- 9th Circuit Court of Appeals, No. 10-56543
- Affirms the District Court's ruling that the Plan preempts Appellants state law claim for enforcement of contract rights. Reverses the District Court's ruling that Appellants lacked standing to challenge the plan. The court found that Section 541(c) expressly preempts the state law contractual rights (anti-assignment provisions). Additionally, if it were not expressly preempted, the preemption of contractual rights would be implied, as enforcing them would defeat Congresses purpose for a Section 524(g) plan. The court held that Appellants have standing under three theories: (1) as a "party in interest," under Section 1109(b); (2) under Article III, as a party suffering an injury in fact stemming from the challenged action that is likely to be redressed by a favorable decision, as Appellants have an appropriate incentive for such an appeal in the bankruptcy context; and (3) under the doctrine of Federal Prudential Standing, as Appellants are parties in the "zone of interest," which is equivalent to the statutory standing of Section 1109(b).
- Procedural context:
- The district court affirmed the bankruptcy court's confirmation of a plan of reorganization under 11 U.S.C. 524(g). The district court held that the plan is insurance neutral, and that Appellants therefore lacked standing to object to the plan. The district court also held that the plan preempts the state law contract rights of Appellants.
- The plan of reorganization includes three injunctions under Section 524: (1) the "Channeling Injunction," which bars assertion of asbestos-related claims against protected parties, and allows such claims to be made only against the trust established by the plan; (2) the "Settling Asbestos Insurer Injunction," which prevents non-settling insurers from asserting contribution claims against the settling insurers (Appellants are non-settling insurers); and (3) the "Asbestos Insurer Injunction," which prohibits action against the asbestos insurers without permission of the trust, which may not allow such actions unless the claimants agree to the judgment reduction binding on the trust before proceeding against non-settling insurers. The plan assigns Debtors' insurance rights to the trust, including policies with the non-settling insurers. The plan states that it is "insurance neutral" and preserves all "Asbestos Insurance Defenses." However, contradictorily, the plan provides four exceptions to the defenses. The bankruptcy court affirmed the plan, without giving Appellants the opportunity to be heard fully on all relevant issues.
- Mary M. Schroeder and Ronald M. Gould, Circuit Judges, and Richard Seeborg, District Judge (N.D. Cal.). Opinion by Judge Gould.
IN RE: JOHN FLISS
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