The concurring decision, although joining in the majority opinion in full, raised an intriguing issue as to which choice of law rules govern bankruptcy, the “forum state” rule or a federal common law choice of law rule.

The United States Court of Appeals for the Third Circuit’s decision in In re Whittaker Clark & Daniels Inc., No. 24-2210, 2025 WL 2611753 (3d Cir. Sept. 10, 2025), addressed two fundamental questions: (1) whether a board of directors of a New Jersey corporation can authorize the filing of a bankruptcy petition after the appointment of a receiver by another state’s court, and (2) if so, do the debtors’ assets include certain tort claims relating to successor liability against a nondebtor rather than such assets belonging to an individual creditor. The concurring decision, although joining in the majority opinion in full, raised an intriguing issue as to which choice of law rules govern bankruptcy, the “forum state” rule or a federal common law choice of law rule.

With respect to the tort claims relating to successor liability, the Third Circuit held that a claim belongs to the bankruptcy estate if the claim (1) existed at the outset of the bankruptcy and (2) is a “general” claim with no particularized injury arising from it. For a court to find otherwise, the injury must trace directly from a defendant’s wrongful conduct, regardless of whether they are a debtor or a third party.

With respect to the authorization for the commencement of the bankruptcy case, the Third Circuit held that under New Jersey state law, the board of directors retained control over the authority to file the bankruptcy petition if the out-of-state receiver had not yet taken enforcement steps in New Jersey. The Third Circuit further provided that the bankruptcy court possesses the requisite “subject matter jurisdiction” to make a determination as to whether a petition is validly filed.

Background

Whittaker, Clark & Daniels Inc. and its three affiliates were processors, manufacturers and distributors of talc. In 2004, the affiliated debtors sold substantially all of their operating assets to a third-party purchaser and were left as shell companies to manage asbestos liability from the talc businesses. On March 3, 2023, a South Carolina jury in one such talc-related action returned a verdict against Whittaker that exceeded $29 million. Shortly thereafter, the South Carolina court entered an order appointing a receiver to fully administer all assets of Whittaker. Not long thereafter, the debtors filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of New Jersey. In light of the substantial talc-related asbestos claims that the debtors faced, the Office of the United States Trustee appointed the Official Committee of Talc Claimants to represent the interests of the plaintiffs.

In September 2023, the three debtors filed an adversary proceeding naming hundreds of talc claimants and the third-party purchaser as defendants seeking a declaratory judgment that successor liability claims against the purchaser premised on their theory of liability are property of the debtors’ bankruptcy estates under 11 U.S.C. § 541(a)(1). The debtors moved for summary judgment, and in August 2024 the Bankruptcy Court granted the debtors’ motion. The committee and the receiver contended that the debtors improperly filed the bankruptcy cases because only the receiver was vested with the requisite authority and the committee argued that the successor liability claims belong to the individual plaintiffs and not the bankruptcy estates. The Bankruptcy Court found that the bankruptcy cases were properly filed and that in accordance with the Third Circuit’s decision in In re Emoral, 740 F.3d 875 (3d Cir. 2014), the successor liability claims belong to the bankruptcy estate. The Bankruptcy Court certified its decision for direct appeal to the Third Circuit. The Official Committee of Talc Claimants and the receiver filed appeals.

The Third Circuit’s Ruling

Jurisdiction

The Third Circuit ruled that bankruptcy courts have subject matter jurisdiction over the determination as to whether a bankruptcy case was improperly filed. The receiver argued that the bankruptcy court did not possess the requisite jurisdiction. The Third Circuit disagreed in finding that Section 301(a) focuses on the commencement of a case by a debtor—not on the power to decide of the court. The court found that Section 301 makes no reference to jurisdiction and as such its plain reading would allow the bankruptcy court to possess subject matter jurisdiction to determine whether a case was properly filed.

As for the proper filing of the debtors’ cases, at bar, the Third Circuit held that the cases were properly filed notwithstanding the appointment of the receiver. The Third Circuit found that no federal law controls a corporate debtor’s authority to file a bankruptcy case and thus, “local law” governs such authority. Local law typically gives the authority to a corporations’ board of directors. Accordingly, state law controls, and with respect to Whittaker, the applicable state law is New Jersey’s.

In examining New Jersey state law, the court acknowledged New Jersey law’s recognition of “comity”—however, it found that the New Jersey statutes related to receivers required the receiver to have moved for recognition in New Jersey, which the receiver did not do. Further, nothing in the receiver’s order spoke to the receiver usurping the board’s authority. In addition, under principles of equal sovereignty, deference must be given to New Jersey’s laws. Thus, the Third Circuit held that under New Jersey state law, the board (and not the receiver) possessed the requisite authority to file the bankruptcy cases.

Successor Liability

The court then considered whether the successor liability claims belonged to the debtors' estates. To begin, the court stated that under section 541(a)(1) of the Bankruptcy Code an estate comprises “all legal or equitable interests of the debtor in property,” including causes of action, “wherever located and by whomever held.” Therefore, the party who can pursue a claim is determined by whether a claim is in or out of the estate.

The court explained that in order for a creditor’s claim to belong to the estate, the claim (1) must have existed at the outset of the bankruptcy and (2) must have “no particularized injury arising from it,” i.e., it must be a “general” claim. To determine whether a claim is general to all creditors, a court examines the “nature of the cause of action itself,” focusing on the “theory of liability” as opposed to the nature of the injury. General claims are “based on facts generally available to any creditor” and for which recovery would “increase the pool of assets available to all creditors.”

The court stated that the committee's theory of liability was a “product line” tort theory, which depended solely on the successor’s relationship with the debtors as opposed to any interaction the successors had with the individual asbestos claimants themselves. A “product line” theory “imposes strict liability for injuries caused by defects of a product line on a corporation that acquires the manufacturing assets of another corporation and undertakes essentially the same manufacturing operation and practices.” The court observed that the committee sought to impose the debtors’ liability onto its successor solely due to its successor status, not because of any “particularized injury” that could be “directly traced” to the successor’s conduct or which stemmed from the same set of facts underlying the successor’s relationship to the debtors. The injuries were only tied to the exposure to asbestos-contaminated products manufactured by the debtors prior to the successor purchasing the debtors’ operating assets. Therefore, the court held that the injuries were not directly traced to the successor and were instead general claims which belonged to the debtors’ estates.

Conclusion

The application of the In re Whittaker decision will be interesting. Practitioners may find that future receiver orders will include a reference to receivers possessing authority over corporate affairs. Counsel may be proactive in domesticating receiver orders in the jurisdiction of incorporation.

As for the application of the successor liability portion of the decision, as property of the estate, the bankruptcy court presumably will possess jurisdiction on the settlement of such claims, the extent of the releases associated with the settlement and the binding nature of the settlement, which will inure to the benefit of the purchaser or successor target, who paid significant value for the assets and presumably an amount that would avoid being a “successor target.”

For More Information

If you have any questions about this Alert, please contact Morris S. Bauer, Marie Bauer, any of the attorneys in our Business Reorganization and Financial Restructuring Practice Group or the attorney in the firm with whom you are regularly in contact.

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