In Re Emoral, Inc.
740 F.3d 875
| 3rd Cir. | 2014Background
- Aaroma acquired Emoral's assets and assumed some liabilities in 2010; the asset purchase explicitly excluded Diacetyl-related liabilities and insurance.
- Emoral filed for bankruptcy in 2011; disputes arose over settlement releases affecting Diacetyl Plaintiffs’ claims.
- Aaroma and the Trustee settled, with a release covering “Estate’s Released Claims” as defined, but the Diacetyl Plaintiffs argued their successor-liability claims were not property of the estate.
- Diacetyl Plaintiffs filed state-court personal injury and product liability actions against Aaroma, asserting Aaroma is a mere continuation of Emoral.
- Bankruptcy Court denied enforcing the settlement as to the Diacetyl Plaintiffs’ claims; the District Court reversed, classifying the claims as property of the estate.
- The question is whether successor liability claims against a third party are general claims belonging to the estate or individualized claims belonging to specific creditors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Diacetyl Plaintiffs’ claims against Aaroma estate property? | Diacetyl Plaintiffs argue claims are individualized. | Aaroma argues claims are generalized estate claims. | Yes; the court holds the claims are general, estate property. |
| Do state-law successor liability claims count as property of the estate? | Diacetyl Plaintiffs rely on individualized injury. | Estate-wide, generalized claims belong to the trustee. | Yes; successor liability claims are general claims belonging to the estate. |
| Does the Settlement Release cover the Diacetyl Plaintiffs’ claims? | Trustee said claims do not belong to the estate and cannot be released. | Settlement language defines Estate’s Released Claims; may cover the action if it is estate property. | The District Court properly held the claims fall within Estate’s Released Claims. |
Key Cases Cited
- Foodtown, Inc. v. Twin (Bd. of Trs. of Teamsters Local 868 Pension Fund), 296 F.3d 164 (3d Cir. 2002) (estates claims depend on whether the claim is general or individualized)
- St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989) (general vs. personal claims framework for estate property)
- Koch Refining Co. v. Farmers Union Cent. Exch., Inc., 831 F.2d 1339 (7th Cir. 1987) (general claim vs. personal injury considerations in bankruptcy)
- In re Keene Corp., 164 B.R. 844 (Bankr.S.D.N.Y. 1994) (successor liability as property of the estate under New York law)
- In re Buildings by Jamie, Inc., 230 B.R. 36 (Bankr.D.N.J. 1998) (alter ego/veil-piercing claims as property of the estate when generalized)
- Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228 (3d Cir. 1994) (recognition of equitable basis for piercing/alter ego in bankruptcy)