Bestwall LLC v. Sander L. Esserman, 71 F.4th 168

Background

Old GP (pre-2017 Georgia-Pacific) underwent a Texas divisional merger that split it into Bestwall (assigned Old GP’s asbestos liabilities and certain assets) and New GP (assigned operating assets and non-asbestos liabilities).
Bestwall and New GP entered indemnity, funding, and secondment agreements tying New GP’s assets and personnel to Bestwall’s management of asbestos claims.
Bestwall filed Chapter 11 in 2017 seeking to create a §524(g) asbestos trust and obtained a bankruptcy-court preliminary injunction under 11 U.S.C. §105(a) to enjoin pending and future asbestos suits naming New GP.
The bankruptcy court found it had "related to" jurisdiction under 28 U.S.C. §1334(b) because litigation against New GP could affect Bestwall’s estate; it granted the preliminary injunction.
The district court affirmed; the Official Committee of Asbestos Claimants and the Future Claimants’ Representative appealed, arguing lack of jurisdiction (and that jurisdiction was manufactured) and that the injunction standard was applied incorrectly.
The Fourth Circuit (majority) affirmed on standing, "related to" jurisdiction, and the preliminary-injunction standard; Judge King dissented in part, arguing the bankruptcy court’s jurisdiction was manufactured to protect a solvent non-debtor.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Appellate standing of FCR to appeal injunction	FCR lacks pecuniary stake; no standing	FCR represents future claimants whose rights/burdens are directly affected	FCR has appellate standing as the injunction increases future claimants’ burdens and impairs their rights; standing affirmed
"Related to" jurisdiction under §1334(b) to enjoin suits vs. non-debtor New GP	No jurisdiction: suits against non-debtor New GP are outside bankruptcy court’s scope	Litigation against New GP could conceivably affect Bestwall’s estate (identical claims, indemnity/funding, personnel secondment)	Court finds "related to" jurisdiction: identical claims pending against New GP could affect estate administration; jurisdiction affirmed (fact-specific)
Manufacturing jurisdiction / §1359 and parties creating jurisdiction	Old GP’s divisional merger and intercompany agreements were done to manufacture federal jurisdiction and protect solvent New GP	Restructuring was lawful and intended to separate liabilities; parties did not create jurisdiction improperly because claims would have been against Old GP pre-merger	Majority: no impermissible manufacturing shown; §1359 not applicable here and restructuring’s existence does not negate "related to" jurisdiction; dissent disagrees and would find manufactured jurisdiction
Preliminary injunction standard (likelihood of success)	Bankruptcy court applied too lenient a standard (realistic possibility); appellate court should require clear showing that permanent injunction/confirmation likely	In Chapter 11 context, "merits" focus is debtor’s ability to reorganize; preliminary injunction may be based on realistic likelihood of successful reorganization (not proof of eventual permanent injunction)	Court affirms: in §105(a) context, court may consider reasonable/realistic likelihood of successful reorganization for preliminary injunction; requiring proof of permanent injunction at this stage would frustrate Chapter 11 process

Key Cases Cited

Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (formulates the broad "related to" test for bankruptcy jurisdiction)
A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir. 1986) (applies Pacor and upholds injunctions enjoining litigation against non-debtors where claims are inextricably interwoven)
In re Celotex Corp., 124 F.3d 619 (4th Cir. 1997) (clarifies that a conceivable effect on the estate is sufficient for "related to" jurisdiction)
In re Dow Corning Corp., 86 F.3d 482 (6th Cir. 1996) (exercises "related to" jurisdiction over non-debtors closely related to debtor litigation)
In re Excel Innovations, Inc., 502 F.3d 1086 (9th Cir. 2007) (holds §105(a) injunction requires reasonable likelihood of successful reorganization)
In re Eagle‑Picher Indus., Inc., 963 F.2d 855 (6th Cir. 1992) (uses "realistic possibility" standard for reorganization when evaluating injunctions)
Valley Historic Ltd. P’ship v. Bank of N.Y., 486 F.3d 831 (4th Cir. 2007) (parties cannot create §1334 jurisdiction by consent or plan language)
In re LTL Management, LLC, 64 F.4th 84 (3d Cir. 2023) (addressed divisional-merger bankruptcy and dismissed petition as not filed in good faith; distinguished here)
Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008) (general preliminary injunction standard; distinguishable from §105(a) bankruptcy context)
Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (1995) (addresses limits of bankruptcy jurisdiction doctrines)