In re: CONGOLEUM CORPORATION, et al.

Summarized by Jonathan Batiste , Rensselaer Polytechnic Institute
6 months 1 week ago

Case Type:

Business

Case Status:

Reversed

Citation:

No. 23-1295 (3rd Circuit, Aug 22,2025) Published

Tag(s):

Ruling:

The circuit court affirmed the bankruptcy court’s decision to reopen Debtor’s bankruptcy case and to hold that Creditor could not recover against Appellant for environmental claims, reversing the district court’s reversal of the bankruptcy court’s decision. Bankruptcy courts can reopen proceedings to interpret and enforce district court orders made during bankruptcy cases. The identities of presiding judges cannot be jurisdictional prerequisites. The doctrine of res judicata barred Creditor from relitigating whether Appellant took on Debtor’s environmental liability.

Procedural context:

Debtor filed for bankruptcy and had a plan of reorganization confirmed. Debtor then filed for bankruptcy a second time after being sued. Appellant filed an adversary proceeding in that case. Creditor sued Appellant, and Appellant moved to reopen Debtor’s original bankruptcy case. Creditor appealed the bankruptcy court’s decision after it decided in favor of Appellant and reopened the bankruptcy case. The district court decided in favor of Creditor and reversed the bankruptcy court’s decision. Appellant then appealed the district court’s decision to the circuit court.

Facts:

Congoleum (“Debtor”) operated a flooring business in Kearny, New Jersey, since 1886. Bath Iron Works Corporation (“Appellant”) was a former corporate sibling of Debtor and operated a shipbuilding facility in Maine since 1884. Debtor’s business manufactured products containing asbestos, leading to mass asbestos-related personal injury claims and to Debtor’s bankruptcy in 2003. Debtor and one of its insurers agreed to a settlement whereby the insurer bought back its insurance policies in exchange for an injunction barring any future claims related to the policies. The settlement required Debtor to submit a declaration stating that Appellant was not responsible for any liabilities and that Debtor held sole responsibility. A plan of reorganization for Debtor was then submitted and confirmed in 2010. The plan detailed that it did not release any party from liability under environmental law. It also stated that Appellant had no responsibility for any of Debtor’s liabilities. Occidental Chemical Corporation (“Creditor”) was served with various documents and received notice of the confirmation hearing, but it did not appear at the hearing. The bankruptcy case was closed after the confirmation of the plan. Debtor was sued for environmental contamination seven years later and decided to assert that Appellant was responsible for the contamination, contradicting its previous position. Creditor followed suit and sued Appellant, seeking contribution for the cost of remediating the environmental contamination. Debtor filed for bankruptcy a second time in 2020. Appellant then filed an adversary proceeding against Debtor, seeking a declaration that Debtor was barred from claiming that Appellant inherited any liabilities from Debtor. The court granted Appellant’s motion for summary judgment, holding that Appellant was not responsible for the liabilities. Debtor then agreed to dismiss its claim against Appellant in June 2021. Appellant further asked Creditor to dismiss its claims against Appellant, but Creditor refused and filed for summary judgment in August 2021. Appellant then moved to reopen the original bankruptcy case and for an order holding that it was not responsible for any of Debtor’s liabilities. The bankruptcy judge presiding over the second bankruptcy reopened the first case and held that the settlement was binding on Creditor. Creditor appealed the court decision to the district court, and the district court reversed it. Appellant then appealed the district court’s decision to the circuit court, which first affirmed the judgment and then granted a petition for panel rehearing at Appellant’s request. The circuit court found that Appellant’s motion to reopen the bankruptcy case and interpret a provision of the confirmed plan was a core proceeding. Impact on bankruptcy estates or the administration of debtors’ assets are factors, but not prerequisites for reopening bankruptcy cases under 11 U.S.C. § 350(b). The court found that Appellant did not prejudicially delay Creditor by moving to reopen the bankruptcy case about one month after Creditor communicated its intent to continue litigation against Appellant. Therefore, the bankruptcy court did not abuse its discretion when it reopened the bankruptcy case. The record established that Creditor was properly served and had adequate notice. The bankruptcy court properly rejected Creditor’s argument that the provision determining Appellant’s liability was an impermissive third-party release. The provision was a determination that Appelant had no liability; it was not a release of existing liability. The provision was not an advisory opinion because it resulted from a live controversy. Judge Matey issued a dissent, arguing that the bankruptcy court would be usurping the prerogative of Article III courts. Judge Matey asserted that the majority’s decision stymies district court constitutional and statutory authority.

Judge(s):

Chagares, Matey, and Chung

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