Third Circuit Confirms Scope of Estate-Owned Claims in Bankruptcy

On September 10, 2025, the U.S. Court of Appeals for the Third Circuit affirmed a finding that claims by tort plaintiffs under a successor liability theory against the purchaser of a debtor's business belong to the debtor's estate in bankruptcy. In doing so, the Third Circuit held that claims belong to the estate if they existed at the outset of the bankruptcy and are "general," meaning based on a theory of liability dependent on the relationship between the debtor and a third party and are therefore derivative in nature. The court expressly declined to impose an additional requirement that a debtor have a cause of action under state law in order for a claim to be estate property. This decision reaffirms and clarifies that debtors in mass tort bankruptcies can enter into broad settlements to resolve liability of third parties for derivative claims after the U.S. Supreme Court's decision in Harrington v. Purdue Pharma L.P. that the Bankruptcy Code does not authorize the non-consensual release of direct claims against third parties.

Background

The Debtors, Whittaker, Clark & Daniels, Inc. and three affiliates, were former processors, manufacturers, and distributors of talc. In 2004, they sold their business to a purchaser, Brenntag. The Debtors faced thousands of lawsuits from tort plaintiffs for historic asbestos liabilities pre-dating the sale. After a judgment in South Carolina resulting in the appointment of a receiver, the Debtors filed for bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey. There they commenced an adversary proceeding against Brenntag, related entities, and hundreds of tort plaintiffs, seeking a ruling that product-line successor liability claims against Brenntag as purchaser of the Debtors' business were property of the Debtors' estates. The court granted summary judgment in favor of the Debtors and certified the case for direct appeal to the Third Circuit.

Third Circuit's Decision

The Third Circuit affirmed the Bankruptcy Court's decision, holding that the tort plaintiffs' successor liability claims against Brenntag were the property of the Debtors' estates.[1] Building on its prior jurisprudence, the court defined two requirements for a claim to belong to a bankruptcy estate.[2] First, the claim "must have existed at the outset of the bankruptcy."[3] Second, the claim must be "general to all creditors," rather than specific to a particular creditor.[4] Generality depends on "the nature of the cause of action," i.e., the theory of liability, rather than the nature of the underlying injury.[5] Claims are not specific merely because they involve unique harms to particular plaintiffs, such as personal injuries. Instead, a claim is general to all creditors where "the creditor's theory of liability depends on facts concerning the relationship between the defendant and another party."[6]

The court expressly rejected an attempt to add a third requirement that "a debtor must have a state cause of action to assert before filing for bankruptcy in order for a claim to be property of the estate," clarifying that to do so would be inconsistent with precedent.[7]

Applying the law to the facts, the court found that the successor liability claims at issue were property of the estates. The claims existed at the time the bankruptcy was commenced, and they depended on facts concerning the relationship between Brenntag and the Debtors. Specifically, as successor liability claims based on a product-line theory, the claims depended on Brenntag's purchase and continued operation of the Debtors' business. The claims could not be "directly traced" to Brenntag itself.[8] The court observed that "[p]ass-through" claims like these are "quintessentially general."[9]

Implications

The decision clarifies the law in the Third Circuit and reinvigorates the use of Chapter 11 as an avenue for the resolution of non-debtor liability in mass tort bankruptcies. Mass tort cases often involve not only claims against an alleged tortfeasor but also claims against its purchasers, shareholders, directors, parents, affiliates, and others. Such third parties are not, without more, liable for the tortfeasor's actions. But because they may have a greater ability to pay claims, tort plaintiffs often assert that such third parties are liable either derivatively for the wrongdoing of the tortfeasor (e.g., via a theory of successor liability, veil-piercing, or the like) or directly for independent wrongdoing. Until the U.S. Supreme Court's decision in Harrington v. Purdue Pharma L.P. held that doing so was unauthorized by the Bankruptcy Code, one way to resolve direct claims against third parties was for a bankruptcy court to release them alongside derivative claims, even without the tort plaintiffs' consent, in exchange for a monetary contribution to the tortfeasor's estate.[10]

In the wake of Purdue, this avenue has closed with respect to direct claims against third parties. But Whittaker shows that third parties subjected to mass tort litigation because of the business of an affiliated debtor can still obtain a large measure of closure via a settlement of derivative claims. By entering bankruptcy, what may have been derivative claims of tort plaintiffs outside of bankruptcy become property of the estate giving the directly liable tortfeasor-i.e., the debtor- the ability to settle such derivative claims against its affiliates and other third parties in exchange for a monetary contribution that inures to the benefit of those tort plaintiffs' in their capacity as estate creditors. Such a settlement is not automatic and requires court approval under the ordinary framework for settling estate claims in bankruptcy.[11] But the bankruptcy path remains for third parties to purchase a substantial degree of certainty-and for tort plaintiffs to obtain recovery from them.