Opinion ID: 626960
Heading Depth: 1
Heading Rank: 6

Heading: The Scope of the API

Text: Having concluded both that we have jurisdiction to hear this appeal and that the bankruptcy court had jurisdiction to enjoin the Angelos suits, we next address whether the Angelos suits fall within the scope of the API and were, for that reason, actually enjoined. As both parties acknowledge, we typically accord a bankruptcy court's interpretation of its own order customary appellate deference. In re Casse, 198 F.3d 327, 333 (2d Cir. 1999). Angelos urges, however, and the district court agreed, that such deference does not apply here since the language of the API tracks the statutory language of 11 U.S.C. § 524(g)(4)(A)(ii). We recognize that, in the agency context, the Supreme Court has held that judicial deference to an agency's interpretation of its own regulations is inappropriate when those regulations do[] little more than restate the terms of [a] statute, because the existence of a parroting regulation does not change the fact that the question here is not the meaning of the regulation but the meaning of the statute. Gonzales v. Oregon, 546 U.S. 243, 257, 126 S.Ct. 904, 163 L.Ed.2d 748 (2006). However, we need not decide whether to apply this principle here, as the bankruptcy court clearly stated in its CO that [t]he Amended Injunction provides the same protection as a channeling injunction under § 524(g). CO at . Thus, the bankruptcy court itself believed that it was interpreting the statute when it interpreted the API, and the meaning of the statute is dispositive as to the meaning of the API. We review the bankruptcy court's statutory interpretation, like all legal conclusions, de novo. See In re Casse, 198 F.3d at 332. [15] As already noted, § 524(g) was enacted to address the unique problem posed by asbestos-related bankruptcies. Because symptoms of asbestos-related illness may not manifest until decades after exposure, potential claimants against an asbestos manufacturer's bankruptcy estate may not know of their claims until years after the estate has been depleted by other claimants whose symptoms became apparent earlier. Section 524(g) addresses this difficulty by authorizing a bankruptcy court to enter, along with confirmation of a reorganization plan, an injunction channeling certain classes of claims to a trust set up in accordance with the reorganization plan, which trust will then make payments to both present and future claimants. See 11 U.S.C. § 524(g)(1)-(2). [16] To give bankruptcy courts power to channel all appropriate claims to the trustand to provide an incentive for parent or affiliated companies of an entity undergoing asbestos-related bankruptcy to contribute to the trust§ 524(g) contains a provision allowing the bankruptcy court to enter an injunction barring certain actions brought against non-debtor third parties. Section 524(g)(4)(A)(ii) provides as follows: [A]n injunction [under 11 U.S.C. § 524(g)] may bar any action directed against a third party who is identifiable from the terms of such injunction (by name or as part of an identifiable group) and is alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor to the extent such alleged liability of such third party arises by reason of (I) the third party's ownership of a financial interest in the debtor, a past or present affiliate of the debtor, or a predecessor in interest of the debtor; (II) the third party's involvement in the management of the debtor or a predecessor in interest of the debtor, or service as an officer, director or employee of the debtor or a related party; (III) the third party's provision of insurance to the debtor or a related party; or (IV) the third party's involvement in a transaction changing the corporate structure, or in a loan or other financial transaction affecting the financial condition, of the debtor or a related party, including but not limited to (aa) involvement in providing financing (debt or equity), or advice to an entity involved in such a transaction; or (bb) acquiring or selling a financial interest in an entity as part of such a transaction. An injunction under the statute may thus properly bar an action against a third party only when that party is alleged to be liable for the conduct of, claims against, or demands on the debtor and to the extent that such liability arises by reason of one of the four relationships between the third party and the debtor enumerated in subsections (I) through (IV). [17] The parties' principal disagreement focuses on the meaning of the phrase by reason of. Stated simply, Pfizer argues that liability arises by reason of any of the four enumerated relationships when that relationship is a but for, factual cause of the liability in question. Here, because Quigley, as a factual matter, would not have applied the Pfizer name and logo to its asbestos-containing products absent Pfizer's ownership interest in Quigley, Pfizer contends that its liability arises by reason of that ownership interest and that the Angelos suits were properly enjoined. Angelos, on the other hand, argues that, to fit within the parameters of 11 U.S.C. § 524(g), the liability sought to be imposed must arise as a legal consequence of one of the four enumerated relationships (or, stated differently, that the relationship, in light of the debtor's conduct or the claims asserted against it, must be a legal cause of or a legally relevant factor to the third party's alleged liability). The API is inapplicable to the Angelos suits, according to Angelos, because Pfizer's liability as an apparent manufacturer under § 400 hinges on the presence of Pfizer's name and logo on Quigley's products, while the fact of Pfizer's ownership of Quigley is legally irrelevant. We agree with Angelos. Section 524(g) does not explicitly indicate whether the phrase by reason of refers to legal or factual causation, or some combination of the two. We conclude, however, that several factors favor the interpretation proffered by the appellee. In the first place, the statute lists four relationships between a third party and a debtor that, when resulting in alleged liability on the third party's part for the conduct of or claims against the debtor, may render an injunction appropriate. As a matter of background legal principle, we deem it significant that each of these four relationships is of a sort that could, legally, have given rise to actual liability in appropriate circumstances prior to § 524(g)'s enactment. For instance, 11 U.S.C. § 524(g)(4)(A)(ii)(I) provides a bankruptcy court with the power to enjoin an action that arises by reason of the third party's ownership of a financial interest in the debtor, a past or present affiliate of the debtor, or a predecessor in interest of the debtor. This subsection thus authorizes a bankruptcy court to bar actions seeking to impose liability on a third party in circumstances in which a plaintiff might have alleged that the third party was responsible for claims against the debtor on a piercing the corporate veil theory. [18] See, e.g., Freeman v. Complex Computing Co., 119 F.3d 1044, 1052 (2d Cir.1997) (noting that, under New York law, a plaintiff seeking to pierce the corporate veil must prove [among other things] that ... the owner has exercised such control that the corporation has become a mere instrumentality of the owner) (brackets omitted). Similarly, § 524(g)(4)(A)(ii)(III) permits a bankruptcy court to enjoin a suit alleging liability by reason of ... the third party's provision of insurance to the debtor or a related party, thus referring to statutory direct action liability, as discussed above. Section 524(g)(4)(A)(ii)(IV) provides that litigation may be enjoined where plaintiffs contend that a third party is liable for claims against the debtor by reason of the third party's involvement in a transaction changing the corporate structure, or in a loan or other financial transaction affecting the financial condition, of the debtor or a related party. Here, too, such liability could arise, inter alia and given particular facts, on an aiding and abetting theory, as when one party induces another to commit a tort, see, e.g., Restatement (Second) of Torts § 876(b) (1979), or on a successor liability theory, when a transaction results in the merger or consolidation of the two firms but the purchaser is a mere continuation of the seller, or where the transaction was entered into fraudulently for the purpose of escaping liability, Call Ctr. Techs., Inc. v. Grand Adventures Tour & Travel Publ'g Corp., 635 F.3d 48, 52 (2d Cir.2011) (per curiam) (internal quotation marks omitted). Each of the four relationships enumerated in subsections (I) through (IV), then, is a relationship between one party and another that, in appropriate circumstances, has commonly given rise to the liability of the one party for the conduct of or claims or demands against the other, long before § 524(g) came into being. This circumstance does not conclusively establish that § 524(g)(4)(A)(ii)'s channeling authority is limited to situations in which the third party's relationship with the debtor is legally relevant to its purported liability, so that a bankruptcy court is not authorized to bar litigation when the relationship is merely a but for cause of the alleged liability. The background legal context against which § 524(g)(4)(A)(ii) was enacted, however, suggests strongly that it was this sort of liability that Congress had in mind in enacting the provision. Were Pfizer's view of the matter correct, we would find it surprising that each enumerated relationship in § 524(g)(4)(A)(ii) just happens to correspond to a previously-recognized relationship that may, in appropriate circumstances, give rise to the legal liability of one party for the conduct of or claims against another. Even brief consideration of another part of § 524(g) in which the by reason of language is employed renders definite our conclusion in favor of Angelos's construction. See United States v. Cunningham, 292 F.3d 115, 118 (2d Cir.2002) ([S]imilar language contained within the same section of a statute must be accorded a consistent meaning.). Section 524(g)(3)(A)(ii) provides as follows: No entity that pursuant to [a] plan [under § 524(g) ] or thereafter becomes a direct or indirect transferee of, or successor to any assets of, a debtor or trust that is the subject of the injunction shall be liable with respect to any claim or demand made against such entity by reason of its becoming such a transferee or successor. Consider this provision's application to a case in which a company first succeeds to significant assets of a bankrupt asbestos concern pursuant to, and after confirmation of, a § 524(g) reorganization plan and thereafter hires new employees to administer these assets, engaging in age discrimination in the hiring process. On Pfizer's reading of the phrase by reason of, such a company could plead 11 U.S.C. § 524(g) as a barrier to liability, since its discrimination would not have occurred, as a factual matter, but for the company's succession to the assets of the bankrupt estate. Angelos's construction of by reason of, in contrast, would not foreclose liability on a discrimination suit, because even if the discrimination would not have taken place but for the company's acquisition of the bankrupt's assets, any subsequent age discrimination claim would not be levied by reason of the company's acquisition of these assets, but by reason of the alleged discrimination itself. We are confident that the Angelos reading of the statutory language at issue here is the correct one. Section 524(g) is designed to facilitat[e] the reorganization and rehabilitation of the debtor as an economically viable entity, as well as make[] it possible for future asbestos claimants to obtain substantially similar recoveries as current claimants. In re Combustion Eng'g, Inc., 391 F.3d 190, 234 (3d Cir.2004). Needless to say, barring the prosecution of claims bearing only an accidental nexus to an asbestos bankruptcy is less than tangentially related to that objective. Indeed (although the question is not before us), we strongly suspect that the bankruptcy courts would not even have jurisdiction to enjoin the discrimination suit hypothesized above, since it would not have any effect whatsoever on the res of the bankruptcy estate. See Cuyahoga, 980 F.2d at 114 (The test for determining whether litigation has a significant connection with a pending bankruptcy [sufficient to confer bankruptcy jurisdiction] is whether its outcome might have any conceivable effect on the bankrupt estate. (internal quotation marks omitted)). We are unpersuaded that Congress intended with its use of the phrase by reason of to produce the peculiar results and jurisdictional difficulties that Pfizer's construction of this phrase would bring about. We conclude that the phrase by reason of, as employed in 11 U.S.C. § 524(g)(4)(A)(ii), requires that the alleged liability of a third party for the conduct of or claims against the debtor arises, in the circumstances, as a legal consequence of one of the four relationships between the debtor and the third party enumerated in subsections (I) through (IV). Pfizer does not argue that its ownership of Quigley is pertinent in any legal sense to the claims asserted in the Angelos suits. Indeed, as the district court very aptly noted, Pfizer's ownership interest in Quigley is legally irrelevant to the Angelos suits' § 400 claims. District Court Opinion at 204. Consequently, the API, modeled as it is on 11 U.S.C. § 524(g)(4)(A)(ii), does not enjoin the suits at issue. Finally, although not necessary to its holding, Manville III briefly addressed 11 U.S.C. § 524(g)(4)(A)(ii)'s requirement that any injunctions imposed under § 524(g) may only bar actions against third parties alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor, suggesting that an injunction is available only in situations where ... a third party has derivative liability for the claims against the debtor. 517 F.3d at 67-68 (quoting Combustion Eng'g, 391 F.3d at 234) (internal quotation marks omitted). Angelos argues that the suits at issue may not be enjoined pursuant to the API because § 400 liability is not derivative in nature as a matter of Pennsylvania law. As explained supra note 18, because we conclude that the Angelos suits do not attempt to fix on Pfizer liability arising by reason of Pfizer's ownership of a financial interest in Quigley, 11 U.S.C. § 524(g)(4)(A)(ii)(I), we do not reach this question.