 20–21. Maybe so, but it will not surprise the", "paragraph_id": "para_2514" }, { "text": "reader to hear that this also is not an argument against the", "paragraph_id": "para_2515" }, { "text": "power of federal courts to create federal choice-of-law rules in", "paragraph_id": "para_2516" }, { "text": "bankruptcy. It is an argument for the claim that the", "paragraph_id": "para_2517" }, { "text": "circumstances when courts would need to do so are “few and", "paragraph_id": "para_2518" }, { "text": "restricted.” O’Melveny, 512 U.S. at 87 (quoting Wheeldin, 373", "paragraph_id": "para_2519" }, { "text": "U.S. at 651). Judicial humility cautions against making the", "paragraph_id": "para_2520" }, { "text": "sweeping claim, in the absence of a case or controversy before", "paragraph_id": "para_2521" }, { "text": "us, that no such interest can exist just because one has not", "paragraph_id": "para_2522" }, { "text": "presented itself.", "paragraph_id": "para_2523" }, { "text": "5. The Bankruptcy Code contains all relevant", "paragraph_id": "para_2524" }, { "text": "federal interests, and a choice-of-law rule is", "paragraph_id": "para_2525" }, { "text": "not among them.", "paragraph_id": "para_2526" }, { "text": "The only argument my colleague makes that", "paragraph_id": "para_2527" }, { "text": "theoretically supports her claim that federal courts can never", "paragraph_id": "para_2528" }, { "text": "develop choice-of-law rules in bankruptcy is that the", "paragraph_id": "para_2529" }, { "text": "Bankruptcy Code is a comprehensive and reticulated statutory", "paragraph_id": "para_2530" }, { "text": "regime whose text exhausts all potential federal interests that", "paragraph_id": "para_2531" }, { "text": "could justify federal common-law rules. The lack of special", "paragraph_id": "para_2532" }, { "text": "13", "paragraph_id": "para_2533" }, { "text": "choice-of-law rules in the Code means, in her view, that there", "paragraph_id": "para_2534", "court_paragraph": 13 }, { "text": "is no such interest.", "paragraph_id": "para_2535" }, { "text": "That premise is faulty because it would apply with equal", "paragraph_id": "para_2536" }, { "text": "strength to the power of federal courts to create substantive", "paragraph_id": "para_2537" }, { "text": "common-law rules in bankruptcy. Yet the Supreme Court has", "paragraph_id": "para_2538" }, { "text": "rejected that argument: “Property interests are created and", "paragraph_id": "para_2539" }, { "text": "defined by state law … [u]nless some federal interest requires", "paragraph_id": "para_2540" }, { "text": "a different result.” Butner v. United States, 440 U.S. 48, 55", "paragraph_id": "para_2541" }, { "text": "(1979) (emphasis added). If the Supreme Court has recognized", "paragraph_id": "para_2542" }, { "text": "that strong federal interests can sometimes allow federal courts", "paragraph_id": "para_2543" }, { "text": "to devise special rules of decision governing the parties’", "paragraph_id": "para_2544" }, { "text": "underlying property interests, I do not know why those", "paragraph_id": "para_2545" }, { "text": "interests could not also justify special choice-of-law rules.", "paragraph_id": "para_2546" }, { "text": "Judge Krause claims that Butner stands only for the", "paragraph_id": "para_2547" }, { "text": "limited proposition that a strong federal interest can justify a", "paragraph_id": "para_2548" }, { "text": "federal substantive rule, “not that this federal interest [could]", "paragraph_id": "para_2549" }, { "text": "favor[] one state law over others.” Conc. Op. 22. But Butner", "paragraph_id": "para_2550" }, { "text": "does not turn on the difference between substantive law and", "paragraph_id": "para_2551" }, { "text": "choice-of-law rules. It supports the broader principle that the", "paragraph_id": "para_2552" }, { "text": "selection of state rules of decision in bankruptcy must yield to", "paragraph_id": "para_2553" }, { "text": "overriding federal interests. On Judge Krause’s view, a", "paragraph_id": "para_2554" }, { "text": "sufficiently strong federal interest could warrant a federal", "paragraph_id": "para_2555" }, { "text": "substantive rule, but never a choice-of-law rule. The unstated", "paragraph_id": "para_2556" }, { "text": "assumption seems to be that there could not be a strong federal", "paragraph_id": "para_2557" }, { "text": "interest that would justify a federal choice-of-law rule that", "paragraph_id": "para_2558" }, { "text": "ultimately selects state substantive law instead of a federal", "paragraph_id": "para_2559" }, { "text": "substantive rule. But that assumption is also faulty. Federal", "paragraph_id": "para_2560" }, { "text": "courts can and do develop federal rules that select state", "paragraph_id": "para_2561" }, { "text": "substantive law. See, e.g., Kamen v. Kemper Fin. Servs., 500", "paragraph_id": "para_2562" }, { "text": "U.S. 90 (1991) (formulating federal common-law rule for", "paragraph_id": "para_2563" }, { "text": "demand futility in federal derivative actions that incorporates", "paragraph_id": "para_2564" }, { "text": "the corporate law of the state of incorporation); Semtek Int’l", "paragraph_id": "para_2565" }, { "text": "14", "paragraph_id": "para_2566" }, { "text": "Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001)", "paragraph_id": "para_2567", "court_paragraph": 14 }, { "text": "(formulating federal common-law rule for preclusion in", "paragraph_id": "para_2568" }, { "text": "general diversity actions and “adopting, as the federally", "paragraph_id": "para_2569" }, { "text": "prescribed rule of decision, the law that would be applied by", "paragraph_id": "para_2570" }, { "text": "state courts in the State in which the federal diversity court", "paragraph_id": "para_2571" }, { "text": "sits”).", "paragraph_id": "para_2572" }, { "text": "Judge Krause insists that cases like Kamen and Semtek", "paragraph_id": "para_2573" }, { "text": "are distinguishable because they involved “federal common", "paragraph_id": "para_2574" }, { "text": "law rules of decision—not choice-of-law rules—that", "paragraph_id": "para_2575" }, { "text": "incorporate the contents of state law.” Conc. Op. 23 n.10. But", "paragraph_id": "para_2576" }, { "text": "it is unclear how that distinction defends her central claim,", "paragraph_id": "para_2577" }, { "text": "which I understood to be that any federal interest strong", "paragraph_id": "para_2578" }, { "text": "enough to authorize federal common law can justify nothing", "paragraph_id": "para_2579" }, { "text": "less than a uniform substantive rule. If federal courts can", "paragraph_id": "para_2580" }, { "text": "sometimes formulate a rule of decision whose content absorbs", "paragraph_id": "para_2581" }, { "text": "the law of the defendant’s state of incorporation, then I do not", "paragraph_id": "para_2582" }, { "text": "understand why, at least in theory, they could not also", "paragraph_id": "para_2583" }, { "text": "formulate a choice-of-law rule that selects the law of the", "paragraph_id": "para_2584" }, { "text": "defendant’s state of incorporation.", "paragraph_id": "para_2585" }, { "text": "* * *", "paragraph_id": "para_2586" }, { "text": "It is worth stepping back to get a clear view of my", "paragraph_id": "para_2587" }, { "text": "concurring colleague’s argument. As I understand her, she", "paragraph_id": "para_2588" }, { "text": "does not believe Erie’s constitutional rule prohibits federal", "paragraph_id": "para_2589" }, { "text": "courts from developing special federal common law when the", "paragraph_id": "para_2590" }, { "text": "Constitution or federal statute authorizes them to do so. Nor", "paragraph_id": "para_2591" }, { "text": "does she believe that federal courts properly exercising their", "paragraph_id": "para_2592" }, { "text": "limited common-lawmaking authority lack the power to create", "paragraph_id": "para_2593" }, { "text": "a rule of decision that always incorporates the contents of state", "paragraph_id": "para_2594" }, { "text": "substantive law. At its core, her argument is merely that she", "paragraph_id": "para_2595" }, { "text": "cannot imagine a case in which a federal court would need to", "paragraph_id": "para_2596" }, { "text": "create a federal choice-of-law rule in bankruptcy. As she", "paragraph_id": "para_2597" }, { "text": "rightly notes, I cannot think of such a case either. Conc. Op. 27", "paragraph_id": "para_2598" }, { "text": "15", "paragraph_id": "para_2599" }, { "text": "n.11. But this is not an argument that federal courts lack the", "paragraph_id": "para_2600", "court_paragraph": 15 }, { "text": "authority to make choice-of-law rules in bankruptcy.", "paragraph_id": "para_2601" }, { "text": "IV. CONCLUSION", "paragraph_id": "para_2602" }, { "text": "We should not succumb to the “beguiling tendency” to", "paragraph_id": "para_2603" }, { "text": "make “[c]onflict-of-law problems … more complicated than", "paragraph_id": "para_2604" }, { "text": "they are.” Vanston, 329 U.S. at 169 (Frankfurter, J.,", "paragraph_id": "para_2605" }, { "text": "concurring). If Klaxon’s application in bankruptcy becomes an", "paragraph_id": "para_2606" }, { "text": "issue, then I would endorse the sensible, never-say-never", "paragraph_id": "para_2607" }, { "text": "approach of the Second and Fourth Circuits: Absent an", "paragraph_id": "para_2608" }, { "text": "“overwhelming federal policy [that] requires us to formulate a", "paragraph_id": "para_2609" }, { "text": "choice of law rule as a matter of independent federal judgment,", "paragraph_id": "para_2610" }, { "text": "we adopt the choice of law rule of the forum state.” Merritt", "paragraph_id": "para_2611" }, { "text": "Dredging, 859 F.2d at 206; see also Gaston, 243 F.3d at 607", "paragraph_id": "para_2612" }, { "text": "(“We necessarily limit our holding to cases where no", "paragraph_id": "para_2613" }, { "text": "significant federal policy, calling for the imposition of a federal", "paragraph_id": "para_2614" }, { "text": "conflicts rule, exists.”).", "paragraph_id": "para_2615" } ], "word_count": 22722, "cites": [ "324 U.S. 100", "523 U.S. 83", "546 U.S. 500", "535 U.S. 625", "598 U.S. 152", "596 U.S. 199", "568\nU.S. 145", "575 U.S. 402", "455 U.S. 385", "441 U.S. 471", "422 U.S. 66", "186 U.S.\n181", "522 U.S. 222", "557 U.S. 193", "598 U.S. 356", "326 U.S. 310", "444 U.S. 286", "592 U.S. 351", "553 U.S. 328", "571 U.S. 117", "564 U.S. 915", "306 U.S. 493", "457 U.S. 624", "456 U.S. 461", "545 U.S.\n429", "294\nU.S. 511", "440 U.S. 48", "313 U.S. 487", "304 U.S. 64", "3\nU.S. 48", "587 U.S. 370", "472 U.S. 797", "313 U.S. 498", "511 U.S. 531", "546 U.S. 356", "304 U.S. 502", "603 U.S. 204", "503 U.S. 249", "596 U.S. 464", "440 U.S. 715", "451\nU.S. 630", "596 U.S.\n107", "433 U.S. 25", "369 U.S. 1", "512 U.S. 79", "329 U.S. 156", "580 U.S. 451", "412 U.S. 580", "462 U.S. 151", "589 U.S. 132", "531 U.S. 497", "373 U.S. 647", "384 U.S. 63", "598 U.S. 69", "530 U.S. 15", "318 U.S. 363", "549 U.S. 443", "601 U.S. 42", "500 U.S. 90", "463 U.S. 1", "390 U.S. 557", "481 U.S. 58", "539 U.S. 1", "382 U.S. 111", "487 U.S. 500", "520 U.S. 681", "424 U.S. 1", "514 U.S. 779", "589 U.S. 191", "575\nU.S. 320", "29\nU.S. 677", "567 U.S. 387", "330 U.S.\n386", "543 U.S. 14", "304 U.S. 92", "376 U.S. 398", "592 U.S. 169", "440 U.S. 740", "296 U.S. 268", "320 U.S. 430", "294 U.S. 532", "342 U.S. 396", "341 U.S. 609", "470 U.S. 869", "330 U.S. 469", "345 U.S. 514", "470 U.S. 274", "483 U.S. 232", "334 U.S.\n385", "436 U.S. 371", "292\nU.S. 230", "252 U.S.\n553", "449 U.S. 302", "299\nU.S. 178", "281 U.S. 397", "486 U.S. 717", "364 U.S. 603", "494 U.S. 516", "376 U.S. 612", "380 U.S. 460", "518 U.S. 415", "480 U.S. 1", "487\nU.S. 500", "519 U.S. 213", "383 U.S. 715", "313\nU.S. 498", "423 U.S. 3", "356 U.S. 525", "376\nU.S. 398", "500\nU.S. 90", "740 F.3d 875", "145 F.3d 124", "85 F.3d 661", "891 F.3d\n198", "765 F.3d\n306", "938 F.3d 453", "968 F.3d\n273", "296\nF.3d 164", "855 F.3d 84", "884\nF.2d 688", "140 F.3d 463", "91 F.3d 389", "554 F.3d 382", "968 F.3d 273", "203 F.3d 1081", "104 F.3d 200", "59 F.3d 942", "469 F.2d 396", "920 F.3d 932", "839 F.2d 203", "243\nF.3d 599", "137\nF.4th 126", "492 F.3d 829", "628 F.3d 631", "810 F.2d 397", "555 F.2d 1131", "84 F.4th 481", "865 F.3d 417", "194\nF.3d 1089", "129 F.3d 143", "96 F.3d 1151", "883 F.2d 345", "757 F.2d 440", "722 F.2d 42", "62 F.3d 1454", "946 F.3d 66", "38 F.4th 361", "805\nF.3d 428", "120 F.4th 1181", "234 F.2d 538", "296 F.3d 164", "59\nF.3d 942", "203 F.3d\n1081", "243 F.3d 599", "432 F.3d 276" ], "cited_by": [], "sha256": "a52ba6d9d4b695f8b2e5f5d1d14304eaabca76cde58ca4d9107d48162ac86ae8", "source_url": "https://www2.ca3.uscourts.gov/opinarch/242210p.pdf", "fetched_at": "2026-10-01T14:44:32.456+00:00", "canonical": "https://legal.exploreworldai.com/ai/judgments/us/ca3-24-2210-2026-04-27", "risk_graph": "https://legal.exploreworldai.com/api/public/v1/risk?id=us:ca3-24-2210-2026-04-27", "relations_graph": "https://legal.exploreworldai.com/api/public/v1/relations?id=us:ca3-24-2210-2026-04-27", "changes": "https://legal.exploreworldai.com/api/public/v1/us-praxis/changes", "agent": "https://legal.exploreworldai.com/api/public/v1/us-praxis/agent?id=us:ca3-24-2210-2026-04-27", "verification": { "stored_sha256": "a52ba6d9d4b695f8b2e5f5d1d14304eaabca76cde58ca4d9107d48162ac86ae8", "recomputed_sha256": "a52ba6d9d4b695f8b2e5f5d1d14304eaabca76cde58ca4d9107d48162ac86ae8", "intact": true, "checked_at": "2026-10-13T19:12:00.586Z" } }, "hash": "sha256:e8cb5dd2a714bc38c0ad5175107e1d1dfe03391aa3f833af19c636640902fedb", "version": "legal-2026-10-13", "expires": "2026-10-14T00:00:00.000Z", "dependency": { "index_version": "legal-2026-10-13+legal-2026-10-13+2026-10-13T18:10:15", "content_hash": "sha256:e8cb5dd2a714bc38c0ad5175107e1d1dfe03391aa3f833af19c636640902fedb", "revalidate_after": "2026-10-13T20:12:00.808Z", "max_copy_age_seconds": 3600, "policy": "revalidate-required; 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