By: Donald L Swanson
A mass-tort asbestos case before the U.S. Supreme Court is Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., Case No 22-1079. Here is a link to the transcript of oral arguments in that case, from March 19, 2024.
In Truck Insurance, the question is whether the insurer (whose policy will fund plan payments) has a right to be heard on plan confirmation—as a “party in interest” under § 1109(b).
- § 1109(b) says, “A party in interest, including the debtor, the trustee, . . . a creditor, . . . may raise and may appear and be heard on any issue in a case under this chapter” (emphasis added).
The Fourth Circuit Court of Appeals had ruled against Truck Insurance, declaring that it is not a “party in interest.” That’s because of, according to the Fourth Circuit, the judge-made “insurance neutrality” rule, which says that an insurer cannot be heard on plan confirmation issues unless the plan specifically alters the insurer’s contractual rights or obligations.
So, Truck Insurance was not allowed to even argue, in opposition to Debtor’ plan, that it should be protected by these two anti-fraud measures:
- A requirement that each claimant disclose all known asbestos exposures; and
- An authorization for Truck Insurance to obtain information on asbestos claims that each claimant has made against other parties from the additional exposures.
The plan did include both of these anti-fraud measures—but only as to uninsured claims. The plan left Truck Insurance high and dry on these two measures.
ORAL ARGUMENTS
We’ve all had rough days in court, where it seems like the judges are opposed to our arguments.
Well . . . that’s exactly how Debtor’s counsel must have felt, after oral arguments in the Truck Insurance case. What follows are representative examples of exchanges during oral arguments in Truck Insurance between Debtor’s counsel and each of the participating Justices.[Fn. 1]
–JUSTICE THOMAS
JUSTICE THOMAS: . . . at the outset of these bankruptcy proceedings, Truck was a creditor and Truck certainly from its vantage point was a party in interest . . . So do you think we should look at the filing period as the point to determine party in interest, or should we do it at a later point? . . .
DEBTOR’S COUNSEL: If one is in the list of entities in Section 1109(b), it’s possible to answer that question at the outset.
JUSTICE THOMAS: So they would be a creditor?
DEBTOR’S COUNSEL: They were a creditor, yes, but as to their status as an insurer, the question is, do they have an interest in the debtor’s bankruptcy estate? And at the outset of the case, it was obviously a no, but then, when a plan is submitted and they want to claim that that would breach their policy rights and give them interest in the estate, then that would be the point at which . . . the threshold question would need to be decided.
JUSTICE THOMAS: . . . As a creditor, at the beginning, if they are considered a party in interest, can they raise any issue in the proceedings?
DEBTOR’S COUNSEL: Under 1109(b), they generally can. In the context of a plan confirmation, if they’re unimpaired, they don’t have the right to object. [Transcript of oral arguments, at 42-43]
–JUSTICE KAVANAUGH
JUSTICE KAVANAUGH: Isn’t it just common sense that an insurer at the outset is going to have an interest in this because how much the insurer will have to pay will be affected by how the plan is structured?
DEBTOR’S COUNSEL: Justice Kavanaugh, they could be interested in the general sense of being concerned, which is the phrase Truck tended to use.
JUSTICE KAVANAUGH: No, not just concerned but how much . . . they’re going to have to pay. It’s not just I’m concerned about things. How much I’m going to have to pay.
DEBTOR’S COUNSEL: And so then the question is, at what point do they come to have an interest in the estate? And if a plan is proposed that in their view would breach their policy, they certainly have the right to be heard on whether it would, in fact, breach their policy rights, and they were heard here. And . . . all three lower courts held their policy rights were not breached. And so there’s nothing about the bankruptcy case that puts the insurer on the hook. . . .
JUSTICE KAVANAUGH: But you’re saying put them on the hook, but for how much they’re going to be on the hook, that will be affected, right?
DEBTOR’S COUNSEL: I’m not sure I followed that. Nothing about the bankruptcy case changes Truck’s position. If the bankruptcy case were to change an insurer’s position, it would be a party in interest and have a right to object to the plan.
JUSTICE KAVANAUGH: But they want the fraud prevention provisions. [Id., at 43-45]
–JUSTICE BARRETT
JUSTICE BARRETT: Why are you fighting this so hard? Why do you want Truck to not even be heard? Just what is your motivation to be fighting this so hard?
DEBTOR’S COUNSEL: We have a deal with the creditors. We think it’s a valid deal and a good deal, and we want to be done with bankruptcy. . . . Truck is coming in to try to blow up the deal that we have. [Id., at 46]
–JUSTICE SOTOMAYOR
JUSTICE SOTOMAYOR: . . . once the plan is approved, this plan, under your terms, it obtains a discharge, the Debtor, and the protection of a channeling injunction, now all the claims are going to go through the trust and not to you. The Debtor has no ongoing incentive after the plan is approved to limit the cost of defending, paying claims, and any liability on those claims. You lose it. That’s the benefit bankruptcy is giving you. And the Claimants, their incentive for this plan is that they don’t want the anti-fraud provisions. So who’s protecting the insured? If the insured can’t protect itself because you say it can’t go to the bankruptcy court, how is it being heard? . . . Because what you’re suggesting to us is that they don’t have a right to say the plan is violating a bunch of other provisions of the code, 1129(a), or permitting the differential treatment of people who are owed money or of Claimants. . . .
DEBTOR’S COUNSEL: Justice Sotomayor, if one is not a party in interest, there’s no right to raise issues. Party-in-interest status is a threshold question. And, here, as to Truck as an insurer, they need to show they have an interest in the bankruptcy estate to get in, to answer the threshold question.
JUSTICE SOTOMAYOR: But they do. [Id., at 46-48]
–JUSTICE KAGAN
JUSTICE KAGAN: . . . I think what everybody is saying to you is, well, they do have an interest in these anti-fraud provisions. Not just a concern, they have an interest, a material interest. If they get the anti-fraud provisions, they’re better off. If they don’t get the anti-fraud provisions, they’re worse off. Now what I hear you saying back is they had no preexisting entitlement to the anti-fraud provisions, and your test is one that says, if they’re not being made worse off by the plan, then they’re not an interested party. But I don’t know why that should be the test. If I look at the language, that’s not the test. If I think about what the ordinary meaning of being a party who’s interested is, that’s not the test. Why is your test so long as they’re not being made worse off, they’re not an interested party?
DEBTOR’S COUNSEL: . . . “Party in interest” is a term of art that means you have an interest in the debtor’s bankruptcy estate. That’s been the meaning for a hundred years. And so that’s the way to start. [Id., at 48-50]
–CHIEF JUSTICE ROBERTS
CHIEF JUSTICE ROBERTS: — it may not be about getting everybody at the table, but you do want all the creditors there, don’t you?
DEBTOR’S COUNSEL: Yes, you do want all the creditors there.
CHIEF JUSTICE ROBERTS: Well, they’re a creditor.
DEBTOR’S COUNSEL: As to the plan that’s at issue here, they were an unimpaired creditor, and an unimpaired creditor does not have the right to object to a plan. That’s Section 1126(f). [Id., at 53-54]
–JUSTICE GORSUCH
JUSTICE GORSUCH: . . . you’ve agreed that they were a party in interest to the extent they were a creditor, right?
DEBTOR’S COUNSEL: Yes.
JUSTICE GORSUCH: And normally a creditor or a party in interest can be heard on any issue. You agree with that?
DEBTOR’S COUNSEL: That’s the text of 1109(b).
JUSTICE GORSUCH: Okay. And you’ve been citing 1124 and 1126 to us, I understand and appreciate that, but that governs who can vote, right?
DEBTOR’S COUNSEL: That is what it explicitly says, yes.
JUSTICE GORSUCH: It doesn’t talk about what they can argue about or be heard on, right?
DEBTOR’S COUNSEL: It says they’re conclusively presumed to have accepted the plan. . . . And an inference from that is that it would be absurd to vote to — in favor –
JUSTICE GORSUCH: So, if you can’t vote, you can’t be heard? Is that your argument then?
DEBTOR’S COUNSEL: You can’t be heard on the merits of the plan. And that’s what the circuit courts have said. [Id., at 57-58]
–JUSTICE JACKSON
JUSTICE JACKSON: Okay. So the question is they come to the table at the beginning and they say: We think we should be in the list because we have a potential through the reorganization plan that will be adopted to be affected. And you say not party in interest because you’re not already affected or it’s not clear to us right now that you’re affected. Is that your position?
DEBTOR’S COUNSEL: If we’re talking about Truck as insurer . . . yes. . . . But once a plan is proposed, that would breach your contract –
JUSTICE JACKSON: . . . what’s valuable to them about being a party in interest is the fact that they then get to talk with everybody about how this is going to go. And the problem I’m having with your argument is it suggests that it’s only after we know or after they know that they’re definitely affected that they get a seat at the table, but the whole point of it is that the parties in interest get to talk about it. So it seems to me it would have to include people who have a clear potential for being affected by the plan that we’re all hammering out in this discussion.
DEBTOR’S COUNSEL: There’s nothing in 1109(b) itself that says that has to be determined once and for all at the outset. And if we’re talking about someone who’s not in the list, the only way to know if you’re a party in interest is do you have an interest in the bankruptcy estate. [Id., at 60-62]
CONCLUSION
I have no prediction about what the Supreme Court is going to do in the Truck Insurance case.
But it was a rough day in Court for Debtor’s counsel during oral arguments in that case.
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Footnote 1. Justice Alito did not participate in the Truck Insurance oral arguments. Presumably, that’s related to this October 13, 2023, entry on the Supreme Court’s docket in the Truck Insurance case: “Petition GRANTED. Justice Alito took no part in the consideration or decision of this petition.”
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