What The U.S. Supreme Court Did NOT Decide: “The Outer Bounds Of § 1109(b)” (Truck Insurance)

By: Donald L Swanson

The U.S. Supreme Court’s opinion is Truck Insurance Exchange v. Kaiser Gypsum Co., Inc., Case No. 22-1079, Decided June 6, 2024.

Opinion’s Q & A

The Truck Insurance question is this:

• Whether an insurer with financial responsibility for a bankruptcy claim is a “party in interest” under § 1109(b)?

The Supreme Court’s answer is this:

• Yes.

What’s Not Decided—The Outer Bounds

The opinion declares, “the Court today does not opine on the outer bounds of § 1109.”

Clues to Follow

Yet, the opinion provides clues to help courts analyze where the “outer bounds of § 1109” might lie.

Here are some of those clues.

–Case-by-Case Determination

The outer bounds must be determined “on a case-by-case basis.”

–A Broad View

The illustrative list in § 1109(b) of what qualifies as a party in interest provides this common thread. Each listed party:

• has a financial interest in the estate’s assets; and
• may, therefore, be directly affected by a reorganization plan.

The text of § 1109(b) “is capacious”—i.e., capable of containing a great deal. 

When Congress uses the phrase “party in interest” in bankruptcy, it intends the phrase to apply “broadly,” because broad participation promotes a fair and equitable process.

The Bankruptcy Code:

• seeks to prevent the inherent danger of a debtor’s plan turning out to be too good a deal for the debtor’s owners; and
• uses § 1109(b) to address that danger by allowing a broad range of parties to participate in the process.

–Limitations

A party in interest is not intended to include every conceivable entity that may be involved in or affected by the chapter 11 proceedings.

There may be difficult cases that require courts to evaluate whether truly peripheral parties have a sufficiently direct interest.  But:

• “This case is not one of them”; and
• “Insurers such as Truck with financial responsibility for claims are not peripheral parties.”

–Precedents from Other Statutory Contexts[Fn. 1]

The “party in interest” phrase appears in variety of non-bankruptcy statutes.

The Truck Insurance opinion’s analysis of the “party in interest” phrase “does not apply across all other, unrelated statutory schemes” that use such phrase:

• such phrase’s meaning elsewhere “will turn on the text, structure, context, history, and purpose of those statutory provisions, just as it does here.”

Yet, the Truck Insurance interpretation of such phrase “is not an outlier.” 

Here are examples of precedents from other “party in interest” contexts that are consistent with the Truck Insurance analysis and result:

• competitor railroad was a “party in interest” under the Transportation Act of 1920 because the challenged railroad expansion had the potential to directly and adversely affect the complainant’s welfare by bringing about some material change in the transportation situation;
• food vendors were not a “party in interest” under the Transportation Act of 1920 because a person engaged in business within or adjacent to a public market was only indirectly and consequentially affected by a railroad seeking only to serve a competing market by means of an extension; and
• railroad companies were “parties in interest” under the Motor Carrier Act of 1935 because they were directly affected by competition with the motor transport industry.

–Equitable Discretion[Fn. 2]

In addition to the provisions of § 1109(b), bankruptcy courts have equitable discretion to control participation in a proceeding.

11 U. S. C. §105(a) provides, for example:

• “No provision of [the Bankruptcy Code] providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.”

Conclusion

The U.S. Supreme Court’s Truck Insurance opinion rings of truth, rationality and reasonableness.

In retrospect, it is difficult to see how courts below could have reached a contrary conclusion under a narrow view.

It will be interesting to see how the courts, going forward, address and define the outer bounds of § 1109(b).  

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Footnote 1.  The “Precedents from Other Statutory Contexts” information is from Footnote 4 of the Supreme Court’s Truck Insurance opinion.

Footnote 2.  The “Equitable Discretion” information is from Footnote 5 of the Supreme Court’s Truck Insurance opinion.

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