Document Type
Research Memorandum
Publication Date
2014
Abstract
(Excerpt)
In a chapter 11 bankruptcy proceeding, a troubled company can either restructure or liquidate through a confirmed chapter 11 plan. To encourage more participation in reorganization cases, courts have broadly interpreted section 1109(b) of the Bankruptcy Code, which determines who may object to a plan. Section 1109(b) states that “a party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.” A party wishing to object to a plan must also satisfy Article III standing, which courts have held is “effectively coextensive” with the party in interest standard under section 1109(b). Mainly, parties wishing to object must demonstrate sufficient injury. The Third Circuit recently clarified the Article III sufficient injury requirement and stated that a party “must demonstrate an injury in fact that is concrete, distinct and palpable, and actual or imminent.”
Recently, in In re W.R. Grace, the Third Circuit denied a party’s objection to a proposed reorganization plan because the court held that the party lacked standing under Article III. The party in In re Grace hoped to assert contribution and setoff rights by demonstrating standing based on its substantial asbestos-related liability in connection with manufacturing and distributing construction chemicals. As stated above, courts require a party wishing to object to a plan to satisfy Section 1109(b)’s “party in interest” requirement and traditional Article III standing since the two are coextensive. Therefore, a party must demonstrate sufficient injury. The court noted that the party’s alleged injury was contingent on events that may never occur, therefore making it more “conjectural or hypothetical” than “actual or imminent.” The court found that the possibility of future personal injury claims did not satisfy standing because the party would not be entitled to contribution or set off claims unless those future lawsuits procured judgments or settlements.
This Article is separated into three parts. Part I discusses basic Constitutional and bankruptcy standing requirements. Part II discusses the holding in In re W.R. Grace and how the Third Circuit distinguished In re W.R. Grace from a previous ruling. Part III discusses future issues likely to arise from the W.R. Grace decision.