2014 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

1-24-2014

In Re: Emoral, Inc.

Precedential or Non-Precedential: Precedential

Docket 13-1467

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"In Re: Emoral, Inc. " (2014). 2014 Decisions. Paper 98.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 13-1467

_____________

In re: EMORAL, INC.,

 Debtor

DIACETYL PLAINTIFFS,

 Appellants

______________

APPEAL FROM THE UNITED STATES DISTRICT 

COURT FOR THE DISTRICT OF NEW JERSEY

(D.C. Civil No. 2-12-cv-07085)

District Judge: Honorable Stanley R. Chesler

____________

Argued: October 10, 2013

____________

Before: FUENTES, COWEN and BARRY, Circuit Judges

(Opinion Filed: January 24, 2014)

____________

Nancy Isaacson, Esq. (Argued)

Greenbaum, Rowe, Smith & Davis

75 Livingston Avenue

Suite 301

Roseland, NJ 07068

Kenneth B. McClain, Esq.

Humphrey, Farrington & McClain

221 West Lexington

P.O. Box 900, Suite 400

Independence, MO 64051-0000

Counsel for Appellants
2

Christopher Landau, Esq. (Argued)

Liam P. Hardy, Esq.

Kirkland & Ellis

655 15th Street, N.W.

Suite 1200

Washington, DC 20005

Paul Basta, Esq.

Kirkland & Ellis

601 Lexington Avenue

New York, NY 10022

Counsel for Appellee

____________

OPINION OF THE COURT

____________

BARRY, Circuit Judge

This appeal requires us to determine whether personal 

injury causes of action arising from the alleged wrongful 

conduct of a debtor corporation, asserted against a third-party 

non-debtor corporation on a “mere continuation” theory of 

successor liability under state law, are properly characterized 

as “generalized claims” constituting property of the 

bankruptcy estate. We conclude that they are, and will, 

therefore, affirm the order of the District Court. 

I.

In August of 2010, Aaroma Holdings LLC 

(“Aaroma”), f/k/a Duane Street, LLC, purchased certain 

assets and assumed certain liabilities of Emoral, Inc. 

(“Emoral”), f/k/a Polarome International, Inc., a manufacturer 

of diacetyl, a chemical used in the food flavoring industry. At 

the time of the transaction, the parties were aware of potential 

claims against Emoral arising from exposure to diacetyl, 

although those individuals who came to be known in this 

litigation as the “Diacetyl Claimants” or the “Diacetyl 

Plaintiffs” (herein, “Diacetyl Plaintiffs”) apparently had never 
3

themselves been employed by Emoral. The Asset Purchase 

Agreement specifically provided that Aaroma was not 

assuming Emoral’s liabilities related to “the Diacetyl 

Litigation,” and that it was not purchasing Emoral’s 

corresponding insurance coverage. (App. at 326-27.)

When Emoral filed for bankruptcy protection in June 

of 2011, disputes arose between the bankruptcy trustee (the 

“Trustee”) and Aaroma, including, for example, the Trustee’s 

claim that Emoral’s sale of assets to Aaroma constituted a 

fraudulent transfer. On September 21, 2011, the Trustee and 

Aaroma entered into a Settlement Agreement (the 

“Agreement”) resolving the claims. As part of the 

Agreement, Aaroma agreed to pay $500,000 and take certain 

specific actions, and the Trustee agreed to release Aaroma 

from any “causes of action . . . that are property of the 

Debtor’s Estate” as of the date of the Agreement. (Id. at

1079-80.) 

At a hearing before the Bankruptcy Court regarding 

approval of the settlement, the Diacetyl Plaintiffs objected to 

the releases contained in the Agreement to the extent that 

those releases might bar them from bringing claims against 

Aaroma, as a successor to Emoral, for personal injuries 

related to diacetyl. A representative for the Trustee stated its 

view that the Diacetyl Plaintiffs’ successor liability claims

against Aaroma “do[] not belong to the Estate” and that the 

Trustee, therefore, “can’t release [them].”1

 (Id. at 1277.) 

Counsel for Aaroma argued, however, that whether or not the 

Diacetyl Plaintiffs’ causes of action were property of the 

estate (and therefore covered by the release) was not an issue 

before the Bankruptcy Court at that time. (Id. at 1280-81.) 

Ultimately, the parties added the following language to the 

order approving the settlement to address concerns expressed 

by the Diacetyl Plaintiffs: “Nothing contained in this Order 

or in the Aaroma Settlement Agreement will operate as a 

 1 The Trustee’s representative stated: “I would like to sell 

someone the Brooklyn Bridge, but I don’t own it so I can’t 

sell it. I cannot, the Trustee cannot release claims that he 

doesn’t own. It was never contemplated that he would be 

releasing claims he doesn’t own.” (Id. at 1278.)
4

release of, or a bar to prosecution of any claims held by any 

person which do not constitute Estate’s Released Claims as 

defined in the Aaroma Settlement Agreement.” (Id. at 1206, 

1355.) By order of October 7, 2011, the Bankruptcy Court 

approved the settlement. The ultimate question, however, of 

whether the Diacetyl Plaintiffs’ causes of action constituted 

“Estate’s Released Claims,” as defined in the Agreement, was 

not resolved. 

The Diacetyl Plaintiffs filed individual complaints

against Aaroma in the Superior Court of New Jersey (see, 

e.g., id. at 1227-45) alleging personal injury and product 

liability claims and asserting that Aaroma was a “mere 

continuation” of Emoral and, therefore, liable. (Id. at 1233.) 

In April 2012, Aaroma filed in the Bankruptcy Court a 

“Motion to Enforce Court Order Approving Settlement with 

Bankruptcy Trustee and Compelling Dismissal of State Court 

Actions,” arguing that the Diacetyl Plaintiffs’ claims were 

barred by the Agreement’s language as to release. The 

Diacetyl Plaintiffs opposed the motion, arguing that it was the 

understanding of the parties that their claims were not 

released under the Agreement. (Id. at 1324-26.) They cited, 

for example, the statement made on behalf of the Trustee

during the hearing before the Bankruptcy Court prior to the 

approval of the settlement that their claims “do[] not belong 

to the Estate” and that the Trustee, therefore, “can’t release 

[them].” (Id.) In the motion to enforce the order approving 

the settlement, however, the Trustee did not take a position, 

stating that it was an issue of law for the Bankruptcy Court to 

determine. (Id. at 1341.) 

Following oral argument, the Bankruptcy Court, in a 

lengthy opinion, denied Aaroma’s motion, holding that the 

Diacetyl Plaintiffs’ personal injury causes of action were not 

property of the estate because the Diacetyl Plaintiffs alleged 

“a particular injury not generalized injury suffered by all 

shareholders or creditors of Emoral.” (Id. at 1387.) The 

Bankruptcy Court stated that “While successor liability has 

been imposed derivatively, this Court finds that the 

underlying injury that is alleged to be the basis and premise of 

the state court actions is personal harm . . . to the individual 

plaintiffs” and that “Emoral has not suffered any personal 
5

harm nor have the creditors as a general whole.” (Id.) 

Aaroma appealed to the District Court, and the District 

Court reversed, emphasizing that the Diacetyl Plaintiffs had 

no cause of action against Aaroma (which, it was not 

disputed, neither manufactured nor sold diacetyl) except on a 

successor liability theory. (Id. at 7-8.) The District Court 

held that the cause of action for successor liability was a 

“generalized” claim belonging to the estate because the facts 

giving rise to the cause of action were not specific to the 

Diacetyl Plaintiffs but common to all creditors, and because, 

if the Diacetyl Plaintiffs were to succeed in establishing that 

Aaroma constituted a “mere continuation” of Emoral, this 

would benefit the creditors of Emoral generally. (Id. at 7-9.) 

It stated: 

[T]he potential liability of Aaroma to the 

Diacetyl Plaintiffs does not arise out of the 

alleged misfeasance of Aaroma as to these 

creditors individually but rather out of its 

alleged continuation of the general business 

operation of the actual alleged wrongdoer, 

Emoral. Put slightly differently, for purposes of 

determining whether the cause of action belongs 

to the Estate, the critical distinction between the 

personal injury claim against Emoral and the 

successor liability claim against Aaroma is that 

establishing the former would benefit only the 

allegedly injured Diacetyl Plaintiffs whereas 

establishing the latter -- that Aaroma is the 

“mere continuation” of Emoral and thus should 

be charged with all its liabilities – would benefit 

creditors of Emoral generally.

(Id. at 8-9.) Accordingly, the District Court reversed and 

remanded to the Bankruptcy Court for entry of an order

consistent with the District Court’s opinion. The Diacetyl 

Plaintiffs now appeal, arguing that they have standing to 

assert their personal injury causes of action against Aaroma,

and that the District Court erred in conflating these claims 

with their successor liability theory. 
6

II.

We have jurisdiction to review the order of the District 

Court pursuant to 28 U.S.C. §§ 158(d) and 1291. The District 

Court had jurisdiction to review the Bankruptcy Court’s 

decision pursuant to 28 U.S.C. § 158(a). We “exercise the 

same standard of review as the District Court when it 

reviewed the original appeal from the Bankruptcy Court,”

and, thus, review the Bankruptcy Court’s factual findings 

under a clearly erroneous standard and exercise plenary 

review over legal issues. In re Rodriguez, 629 F.3d 136, 138 

(3d Cir. 2010) (quoting In re Handel, 570 F.3d 140, 141 (3d 

Cir. 2009)). 

III.

The basic legal framework applicable to this case is 

not in dispute. After a company files for bankruptcy, 

“creditors lack standing to assert claims that are ‘property of 

the estate.’” Bd. of Trustees of Teamsters Local 863 Pension 

Fund v. Foodtown, Inc., 296 F.3d 164, 169 (3d Cir. 2002). 

The “estate,” as defined in the Bankruptcy Code, includes “all 

legal or equitable interests of the debtor in property as of the 

commencement of the case.” 11 U.S.C. § 541(a)(1). This 

includes causes of action, which are considered property of 

the bankruptcy estate “if the claim existed at the 

commencement of the filing and the debtor could have 

asserted the claim on his own behalf under state law.” 

Foodtown, 296 F.3d at 169 n.5. In order for a cause of action 

to be considered “property of the estate,” 

the claim must be a “general one, with no 

particularized injury arising from it.” On the 

other hand, if the claim is specific to the 

creditor, it is a “personal” one and is a legal or 

equitable interest only of the creditor. A claim 

for an injury is personal to the creditor if other 

creditors generally have no interest in that 

claim.

Id. at 170 (citing St. Paul Fire & Marine Ins. Co. v. PepsiCo, 

Inc., 884 F.2d 688, 701 (2d Cir. 1989) and Koch Refining v. 
7

Farmers Union Cent. Exch., Inc., 831 F.2d 1339, 1348-49 

(7th Cir. 1987)). 

A cause of action that is “property of the estate” is 

properly pursued by the bankruptcy trustee because it inures 

to the benefit of all creditors. This promotes the orderly 

distribution of assets in bankruptcy, and comports with “the 

fundamental bankruptcy policy of equitable distribution to all 

creditors that should not be undermined by an individual 

creditor’s claim.” Koch Refining, 831 F.2d at 1344. As the 

Second Circuit has held, when examining “common claims 

against the debtor’s alter ego or others who have misused the 

debtor’s property in some fashion,” where a claim is “a 

general one, with no particularized injury arising from it, and 

if that claim could be brought by any creditor of the debtor, 

the trustee is the proper person to assert the claim, and the 

creditors are bound by the outcome of the trustee’s action.” 

St. Paul Fire & Marine Ins. Co., 884 F.2d at 701. 

To determine whether the Diacetyl Plaintiffs’ cause of 

action against Aaroma constitutes property of Emoral’s 

bankruptcy estate, we must examine the nature of the cause of 

action itself. While the Diacetyl Plaintiffs focus on the 

individualized nature of their personal injury claims against 

Emoral, we cannot ignore the fact, and fact it be, that their 

only theory of liability as against Aaroma, a third party that is 

not alleged to have caused any direct injury to the Diacetyl 

Plaintiffs, is that, as a matter of state law, Aaroma constitutes 

a “mere continuation” of Emoral such that it has also 

succeeded to all of Emoral’s liabilities. 

The parties do not dispute that under both New Jersey 

and New York state law,

2 an acquiring company is generally 

“not liable for the debts and liabilities of the selling company 

simply because it has succeeded to ownership of the assets of 

the seller,” except in limited circumstances. Lefever v. K.P. 

Hovnanian Enters., Inc., 160 N.J. 307, 310 (N.J. 1999). One 

 2 There is no dispute that either New Jersey or New York law 

applies and that the two states’ relevant applicable legal 

standards are identical, rendering a choice-of-law analysis 

unnecessary. 
8

exception to the general rule against successor liability is 

where the purchasing company “is a mere continuation of the 

seller.” Id. To establish liability based on a “mere 

continuation” theory, as the Diacetyl Plaintiffs seek to do 

against Aaroma, a plaintiff must “establish that there is 

continuity in management, shareholders, personnel, physical 

location, assets and general business operation between 

selling and purchasing corporations following the asset 

acquisition.” Ramirez v. Amsted Indus., Inc., 86 N.J. 332, 

342 (N.J. 1981). 

The Diacetyl Plaintiffs fail to demonstrate how any of 

the factual allegations that would establish their cause of 

action based on successor liability are unique to them as 

compared to other creditors of Emoral. Likewise, they fail to 

demonstrate how recovery on their successor liability cause 

of action would not benefit all creditors of Emoral given that

Aaroma, as a mere continuation of Emoral, would succeed to 

all of Emoral’s liabilities. Thus, the Diacetyl Plaintiffs’ cause 

of action against Aaroma is “general” rather than 

“individualized.” See Foodtown, 296 F.3d at 169-70. 

Although we have not before squarely addressed this 

issue, other courts applying New York and New Jersey law 

have held that state law causes of action for successor 

liability, just as for alter ego and veil-piercing causes of 

action, are properly characterized as property of the 

bankruptcy estate. In In re Keene Corp., 164 B.R. 844, 849 

(Bankr. S.D.N.Y. 1994), for example, plaintiffs alleged that 

they had claims for asbestos-related injuries against Keene, 

the debtor corporation, and brought various lawsuits against 

certain third-party non-debtor defendants, alleging that Keene 

wrongfully transferred assets to those defendants which 

prevented plaintiffs from collecting damages from Keene. 

164 B.R. at 848. Invoking successor liability, plaintiffs

argued that by acquiring the assets of Keene, defendants also 

assumed the asbestos-related liabilities. The court, applying 

New York law with respect to successor liability, held that 

plaintiffs’ causes of action constituted property of the estate: 

[T]he remedy against a successor corporation 

for the tort liability of the predecessor is, like 
9

the piercing remedy, an equitable means of 

expanding the assets available to satisfy creditor 

claims. The class action plaintiffs that invoke it 

allege a general injury, their standing depends 

on their status as creditors of Keene, and their 

success would have the effect of increasing the 

assets available for distribution to all creditors.

Id. at 853. Accordingly, the court held that the successor 

liability causes of action should be asserted by the trustee on 

behalf of all creditors. 

Likewise, in In re Buildings by Jamie, Inc., 230 

B.R.36, 43 (Bankr. D.N.J. 1998), the court, applying New 

Jersey law, concluded that a debtor’s individual creditors 

lacked standing to bring an alter ego veil-piercing cause of 

action seeking recovery from non-debtor third-party 

defendants, because that cause of action constituted property 

of the bankruptcy estate. It held that because New Jersey law 

permits a corporation to pierce its own veil and because 

recovery on the alter ego claim would benefit the estate as a 

whole,3 the cause of action was “properly characterized as a 

general claim as to which the trustee alone has standing as 

representative of the estate.” 230 B.R. at 44. The court 

discussed our holding in Phar-Mor, Inc. v. Coopers & 

Lybrand, 22 F.3d 1228, 1240 n.20 (3d Cir. 1994), in which 

we observed that it “may seem strange” to allow a 

corporation to pierce its own veil, “since it cannot claim to be 

either a creditor that was deceived or defrauded by the 

corporate fiction, or an involuntary tort creditor.” Id. 

However, we recognized that, in New Jersey and in other 

states, “piercing the corporate veil and alter ego actions are 

allowed to prevent unjust or inequitable results; they are not 

based solely on a policy of protecting creditors.” Id. Thus, 

because a veil-piercing cause of action is “based upon 

preventing inequity or unfairness, it is not incompatible with 

the purposes of the doctrine[] to allow a debtor corporation to 

 3 In Buildings by Jamie, there was no question that recovery 

on the alter ego claim “would necessarily inure to the benefit 

of all creditors,” because the plaintiff creditors constituted the 

entire body of creditors. 230 B.R. at 44. 
10

pursue a claim based upon such a theory.” Id.

As we observed in Phar-Mor, so, too, here it “may 

seem strange” to hold that a cause of action for successor 

liability against Aaroma is property of Emoral’s bankruptcy 

estate. As a practical matter, it is difficult to imagine a 

factual scenario in which a solvent Emoral, outside of the 

bankruptcy context, would or could bring a claim for 

successor liability against Aaroma. See Buildings by Jamie, 

230 B.R. at 42 (similarly acknowledging in the veil-piercing 

context that “from a practical standpoint, principals of a 

solvent debtor will not be compelled to pierce the veil of the 

very entity they use as a conduit for their personal business,” 

as this would “effectively extinguish their limited liability and 

expose them to the personal liability that the corporate form is 

employed to avoid”). 

Just as the purpose behind piercing the corporate veil, 

however, the purpose of successor liability is to promote 

equity and avoid unfairness, and it is not incompatible with 

that purpose for a trustee, on behalf of a debtor corporation, to 

pursue that claim. See Phar-Mor, Inc., 22 F.3d 1240 n.20; see 

also Baker v. Nat’l State Bank, 161 N.J. 220, 227-28 (N.J. 

1999) (discussing successor liability and holding that it 

requires a “fact specific and equitable analysis”); Walensky v. 

Jonathan Royce Int’l, Inc., 264 N.J. Super. 276, 284 (N.J. 

App. Div. 1993) (holding that “the doctrine of successor 

liability exists to protect against [] inequities”). As in Keene 

Corp. and Buildings by Jamie, the Diacetyl Plaintiffs’ cause 

of action against Aaroma would be based on facts generally 

available to any creditor, and recovery would serve to 

increase the pool of assets available to all creditors. 

Therefore, the District Court appropriately classified that

cause of action as a generalized claim constituting property of 

the estate. See also In re OODC, LLC, 321 B.R. 128, 136 

(Bankr. D. Del. 2005) (holding that the bankruptcy trustee 

had standing to pursue successor liability claims because the 

claims were general and common to all creditors, noting that 

“most other courts have found that the trustee in bankruptcy 

has standing to bring successor liability (or alter ego) suits on 

behalf of all creditors”). 
11

The Diacetyl Plaintiffs concede that there is no 

relevant caselaw directly supporting their position that 

individual personal injury claims asserted on a successor 

liability theory should not be considered property of the 

bankruptcy estate. They attempt to distinguish Keene Corp.

and related caselaw, however, by drawing a distinction 

between, on one hand, a successor liability claim as a primary 

cause of action, and, on the other hand, successor liability as 

an equitable remedy to satisfy an individual damage claim. 

We are not aware of any applicable legal authority drawing 

such a distinction and, indeed, we note that any cause of 

action asserting successor liability necessarily contemplates 

some underlying damage or liability for which the claimant is 

seeking recourse from a third party.

The Diacetyl Plaintiffs also argue that Foodtown

supports their position because we held in that case that a 

pension fund’s claim against third party affiliates of a debtor 

employer did not constitute property of the debtor’s 

bankruptcy estate. See 296 F.3d at 170. Their reliance on 

Foodtown is misplaced. In Foodtown, a plaintiff pension 

fund sought to recover $9.3 million in ERISA withdrawal 

liability owed by the debtor to the pension fund by bringing 

an alter ego veil-piercing claim and claims for breach of 

fiduciary duty against third parties. The cause of action at 

issue, however, did not constitute a general claim for 

successor liability based on a mere continuation theory, but 

instead a specific claim for liability pursuant to ERISA. We 

observed in Foodtown that “[w]ith regard to alter ego liability 

in cases involving claims to pension benefits protected by 

ERISA . . . there is a federal interest supporting disregard of 

the corporate form to impose liability.” Id. at 169 (citation 

and internal quotation marks omitted). Moreover, crucial to 

our holding in Foodtown was the fact that the cause of action 

did not arise until after the debtor’s bankruptcy filing, and 

thus could not be considered property of the estate. We 

distinguished the cause of action in Buildings by Jamie, 

which “was based on a general injury suffered by a corporate 

debtor prior to its bankruptcy filing” from the cause of action 

in Foodtown, which “ar[ose] from a statutorily imposed 

withdrawal liability that occurred after the filing of the 

bankruptcy petition.” Id. at 171. The Diacetyl Plaintiffs’ 
12

cause of action is distinguishable from the claim in Foodtown

for the same reason. 

IV.

Because the Diacetyl Plaintiffs’ cause of action for 

successor liability against Aaroma belongs to the bankruptcy 

estate, it falls within the “Estate’s Released Claims” within 

the meaning of the Agreement between the Trustee and 

Aaroma. The District Court, therefore, properly reversed the 

Bankruptcy Court’s denial of Aaroma’s motion to enforce the 

order approving the settlement, and we will affirm the order 

of the District Court. We recognize that, in so doing, we 

leave the Diacetyl Plaintiffs, who allege that they have 

suffered serious personal injuries resulting from exposure to a 

harmful chemical, albeit not at the hands of Aaroma, with no 

apparent recourse against Aaroma. We note, however, that 

our holding has no bearing on any remedy the Diacetyl 

Plaintiffs may be seeking directly against Emoral in the 

bankruptcy proceeding or against any of the numerous other 

defendants the Diacetyl Plaintiffs have named in the actions 

pending in the Superior Court of New Jersey. 
COWEN, Circuit Judge, dissenting

I agree with the Bankruptcy Court that the Diacetyl 

Plaintiffs’ claims against Aaroma constitute “individualized 

claims” belonging to the Diacetyl Plaintiffs themselves. 

Because the majority instead concludes that such claims are 

“generalized claims” belonging to the bankruptcy estate, I 

must respectfully dissent.

It is undisputed that “creditors lack standing to assert 

claims that are ‘property of the estate.’” Bd. of Trs. of 

Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 

F.3d 164, 169 (3d Cir. 2002). A cause of action or claim, in 

order to be considered property of the estate, “must be a 

‘general one, with no particularized injury arising from it.” 

Id. at 170 (quoting St. Paul Fire & Marine Ins. Co. v. 

PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989)). “[W]here a 

claim ‘is a general one, with no particularized injury arising 

from it, and if that claim could be brought by any creditor of 

the debtor, the trustee is the proper person to assert the claim, 

and the creditors are bound by the outcome of the trustee’s 

action.’” (Majority Opinion at 8 (quoting St. Paul, 884 F.2d 

at 701); see also id. at 7-8 (quoting Foodtown, 296 F.3d at 

170).) “On the other hand, if the claim is specific to the 

creditor, it is a ‘personal’ one and is a legal or equitable 

interest only of the creditor.” Id.

Because the Diacetyl Plaintiffs’ claims against Aaroma 

“could [not] be brought by any creditor of the debtor,” they 

constitute individualized claims belonging to the Diacetyl 

Plaintiffs themselves—and not to the debtor or the 

bankruptcy estate. Initially, it is uncontested that the 

underlying personal injury claims against Emoral are 
2

individualized in nature. In fact, personal injury and product 

liability causes of action under state law represent 

quintessential examples of an individualized claim, i.e., “a 

‘personal’ [claim that is] a legal or equitable interest only of 

the creditor.” Id. The majority insists that “we cannot ignore 

the fact . . . that [the Diacetyl Plaintiffs’] only theory of 

liability as against Aaroma, a third party that is not alleged to 

have caused any direct injury to the Diacetyl Plaintiffs, is 

that, as a matter of state law, Aaroma constitutes a ‘mere 

continuation’ of Emoral such that it has also succeeded to all 

of Emoral’s liabilities.” (Id. at 8-9 (emphasis omitted).) 

Nevertheless, the Court also cannot ignore the claims or 

allegations underlying this theory or remedy of successor 

liability. As the Bankruptcy Court explained in its thorough 

and well-reasoned ruling, “the underlying injury that is 

alleged to be the basis and premise of the state court actions is 

personal harm by exposure to Diacetyl by the individual 

plaintiffs or harm to the individual plaintiffs.” (A1387.) The 

successor liability theory alleged by the Diacetyl Plaintiffs is 

inextricably tied to—and cannot be considered separate or 

apart from—their underlying personal injury and product 

liability allegations. Because the Diacetyl Plaintiffs’ 

underlying allegations are clearly individualized in nature, 

their claims against Aaroma—which seek to hold this third 

party liable for their alleged injuries as the “mere 

continuation” of Emoral—must also be considered as 

individualized claims. In short, “any creditor of the debtor” 

could not allege that the third party should be held 

responsible on this specific theory of successor liability for 

injuries allegedly suffered as a result of exposure to a product 
3

made and sold by the debtor itself. For instance, a trade 

creditor of the debtor could not make such a claim.

I believe that the prior case law, beginning with our 

own ruling in Foodtown, weighs in favor of this approach to 

the Diacetyl Plaintiffs’ claims.

“In Foodtown, a plaintiff pension fund sought to 

recover $9.3 million in ERISA withdrawal liability owed by 

the debtor [Twin] to the pension fund by bringing an alter ego 

veil-piercing claim and claims for breach of fiduciary duty 

against third parties.” (Majority Opinion at 13.) This Court

determined that “Twin’s withdrawal liability is not property 

of the estate” because “the claim did not arise until after the 

filing of the bankruptcy petition.” Foodtown, 296 F.3d at 170 

(footnote omitted). We, however, did not stop there. On the 

contrary, we went on to conclude that “[t]he claim for 

withdrawal liability is also not a legal or equitable interest of 

the debtor.” Id.; cf., e.g., Philadelphia Marine Trade Ass’n—

Int’l Longshoremen’s Ass’n Pension Fund v. Comm’r of 

Internal Revenue, 523 F.3d 140, 147 n.5 (3d Cir. 2008) (“We 

note that this portion of the opinion is an alternative holding, 

not a dictum: ‘Where a decision rests on two or more 

grounds, none can be relegated to the category of obiter 

dictum.’” (quoting Woods v. Interstate Realty Co., 337 U.S. 

535, 537 (1949))). In doing so, the Foodtown Court 

specifically focused on the creditor’s underlying withdrawal 

liability allegations, referring, for example, to “Twin’s 

withdrawal liability” and “Appellees’ evasion of withdrawal 

liability.” Foodtown, 296 F.3d at 170. The alleged evasion 
4

of liability, in turn, did not injure either Twin or the creditors 

in general:

In this case, the injury is not insolvency 

stemming from Appellees’ actions. Here, the 

injury is the Appellees’ evasion of withdrawal 

liability. Withdrawal liability is not owed to 

Twin; rather, it is owed to the pension fund. 

Because the liability is owed only to the fund, 

the claim is personal to the Appellant. 

Moreover, absent a general creditors’ interest, a 

trustee can only collect money that may be 

owing to the bankrupt entity. Here, there is no 

general creditors’ interest in the statutorily 

imposed withdrawal liability owed to the fund. 

Rather, the action to recover the withdrawal 

liability has the character of an action for 

damages flowing from an alleged illegality 

against the fund. The alleged illegality may 

have caused other injuries in addition to those 

caused to the fund, but the direct injury to the 

fund—the evasion of its statutory entitlement—

defines the nature of plaintiff’s claim as a 

personal one. . . .

 

Id. (citing Steinberg v. Buczynski, 40 F.3d 890, 892 (7th Cir. 

1994); Apostolou v. Fisher, 188 B.R. 958, 968 (N.D. Ill. 

1995)). In fact, we did not specifically address the elements 

of the pension fund’s alter ego and veil piercing causes of 

action until we considered the claims on their merits, after 

concluding that this creditor had standing to pursue such 
5

claims in the first place. See id. at 167-73. Likewise, even 

though our opinion in Foodtown referred to a federal interest 

in disregarding the corporate form in ERISA and MPPAA 

cases, id. at 169, we actually applied New Jersey law to 

conclude that the creditor stated claims for alter ego liability 

and for piercing the corporate veil, id. at 171-73.

We thereby adopted in Foodtown an expansive 

approach to the question of whether a creditor’s cause of 

action against a third party constitutes an individualized claim 

and, at the very least, exhibited a preference for allowing a 

third party claim to be decided on the merits. As a practical 

matter, I do not see how the same court that was willing to 

permit the pension fund’s third party claims to go forward 

could reach the opposite result with respect to the Diacetyl 

Plaintiffs’ own third party claims against Aaroma. Just as we 

relied on the individualized nature of the underlying 

withdrawal liability allegations to permit a creditor to pursue 

its claims against several third parties, we likewise should 

allow the Diacetyl Plaintiffs’ claims against Aaroma to go 

forward given the individualized nature of their own 

underlying personal injury and product liability allegations.

The Court in Foodtown turned for support to the 

Seventh Circuit’s opinion in Steinberg, which addressed what 

we called “a similar case.” Id. at 171. The Steinberg court 

determined that a bankruptcy trustee lacked standing to 

pursue an adversary proceeding against the debtor’s 

shareholders “seeking to pierce the corporate veil and hold 

them personally liable for the corporation’s debt to the 

pension fund,” where the pension fund had already obtained a 
6

monetary judgment against the debtor corporation prior to 

bankruptcy. Steinberg, 40 F.3d at 891. Like Foodtown, the 

Seventh Circuit’s opinion distinguished between the claims of 

the debtor corporation and the claims belonging to its creditor 

pension fund:

The point is simply that the trustee is confined 

to enforcing entitlements of the corporation. He 

has no right to enforce entitlements of a 

creditor. He represents the unsecured creditors 

of the corporation; and in that sense when he is 

suing on behalf of the corporation he is really 

suing on behalf of the creditors of the 

corporation. But there is a difference between a 

creditor’s interest in the claims of the 

corporation against a third party, which are 

enforced by the trustee, and the creditor’s own 

direct—not derivative—claim against the third 

party, which only the creditor himself can 

enforce. . . .

Id. at 893. A trustee has standing to pursue an action to 

pierce the corporate veil on behalf of the bankrupt corporation 

only if the corporation was injured by the shareholders’ 

disregard of corporate formalities. Id. at 892; see also, e.g., 

Foodtown, 296 F.3d at 170-71 (citing Steinberg). I do not see 

how Aaroma’s alleged “mere continuation” of Emoral could 

have harmed Emoral itself. To paraphrase Foodtown, “the 

injury [alleged by the Diacetyl Plaintiffs] is not insolvency 

stemming from [Aaroma’s] actions.” Foodtown, 296 F.3d at 

170. 
7

The Second Circuit recently considered the question of 

standing in In re Bernard L. Madoff Investment Securities 

LLC, 721 F.3d 54 (2d Cir. 2013), petition for cert. filed, 82 

U.S.L.W. 3264 (U.S. Oct. 9, 2013). A trustee appointed 

under the Securities Investor Protection Act sought to bring 

claims on behalf of the victims of a multi-billion-dollar Ponzi 

scheme against several financial institutions for their alleged 

role in this fraudulent scheme. Madoff, 721 F.3d at 57-58. 

The trustee focused on “a passage in St. Paul—stating that a 

trustee may bring a claim if the ‘claim is a general one, with 

no particularized injury arising from it, and if that claim could 

be brought by any creditor of the debtor’”—and asserted that 

“the third-party claims here are common to all customers 

because all customers were similarly injured by Madoff’s 

fraud and the Defendants’ facilitation.” Id. at 70 (quoting St. 

Paul, 884 F.2d at 701). The Second Circuit nevertheless 

determined that the trustee’s theory “is flawed on many 

levels.” Id. Relying, inter alia, on the Seventh Circuit’s 

reasoning in Steinberg, the Madoff court thereby rejected the 

trustee’s “broad reading” of St. Paul. Id. at 70-71. “As 

illustrated by St. Paul, when a creditor seeks relief against 

third parties that pushed the debtor into bankruptcy, the 

creditor is asserting a derivative claim that arises from harm 

done to the estate” and that accordingly belongs to the 

bankruptcy estate. Id. at 70. In addition, the Madoff trustee 

“seeks to assert claims on behalf of thousands of customers 

against third-party financial institutions for their handling of 

individual investments made on various dates in varying 

amounts,” id. at 71. Because these alleged wrongful acts 

could not have harmed all of the customers in the same way, 
8

the claims could not be considered to be “common” or 

“general” in nature.1

 Id. 

 1 The majority turns for support to two 

bankruptcy court decisions that “have held that state law 

causes of action for successor liability, just as alter ego and 

veil-piercing causes of action, are properly characterized as 

property of the bankruptcy estate.” (Majority Opinion at 10.) 

However, I believe that both opinions—which clearly are not 

binding on this Court—are distinguishable on a number of 

different grounds. Unlike our ruling in Foodtown, neither 

Buildings by Jamie nor Keene really looked to the underlying 

injury or injuries alleged by the creditors. In turn, Buildings 

by Jamie did not involve either personal injury or product 

liability claims. The Foodtown Court distinguished this New 

Jersey bankruptcy case because, among other things, “the 

trustee [in Buildings by Jamie] had standing to pursue an 

alter ego action on behalf of the corporate debtor to recover 

on a defaulted loan.” Foodtown, 296 F.3d at 171. 

“Furthermore, the In re Buildings by Jamie court held, 

consistent with our decision here, that under New Jersey law 

an alter ego action is an equitable remedy that may only be 

asserted by a corporation when it suffers harm.” Id. As the 

majority acknowledges, the plaintiff creditors actually

constituted the entire creditor body in this New Jersey 

bankruptcy proceeding. Buildings by Jamie, 230 B.R. at 44. 

I also note that “the plaintiffs’ counsel conceded that the 

creditors’ claims belonged to the bankruptcy estate and 

acknowledged, therefore, that the creditors would not be 

named as co-plaintiffs with the trustee in the adversary 

complaint.” Id. (citation omitted). For its part, the New York 
9

The majority admits that “we leave the Diacetyl 

Plaintiffs, who allege that they have suffered serious personal 

injuries resulting from exposure to a harmful chemical, albeit 

not at the hands of Aaroma, with no apparent recourse against 

Aaroma.” (Id. at 14.) I do not believe that either federal 

bankruptcy law or state law mandates such a drastic and harsh 

result. After all, the plaintiffs in this case are not trade 

creditors seeking to recover from the successor a specific 

amount of money owed by the debtor; they are men and 

women allegedly suffering from severe lung problems caused 

by exposure to a chemical made and sold by the debtor. Their 

state law claims accordingly implicate important state 

 

bankruptcy court in Keene construed the creditors’

complaints as invoking the “fourth exception” for successor 

liability, i.e., “‘the transfer of assets is for the fraudulent 

purpose of escaping liability.’” Keene, 164 B.R. at 852-53

(citations omitted); see also, e.g., RDM Holdings, Ltd. v. 

Cont’l Plastics Co., 762 N.W.2d 529, 707 (Mich. Ct. App. 

2008) (“Con-Plastics’ role as an alleged successor is tied 

solely to plaintiffs’ allegations concerning the fraudulent 

transfer of assets; however, we find that this aspect of the 

successor liability claim was subsumed under the UFTA 

[Uniform Fraudulent Transfer Act] claim, which was properly 

dismissed on the basis of res judicata. . . . For the same 

reasons, we will not permit plaintiffs to pursue any fraudulent 

transfer allegations against Con-Coatings under the guise of a 

successor liability claim.”). In any event, I find Keene’s

reasoning with respect to successor liability and other third 

party theories to be at odds with the more liberal approach set 

forth by this Court in Foodtown. 
10

interests, such as providing adequate compensation to 

individuals seriously injured by defective products. Cf., e.g., 

Foodtown, 296 F.3d at 169 (“With regard to alter ego liability 

in cases involving claims to pension benefits protected by 

ERISA, as amended by the MPPAA, there is ‘a federal 

interest supporting disregard of the corporate form to impose 

liability.’” (quoting Lumpkin v. Envirodyne Indus., Inc., 933 

F.2d 449, 460-61 (7th Cir. 1991))). The Diacetyl Plaintiffs 

additionally have not obtained any judgment against Emoral 

(or Aaroma) for a specified amount, and their claims 

accordingly have not been denominated. I further note that 

the Bankruptcy Court granted the Diacetyl Plaintiffs relief 

from the automatic stay to permit them “to litigate their 

products liability action against [Emoral] to judgment and to 

seek recovery from applicable insurance policies insuring the 

Debtor for their alleged injuries.” (12/11/12 Order at 2.) The 

Bankruptcy Court, in turn, ordered that their recovery against 

Emoral “shall be limited to the extent of the insurance 

coverage provided to the Debtor and shall be paid from such 

insurance, if at all, and not from any other assets of the 

Debtor’s estate.” 2

 (Id. at 2-3.) Given the circumstances, it is 

not surprising that a representative of the Trustee stated, at the 

 2 I agree with the majority that its holding has 

no bearing on any remedy the Diacetyl Plaintiffs may have 

against Emoral the bankruptcy proceeding or against any of 

the other defendants named in the state court proceedings. 

Specifically, it appears the Diacetyl Plaintiffs’ insurance 

proceed claims are currently pending before the New Jersey 

Superior Court, and our ruling today has no effect whatsoever 

on such claims. 
11

hearing held by the Bankruptcy Court to decide whether to 

approve the Trustee’s $500,000 settlement with Aaroma, that 

the Diacetyl Plaintiffs’ successor liability claim against 

Aaroma “does not belong to the Estate” and that the Trustee 

accordingly “can’t release it.” (A1277.)

Because the claims against Aaroma belong to the 

Diacetyl Plaintiffs, the Bankruptcy Court properly determined 

that “the Diacetyl plaintiffs’ right to assert those claims [was] 

not affected by the settlement agreement [or] the settlement 

approval order” (A1388). See, e.g., id. at 175 (“Because 

Appellant’s cause of action is based on withdrawal liability 

under ERISA and is not considered property of the estate, 

Twin’s release does not affect Appellant’s claims.”). For the 

foregoing reasons, I would vacate the District Court’s order, 

which reversed the order of the Bankruptcy Court denying 

Aaroma’s motion to enforce the settlement approval order 

and to compel dismissal of the Diacetyl Plaintiffs’ state court 

actions against Aaroma, and would remand for further 

proceedings.