In Re: Whittaker Clark & Daniels v.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

Nos. 24-2210 & 24-2211

________________

In re: WHITTAKER CLARK & DANIELS INC,

Debtor

PETER PROTOPAPAS,

Appellant in No. 24-2210

OFFICIAL COMMITTEE OF TALC CLAIMANTS

Appellant in No. 24-2211

________________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Nos. 3:23-cv-04151; 3:23-cv-04156)

District Judge: Honorable Zahid N. Quraishi

________________

No. 25-1044

In re: WHITTAKER CLARK & DANIELS INC.,

Debtor

WHITTAKER CLARK & DANIELS INC; BRILLIANT

NATIONAL SERVICES INC; L.A. TERMINALS INC.;

SOCO WEST INC.

v.

BRENNTAG AG; BRENNTAG CANADA INC.;

BRENNTAG GREAT LAKES LLC;

BRENNTAG MID-SOUTH INC.; BRENNTAG NORTH

AMERICA INC.; BRENNTAG NORTHEAST INC.;

BRENNTAG PACIFIC INC.; BRENNTAG SOUTHEAST

INC.; BRENNTAG SOUTHWEST INC.; BRENNTAG SPE-

CIALTIES LLC (f/k/a Brenntag Specialties, Inc., and as Min-

eral and Pigment Solutions, Inc.); COASTAL CHEMICAL

CO. LLC; MINERAL PIGMENT SOLUTIONS INC.;

THOSE PARTIES LISTED ON APPENDIX A TO THE

COMPLAINT; JOHN AND JANE DOES 1-1000; JULIET

M. GRAY; KYUNG H. LEE

Official Committee of Talc Claimants,

Appellant

2

________________

On Appeal from the United States Bankruptcy Court

for the District of New Jersey

(Bankr. Ct. Adv. Pro. No. 23-01245)

Bankruptcy Judge: Honorable Michael B. Kaplan

________________

Argued on April 1, 2025

Before: KRAUSE, MATEY, and AMBRO, Circuit Judges

(Opinion filed: September 10, 2025)

Bryan Killian

MORGAN, LEWIS & BOCKIUS LLP

1111 Pennsylvania Avenue NW

Washington, DC 20004

Andrew J. Gallo

MORGAN, LEWIS & BOCKIUS LLP

One Federal Street

Boston, MA 02110

Counsel for Appellant Peter Protopapas

Matthew Kutcher

Miriam Peguero Medrano

COOLEY LLP

110 North Wacker Drive, Suite 4200

Chicago, IL 60606

3

Cullen D. Speckhart

Patrick J. Hayden

Michael Klein

Evan M. Lazerowitz

Jeremiah P. Ledwidge

Arielle Ambra-Juarez

COOLEY LLP

55 Hudson Yards

New York, NY 10001

Benjamin B. Sweeney

COOLEY LLP

1333 2nd Street, Suite 400

Santa Monica, CA 90401

Kathleen R. Hartnett [ARGUED]

COOLEY LLP

3 Embarcadero Center, 20th Floor

San Francisco, CA 94111

Cullen D. Speckhart

Carlton E. Forbes

Dale A. Davis

COOLEY LLP

1299 Pennsylvania Avenue NW, Suite 700

Washington, DC 20004

Allison W. O’Neill

COOLEY LLP

10265 Science Center Drive

San Diego, CA 92121

4

Arthur J. Abramowitz

Ross J. Switkes

SHERMAN, SILVERSTEIN, KOHL, ROSE & PODOLSKY, P.A.

308 Harper Drive, Suite 200

Moorestown, NJ 08057

Kevin C. Maclay

Todd E. Phillips

Kevin M. Davis

Serafina A. Concannon

CAPLIN & DRYSDALE, CHARTERED

1200 New Hampshire Avenue NW, 8th Floor

Washington, DC 20036

Counsel for Appellant Official Committee of

Talc Claimants

Rex W. Manning

Joseph M. Capobianco

KIRKLAND & ELLIS LLP

1301 Pennsylvania Ave., N.W.

Washington, D.C. 20004

Michael D. Sirota

Warren A. Usatine

Felice R. Yudkin

COLE SCHOTZ P.C.

25 Main Street, 4th Floor

Hackensack, NJ 07601

5

G. David Dean

COLE SCHOTZ P.C.

500 Delaware Avenue, Suite 1410

Wilmington, Delaware 19801

Seth Van Aalten

Anthony De Leo

COLE SCHOTZ P.C.

1325 Avenue of the Americas, 19th Floor

New York, New York 10019

Paul D. Clement [ARGUED]

C. Harker Rhodes IV

Nicholas A. Aquart

CLEMENT & MURPHY, PLLC

706 Duke Street

Alexandria, VA 22314

Counsel for Appellees Whittaker, Clark & Dan-

iels, Inc., Brilliant National Services, Inc., L. A.

Terminals, Inc., and Soco West, Inc.

Seth Goldman

Bradley R. Schneider

Alexis Campbell

MUNGER, TOLLES & OLSON LLP

350 South Grand Avenue, 50th Floor

Los Angeles, CA 90071

6

Rachel G. Miller-Ziegler

Daniel J. Kane

MUNGER, TOLLES & OLSON LLP

601 Massachusetts Ave. NW, Suite 500E

Washington, DC 20001

Counsel for Intervenor-Appellees Berkshire

Hathaway, Inc., National Indemnity Company,

National Liability & Fire Insurance Company,

BH Columbia Inc., Columbia Insurance Com-

pany, Ringwalt & Liesche Co., and Resolute

Management, Inc.

________________

OPINION OF THE COURT

________________

AMBRO, Circuit Judge

Plagued by tort liability claims for distributing asbestos-

contaminated talc, Whittaker, Clark & Daniels, Inc. (“Whit-

taker”) and its debtor affiliates filed for bankruptcy in 2023

seeking to dispose finally of those claims. Like many mass-

tort bankruptcies, counsel contested Whittaker’s from the be-

ginning. On appeal, Appellants—the receiver appointed for

Whittaker by a South Carolina Court and the Official Commit-

tee of Talc Claimants—raise two fundamental questions about

Whittaker’s bankruptcy: Should we be here at all given that,

in their view, Whittaker’s petition was improperly filed, and if

rightly in bankruptcy, do its assets include certain tort claims

relating to asbestos liability?

7

We conclude that Whittaker properly filed for bank-

ruptcy and the Bankruptcy and District Courts correctly de-

clined to dismiss its petition. We also determine that successor

liability claims Appellants seek to assert against a nondebtor

belong to the bankruptcy estates rather than individual credi-

tors. Therefore, Whittaker may pursue those claims for the

benefit of the estates. Accordingly, we affirm.

I. BACKGROUND

A. The Debtors’ Corporate History.

Whittaker and its three affiliated debtors—Brilliant Na-

tional Services, Inc., L.A. Terminals, Inc., and Soco West, Inc.

(collectively with Whittaker, the “Debtors”)—were proces-

sors, manufacturers, and distributors of various industrial

chemicals and minerals, including talc. Through a series of

corporate transactions—too tortured to recount in full here—

the Debtors sold substantially all of their operating assets in

2004 to subsidiaries of Brenntag North America. As part of

that transaction, the Debtors ceased to be operating entities,

and Whittaker and Soco were left as shell companies to man-

age asbestos liability from the Debtors’ operating businesses.

Whittaker, Brilliant, and Soco also took on the obligation to

indemnify Brenntag and its affiliates for any liabilities it ac-

crued from asbestos-related tort claims.

Three years later, National Indemnity Company—a

subsidiary of Berkshire Hathaway Inc.—acquired Brilliant and

L.A. Terminals, thereby indirectly acquiring Whittaker and

8

Soco. 1 Through a chain of indemnity agreements and obliga-

tions, National Indemnity now backstops asbestos-related suc-

cessor liability claims against Brenntag.

B. Proceedings in South Carolina.

Prior to the Debtors’ bankruptcy, plaintiffs across the

country filed approximately 2,700 suits against the Debtors for

asbestos-related torts. Our case concerns Sarah Plant’s lawsuit

in the South Carolina Court of Common Pleas. The suit fol-

lowed Plant’s diagnosis of mesothelioma (a form of cancer af-

fecting the protective lining of the lungs) from asbestos-con-

taminated talc produced by Whittaker. In March 2023, a jury

awarded her a $29 million verdict against it.

Days later, Plant moved the South Carolina Court to

place Whittaker into receivership. The Court granted Plant’s

motion and entered an order (the “Receivership Order” or “Or-

der”) appointing Peter Protopapas (the “South Carolina Re-

ceiver”) as Whittaker’s receiver. The Receivership Order,

among other things, vested the South Carolina Receiver “with

the power and authority [to] fully administer all assets of

[Whittaker], accept service on behalf of [it], engage counsel on

behalf of [it] and take any and all steps necessary to protect the

interests of [Whittaker] whatever they may be.” Appellants’

Consolidated J.A. 217.

Whittaker promptly moved the South Carolina Court to

reconsider. It held a hearing on Whittaker’s motion, during

1

National Indemnity assigned its acquisition rights to another

Berkshire affiliate, Ringwalt & Liesche Co., who is now the

Debtors’ ultimate parent.

9

which, in response to counsel’s suggestion that Whittaker had

the “authority to enter into voluntary bankruptcy,” the Court

stated:

I’m well aware, that was the main factor in my

signing the order so quickly is that I wanted to be

sure that something other than [a] kind of amor-

phous organization I wasn’t quite sure about in

terms of asset picture, control[,] or anything

else[,] would not simply declare bankruptcy and

that entity would still be controlling things. I

wanted a receiver that I knew would take it seri-

ously, to look at the asset picture and see what

was going on.

Id. at 423. The Court denied Whittaker’s motion and directed

the parties to submit a proposed form of order to memorialize

its ruling.

C. The Debtors Petition for Bankruptcy.

The Debtors soon thereafter filed for bankruptcy in the

United States Bankruptcy Court for the District of New Jersey.

Whittaker’s board passed a resolution beforehand authorizing

the filing without gaining the approval of the South Carolina

Receiver or consulting him. He promptly moved in the Bank-

ruptcy Court to dismiss Whittaker’s bankruptcy as an unau-

thorized petition, arguing that the Receivership Order “di-

vested [its] board of the authority to approve a bankruptcy fil-

ing on [its] behalf and instead gave such authority to the Re-

ceiver alone.” Appellants’ Consolidated Opening Br. 13.

10

The Bankruptcy Court denied the South Carolina Re-

ceiver’s motion, concluding that the Receivership Order did

not remove the authority of Whittaker’s board to file a bank-

ruptcy petition because its terms did not demonstrate the South

Carolina Receiver displaced the board. He appealed to the Dis-

trict Court, which affirmed the Bankruptcy Court’s ruling for

substantially the same reasons. A timely appeal to our Court

followed.

Parallel with the South Carolina Receiver’s appeal,

Whittaker’s bankruptcy proceeded in the Bankruptcy Court. In

light of the substantial talc-related asbestos liability the Debt-

ors face, the United States Trustee appointed the Official Com-

mittee of Talc Claimants (the “Committee”) to represent that

constituency’s interests during the bankruptcy proceedings.

In September 2023, the Debtors began an adversary pro-

ceeding—naming as defendants Brenntag, related entities, and

hundreds of individual talc plaintiffs—seeking a declaratory

judgment that successor liability claims against Brenntag

premised on a “product line” theory of liability 2 (the “Succes-

sor Liability Claims”) are property of the Debtors’ estates

2

The “product line” theory of liability “imposes strict liability

for injuries caused by defects of a product line on a corporation

that acquires the manufacturing assets of another corporation

and undertakes essentially the same manufacturing operation

and practices.” Appellant Committee’s Opening Br. 33 (citing

Ramirez v. Amsted Indus., Inc., 431 A.2d 811, 820 (N.J.

1981)).

11

under 11 U.S.C. § 541(a)(1). 3 The Committee intervened in the

adversary proceeding, and the Debtors moved for summary

judgment. In their briefing, the Debtors argued that our deci-

sion in In re Emoral, 740 F.3d 875 (3d Cir. 2014), requires

treating the Successor Liability Claims as property of the Debt-

ors’ bankruptcy estates.

After rounds of unsuccessful mediation, in August 2024

the Bankruptcy Court granted summary judgment to the Debt-

ors. It agreed that, under Emoral, the Committee’s Successor

Liability Claims are property of the Debtors’ estates and alter-

natively held that 11 U.S.C. § 544(a)(1) provides an additional

basis for drawing those claims into the estates. 4 Recognizing

3

In the Bankruptcy Court, the Committee distinguished be-

tween claims premised on the “product line” theory generally

and those claims governed by California law. The latter, the

Committee contended, cannot be property of the estate because

the “Debtors are precluded by California law from bringing

successor liability claims against Brenntag.” In re Whittaker,

Clark, & Daniels, 663 B.R. 1, 12 (Bankr. D.N.J. 2024). As the

“California Claims” comprise a subset of the Successor Liabil-

ity Claims, and the parties place no meaningful significance on

the distinction between the two on appeal, we refer simply to

the Successor Liability Claims.

4

Section 544(a) vests a trustee with the rights and powers of a

hypothetical lien creditor who extended credit at the time of the

debtor’s petition, and under 11 U.S.C. § 1107(a), a debtor in a

Chapter 11 case (technically called a debtor in possession) has

essentially the rights of a trustee ordered to be appointed by the

bankruptcy court. Hence here the Debtors’ rights are coexten-

sive with those of a trustee.

12

the uncertainty of the law governing its decision, the Bank-

ruptcy Court certified its decision for direct appeal to our Court

under 28 U.S.C. § 158(d)(2). The Committee timely sought a

direct appeal, and we granted its petition to do so on December

2, 2024. Given the Receiver’s pending appeal and the im-

portance of the issues raised in the Committee’s appeal, we or-

dered expedited briefing and consolidated the two. We now

consider both appeals together. 5

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Court had jurisdiction under 28 U.S.C.

§§ 1334 and 157(b), and in the South Carolina Receiver’s ap-

peal the District Court had jurisdiction under 28 U.S.C.

§ 158(a). We have jurisdiction under 28 U.S.C. § 158(d). We

review without deference both the Bankruptcy Court’s and the

District Court’s legal conclusions, while our review of their

factual findings is for clear error. In re Trans World Airlines,

Inc., 145 F.3d 124, 131 (3d Cir. 1998).

III. DISCUSSION

5

In the meantime, the Debtors have sought approval from the

Bankruptcy Court to settle the Successor Liability Claims for

approximately $535 million. That settlement amount includes

$50 million in debtor-in-possession financing provided by

Berkshire Hathaway, which the Bankruptcy Court approved on

October 15, 2024. The Bankruptcy Court held a trial the week

of March 3, 2025, on, inter alia, the Debtors’ settlement mo-

tion. A decision remains pending.

13

Before us are two issues, each with accompanying nu-

ance. First, the South Carolina Receiver and the Committee

contend that Whittaker improperly filed for bankruptcy be-

cause the South Carolina Court vested that authority exclu-

sively in the South Carolina Receiver, meaning Whittaker’s

bankruptcy must be dismissed. Second, the Committee argues

that the Bankruptcy Court incorrectly concluded that the Suc-

cessor Liability Claims belong to the Debtors’ bankruptcy es-

tates under our decision in Emoral. We review each in turn.

A. A Properly Filed Petition Is Not a Jurisdic-

tional Prerequisite.

Before considering whether Whittaker properly entered

bankruptcy, we encounter a predicate question: Does a

properly filed petition affect a court’s subject matter jurisdic-

tion? Or is a valid petition instead a non-jurisdictional—but

nonetheless integral—component of a bankruptcy case? We

conclude it is the latter.

The Bankruptcy Code provides that, except in narrow

circumstances, “on request of a party in interest, and after no-

tice and a hearing, the court shall . . . dismiss a case under

[Chapter 11] . . . for cause.” 11 U.S.C. § 1112(b)(1). “Cause”

typically includes things like “gross mismanagement of the es-

tate,” “failure to comply with an order of the court,” and “ma-

terial default by the debtor with respect to a confirmed plan.”

Id. § 1112(b)(4)(B), (E), (N). But it also includes occasions

when a debtor “did not have the proper authority to commence

the . . . bankruptcy proceeding.” In re 3P Highstown, LLC, 631

B.R. 205, 209 (Bankr. D.N.J. 2021). In those cases, the court

“has no alternative but to dismiss the petition.” Price v. Gur-

ney, 324 U.S. 100, 106 (1945).

14

The Supreme Court previously described this necessary

component of the bankruptcy case as a limitation on courts’

“jurisdiction,” stating, in interpreting the predecessor statute to

the Bankruptcy Code, “nowhere is there any indication that

Congress bestowed on the bankruptcy court jurisdiction to de-

termine that those who in fact do not have the authority to

speak for the corporation . . . should be empowered to file a

petition on behalf of the corporation.” Id. at 107 (emphasis

added).

“Jurisdiction,” however, “is a word of many, too many,

meanings.” Steel Co. v. Citizens for Better Env’t, 523 U.S. 83,

90 (1998) (quoting United States v. Vanness, 85 F.3d 661, 663

n.2 (D.C. Cir. 1996)). And some courts have taken Price’s

mention of “jurisdiction” to mean a limitation on bankruptcy

courts’ subject matter jurisdiction. See, e.g., In re Parks Di-

versified, L.P., 661 B.R. 401, 415–420 (C.D. Cal. 2024) (col-

lecting cases); In re Mach I Aviation, Inc., No. 10-01225, 2011

WL 5838520, at *4 n.11 (B.A.P. 9th Cir. Sept. 15, 2011). Fol-

lowing that understanding, the absence of a properly filed pe-

tition would extinguish “a court’s power to hear a case,” leav-

ing it no choice but to dismiss it for lack of jurisdiction. Ar-

baugh v. Y&H Corp., 546 U.S. 500, 514 (2006) (quoting

United States v. Cotton, 535 U.S. 625, 630 (2002)).

But in recognition of jurisdictional limitations’ “unique

potential to disrupt the orderly course of litigation,” recent Su-

preme Court cases exercise greater care before hanging the “ju-

risdictional label” on a statutory provision. Wilkins v. United

States, 598 U.S. 152, 157–58 (2023). Today the standard for

concluding a statute limits federal courts’ subject matter juris-

diction is an exacting one. While Congress need not employ

15

any specific formulation or “incant magic words,” “the ‘tradi-

tional tools of statutory construction must plainly show that

Congress imbued a procedural bar with jurisdictional conse-

quences.’” Boechler, P.C., v. Comm’r, 596 U.S. 199, 203

(2022) (first quoting Sebelius v. Auburn Reg’l Med. Ctr., 568

U.S. 145, 154 (2013); then quoting United States v. Kwai Fun

Wong, 575 U.S. 402, 410 (2015)). Anything short of a clear

indication will not do.

The statutes granting federal courts jurisdiction over

bankruptcy cases do not attach jurisdictional significance to the

propriety of a debtor’s petition. The governing provision, 28

U.S.C. § 1334(a), provides only that, absent exceptions not rel-

evant here, “the district courts shall have original and exclusive

jurisdiction of all cases under title 11.” In addition, “district

court[s] may provide that any or all cases under title 11 . . .

shall be referred to the bankruptcy judges for the district” who

“may hear and determine all cases under title 11 . . . and may

enter appropriate orders and judgments.” Id. § 157(a), (b)(1).

These statutes establish the jurisdictional grant for district and

bankruptcy courts over bankruptcy cases, and neither they, nor

any other provision, condition that grant on a properly filed pe-

tition.

Code § 301(a), which does deal with bankruptcy peti-

tions, provides only that a voluntary bankruptcy “is com-

menced by the filing with the bankruptcy court of a petition

under such chapter by an entity that may be a debtor under such

chapter.” This provision focuses on the commencement of a

bankruptcy case by a debtor, not on the power to decide of the

court. Simply put, § 301(a) “does not speak in jurisdictional

terms,” Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 394

(1982), and we “will not lightly apply” the jurisdictional label

16

to a provision absent a “clear statement” to the contrary, Wil-

kins, 598 U.S. at 158.

Accordingly, an improperly filed bankruptcy petition

constitutes “cause” to dismiss a bankruptcy case, 11 U.S.C.

§ 1112(b)(1), but it does not strip bankruptcy courts of subject

matter jurisdiction.

B. Whittaker Properly Filed Its Bankruptcy Pe-

tition.

The Supreme Court has long held that, “[i]n the absence

of federal incorporation,” “local law” governs a corporate

debtor’s authority to petition for bankruptcy. Price, 324 U.S.

at 106. As corporations act through agents, “local law” is the

non-federal rule that gives a corporation’s agents—typically in

those circumstances its board of directors—the “authority . . .

to act.” Id. And because “[c]orporations are creatures of state

law,” Burks v. Lasker, 441 U.S. 471, 478 (1979) (quoting Cort

v. Ash, 422 U.S. 66, 84 (1975)), “it is state law which is the font

of corporate directors’ powers,” id. So we look to governing

state law to determine the propriety of a corporation’s bank-

ruptcy petition. In re Franchise Servs. of N. Am., Inc., 891 F.3d

198, 206 (5th Cir. 2018).

But which state’s law governs? More precisely, in a sit-

uation such as this, where a South Carolina court has putatively

exercised authority over the assets of a New Jersey corpora-

tion, do we assess the authority of Whittaker’s board to file for

bankruptcy with reference to New Jersey or South Carolina

law?

17

Fortunately, the parties make answering this question

easy. They agree that New Jersey law governs the authority of

Whittaker’s board over its internal affairs, like petitioning for

bankruptcy. Appellants’ Second Supp. Br. 1; Appellees’ Sec-

ond Supp. Br. 2, 11; Williams v. BASF Catalysts LLC, 765 F.3d

306, 317 (3d Cir. 2014) (where parties do not dispute govern-

ing law, we need not conduct a choice-of-law analysis). So the

question becomes whether, under New Jersey law, the Receiv-

ership Order stripped Whittaker’s board of the authority to file

for bankruptcy. It did not.

While we stand far removed in time from the zenith of

equity receiverships in this country, see David A. Skeel, Jr.,

Debt’s Dominion: A History of Bankruptcy Law in America

56–60 (2001) (describing the rise of equity receivership in the

late nineteenth century as a device for resolving corporate in-

solvency), this case proves that state courts retain the tradi-

tional equitable authority to appoint receivers for insolvent cor-

porations. But that authority is not without limits, as this case

also proves.

New Jersey law recognizes that “comity requires that [a

foreign receiver] should be acknowledged and aided” to the

extent that doing so is not “to the disadvantage of creditors res-

ident [in New Jersey].” Stone v. N.J. & H. R. Ry. & Ferry Co.,

66 A. 1072, 1073 (N.J. 1907). So where a foreign court ap-

points a receiver, New Jersey courts generally “will appoint an

ancillary receiver, [and] the assets will be so administered that

creditors in [New Jersey] and in the foreign jurisdiction shall

fare alike.” Id.; accord Clark v. Painted Post Lumber Co., 104

A. 728, 728 (N.J. Ch. 1918) (recognizing that “after the ap-

pointment of the receiver in New York, [an ancillary receiver]

was appointed” by a New Jersey court); Ware v. Supreme

18

Sitting of Order of Iron Hall, 28 A. 1041, 1043 (N.J. Ch. 1894)

(recognizing that an ancillary receiver was appointed in New

Jersey and “should be regarded as auxiliary to the [foreign] re-

ceiver”).

New Jersey law authorizes its Superior Court to appoint

receivers for New Jersey corporations. See N.J. Stat. Ann. §

14A:14-2(3) (“The court . . . shall have power to appoint and

remove one or more receivers of the corporation.”). That pro-

vision also permits the court to “enjoin the corporation, its of-

ficers and agents, from exercising any of its privileges and

franchises, and from collecting or receiving any debts, or pay-

ing out, selling, assigning or transferring any of its property,

except to a receiver, and except as the court may otherwise or-

der.” Id. This statute suggests that New Jersey has licensed its

courts to exercise broad authority over domestic corporations

consistent with its corporate law. Thus, on our reading, New

Jersey law permits its courts to recognize foreign receivership

orders and appoint an ancillary receiver to aid in the execution

of foreign judgments, including by enjoining the corporation

and its board from taking specific actions and exercising spe-

cific powers.

The Restatement (Second) of Conflict of Laws supports

as much. In recognizing that courts may appoint a receiver

over a foreign corporation, the Restatement observes that

“[w]hen a principal receiver of a corporation has been ap-

pointed by a court of a state other than the state of incorpora-

tion, and it is intended to dissolve the corporation . . . , an an-

cillary receiver should be appointed for those purposes by a

court of the state of incorporation.” Restatement (Second) of

Conflict of Laws § 367 cmt. d (Am. L. Inst. 1971). This is so

because “only a receiver appointed by a court in the state where

19

the corporation was incorporated can institute action to dis-

solve a corporation.” 6 Id.

Accordingly, under New Jersey law and settled choice-

of-law principles, the South Carolina Receiver needed to move

for, and be granted, recognition in New Jersey and the appoint-

ment of an ancillary receiver to displace Whittaker’s board’s

control over, inter alia, the company’s privileges, franchises

and assets. It did not do so, meaning Whittaker’s board re-

tained authority over those corporate decisions reserved to it

by New Jersey law, including the decision whether to reorgan-

ize by filing for bankruptcy.

Appellants respond by invoking one of our Nation’s

oldest laws—the Full Faith and Credit statute, 28 U.S.C.

§ 1738. They contend that, under obligations imposed by that

provision, “New Jersey would not ignore the Receivership Or-

der, just as the Bankruptcy Court could not ignore it.” Appel-

lants’ Second Supp. Br. 6–7. This argument falters on three

fronts.

6

Of course, neither New Jersey law nor the Restatement con-

templates a state’s authority over domestic corporations in in-

stances of bankruptcy, as that power is an area of exclusive

federal competence. Hanover Nat’l Bank v. Moyses, 186 U.S.

181, 187 (1902) (“The framers of the Constitution . . . granted

plenary power to Congress over the whole subject of ‘bank-

ruptcies.’”). But the scenarios these authorities posit are suffi-

ciently analogous in character to bankruptcy—in that they in-

volve fundamental changes to a corporation’s structure (or, in

the instance of dissolution, existence)—that their precepts ap-

ply to the same extent when a board seeks to enter bankruptcy.

20

First, on its face, the Receivership Order does not reach

as far as Appellants insist. Rather than extending to displace

Whittaker’s board’s authority over corporate affairs, it purports

only to give the South Carolina Receiver control of Whittaker’s

“assets” and the power and authority to “take any and all steps

necessary to protect the interests of [Whittaker] whatever they

may be.” Appellants’ Consolidated J.A. 217. Nowhere does

the Order speak to Whittaker’s corporate affairs, including the

board’s authority under New Jersey law to decide whether to

file for bankruptcy. 7 And in the absence of anything to the

contrary in it, the default rule discussed above controls—

namely, Whittaker’s board controls the entity’s corporate af-

fairs, subject to lawful displacement under New Jersey law.

Thus, because the Receivership Order on its own terms does

not dictate the result Appellants assert, affording it full faith

and credit under § 1738 does not lead to a different outcome.

Second, even if we assume the Receivership Order ex-

tended to corporate affairs, Appellees still did not attempt to

7

Appellants have also argued that this type of interpretation is

effectively an appeal of the Receivership Order and thus barred

by the Rooker-Feldman doctrine, which essentially prohibits

federal courts, save the Supreme Court, from reviewing final

state court judgments. But if an order is interlocutory, the

Rooker-Feldman doctrine applies only to those that are

“effectively final” because, among other things, the parties

have abandoned further litigation. Cf. Malhan v. Sec’y U.S.

Dep’t of State, 938 F.3d 453, 459 (3d Cir. 2019). And here,

state-court litigation over the Order is not abandoned—it is

merely stayed. See 11 U.S.C. § 362(a). Indeed, Appellants

expressed their intention to continue to litigate the Order if the

stay were lifted.

21

enforce it against Whittaker. While an order rendered by a for-

eign court may warrant recognition and enforcement under

§ 1738, “[e]nforcement measures do not travel with the sister

state judgment,” and full faith and credit “does not mean that

States must adopt the practices of other States regarding the

time, manner, and mechanisms for enforcing judgments.”

Baker ex rel. Thomas v. Gen. Motors Corp., 522 U.S. 222, 235

(1998). So even spotting Appellants the enforceability of the

Order, they needed to employ the enforcement mechanisms

provided under New Jersey law outlined above, which they did

not do (e.g., not securing the appointment of an ancillary re-

ceiver in New Jersey), 8 meaning their § 1738 argument fails on

this basis too.

Third, and more fundamentally, were the South Caro-

lina Court to issue an order purporting to place the control of

Whittaker’s corporate affairs in the hands of the South Carolina

Receiver, we doubt its ability to do so. Our system of federal-

ism embodies “the fundamental principle of equal sovereignty”

among the states. Nw. Austin Mun. Util. Dist. No. One v.

Holder, 557 U.S. 193, 203 (2009). Implicit in that foundational

8

The Receiver contends that he should not have been required

to seek appointment of an ancillary receiver in New Jersey be-

cause Whittaker “itself made [doing so] impossible” by “filing

for bankruptcy before the South Carolina Court could even is-

sue a written order memorializing its denial of [Whittaker]’s

motion for reconsideration,” characterizing Whittaker’s posi-

tion as “Kafka-esque.” Appellants’ Consolidated Reply Br. 21.

But without an order lawfully preventing it from doing so,

Whittaker’s board was free to exercise its authority under New

Jersey law to enter bankruptcy. The fact that the Receiver lost

the race to the courthouse does not render the results invalid.

22

organization of co-equal sovereigns is “the usual legislative

power of a State to act upon persons and property within the

limits of its own territory,” permitting “different communities

to live with different local standards.” Nat’l Pork Producers

Council v. Ross, 598 U.S. 356, 375 (2023) (cleaned up).

But states’ power to exercise control over actors within

their respective borders is not without limits. Indeed, the Con-

stitution has a great deal to say about the relations between

states, their authority to decide the rights of foreign parties, and

the application of their laws in instances of conflict. For in-

stance, the Due Process Clause of the Fourteenth Amendment

is long understood to impose limitations on state courts’ au-

thority to determine non-resident parties’ rights. See, e.g., Pen-

noyer v. Neff, 95 U.S. (5 Otto) 714, 723–43 (1877); Int’l Shoe

Co. v. Washington, 326 U.S. 310, 323–24 (1945); World-Wide

Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980);

Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 592 U.S. 351,

358 (2021). Likewise, the dormant Commerce Clause prohib-

its, among other things, “the enforcement of state laws ‘driven

by . . . economic protectionism—that is, regulatory measures

designed to benefit in-state economic interests by burdening

out-of-state competitors.’” Ross, 598 U.S. at 369 (omission in

original) (quoting Dep’t of Revenue v. Davis, 553 U.S. 328,

337–38 (2008)).

So it is no surprise that the Constitution limits the au-

thority a state court can exercise over a corporation incorpo-

rated in a sister state. Those limitations are as intuitive as they

make good sense. A corporation’s state of incorporation or

23

principal place of business determines its domicile. 9 See

Daimler AG v. Bauman, 571 U.S. 117, 137 (2014). And dom-

icile has long carried with it great significance for states’ au-

thority. See id.; Pennoyer, 95 U.S. at 723. Among the many

powers over their domiciliaries, states may determine “‘any

and all claims’ brought against a [resident] defendant.” Ford

Motor Co., 592 U.S. at 358 (quoting Goodyear Dunlop Tires

Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). But

“the very nature of the federal union of states, to which are re-

served some of the attributes of sovereignty, precludes resort

to the full faith and credit clause as the means for compelling a

state to substitute the statutes of other states for its own statutes

dealing with a subject matter concerning which it is competent

to legislate.” Pac. Emps. Ins. Co. v. Indus. Accident Comm’n,

306 U.S. 493, 501 (1939). Thus, when it comes to control over

corporate decision-making, a state “has no interest in regulat-

ing the internal affairs of foreign corporations.” Edgar v. MITE

Corp., 457 U.S. 624, 645–46 (1982).

But as Appellants would have it, that is precisely what

the South Carolina Court did in this case. They contend that

the Receivership Order, properly construed, “divest[ed]” Whit-

taker’s board of authority to conduct the internal affairs of the

9

Whittaker’s principal place of business is in Connecticut. We

take no position on the authority a state in which a corporation

has a principal place of business may exert over that

corporation when it is incorporated in a different state. Neither

party has argued that Connecticut is the proper forum to

enforce the Receivership Order or that its law governs.

Accordingly, we limit our discussion to New Jersey and South

Carolina laws, as the parties have framed this case.

24

corporation—including the authority to file for bankruptcy. 10

Oral Arg. Tr. 15:17. As explained above, the Order, reasona-

bly interpreted, does not extend so far. And if it did, it would

be an unprecedented exertion of power over a foreign corpora-

tion whose internal affairs are governed by the laws of a sister

state, and a radical intrusion into the province of a co-equal

sovereign.

These constitutional infirmities provide an independent

basis to reject Appellants’ appeal to § 1738. Rendering full

faith and credit to foreign judgments does not entail blind def-

erence in the face of constitutional limitations. Just as “[a]

State may not grant preclusive effect in its own courts to a con-

stitutionally infirm judgment, . . . other state and federal courts

are not required to accord full faith and credit to such a judg-

ment.” Kremer v. Chem. Constr. Corp., 456 U.S. 461, 482

(1982) (footnote omitted). So where, as here, the parties did

not litigate the constitutionality of the state-court judgment,

§ 1738 does not require New Jersey to acquiesce in the en-

forcement of the Receivership Order without assessing its

(doubtful) constitutionality.

*****

10

Appellants seemingly take the position that the Receivership

Order did far more than merely attempt to prevent Whittaker

from filing for bankruptcy. At oral argument, when asked

whether, in their view, the Receivership Order authorized the

South Carolina Receiver “to amend the bylaws of the corpora-

tion, to enter into mergers,” or to “[c]hange domicile,” counsel

for Appellants neither disavowed those actions nor offered a

limiting principle for their interpretation of the Order. Oral

Arg. Tr. 14:1–3.

25

“Our Constitution ‘was framed upon the theory that the

peoples of the several states must sink or swim together.’” Am.

Trucking Ass’n, Inc. v. Mich. Pub. Serv. Comm’n, 545 U.S.

429, 433 (2005) (quoting Baldwin v. G.A.F. Seelig, Inc., 294

U.S. 511, 523 (1935)). But while bound together in a federal

union, certain powers are reserved to states’ respective prov-

inces to the exclusion of sister states. Among others, the state

of incorporation enjoys the exclusive authority to govern the

internal affairs of its corporations. Thus, consistent with con-

stitutional constraints, New Jersey law governs and sanctions

the Whittaker board’s authority to petition for bankruptcy.

And in any event, the Receivership Order did not purport to

divest that body of the authority to seek bankruptcy protection,

as the Bankruptcy and District Courts correctly concluded.

C. Successor Liability Claims Are Property of

the Debtors’ Estates.

As Whittaker properly entered bankruptcy, we now turn

to consider whether the Successor Liability Claims belong to

the Debtors’ estates. We conclude they do.

At the outset of a bankruptcy case, Code § 541(a)(1) es-

tablishes an estate comprised of “all legal or equitable interests

of the debtor in property,” including causes of action, “wher-

ever located and by whomever held.” This feature of bank-

ruptcy law can have significant repercussions, for “once a

cause of action becomes the estate’s property, the Bankruptcy

Code gives the trustee, and only the trustee, the statutory

26

authority to pursue it.” 11 In re Wilton Armetale, Inc., 968 F.3d

273, 280 (3d Cir. 2020). So whether a claim is in or out of the

estate determines who can pursue (and recover on) that

claim—a difference, as this case demonstrates, with significant

consequences.

In order for a claim putatively held by a creditor to be-

long to the estate, two conditions must be met: (1) it must have

existed at the outset of the bankruptcy, and (2) it must be a

“general” claim, meaning one “with no particularized injury

arising from it.” Emoral, 740 F.3d at 879 (quoting Bd. of Trs.

of Teamsters Loc. 863 Pension Fund v. Foodtown, Inc., 296

F.3d 164, 169 (3d Cir. 2002)). Whether a claim is “general” to

all creditors or “personal” to a specific creditor calls for an “ex-

amin[ation of] the nature of the cause of action itself.” Id. In

doing so, “we focus not on the nature of the injury, but on the

‘theory of liability.’” Wilton Armetale, 968 F.3d at 282 (quot-

ing Emoral, 740 F.3d at 879).

“General” claims are ones “based on facts generally

available to any creditor, and [for which] recovery would serve

to increase the pool of assets available to all creditors.”

Emoral, 740 F.3d at 881. Contrast this with “personal” claims,

which are “specific to the creditor” and in which “other credi-

tors generally have no interest.” Id. at 879 (quoting Foodtown,

296 F.3d at 170). A claim is “personal” when the creditor’s

injury can be “directly traced” to wrongful conduct committed

by the defendant, whether that be the debtor or a third party.

11

As mentioned already, supra note 4, in Chapter 11 cases

(where there is seldom a trustee) the debtor in possession en-

joys “all the rights . . . and powers . . . of a trustee,” save for

exceptions not relevant here. 11 U.S.C § 1107(a).

27

Wilton Armetale, 968 F.3d at 283 (quoting In re Tronox Inc.,

855 F.3d 84, 100 (2d Cir. 2017)). A claim is “general” if the

creditor’s theory of liability depends on facts concerning the

relationship between the defendant and another party—that is,

“facts generally available to any creditor.” Emoral, 740 F.3d

at 881.

In Emoral, we applied this standard to a case that shares

many similarities with this one. The debtor (Emoral) manufac-

tured diacetyl, a chemical used in the food flavoring industry

that was later found to cause various lung ailments. Id. at 877.

Through a complicated procedural history, a group of plaintiffs

eventually sued Aaroma Holdings LLC—a company that

bought some of Emoral’s assets and assumed some of its lia-

bilities in the bankruptcy case—for diacetyl-related injuries

they suffered from Emoral’s products. Id. The plaintiffs pro-

ceeded against Aaroma on the theory that it was the “mere con-

tinuation” of Emoral and thus liable for the plaintiffs’ diacetyl-

related personal injury and product liability claims as Emoral’s

successor. Id.

We held that the plaintiffs’ successor liability claims

against Aaroma were “general” claims and belonged to

Emoral’s bankruptcy estate rather than individual creditors. Id.

at 880. Because they had not alleged “any direct injury” caused

to them by Aaroma, the plaintiffs “fail[ed] to demonstrate how

any of the factual allegations” were “unique to them as com-

pared to other creditors of Emoral.” Id. at 879–80. While the

plaintiffs “focus[ed] on the individualized nature of their per-

sonal injury claims against Emoral,” the same could not be said

about their claims against Aaroma. Id. at 879. Their only the-

ory of liability as to those claims depended on Aaroma’s status

28

as Emoral’s successor, not its relationship with or conduct to-

ward the plaintiffs.

This case mirrors Emoral, and that sounds the death

knell for the Committee’s argument. 12 Start from the begin-

ning: The Committee’s theory of liability against Brenntag de-

pends exclusively on the latter’s relationship with the Debtors,

not on any interaction with the individual claimants them-

selves. It attempts to hold Brenntag liable under a “product

line” tort theory, which, to repeat note 2 above, “imposes strict

liability for injuries caused by defects of a product line on a

corporation that acquires the manufacturing assets of another

corporation and undertakes essentially the same manufacturing

operation and practices.” Appellant Committee’s Opening Br.

33. While that theory of liability is distinct from the “mere

continuation” theory advanced in Emoral, the Committee

here—just as the plaintiffs in Emoral—seeks to impose the

Debtors’ liability onto Brenntag solely due to its status as the

Debtors’ successor, not because of any “particularized injury

that can be ‘directly traced’ to [its] conduct.” Wilton Armetale,

968 F.3d at 283 (quoting Tronox, 855 F.3d at 100). So the

Successor Liability Claims against Brenntag belong to the

Debtors’ estates, meaning they are for the Debtors to pursue or

settle, not the Committee.

The Committee challenges this logic on two fronts. It

contends that “[t]he absence of an independent right under state

12

All agree the Successor Liability Claims existed as of the

Debtors filing bankruptcy, so Emoral’s first prong is satisfied

and we focus on the second. See Appellant Committee’s

Opening Br. 25 (not disputing this element); Appellees’

Answering Br. 20.

29

law for the Debtors to bring on their own behalf at least a subset

of the Successor Liability Claims . . . demonstrates that the

Debtors cannot satisfy the first part of the Emoral test.” Ap-

pellant Committee’s Opening Br. 32 (quoting Emoral, 740

F.3d at 879). For this assertion, the Committee calls out lan-

guage from a footnote in Foodtown that “[a] cause of action is

considered property of the estate if [1] the claim existed at the

commencement of the filing and [2] the debtor could have as-

serted the claim on his own behalf under state law.” 296 F.3d

at 169 n.5 (citing Butner v. United States, 440 U.S. 48, 54

(1979)). From this statement, the Committee seeks to add a

third prong to that property-of-the-estate test, namely 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.

But this argument divines too much from too little.

Elsewhere in Foodtown itself, we recited the now-familiar

standard noted above governing when claims become property

of the estate: “In order for the claim to be the ‘legal or equitable

interest of the debtor in property,’ the claim must be a ‘general

one, with no particularized injury arising from it.’” Id. at 170

(quoting St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884

F.2d 688, 701 (2d Cir. 1989)). We reiterated that test in both

Emoral and Wilton Armetale, see 740 F.3d at 879 & 968 F.3d

at 282, and neither time did we impose an additional, freestand-

ing condition that a debtor be able to pursue the cause of action

under state law for it to become property of the estate. So while

the ability to “assert[] the claim on his own behalf under state

law” is enough to become property of the estate, it is not nec-

essary. Foodtown, 296 F.3d at 169 n.5. Thus, any inability by

the Debtors to assert the Successor Liability Claims against

30

Brenntag outside of bankruptcy does not affect whether those

claims are property of the estate inside bankruptcy. 13

The Committee also argues that the Successor Liability

Claims are not “general” because the theory of liability against

Brenntag (the product-line theory) involves “specific claims

exclusively belonging to victims injured by defective prod-

ucts,” and “[t]hey arise from harms unique to those victims . . .

based on conduct of the successor entity.” Appellant Commit-

tee’s Opening Br. 33. Those claims do not inure to the benefit

of all creditors, the Committee asserts, because they are only

available to “personal-injury and environmental tort creditors;

they do not include, for example, the Debtors’ various com-

mercial and contract creditors.” Id. at 36.

While this argument may have intuitive appeal, our

precedent has already rejected it. When assessing whether a

claim is “general” or “personal,” we “focus not on the nature

of the injury, but on the ‘theory of liability.’” Wilton Armetale,

968 F.3d at 282 (quoting Emoral, 740 F.3d at 879). As the

Committee presses a “product line” theory, we evaluate

whether the facts necessary to establish liability under that the-

ory are “generally available to any creditor.” Emoral, 740 F.3d

at 881.

13

In Emoral we expressed doubt that such an inability made a

difference to whether a claim was properly characterized as

“general.” 740 F.3d at 881 (“As a practical matter, it is difficult

to imagine a factual scenario in which a solvent Emoral, out-

side of the bankruptcy context, would or could bring a claim

for successor liability against Aaroma.”).

31

The product-line theory depends entirely on the succes-

sor’s relationship with the manufacturer because it is the suc-

cessor’s acquisition and continuation of the “same manufactur-

ing operation and practices” as the manufacturer that seeds po-

tential successor liability to individual claimants. Appellant

Committee’s Opening Br. 33 (citing Ramirez, 431 A.2d at

820). That sort of pass-through liability—using the manufac-

turer as a conduit to reach the successor—was rejected in

Emoral because the facts on which liability depended—the

successor’s relationship with the manufacturer—do not impli-

cate a claim that is “specific to the creditor.” Emoral, 740 F.3d

at 879 (quoting Foodtown, 296 F.3d at 170).

So too here. The talc claimants’ injuries do not stem

from the nucleus of facts that underlay Brenntag’s status as a

successor to the Debtors. They trace only to the exposure to

asbestos-contaminated products manufactured by the Debtors

at a time before Brenntag was even in the picture. This obvi-

ates their being “directly traced” to it. Wilton Armetale, 968

F.3d at 283 (quoting Tronox, 855 F.3d at 100). Those claims

are quintessentially “general.” 14

14

At oral argument, the Committee gestured at the prospect of

conceiving its constituents’ claims as “direct” and stemming

from Brenntag’s own conduct, namely its status as “a successor

who continues to manufacture the product.” Oral Arg. Tr.

77:6–7. But this characterization merely repackages the prod-

uct-line theory and runs into the same problems. True, the

Committee’s product-line claims depend, in some measure, on

Brenntag’s conduct. In order to be a successor susceptible to

the product-line theory, Brenntag must have actually continued

the product line, which it has. But that fact was equally present

32

To be sure, the Committee correctly points out that its

constituents have each suffered “harms unique to [them].” Ap-

pellant Committee’s Opening Br. 33. Indeed, this echoes ar-

guments raised in the Emoral dissent, which would have held

that “[b]ecause the Diacetyl Plaintiffs’ underlying allegations

are clearly individualized in nature, their claims against

Aaroma—which seek to hold this third party liable for their

alleged injuries as the ‘mere continuation’ of Emoral—must

also be considered as individualized claims.” Emoral, 740 F.3d

at 883 (Cowen, J., dissenting). The Emoral majority, however,

rejected that focus on “the nature of the [underlying] injury,”

instead returning to consideration of “the ‘theory of liability’”

and the facts on which it relies. Wilton Armetale, 968 F.3d at

282 (quoting Emoral, 740 F.3d at 879). And that analysis con-

trols even though the harm suffered by some creditors “might

be worse in degree than that suffered by other[s].” 15 Id. at 283.

in Emoral, where the diacetyl plaintiffs’ “mere continuation”

claims depended in part of Aaroma’s purchase of Emoral’s as-

sets and continuation of its business enterprise. Emoral, 740

F.3d at 880. So while successor liability claims at some level

depend on actions by the successor, the injuries to the Commit-

tee’s constituents cannot be “directly traced” to Brenntag’s

conduct because they stem from the Debtors’ manufacture and

sale of asbestos-contaminated products. Wilton Armetale, 968

F.3d at 283 (quoting Tronox, 855 F.3d at 100).

15

The Bankruptcy Court held in the alternative that

§ 544(a)(1), coupled with § 541(a)(7), brought the Successor

Liability Claims into the Debtors’ estates. Section 541(a)(7)

provides that “[a]ny interest in property that the estate acquires

after the commencement of the case” becomes property of the

33

IV. CONCLUSION

Whittaker filed for bankruptcy after its board exercised

its power to authorize the petition. The South Carolina Court

could not divest Whittaker’s board of that authority on its own,

and, once appointed, the South Carolina Receiver had to move

successfully a New Jersey court to displace the board. That did

not occur (indeed, the attempt was not made), and Whittaker

properly entered bankruptcy. Once there, Code § 541(a)(1)

and Emoral brought the Successor Liability Claims into the

Debtors’ estates. 16 For these reasons, we affirm the judgments

estate. So because the debtor in possession enjoys the rights of

a trustee under the Code—including the right to pursue estate

causes of action, Wilton Armetale, 968 F.3d at 282—the Bank-

ruptcy Court reasoned that the post-petition cause of action

conferred on the trustee by § 544(a)(1) is after-acquired prop-

erty of the estate under § 541(a)(7). See In re Whittaker, Clark,

& Daniels, 663 B.R. at 14. Thus, because, in the Bankruptcy

Court’s view, the Successor Liability Claims could be asserted

by a trustee under § 544(a)(1), § 541(a)(7) drew those claims

into the Debtors’ estates. While the parties have devoted por-

tions of their briefs and arguments to address this alternative

holding, we need not consider it because we conclude that our

decision in Emoral makes the Successor Liability Claims prop-

erty of the estate under § 541(a)(1).

16

Supplementing note 5 above, we are aware that the Debtors,

having prevailed in the Bankruptcy Court, have moved for

approval of a settlement of the Successor Liability Claims with

Brenntag, National Indemnity, and others. Naturally, our

conclusion that the Successor Liability Claims are property of

34

of the District and Bankruptcy Courts.

the estate under § 541(a)(1) puts the ball in the Debtors’ court,

and it is their prerogative to pursue or settle those claims. But

we note that the Debtors do not enjoy unbounded discretion.

As debtors-in-possession, they owe fiduciary duties to all cred-

itors, including the Committee’s constituents, to maximize the

value of the estate. In re Marvel Ent. Grp., Inc., 140 F.3d 463,

471 (3d Cir. 1998). Sometimes the most beneficial course may

be to settle claims and avoid the cost and uncertainty of litiga-

tion. Other times it may not. For that reason, bankruptcy

courts must scrutinize proposed settlements under Bankruptcy

Rule 9019 “to determine what course of action will be in the

best interest of the estate.” In re Martin, 91 F.3d 389, 394 (3d

Cir. 1996). And that scrutiny is “rigorous[]” when the debtor

looks to settle with an insider. In re Winstar Commc’ns, Inc.,

554 F.3d 382, 412 (3d Cir. 2009) (quotation omitted). We have

no doubt the Bankruptcy Court will evaluate the Debtors’ pro-

posed settlement with these precepts in mind.

35

KRAUSE, Circuit Judge, concurring.

I join the majority opinion in full. As it persuasively

explains, New Jersey law governs the authority of Whittaker’s

board to exercise corporate authority, and the South Carolina

Court did not—and likely could not—unilaterally divest the

board of that authority. Once in bankruptcy, moreover, our

decisions in In re Emoral, 740 F.3d 875 (3d Cir. 2014), and In

re Wilton Armetale, Inc., 968 F.3d 273 (3d Cir. 2020),

straightforwardly dictate that the Successor Liability Claims

are property of the estate under 11 U.S.C. § 541(a)(1). I write

separately, however, to address which choice-of-law rules

govern in bankruptcy—an issue that both looms in the

background of this case and that has divided courts for decades.

Both parties ultimately agree that New Jersey law

governs Whittaker’s authority to petition for bankruptcy

protection, but they also recognize that there are two distinct

paths to that choice of law—the “forum state” rule of Klaxon

Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941), on the one

hand, and a federal common law choice of law rule,

incorporating the internal affairs doctrine, on the other. Here,

because the forum state is New Jersey and because Whittaker

is a New Jersey corporation, those paths converge. But, as

highlighted in the parties’ briefing and argument on this

question, each rule involves a different analysis and is capable

of producing a different outcome. And confusion about how

to resolve this conflict-of-laws question in bankruptcy cases

will persist in our Circuit absent guidance from our Court. I

write here with an eye towards that eventual resolution. As it

turns out, the answer lies in established doctrine. For the

reasons explained more thoroughly below, the Bankruptcy

Code; Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), and the

1

Rules of Decision Act; and the grant of bankruptcy jurisdiction

to federal courts all support employing the choice-of-law rules

of the state in which the bankruptcy court sits.

I. The Puzzle: Choice of Law in Bankruptcy

Federal courts are most often called on to resolve

choice-of-law questions while exercising diversity jurisdiction.

In those cases, non-federal law (usually state law) provides the

rule of decision, Erie, 304 U.S. 64, and diverse parties might

dispute which law governs their claims. When those candidate

laws conflict, courts must decide which one controls. To

answer that question, a federal court sitting in diversity uses

the choice-of-law rules of the state in which it sits. Klaxon,

313 U.S. at 496.

Our Court has not previously determined whether the

same rule applies in bankruptcy proceedings. 1 But some of our

sister circuits have entered this fray, coming to differing

conclusions. The Eighth Circuit applies Klaxon in bankruptcy

cases, directing that “bankruptcy court[s] appl[y] the choice of

law rules of the state in which it sits,” In re Payless Cashways,

203 F.3d 1081, 1084 (8th Cir. 2000), and that “when some

federal interest requires a different result,” the “appropriate

question” is not choice-of-law but rather rule of decision, i.e.,

“whether the state [law] can trump the federal [law],” which it

obviously cannot, In re Schriock Constr., Inc., 104 F.3d 200,

201–02 (8th Cir. 1997) (quoting Butner v. United States, 440

1

See In re Abeinsa Holding Inc., No. 20-3333, 2021 WL

3909984, at *3 (3d Cir. Sept. 1, 2021) (noting that our Court

has “not yet precedentially resolved the choice-of-law rules

applicable in bankruptcy proceedings”).

2

U.S. 48, 54 (1979)). 2 The Ninth Circuit (and possibly the

Fifth), on the other hand, have rejected Klaxon in bankruptcy

cases and instead require a federal common law choice-of-law

rule. See In re Lindsay, 59 F.3d 942, 948 (9th Cir. 1995);

Wallace Lincoln-Mercury Co. v. Gentry, 469 F.2d 396, 400 n.1

(5th Cir. 1972). But see Fishback Nursery, Inc. v. PNC Bank,

N.A., 920 F.3d 932, 935 (5th Cir. 2019) (describing Klaxon’s

application in bankruptcy as “an open question”). Finally, the

Second and Fourth Circuits take a hybrid approach—applying

Klaxon “in the absence of a compelling federal interest which

dictates otherwise.” In re Merritt Dredging Co., 839 F.2d 203,

205–06 (4th Cir. 1989); see also In re Gaston & Snow, 243

F.3d 599, 607 (2d Cir. 2001) (applying Klaxon unless

“significant federal policy, calling for the imposition of a

federal conflicts rule, exists”). In other words, in contrast to

the Eighth Circuit, which would accommodate any overriding

federal interest by applying a federal rule of decision, these

courts would reach the same result but under the auspices of a

choice-of-law rule.

This tripartite circuit split has persisted for decades and

created disparities in how bankruptcy courts determine which

law governs parties’ rights and obligations. As I explain

below, however, there is no basis to depart from the established

rule from Klaxon, and, consistent with the Eighth Circuit’s

approach, any conflict-of-laws issue is properly resolved as a

matter of rule of decision, not choice of law.

2

To be sure, the Eighth Circuit adopted Klaxon’s rule in

bankruptcy without much reasoning. See In re Payless

Cashways, 203 F.3d at 1084.

3

II. The Affirmative Case for Applying Klaxon in

Bankruptcy

The reasons for extending Klaxon to bankruptcy are

many and exceedingly strong. All relate to the structure of the

Bankruptcy Code, the purposes the Code serves, and Erie and

the Rules of Decision Act. I consider them in turn.

First, while bankruptcy provides an “orderly and

centralized” process to restructure the debts of the honest but

unfortunate debtor, 1 Collier on Bankruptcy ¶ 1.01[1] (16th ed.

2025), it does not create substantive property rights. Instead,

consistent with the Rules of Decision Act, 28 U.S.C. § 1652, it

is non-bankruptcy law that defines parties’ property interests, 3

Butner, 440 U.S. at 55; accord In re Boy Scouts of Am., 137

F.4th 126, 164 (3d Cir. 2025). Accordingly, courts exercising

bankruptcy jurisdiction regularly look to governing non-

bankruptcy law—often “state law”—to determine parties’

“rights and obligations when the Code does not supply a

federal rule.” In re Wright, 492 F.3d 829, 832 (7th Cir. 2007)

(Easterbrook, J.). And in doing so, those courts frequently

encounter the same dilemma they do when sitting in diversity:

conflicting laws that purport to govern parties’ rights and

interests.

As bankruptcy law takes parties’ property rights as it

finds them, Butner, 440 U.S. at 55; Mission Prod. Holdings,

Inc. v. Tempnology, LLC, 587 U.S. 370, 381 (2019), the fact

3

While “property” generally conjures images of real property

or tangible items, in bankruptcy (and elsewhere), various

intangibles, such as causes of action, similarly constitute

property. See, e.g., In re Kane, 628 F.3d 631, 637 (3d Cir.

2010).

4

that parties find themselves wound up in a bankruptcy case

should not work to alter the law that would otherwise govern

their rights, cf. Phillips Petroleum Co. v. Shutts, 472 U.S. 797,

820 (1985) (rejecting notion that participation in a class action

changes the substantive law governing individual plaintiffs’

disputes). But adopting a choice-of-law rule unique to

bankruptcy risks just that and would subject identically

situated parties to different governing laws simply by virtue of

one dispute occurring in bankruptcy court while the other

unfolds in run-of-the-mill civil litigation. 4 Our bankruptcy

4

In addition to diversity cases, Klaxon governs choice-of-law

questions where jurisdiction is anchored on other bases,

including federal questions under 28 U.S.C. § 1331, Shields v.

Consol. Rail Corp., 810 F.2d 397, 399 (3d Cir. 1987) (ancillary

(now supplemental) jurisdiction); Sys. Operations, Inc. v. Sci.

Games Dev. Corp., 555 F.2d 1131, 1136 (3d Cir. 1977)

(“Although Klaxon was a diversity jurisdiction case, the same

principle holds true with respect to pendent jurisdiction

claims.”); accord Elliott v. Cartagena, 84 F.4th 481, 496 n.14

(2d Cir. 2023); Osborn v. Griffin, 865 F.3d 417, 443 (6th Cir.

2017); BancOklahoma Mortg. Corp. v. Cap. Title Co., 194

F.3d 1089, 1103 (10th Cir. 1999); Ideal Elec. Sec. Co. v. Int’l

Fidelity Ins. Co., 129 F.3d 143, 148 (D.C. Cir. 1997); Paracor

Fin., Inc. v. Gen. Elec. Cap. Corp., 96 F.3d 1151, 1164 (9th

Cir. 1996); Sommers Drug Stores Co. Emp. Profit Sharing Tr.

v. Corrigan, 883 F.2d 345, 353 (5th Cir. 1989); Bi-Rite Enters.,

Inc. v. Bruce Miner Co., 757 F.2d 440, 442 (1st Cir. 1985);

ITCO Corp. v. Michelin Tire Corp., Com. Div., 722 F.2d 42,

49 n.11 (4th Cir. 1983), and interpleader under 28 U.S.C.

§ 1335, Griffin v. McCoach, 313 U.S. 498, 503 (1941).

Moreover, outside of federal court, state courts employ the

5

system does not demand—and, indeed, militates against—such

a disparity. See BFP v. Resol. Tr. Corp., 511 U.S. 531, 544–

45 (1994) (absent a clear and manifest conflict, “the

Bankruptcy Code will be construed to adopt, rather than to

displace, pre-existing state law”). And nothing in the text of

the Code or the statutes granting bankruptcy jurisdiction

warrants a departure from the ordinary rule of Klaxon. See

Zachary D. Clopton, Horizontal Choice of Law in Federal

Courts, 169 U. Pa. L. Rev. 2193, 2212 (2021).

Second, influential bankruptcy scholarship buttresses

this conclusion. As renowned scholars have advocated, the

bankruptcy system in many ways “mirror[s] the agreement one

would expect the creditors to form among themselves were

they able to negotiate such an agreement from an ex ante

position.” Thomas H. Jackson, Bankruptcy, Non-Bankruptcy

Entitlements, and the Creditors’ Bargain, 91 Yale L.J. 857,

860 (1982). This view, coined the “creditors’ bargain” theory,

conceptualizes bankruptcy’s primary role as a means to resolve

the collective action problem posed by self-interested creditors

who, absent a centralized insolvency resolution system, would

engage in individual collection actions under applicable non-

bankruptcy law, inefficiently picking the debtor apart and

“destroying value for the collective body of creditors.”

Kenneth Ayotte & David A. Skeel Jr., Bankruptcy Law as a

Liquidity Provider, 80 U. Chi. L. Rev. 1557, 1564 (2013).

Without bankruptcy’s centralization, “[a]n unsecured creditor

forum’s choice-of-law rules, see Restatement (Second) of

Conflict of L. § 5 cmt. b (A.L.I. 1971) (“A court applies the

law of its own state, as it understands it, including its own

conception of Conflict of Laws.”)—the practice that Klaxon

aims to mirror.

6

who seizes the debtor’s assets early enough in time, when the

debtor has enough to pay, will receive full payment,” while

“[l]ate-arriving creditors are left out in the cold when the assets

are not sufficient to pay the firm’s debts.” Id.

Viewed through this lens, among its other features,

bankruptcy facilitates the orderly resolution of competing

creditor entitlements that exist under governing non-

bankruptcy law. Such a system takes as a given creditors’

preexisting property interests and “does not . . . justify the

implementation of a different set of relative entitlements,

unless doing so is necessary as a part of the move from the

individual remedies system” that exists outside of bankruptcy.

Thomas H. Jackson, The Logic and Limits of Bankruptcy Law

21 (1986).

True, the Bankruptcy Code does change parties’

“relative entitlements” in some circumstances in aid of debtor

rehabilitation. See, e.g., 11 U.S.C. §§ 364(d); 365(e), (i);

502(b); see also Daniel J. Bussel et al., Bankruptcy 33 (11th

ed. 2021). But among the Code’s voluminous rules, these

7

provisions fall in the minority. 5 And as the creditors’ bargain

theory advances, non-bankruptcy entitlements generally

should endure within bankruptcy, see Ayotte & Skeel, supra,

at 1564–65 (“The second element of the Creditors’ Bargain

theory is the claim that resolution of common-pool problems

may require altering the procedural rights of creditors, but that

it typically does not require altering the substantive values of

those rights as established by nonbankruptcy law.”); see also 7

Collier on Bankruptcy ¶ 1100.01 (16th ed. 2025) (noting the

5

To be sure, bankruptcy does not have to work this way. The

Constitution reserves to Congress the authority to legislate for

“the entire ‘subject of Bankruptcies,’” Cent. Va. Cmty. Coll. v.

Katz, 546 U.S. 356, 370 (2006) (quoting U.S. Const. art. I, § 8,

cl. 4), which encompasses “nothing less than . . . the relations

between . . . [a] debtor, and [its] creditors,” Wright v. Union

Cent. Life Ins. Co., 304 U.S. 502, 513–14 (1938) (internal

quotation marks omitted). Congress could enact legislation

that impairs any number of entitlements created by non-

bankruptcy law. In this way, Butner is merely descriptive of

the bankruptcy system that Congress has chosen to enact:

“Congress has generally left the determination of property

rights in the assets of a bankrupt’s estate to state law.” 440

U.S. at 54. It does not stand for the proposition that our

Nation’s bankruptcy laws cannot determine parties’ relative

entitlements, as scholars have pointed out. See, e.g., Anthony

J. Casey, Chapter 11’s Renegotiation Framework and the

Purpose of Corporate Bankruptcy, 120 Colum. L. Rev. 1709,

1751 (2020) (advancing a theory of Chapter 11 that “support[s]

a soft version of Butner” positing that, “[i]n the absence of any

evidence of hold up, nonbankruptcy provisions should remain

intact . . . simply because in the absence of hold up there is no

role for bankruptcy law”).

8

importance of “preserv[ing] creditors’ and stakeholders’

existing legal rights to the greatest extent possible”),

counseling in favor of adopting Klaxon to preserve parity with

parties’ pre-bankruptcy positions vis-à-vis one another.

Third, extending Klaxon to the bankruptcy context is

fully consistent with—and supported by—Erie and the Rules

of Decision Act. Klaxon is a product of Erie, which announced

“[t]here is no federal general common law.” 304 U.S. at 78.

Instead, where federal law does not govern, “[t]he laws of the

several states” are “regarded as rules of decision . . . in cases

where they apply.” 28 U.S.C. § 1652. While Erie itself was a

diversity case, it “reflects the principle now well established

that federal courts should apply state law to legal issues, unless

there is some definable federal interest sufficient to justify

applying corresponding and possibly inconsistent federal rules

of decision.” 19 Wright & Miller’s Federal Practice &

Procedure § 4520 (3d ed. May 2025 update). Klaxon reflects

the same principle, for “[a] choice-of-law rule is no less a rule

of state law than any other.” A.I. Trade Fin., Inc. v. Petra Int’l

Banking Corp., 62 F.3d 1454, 1464 (D.C. Cir. 1995); see also

Russell J. Weintraub, The Erie Doctrine and State Conflict of

Laws Rules, 39 Ind. L.J. 228, 242 (1964) (“[T]he choice-of-law

rules of a state are important expressions of its domestic

policy.”). Thus, it would seem that wherever Erie travels,

Klaxon ought to follow. See Clopton, supra, at 2198 (“In short,

Klaxon all the way down.”).

In the bankruptcy arena, the Bankruptcy Code supplies

the federal rules of decision that Congress has deemed

necessary to effectively govern the relationship between the

debtor and its creditors. Even a cursory review of the Code’s

“hundreds of interlocking rules,” Harrington v. Purdue

9

Pharma L.P., 603 U.S. 204, 209 (2024), reveals that Congress

took care to include many provisions that aim “to protect []

national” interests, In re Trib. Co. Fraudulent Conveyance

Litig., 946 F.3d 66, 94 (2d Cir. 2019); see, e.g., 11 U.S.C.

§§ 362(a) (automatic stay of collection of prepetition debts,

including state-court litigation); 365(e) (invalidating ipso facto

clauses); 546(e) (safe harbor for certain pre-petition securities

transactions); 555–56, 559–61 (protections for post-petition

securities, commodities, repurchase, swap, and netting

transactions); 1110 (providing preferred rights to aircraft and

vessel lessors).

As these provisions illustrate, Congress identified and

manifested in the Code the specific federal interests it wished

to protect; it did not leave readers to divine untold rules from

some brooding cloud of federal interests hanging over

bankruptcy. As we invariably do when construing federal

statutes, we look to its text to discern meaning, In re Imerys

Talc Am., Inc., 38 F.4th 361, 375 (3d Cir. 2022), and we

“presume that [Congress] says in a statute what it means and

means in a statute what it says,” Conn. Nat’l Bank v. Germain,

503 U.S. 249, 253–54 (1992). So while “the Bankruptcy

Clause confers broad authority on Congress,” Siegel v.

Fitzgerald, 596 U.S. 464, 476 (2022), to establish “uniform

Laws on the subject of Bankruptcies,” U.S. Const. art. I, § 8,

cl. 4, Congress has not dictated a particular choice-of-law rule

to govern in bankruptcy cases.

This is a glaring omission in a sea of provisions relating

to bankruptcies and not one we should presume Congress

simply overlooked. To the contrary, we must respect the

presumption that state law governs “until Congress strikes a

different accommodation.” United States v. Kimbell Foods,

10

Inc., 440 U.S. 715, 740 (1979). It is not the role of federal

courts to extend federal interests beyond those Congress has

prescribed. See Tex. Indus., Inc. v. Radcliff Materials, Inc., 451

U.S. 630, 641 (1981); In re One2One Commc’ns, LLC, 805

F.3d 428, 444 (3d Cir. 2015) (Krause, J., concurring); cf.

Cassirer v. Thyssen-Bornemisza Collection Found., 596 U.S.

107, 116 (2022) (concluding that, when an exception to foreign

sovereign immunity applies under the Foreign Sovereign

Immunities Act, federal courts must apply Klaxon because the

statute already protects the unique federal interest of foreign

relations). Instead, “the issue of whether to displace state law

. . . is primarily a decision for Congress,” Miree v. Dekalb

Cnty., 433 U.S. 25, 32 (1977), and “[w]e should not assume

that Congress intended to set the courts completely adrift from

state law with regard to questions for which it has not provided

a specific and definite answer in an act . . . so intimately related

to state law,” Richards v. United States, 369 U.S. 1, 11 (1962).

In these circumstances, with a “federal statutory regulation [so]

comprehensive and detailed,” the usual rule applies that

“matters left unaddressed in such a scheme are presumably left

subject to the disposition provided by state law,” negating the

need to “adopt a court-made rule to supplement” the Code.

O’Melveny & Myers v. FDIC, 512 U.S. 79, 85 (1994).

Accordingly, there is no need to craft a choice-of-law

rule unique to bankruptcy to preserve some “undefined federal

11

interests” that do not appear in the Code. 6 CoreCivic, Inc. v.

Governor of N.J., No. 23-2598, 2025 WL 2046488, at *10 (3d

Cir. July 22, 2025) (Ambro, J., dissenting). Rather, when a

provision of the Bankruptcy Code governs, the Supremacy

Clause obviates any choice-of-law analysis, for federal law

always trumps conflicting state law. U.S. Const. art. VI, cl. 2;

see also infra Section IV. And when the Code or other federal

law does not supply the rule of decision, the Rules of Decision

Act commands that governing non-federal law fills the gap. 28

U.S.C. § 1652. Outside of bankruptcy, that means Klaxon

controls, and nothing about the bankruptcy context warrants

departing from that rule.

Of course, Erie, and consequently Klaxon, arose in the

context of diversity jurisdiction, so the extension of the policies

those cases embody to other contexts is not obvious. And that

uncertainty has caused some of our sister circuits to either

reject Klaxon in bankruptcy cases or hedge on its application.

See, e.g., In re Lindsay, 59 F.3d at 948; In re Gaston & Snow,

243 F.3d at 601–02; In re Merritt Dredging, 839 F.2d at 206.

To be sure, that hesitation is not unfounded. As scholars have

noted, “[p]art of the explanation for the departures from

Klaxon can be found in Supreme Court dicta” in Vanston

Bondholders Protective Committee v. Green, 329 U.S. 156

6

This is not to say that the Bankruptcy Code can never embody

federal rules that do not appear in its specific provisions.

Indeed, the Code can, and does, provide such rules of decision,

such as where “pre-Code practice” has not been expressly

abrogated by statute, In re Hertz Corp., 120 F.4th 1181, 1198

(3d Cir. 2024), or where a rule “has long been considered

fundamental to the Bankruptcy Code’s operation,” Czyzewski

v. Jevic Holding Corp., 580 U.S. 451, 465 (2017).

12

(1946). Clopton, supra, at 2204; see also Tobias Barrington

Wolff, Choice of Law and Jurisdictional Policy in the Federal

Courts, 165 U. Pa. L. Rev. 1847, 1875–78 (2017). There, the

Supreme Court considered whether, and to what extent, an

insolvent debtor must pay interest on delinquent interest

payments due under a prepetition bond indenture under

Chapter X of the Bankruptcy Act. Vanston, 329 U.S. at 159.

In doing so, the Supreme Court admonished:

[O]bligations, such as the one here for interest,

often have significant contacts in many states so

that the question of which particular state’s law

should measure the obligation seldom lends

itself to simple solution. In determining which

contact is the most significant in a particular

transaction, courts can seldom find a complete

solution in the mechanical formulae of the

conflicts of law. . . . In determining what claims

are allowable and how a debtor’s assets shall be

distributed, a bankruptcy court does not apply

the law of the state where it sits.

Id. at 161–62. And it is this language upon which some courts

have seized to conclude Klaxon has no application in

bankruptcy cases because it is inconsistent with some

amorphous federal interest. See, e.g., In re SMEC, Inc., 160

B.R. 86, 91 (M.D. Tenn. 1993); In re McCorhill Publ’g, Inc.,

86 B.R. 783, 792 (Bankr. S.D.N.Y. 1988).

But on closer inspection, Vanston says nothing about

what choice-of-law rule a court should employ in bankruptcy

cases when non-federal law provides the rule of decision.

Rather than rejecting Klaxon’s application in favor of

fashioning a bespoke federal choice-of-law rule for bankruptcy

13

cases, the Supreme Court concluded that the bankruptcy courts

“administer and enforce the Bankruptcy Act . . . in accordance

with authority granted by Congress to determine how and what

claims shall be allowed under equitable principles,” whereas

“[w]hen and under what circumstances federal courts will

allow interest on claims against debtors’ estates being

administered by them has long been decided by federal law.”

Vanston, 329 U.S. at 162–63 (emphasis added). Thus, Vanston

did not resolve the question of what choice-of-law rule courts

employ when non-federal law governs a dispute in a

bankruptcy case. Instead, it merely determined that when

federal law provides a rule of decision that conflicts with state

law, federal law controls—a proposition that flows directly

from the Constitution. U.S. Const. art. VI, cl. 2; see also In re

Gaston & Snow, 243 F.3d at 607 (interpreting Vanston in this

way). Vanston, then, embodies nothing more than

foundational and uncontroversial principle that federal law

reigns supreme.

In sum, the structure of the Bankruptcy Code, the

purposes of our bankruptcy system, and federal courts’

obligation to respect the application of state law under Erie and

the Rules of Decision Act all support Klaxon’s extension to

bankruptcy cases.

III. Nothing Requires a Federal Choice-of-Law Rule in

Place of Klaxon

Aside from seemingly the Eighth Circuit, no other Court

of Appeals has extended Klaxon—without reservation—to the

bankruptcy context. The Ninth Circuit, as well as the Second

and Fourth Circuits, have also addressed the question, taking

different approaches but each evincing an unwarranted

14

suspicion of Klaxon’s relevance beyond diversity cases. I

address each approach in turn.

The Ninth Circuit has long eschewed Klaxon’s rule in

favor of federal choice-of-law rules. In re Lindsay, 59 F.3d at

948. In doing so, it stated that “the risk of forum shopping

which is avoided by applying state law has no application [in

bankruptcy cases], because [they] can only be litigated in

federal court,” and instead “[t]he value of national uniformity

of approach” on this question prevails over a patchwork of state

choice-of-law regimes. Id. Thus, “[i]n federal question cases

with exclusive jurisdiction in federal court, such as bankruptcy,

the court should apply federal, not forum state, choice of law

rules.” Id.

There are two flaws in this reasoning. First, it confuses

the basis for federal jurisdiction with the question of governing

law. A “federal jurisdictional grant . . . is not in itself a

mandate for applying federal law in all circumstances.” United

States v. Little Lake Misere Land Co., 412 U.S. 580, 591

(1973). Instead, as is by now clear, “it is the source of the right

sued upon, and not the ground on which federal jurisdiction

over the case is founded, which determines the governing

law.” Maternally Yours v. Your Maternity Shop, 234 F.2d 538,

15

540 n.1 (2d Cir. 1956). 7 In other words, the observation that

federal courts possess exclusive jurisdiction over bankruptcy

cases is correct as far as it goes, but it merely identifies a

potential choice-of-law question—it does nothing to resolve

it. Instead, the existence of federal jurisdiction begets the

downstream question of which law governs the dispute and

how to decide that question in instances of conflict. That is a

question of parties’ rights, not federal courts’ jurisdiction. See

Shutts, 472 U.S. at 818. But by reflexively employing a federal

common law choice-of-law rule, the Ninth Circuit’s approach

risks altering parties’ rights by selecting different law than

would govern outside of bankruptcy.

That points up the second problem with the Ninth

Circuit’s approach. The Lindsay court touts a federal choice-

of-law rule as carrying a great deal of “value” without greater

explanation, seemingly elevating “national uniformity” for

uniformity’s sake. 59 F.3d at 948. But uniformity at what

cost? Even accepting the premise that national uniformity has

7

See also DelCostello v. Int’l Bhd. of Teamsters, 462 U.S. 151,

159 n.13 (1983) (“[W]here Congress directly or impliedly

directs the courts to look to state law to fill in details of federal

law, Erie will ordinarily provide the framework for doing

so.”); 19 Wright & Miller’s Federal Practice & Procedure

§ 4520 (3d ed. May 2025 update) (“[T]he law to be applied is

not selected by reference to the basis of the court’s subject

matter jurisdiction . . . . In other words, the choice of applicable

law turns upon the source or genesis of the right or issue being

adjudicated.”)

16

inherent value, 8 the value in uniformity does not outweigh the

significant incongruities a bespoke bankruptcy choice-of-law

rule portends. A federal choice-of-law rule in bankruptcy

cases risks altering parties’ substantive rights. State law

governs many issues in bankruptcy cases, but none arises more

frequently than property interests. See, e.g., Butner, 440 U.S.

at 55. And the fact that a dispute turns up “in the context of a

federal bankruptcy” proceeding “doesn’t change much.”

Rodriguez v. FDIC, 589 U.S. 132, 137 (2020). So “[s]ince

state, rather than federal, substantive law is at issue there is no

need for a uniform federal rule.” Semtek Int’l Inc. v. Lockheed

8

In Gaston & Snow, the Second Circuit gestured at the notion

that “an interest in uniformity can justify the creation of federal

common law,” 243 F.3d at 606, and cited the Supreme Court’s

decision in Kimbell Foods for that proposition. But Kimbell

Foods does not speak to whether a federal choice-of-law rule

should govern in bankruptcy. There, the Supreme Court

determined that “the priority of liens stemming from federal

lending programs must be determined with reference to federal

law,” Kimbell Foods, 440 U.S. at 726, which obviates the need

of a choice-of-law inquiry because the Supremacy Clause

requires application of federal rules of decision. Having

concluded that federal law, rather than state law, provides the

governing rule, the Court went on to define the content of that

federal common law rule. And at that second step, the Court

noted that “[c]ontroversies directly affecting the operations of

federal programs, although governed by federal law, do not

inevitably require resort to uniform federal rules” before

“reject[ing] generalized pleas for uniformity” in favor of a

federal common law rule that “adopt[s] the readymade body of

state law as the federal rule of decision.” Id. at 727–28, 730,

740.

17

Martin Corp., 531 U.S. 497, 508 (2001). Indeed, as the Fourth

Circuit rightly noted, “[i]t would be anomalous to have the

same property interest governed by the laws of one state in

federal diversity proceedings and by the laws of another state

where a federal court is sitting in bankruptcy.” In re Merritt

Dredging, 839 F.2d at 206. But that disparity is exactly what

the Ninth Circuit’s approach invites, and it does so with no

basis in the Code or the statutes granting federal courts

jurisdiction over bankruptcy cases. Parties’ property rights do

not depend on the basis for a court’s jurisdiction.

The approaches of the Second and Fourth Circuits are

flawed as a doctrinal matter, though difficult to distinguish

from the Eighth Circuit’s in practice. Those courts have rightly

observed that, in the ordinary course, the fact that a choice-of-

law question arises in bankruptcy does not provide sufficient

reason to depart from Klaxon because state law generally

provides the substantive law governing a dispute, so Erie and

the Rules of Decision Act control. See In re Gaston & Snow,

243 F.3d at 607; In re Merritt Dredging, 839 F.2d at 206.

They also theorize, however, that there may be

exceptional cases when a “compelling federal interest,” In re

Merritt Dredging, 839 F.2d at 206, would require the

application of a federal common law choice-of-law rule. Thus,

they purport to adopt a safety valve by applying Klaxon only

“in the absence of a compelling federal interest which dictates

otherwise.” Id.; see also In re Gaston & Snow, 243 F.3d at 607

(“We necessarily limit our holding to cases where no

significant federal policy, calling for the imposition of a federal

conflicts rule, exists.”). In positing that carveout, these courts

hypothesize a scenario where some federal interest compels

abandonment of Klaxon. Though this rule may appear on its

18

face to conflict with the rule from Klaxon, in practice, it does

not. Tellingly, neither court has actually identified—much less

confronted—such a situation. And the prospect of them ever

doing so seems fanciful because their hypothesis runs headlong

into the presumption against, and stringent criteria for, the

making of federal common law.

At the outset, it is not clear whether the federal interest

the Fourth and Second Circuits hypothesize would need to

conflict with a state’s choice-of-law rule or the substantive law

that choice-of-law rule selects. If the former, it is particularly

difficult to imagine what federal interest would conflict with

the use of a specific choice-of-law rule given the absence of a

federal choice-of-law rule provision in the Bankruptcy Code

and the Code’s indifference to the law that determines parties’

rights and interests. See infra pp. 21–23. If it is the latter, then

the real problem is not the use of a state’s choice-of-law rule at

all. Rather, as the Eighth Circuit has properly characterized it,

the problem is the incompatibility between the non-bankruptcy

law chosen to govern a dispute and the federal interest, because

permitting a state law to “trump” the federal interest expressed

in the Bankruptcy Code “would effectively convert the []

choice of law [question] to an ‘anti-preemption’ [question].”

In re Schriock Constr., 104 F.3d at 202. In short, the resolution

to that conflict is application of a federal rule of decision and

its priority over state law pursuant to the Supremacy Clause,

not abandonment of Klaxon.

Even moving past this ambiguity, embracing the

alternative to Klaxon—a federal choice-of-law rule—must

“begin[] with the recognition that federal choice of law rules

are a species of federal common law.” In re Gaston & Snow,

243 F.3d at 605. But “those cases in which judicial creation of

19

a special federal rule would be justified . . . [are] ‘few and

restricted.’” O’Melveny, 512 U.S. at 87 (quoting Wheeldin v.

Wheeler, 373 U.S. 647, 651 (1963)). Crucially, the creation of

federal common law is appropriate only in “situations where

there is a ‘significant conflict between some federal policy or

interest and the use of state law.’” Id. (quoting Wallis v. Pan

Am. Petroleum Corp., 384 U.S. 63, 68 (1966)). Indeed, “such

a conflict [is] a precondition for” federal common law-making.

Id. But where none exists, federal law “supplies no rule of

decision,” leaving non-bankruptcy law to govern the

controversy. Rodriguez, 589 U.S. at 138.

In order to justify the Second and Fourth Circuits’

approach that departs from Klaxon, yet requires a choice-of-

law analysis—i.e., employing a federal common law choice-

of-law rule—two conditions must be true: (1) there must be a

sufficiently weighty federal interest in conflict with otherwise

governing non-federal law to warrant fashioning a federal rule

of decision to resolve conflicts among non-bankruptcy law, but

(2) that interest must not be sufficiently weighty to justify

fashioning a federal common law rule of decision. The former

must be true to justify the “[j]udicial lawmaking” involved in

crafting federal common law rules—lawmaking that “plays a

necessarily modest role under a Constitution that vests the

federal government’s ‘legislative Powers’ in Congress.” Id. at

136 (quoting U.S. Const. art. I, § 1). The latter must be true in

order to preserve any choice-of-law question at all, for if the

federal interest is sufficiently important to justify creation of a

federal rule of decision, then there is no “choice” among laws

because the Constitution invariably resolves such conflicts in

favor of federal law. U.S. Const. art. VI, cl. 2. In other words,

for the Second and Fourth Circuits’ approach to be correct—as

opposed to the Eighth Circuit’s, which accounts for an

20

overriding federal interest as a matter of rule of decision, see

In re Schriock Constr., 104 F.3d at 202—a federal interest has

to fall into the goldilocks zone: not too strong, yet not too weak.

Yet a review of the Bankruptcy Code and its policies

establishes neither condition. The Code is agnostic about

which body of non-bankruptcy law governs parties’ rights—it

simply “takes the [interest] as it finds it.” Bartenwerfer v.

Buckley, 598 U.S. 69, 82 (2023). That is to say, the Bankruptcy

Code embodies no federal interest that favors the application

of any particular non-bankruptcy law over another. And this

makes good sense. It is “the basic federal rule” that

“entitlements in bankruptcy arise in the first instance from the

underlying substantive law creating the . . . obligation.”

Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15, 20 (2000).

Sometimes, federal non-bankruptcy law will control that issue.

See, e.g., Bd. of Trs. of Teamsters Loc. 863 Pension Fund v.

Foodtown, Inc., 296 F.3d 164, 168 (3d Cir. 2002). Other times,

it may be state or foreign law that does. Either way, the

Bankruptcy Code directs courts to consider parties’ interest

under whichever law governs outside of bankruptcy, and it

then establishes a collection of rules to deal with those

interests.

The Supreme Court’s decision in Butner is not to the

contrary. There, the Court famously held that “[p]roperty

interests are created and defined by state law. Unless some

federal interest requires a different result, there is no reason

why such interests should be analyzed differently simply

because an interested party is involved in a bankruptcy

proceeding.” 440 U.S. at 55. At first glance, this passage

might seem to support the Second and Fourth Circuits’

approach—after all, the Supreme Court included the proviso

21

“[u]nless some federal interest requires a different result.” Id.

But on closer inspection, this line from Butner cannot be read

as suggesting the possibility of a different choice-of-law rule

to apply in bankruptcy.

Butner addressed whether “the right to the rents

collected during the period between [a] mortgagor’s

bankruptcy and the foreclosure sale of the mortgaged

property . . . is determined by a federal rule of equity or by the

law of the State where the property is located.” Id. at 49. In

other words, the Supreme Court considered which body of

law—state or federal—supplies the rule of decision for

allocation of rents. It concluded, as a general matter,

“[p]roperty interests are created and defined by state law.” Id.

at 55. But it also recognized that, while uncommon, federal

law can sometimes define parties’ property interests, especially

where the United States is a party. 9 See, e.g., Clearfield Tr.

Co. v. United States, 318 U.S. 363, 366 (1943). For this reason,

the Court acknowledged that where federal law does govern

property rights, that law controls. But Butner cannot

reasonably be read to suggest that federal law provides the

choice-of-law rule to decide among conflicting non-federal

laws when it is those laws that provide the rule of decision.

That is because Butner posits a scenario in which state property

law is displaced due to “some federal interest [that] requires a

different result,” 440 U.S. at 55, not that this federal interest

favors one state law over others. See Travelers Cas. & Sur.

Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 451 (2007)

9

The scenario is far from hypothetical, as the federal

government is “one of the Nation’s largest lenders,” Dep’t of

Agric. Rural Dev. Rural Housing Serv. v. Kirtz, 601 U.S. 42,

45 (2024), and is a frequent creditor in bankruptcies.

22

(juxtaposing Butner and Vanston to illustrate this point). Put

another way, reading Butner to license creation of a federal

common law choice-of-law rule renders the proviso

meaningless because, read in such a way, state law still governs

the substantive property interest while federal law simply

chooses among conflicting state laws. That plainly is not the

dichotomy Butner envisioned. Instead, Butner stands for the

far more straightforward proposition that state law generally

governs parties’ property interests except in the unusual case

where federal law provides the rule of decision. It offers no

insight, however, into how to choose among conflicting laws

when non-federal law governs. 10

This result does not derogate those federal interests that

do exist. To be sure, there are many areas of law in which

Congress has legislated extensively. See, e.g., Sherman

Antitrust Act, 15 U.S.C. §§ 1–7; Securities Act of 1933, 15

U.S.C. § 77a et seq.; Securities Exchange Act of 1934, 15

10

My concurring colleague disagrees, asserting that “[f]ederal

courts can and do develop federal choice-of-law rules that

select state substantive law.” Concurring Op. 13. But the cited

cases do not support that proposition; they merely recognize

that courts can create federal common law rules of decision—

not choice-of-law rules—that incorporate the contents of state

law. See Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 107–

09 (1991) (creating a rule of decision for derivative actions that

incorporates the contents of state law rather than “displac[ing]

state law in this area”); Semtek, 531 U.S. at 508–09 (describing

the issue as “a classic case for adopting, as the federally

prescribed rule of decision, the law that would be applied by

state courts,” rather than creating “a contrary federal rule”

(emphasis added)); see also infra note 13.

23

U.S.C. § 78a et seq.; Investment Company Act of 1940, 15

U.S.C. §§ 80a-1 to 80a-64; Lanham Act, 15 U.S.C. § 1051 et

seq.; Comprehensive Environmental Response,

Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et

seq. Perhaps none is a greater expression of a federal interest

than those statutory provisions that completely preempt state

law, i.e., those where a federal interest “is so powerful,”

Franchise Tax Bd. v. Constr. Laborers Vacation Tr. for S. Cal.,

463 U.S. 1, 23 (1983), that “federal law does not merely

preempt a state law to some degree” but instead “substitutes a

federal cause of action for the state cause of action,” 14C

Wright & Miller’s Federal Practice & Procedure § 3722.2

(Rev. 4th ed. May 2025 update). Those instances are few, but

important. See Avco Corp. v. Aero Lodge No. 735, Int’l Ass’n

of Machinists & Aerospace Workers, 390 U.S. 557, 560 (1968)

(Section 301 of the Labor Management Relations Act); Metro.

Life. Ins. Co. v. Taylor, 481 U.S. 58, 66 (1987) (Section 502(a)

of the Employee Retirement Income Security Act); Beneficial

Nat’l Bank v. Anderson, 539 U.S. 1, 11 (2003) (Sections 85 and

86 of the National Bank Act).

But again, in these instances—and all others where

federal law supplies the rule of decision—there is no choice-

of-law question, making Klaxon inapplicable. That is because

the Constitution resolves vertical choice-of-law questions in

absolute terms: “[I]f a state measure conflicts with a federal

requirement, the state provision must give way.” Swift & Co.

v. Wickham, 382 U.S. 111, 120 (1965). In all other cases, non-

federal law enjoys the usual presumption against

“displacement.” Boyle v. United Techs. Corp., 487 U.S. 500,

507 (1988). So it is only in the absence of a federal rule of

decision—that is, in the absence of a federal interest

warranting displacement of non-federal law—that a choice-of-

24

law question arises. And at that juncture, the Bankruptcy Code

is agnostic about which law governs, leaving “no reason [for]

such interests [to] be analyzed differently” than if they had

arisen outside of bankruptcy. Butner, 440 U.S. at 55.

* * *

The daylight between these positions—especially

between those of the Eighth Circuit and the Second and Fourth

Circuits—can be elusive, and the debate can easily be labeled

esoteric. Relative to the number of questions governed by state

law that arise in bankruptcies across the country, those that

present genuine choice-of-law questions are admittedly few.

And those whose outcome would change depending on the

application of Klaxon versus a federal choice-of-law rule are

likely fewer still. But apart from doctrinal clarity, which

carries its own virtue, resolution of this question in the manner

I have proposed serves two important purposes.

First, federal courts exercise limited powers. Perhaps

nowhere is that power more at its nadir than in the area of

fashioning federal common law. As the Supreme Court has

admonished since Erie, those contexts that necessitate a federal

common law rule are fleeting, and the criteria for recognizing

such a rule are exacting. It is incumbent on us to candidly

recognize the limits of our authority as a function of the

Constitution’s separation of powers. After all, “[t]he Framers

‘built into the tripartite Federal Government . . . a self-

executing safeguard against the encroachment

or aggrandizement of one branch at the expense of the other.’”

Clinton v. Jones, 520 U.S. 681, 699 (1997) (omission in

original) (quoting Buckley v. Valeo, 424 U.S. 1, 122 (1976)

(per curiam)). Acknowledging that the federal courts’ role in

crafting common law is necessarily “modest,” Rodriguez, 589

25

U.S. at 136, does much to guard against encroachment upon

Congress’s authority to legislate on the subject of bankruptcies.

Second, with doctrinal clarity and the acknowledgment

of federal courts’ limited authority comes clearer notice to

litigants as to what rule they can expect to govern their rights.

As discussed, the Ninth Circuit’s departure from Klaxon is

misguided. As for the Second, Fourth, and Eighth Circuits,

their approaches in practice always have, and always will, lead

to the same result—Klaxon applies in bankruptcy, but federal

law necessarily provides the rule of decision “when some

federal interest requires a different result.” In re Schriock

Constr., 104 F.3d at 202. But by framing the question as

choice-of-law instead of rule-of-decision and leaving the door

open for a different choice-of-law rule in theory, the Second

and Fourth Circuits invite needless litigation over Klaxon’s

applicability and leave lingering uncertainty about which law

will govern parties’ disputes. They hypothesize a category of

cases that, in reality, is a null set. No federal interest exists that

will displace a state’s choice-of-law rule without

simultaneously requiring displacement of state substantive law

in favor of a federal rule of decision. Instead of perpetuating

the uncertainty surrounding the choice-of-law rule that governs

in bankruptcy, we should recognize what practice teaches and

give courts and litigants alike notice of the governing

26

framework: The rule from Klaxon extends to bankruptcy

cases. 11

IV. Idiosyncratic State Choice-of-Law Rules Do Not

License Abandoning Klaxon

For their part, among the options in this three-way

circuit split, the parties urge us to adopt the Second and Fourth

Circuits’ hybrid approach to Klaxon, cautioning that we

“should not adopt a rule that would require bankruptcy courts

to follow idiosyncratic state choice-of-law rules even when

doing so would create conflicts, encourage forum-shopping, or

undermine significant federal interests.” Appellees’ Second

Supp. Br. 11; see also Appellants’ Second Supp. Br. 4. And to

illustrate their point, Appellees pose the example of “a

hypothetical forum state . . . reject[ing] the internal-affairs

doctrine [to] allow its own idiosyncratic rules to dictate who

speaks for a foreign corporation.” Appellees’ Second Supp.

Br. 10. They insist that in such a scenario, “the federal interest

in preserving the internal-affairs doctrine and orderly

11

My concurring colleague agrees that “state choice-of-law

rules will almost always apply” in bankruptcy but insists that

“[r]are is not never.” Concurring Op. at 9–10. It is telling,

however, that the concurrence does not identify a single

instance—even a hypothetical one—that would require the

application of a federal common-law choice of law rule, but

would not result, in any event, in the application of federal law

as the rule of decision.

27

bankruptcy filings would warrant a federal choice-of-law rule

vindicating the internal affairs doctrine.” 12 Id. at 11.

But choice of law is not a panacea, nor need we make it

one. Instead, among other constraints, the Constitution places

limits on the extent to which states may exert regulatory

authority over parties’ disputes and that resolve many of the

concerns the parties raise here. Four constitutional provisions

in particular—the Supremacy Clause, the Full Faith and Credit

Clause, the Privileges and Immunities Clause, and the Due

Process Clause of the Fourteenth Amendment, each of which

is discussed below—provide a federal backstop to permissible

state choice-of-law regimes.

First, and most intuitively for choice-of-law purposes,

is the Supremacy Clause. U.S. Const. art. VI, cl. 2. In

“split[ting] the atom of sovereignty” for our federal union, U.S.

Term Limits, Inc. v. Thornton, 514 U.S. 779, 838 (1995)

(Kennedy, J., concurring), the Framers “provide[d] ‘a rule of

decision’ for determining whether federal or state law applies

in a particular situation,” Kansas v. Garcia, 589 U.S. 191, 202

(2020) (quoting Armstrong v. Exceptional Child Ctr., Inc., 575

U.S. 320, 324 (2015)). The Supremacy Clause supplies a

bright-line rule to resolve “vertical” choice-of-law questions,

i.e., those that implicate a conflict between federal and state

law. Empire Healthchoice Assurance, Inc. v. McVeigh, 547

12

Apart from the reasons I describe below, I agree with the

majority that such a scenario is fanciful because it would

violate the Constitution. Maj. Op. 24 (“[W]hen it comes to

control over corporate decision-making, a state ‘has no interest

in regulating the internal affairs of foreign corporations.’”

(quoting Edgar v. MITE Corp., 457 U.S. 624, 645–46 (1982)).

28

U.S. 677, 691 (2006). When federal and state law are “in

conflict or at cross-purposes,” the Supremacy Clause embodies

the “clear rule” that federal law prevails. Arizona v. United

States, 567 U.S. 387, 399 (2012).

Thus, when state courts consider which law governs a

dispute, the existence of a controlling federal rule resolves any

choice-of-law question, “[f]or the policy of the federal [law] is

the prevailing policy in every state.” Testa v. Katt, 330 U.S.

386, 393 (1947). In this way, the Supremacy Clause protects

the federal authority to enact federal rules of decision to control

in circumstances “necessary to protect uniquely federal

interests.” Rodriguez, 589 U.S. at 136 (quoting Radcliff

Materials, 451 U.S. at 640).

Often, those federal interests will be embodied in a

federal statute. But in few, yet important, contexts, federal

courts have recognized the need to fashion “federal common

law—substantive rules of decision not expressly authorized by

either the Constitution or any Act of Congress—that supplant

state law,” 19 Wright & Miller’s Federal Practice & Procedure

§ 4514 (3d ed. May 2025 update), often when the

controversy’s subject matter closely relates to the federal

government or falls within an area of exclusive federal

competence, see, e.g., Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14,

23 (2004) (admiralty); Boyle, 487 U.S. at 505–06 (civil

liabilities of contractors under federal procurement contracts);

Clearfield Tr., 318 U.S. at 366 (rights and duties of the United

States under federally issued commercial paper); Hinderlider

v. La Plata River & Cherry Creek Ditch Co., 304 U.S. 92, 110

(1938) (apportionment of water rights between states).

To be sure, federal courts’ common law-making

authority “plays a necessarily modest role,” and the Supreme

29

Court has “underscore[d] the care federal courts should

exercise before taking up an invitation to try their hand at

common lawmaking.” Rodriguez, 589 U.S. at 136, 138. But

in the narrow circumstances that command a federal rule of

decision absent constitutional or statutory authority, the

Supremacy Clause ensures that federal courts may still fashion

such a rule and that contrary state law will yield. 13 See Banco

Nacional de Cuba v. Sabbatino, 376 U.S. 398, 427 (1964)

(recognizing the preemptive force of federal common law),

superseded on other grounds by statute, Pub. L. 88-633, 78

Stat. 1013, as recognized in, Fed. Republic of Ger. v. Philipp,

592 U.S. 169, 179 (2021). After all, “exclusive state power

takes up only where federal power leaves off.” John Hart Ely,

The Irrepressible Myth of Erie, 87 Harv. L. Rev. 693, 705

(1974). So that vertical choice-of-law rule, enshrined in our

Constitution, does much to ensure that state choice-of-law

rules do not unduly “undermine significant federal interests.”

Appellees’ Second Supp. Br. 11.

Second, the Full Faith and Credit Clause occupies a

modest, but important, position among the constitutional

provisions bearing on choice of law. In relevant part, it

13

When adopting a federal common law rule, federal courts

must assess both “(1) the competence of federal courts to

formulate a federal rule of decision, and (2) the appropriateness

of declaring a federal rule rather than borrowing,

incorporating, or adopting state law in point.” McVeigh, 547

U.S. at 692. So in some circumstances, federal courts may

“adopt the readymade body of state law as the federal rule of

decision until Congress strikes a different accommodation,”

and state law yields only in the sense that it is supplanted by an

identical federal rule. Kimbell Foods, 440 U.S. 740.

30

provides that “Full Faith and Credit shall be given in each State

to the public Acts, Records, and judicial Proceedings of every

other State.” U.S. Const. art. IV, § 1, cl. 1. As the Supreme

Court has recognized, the Clause’s purpose “was to alter the

status of the several states as independent foreign sovereignties

. . . and to make them integral parts of a single nation

throughout which a remedy upon a just obligation might be

demanded as of right, irrespective of the state of its origin.”

Milwaukee Cnty. v. M.E. White Co., 296 U.S. 268, 277 (1935);

see also Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 439

(1943).

In modern jurisprudence, much of the Full Faith and

Credit Clause’s function—and that of the statute with which it

shares a name, 28 U.S.C. § 1738—occurs in the recognition of

judgments rendered by foreign states. See, e.g., Baker v. Gen.

Motors Corp., 522 U.S. 222, 233 (1998). But as the Supreme

Court has recognized, the Full Faith and Credit Clause

continues to have an enduring role in the regulation of “credit

owed to [foreign] laws.” Id. at 232. Indeed, “where the policy

of one state statute comes into conflict with that of another, the

necessity of some accommodation of the conflicting interests

of the two states is . . . apparent.” Alaska Packers Ass’n v.

Indus. Accident Comm’n of Cal., 294 U.S. 532, 547 (1935).

Apart from its other commands, the Full Faith and

Credit Clause, at a minimum, requires that a forum state

confronting a horizontal choice-of-law question have “some

rational basis” for applying its law over that of a sister state.

Id. at 547–48. That basis must be above and beyond mere

favoritism toward forum law, for a state does not have a

legitimate interest in discriminating against another state’s law

simply by virtue of its foreign origin. See First Nat’l Bank of

31

Chi. v. United Air Lines, 342 U.S. 396, 398 (1952); Hughes v.

Fetter, 341 U.S. 609, 613 (1951); cf. Metro. Life Ins. Co. v.

Ward, 470 U.S. 869, 878 (1985) (holding that a state does not

have a legitimate interest purely in favoring domestic

economic interests over foreign ones).

Of course, the Full Faith and Credit Clause “does not

require one state to substitute for its own statute, applicable to

persons and events within it, the conflicting statute of another

state, even though that statute is of controlling force in the

courts of the state of its enactment with respect to the same

persons and events.” Pac. Emps. Ins. Co. v. Indus. Accident

Comm’n of Cal., 306 U.S. 493, 502 (1939). And no doubt, in

many cases, forum states will have rational, nondiscriminatory

reasons for applying their law over that of others. See, e.g.,

Cardillo v. Liberty Mut. Ins. Co., 330 U.S. 469, 476 (1947).

But the Full Faith and Credit Clause does “set[] certain

minimum requirements which each state must observe when

asked to apply the law of a sister state,” Wells v. Simonds

Abrasive Co., 345 U.S. 514, 516 (1953), and it “requires that a

state base its assertion of legislative jurisdiction on a claim that

its interests are superior,” not simply that conflicting law is

foreign, Kermit Roosevelt III, The Myth of Choice of Law:

Rethinking Conflicts, 97 Mich. L. Rev. 2448, 2505 n.240

(1999). This constitutional floor provides yet another

constraint on state choice-of-law regimes.

Third, the Privileges and Immunities Clause protects

out-of-staters from discrimination on the basis of their foreign

32

citizenship. 14 See Supreme Ct. of N.H. v. Piper, 470 U.S. 274,

285 (1985); see also Tyler Pipe Indus., Inc. v. Wash. State

Dep’t of Revenue, 483 U.S. 232, 265 (1987) (Scalia, J.,

concurring in part and dissenting in part) (grounding the

protection “against rank discrimination against citizens of

other States” in the Privileges and Immunities Clause). In full,

it provides that “[t]he Citizens of each State shall be entitled to

all Privileges and Immunities of Citizens in the several States.”

U.S. Const. art. IV, § 2, cl. 1. Much like the Full Faith and

Credit Clause, the Privileges and Immunities Clause was

intended “to help fuse into one Nation a collection of

independent, sovereign States.” Toomer v. Witsell, 334 U.S.

385, 395 (1948).

The Clause does not guarantee that citizens of each state

are entitled to all of the same rights and benefits of citizens in

other states, see Piper, 470 U.S. at 284, but only those that are

“fundamental” to “the vitality of the Nation as a single entity,”

Baldwin v. Fish & Game Comm’n of Mont., 436 U.S. 371, 382–

83 (1978) (quotation omitted). It does, however, “bar

14

This rule may sound identical to the constraint provided by

the Full Faith and Credit Clause discussed above. But the two

clauses play distinct roles. The Full Faith and Credit Clause

concerns the respect owed by one state to the laws and

judgments of another, while the Privileges and Immunities

Clause concerns states’ treatment of citizens of foreign states.

Compare U.S. Const. art. IV, § 1, cl. 1 (“Full Faith and Credit

shall be given in each State to the public Acts, Records, and

judicial Proceedings of every other State.” (emphasis added)),

with U.S. Const. art. IV, § 2, cl. 1 (“The Citizens of each State

shall be entitled to all Privileges and Immunities of Citizens in

the several States.” (emphasis added)).

33

discrimination against citizens of other States where there is no

substantial reason for the discrimination beyond the mere fact

that they are citizens of other States.” Toomer, 334 U.S. at 396.

The Supreme Court has recognized that access to a

state’s courts is among the privileges and immunities protected

by the Constitution. McKnett v. St. Louis & S.F. Ry. Co., 292

U.S. 230, 233 (1934); Canadian N. Ry. Co. v. Eggen, 252 U.S.

553, 562 (1920). And implicit in that guarantee is the

constituent promise that a state may not withhold the

application of its law to a citizen of another state in a situation

in which it would extend that law to one of its own citizens

solely by virtue of the out-of-stater’s foreign citizenship. Paul

v. Virginia, 75 U.S. (8 Wall.) 168, 180 (1868) (the Privileges

and Immunities Clause “secures to [citizens of a foreign state]

in other States the equal protection of their laws”); see also

Douglas Laycock, Equal Citizens of Equal and Territorial

States: The Constitutional Foundations of Choice of Law, 92

Colum. L. Rev. 249, 265–66 (1992). Thus, the Privileges and

Immunities Clause “place[s] the citizens of each State upon the

same footing with citizens of other States,” thereby demanding

citizens of foreign states derive the same benefit from a state’s

law that it would extend to its own citizens and prohibiting

discrimination against out-of-staters because of their foreign

citizenship. Paul, 75 U.S. at 180.

Fourth, and finally, the Due Process Clause of the

Fourteenth Amendment substantively limits to which disputes

states may extend their law. 15 In providing that “[n]o State

15

The Supreme Court’s articulation of the Fourteenth

Amendment Due Process Clause’s limitations on state choice-

34

shall . . . deprive any person of life, liberty, or property,

without due process of law,” U.S. Const. amend. XIV, § 1, the

Clause requires “that for a State’s substantive law to be

selected in a constitutionally permissible manner, that State

must have a significant contact or significant aggregation of

contacts, creating state interests, such that choice of its law is

neither arbitrary nor fundamentally unfair,” Allstate Ins. Co. v.

Hague, 449 U.S. 302, 312–13 (1981) (plurality). Thus, where

a state does not have sufficient contacts with a dispute, it lacks

legitimate interests warranting extension of its law to the

dispute, rendering application of its law “sufficiently arbitrary

and unfair as to exceed constitutional limits.” Shutts, 472 U.S.

at 822; accord John Hancock Mut. Life Ins. Co. v. Yates, 299

U.S. 178, 182 (1936); Home Ins. Co. v. Dick, 281 U.S. 397,

407–08 (1930). And in doing so, the Due Process Clause

of-law rules has been subject to nearly universal criticism. See,

e.g., Roosevelt, supra, at 2506–07; Louise Weinberg, Choice

of Law and Minimal Scrutiny, 49 U. Chi. L. Rev. 440, 460–63

(1982). In comparing choice of law with the Court’s personal

jurisdiction jurisprudence, Professor Linda Silberman

famously quipped, “[t]o believe that a defendant’s contacts

with the forum state should be stronger under the due process

clause for jurisdictional purposes than for choice of law is to

believe that an accused is more concerned with where he will

be hanged than whether.” Linda J. Silberman, Shaffer v.

Heitner, The End of an Era, 53 N.Y.U. L. Rev. 32, 88 (1978).

I do not take a side in this debate here. My point, rather, is that

wherever the constitutional boundaries lie, so long a states’

choice-of-law regimes fall within them, federal courts have no

authority under the Bankruptcy Code, Rules of Decision Act,

or statutes granting bankruptcy jurisdiction to supplant state

choice-of-law rules in favor of federal ones.

35

protects litigants against “unfair surprise or frustration of

legitimate expectations” of the law governing their dealings. 16

Allstate, 449 U.S. at 318 n.24.

By recounting these well-trodden constitutional

constraints, I do not seek to “embark upon the enterprise of

constitutionalizing choice-of-law rules.” Sun Oil, 486 U.S. at

727–28. Rather, these constitutional safeguards demonstrate

that by extending the rule of Klaxon to bankruptcy cases,

federal courts are not bound to reflexively apply impermissibly

parochial state choice-of-law rules as Appellees warn. See

Appellees’ Second Supp. Br. 9–11. But absent running afoul

of the limitations imposed by the Constitution, I find no basis

(or authority) in federal bankruptcy law to constrain a state’s

authority to prescribe the choice-of-law rules that shall govern

in its courts. Indeed, it is a feature of our federal system that it

16

The Supreme Court has somewhat collapsed the inquiries

under the Full Faith and Credit Clause and the Due Process

Clause for choice-of-law purposes. See, e.g., Sun Oil Co. v.

Wortman, 486 U.S. 717, 729 n.3 (1988); see also Herma Hill

Kay et al., Conflict of Laws 381 (10th ed. 2018) (noting the

convergence in the two analyses). Yet each imposes a different

command: As explained above, the Full Faith and Credit

Clause governs the respect owed to laws among states, while

the Due Process Clause confers an individual right to be free

from application of a state’s law when that state has no

meaningful connection to the dispute. Compare U.S. Const.

art. IV, § 1, cl. 1 (“Full Faith and Credit shall be given in each

State to the public Acts, Records, and judicial Proceedings of

every other State.” (emphasis added)), with U.S. Const. amend.

XIV, § 1 (“No State shall . . . deprive any person of life, liberty,

or property, without due process of law.” (emphasis added)).

36

“leaves to a state, within the limits permitted by the

Constitution, the right to pursue local policies diverging from

those of its neighbors,” and “it is not for the federal courts to

thwart such local policies by enforcing an independent ‘general

law’ of conflict of laws.” Klaxon, 313 U.S. at 496.

Where states do not transcend constitutional barriers,

Klaxon’s rule best serves the purposes of the Bankruptcy Code

consistent with Erie, the Rules of Decision Act, and the

presumption against federal common law-making. So just as

Klaxon and Erie aim to preserve the substantive law governing

a dispute notwithstanding the “accident of diversity,” 17

Klaxon, 313 U.S. at 496 (citing Erie, 304 U.S. at 74–77),

extending Klaxon in this manner avoids altering the

substantive law governing a dispute simply because of the

“happenstance of bankruptcy,” Lewis v. Mfrs. Nat’l Bank of

Detroit, 364 U.S. 603, 609 (1961).

17

Of course, Klaxon’s interest in diminishing forum-shopping

incentives between state and federal courts, see 313 U.S. at

496, does not neatly map onto bankruptcy, as federal courts

possess original and exclusive jurisdiction over bankruptcy

cases, 28 U.S.C. § 1334(a). But just as plaintiffs may choose

their favored forum in non-bankruptcy cases, consistent with

proper venue, to gain a favorable choice-of-law rule, see

Ferens v. John Deere Co., 494 U.S. 516, 523 (1990); Van

Dusen v. Barrack, 376 U.S. 612, 639 (1964), debtors too may

choose a forum for purposes of a specific choice-of-law regime

in bankruptcy cases where venue properly lies. And that sort

of horizontal forum shopping incentive is “attributable to,” and

an irreducible component of, “our federal system.” Klaxon,

313 U.S. at 496.

37

* * *

The question of Klaxon’s applicability to bankruptcy

has persisted for nearly 80 years. This case, just as with others

our Court has encountered, permits us to elide the question of

which choice-of-law methodology to employ. But we have the

responsibility not to perpetuate this uncertainty. I hope that, in

the appropriate case, we will resolve this question and give

guidance to bankruptcy and district courts in our Circuit in a

way that is consistent with the Bankruptcy Code, Erie and the

Rules of Decision Act, and the policies underlying the grant of

bankruptcy jurisdiction to federal courts.

38

AMBRO, Circuit Judge, concurring

The Erie doctrine—taken from Erie Railroad Co. v.

Tompkins, 304 U.S. 64 (1938), and its progeny—is the North

Star for determining whether federal or state law should apply

in federal court. The answer is state law unless the matter is

governed by superseding federal law, such as the Constitution,

a congressional enactment, or federal common law. See

Charles A. Wright, Arthur R. Miller, & Edward H. Cooper, 19

Federal Practice and Procedure § 4501 (3d ed. 2025). Erie

questions occur most often when federal courts sit in diversity-

of-citizenship jurisdiction because those disputes usually

involve only state substantive law. State law, however, includes

more than just the underlying substantive law. The Supreme

Court told us in Klaxon v. Stentor Electric Manufacturing Co.,

313 U.S. 487 (1941), that it includes choice-of-law rules as

well.

What force, if any, does Klaxon have in bankruptcy,

where the parties’ primary rights and interests are often

governed by state law? We need not answer that question in a

holding, as the parties agree on the law that governs: New

Jersey’s. See Wright, Miller & Cooper § 4506 (collecting cases

for the proposition that courts need not determine which state’s

choice-of-law regime applies when the parties do not dispute

that question).

Though “a pretty good reason for having ‘skimmed over

the conflicts problem as if none existed’ was that none did

exist,” Henry Friendly, In Praise of Erie – And the New

Federal Common Law, 39 N.Y.U. L. REV. 383, 401 (1964)

(citation omitted), the question whether Klaxon applies in

bankruptcy has spawned interesting academic debate. Answers

span the spectrum. Compare, e.g., Zachary D. Clopton,

1

Horizontal Choice of Law in Federal Court, 169 PA. L. REV.

2193, 2203–06 (2021) (Klaxon applies without exception), with

Tobias Barrington Wolff, Choice of Law and Jurisdictional

Policy in the Federal Courts, 165 PA. L. REV. 1847 (2017)

(Klaxon applies only in diversity actions). Our concurring

colleague has staked out her position that Klaxon always

applies in bankruptcy, no exceptions. Because I am

uncomfortable with that view, I instead take the opportunity to

make some nonbinding observations about Erie and choice of

law.

I. ERIE AND KLAXON

A brief refresher on the Erie doctrine. Despite the

almost mystical fascination that has long surrounded Erie, it

stands for three basic propositions.

First, “[t]here is no federal general common law.” Erie,

304 U.S. at 78 (emphasis added). “[N]either Congress nor the

federal courts can, under the guise of formulating rules of

decision for federal courts, fashion rules which are not

supported by a grant of federal authority contained in Article I

or some other section of the Constitution.” Hanna v. Plumer,

380 U.S. 460, 471 (1965). When the Constitution does

authorize Congress or courts to do so, however, Erie has no

application, and federal law displaces contrary state law

through the Supremacy Clause.

Second, without a federal statute or constitutionally

authorized federal common-law rule, the Rules of Decision

Act, 28 U.S.C. § 1652, commands federal courts to apply the

rules of decision of their forum states “in cases where they

apply.” The Supreme Court has developed a framework for

determining when a state law falls within the scope of the Rules

of Decision Act. See Gasperini v. Ctr. For Humanities, Inc.,

2

518 U.S. 415, 427–28 (1996); Hanna, 380 U.S. at 468. The

specifics of that framework are irrelevant for our purposes.

Third, when a Federal Rule (e.g., the Federal Rules of

Civil Procedure) conflicts with state law, then the Rules

Enabling Act, 28 U.S.C. § 2072, not the Rules of Decision Act

as construed by Erie and other cases, determines which law

applies. See Hanna, 380 U.S. at 463–64; Burlington N. R.R.

Co. v. Woods, 480 U.S. 1, 4–5 (1987). The Rules Enabling Act

is also irrelevant for our purposes.

Klaxon followed Erie and held that a federal court

sitting in general diversity-of-citizenship jurisdiction is

required to use the choice-of-law rules of its forum state.

Klaxon, 313 U.S. at 496–97. The Court’s reasoning was sparse,

but its decision is best understood as falling into the Erie

doctrine’s second bucket—absent some constitutionally

authorized federal law, the Rules of Decision Act kicks in.

State choice-of-law rules are state rules of decision under that

statute. See A.I. Trade Fin., Inc. v. Petra Int’l Banking Corp.,

62 F.3d 1454, 1464 (D.C. Cir. 1995) (“A choice-of-law rule is

no less a rule of state law than any other ….”). But if Congress

or federal courts invoke some source of constitutional authority

to promulgate federal choice-of-law rules, then federal courts

would instead find themselves in the first bucket. The Rules of

Decision Act, and thus Klaxon, would no longer apply.

II. FEDERAL COMMON LAW AFTER ERIE

Although Erie ended the general federal common law,

the Supreme Court has been unequivocal in recognizing that

the Erie doctrine does not entirely displace federal common

law. As Justice Brandeis acknowledged in a decision released

on the same day as Erie, federal courts may still formulate

special federal common law on issues of uniquely federal

3

interest. See Hinderlider v. La Plata River & Cherry Creek

Ditch Co., 304 U.S. 92, 110 (1938) (concluding that interstate

water apportionment “is a question of ‘federal common law’

upon which neither the statutes nor the decisions of either State

can be conclusive”); see also Boyle v. United Techs. Corp., 487

U.S. 500, 504 (1988) (noting that federal courts may still

formulate federal common law in certain areas implicating

“uniquely federal interests”).

For example, federal courts may still generate common-

law rules when “the policy of the law is so dominated by the

sweep of federal statutes and doctrines developed under them

that the legal relations they affect must be deemed governed by

federal law.” Wright, Miller, & Cooper § 4514. Likewise, it can

sometimes “be inferred from congressional or constitutional

intent that the federal courts should supply the necessary rule

of decision by pronouncing common law to fill the interstices

of a pervasively federal substantive framework.” Id.

To be sure, the “cases in which judicial creation of a

special federal rule would be justified … are … ‘few and

restricted.’” O’Melveny & Myers v. FDIC, 512 U.S. 79, 87

(1994) (quoting Wheeldin v. Wheeler, 373 U.S. 647, 651

(1963)). Before federal courts develop common-law rules, “a

significant conflict between some federal policy or interest and

the use of state law must first be specifically shown.” Atherton

v. FDIC, 519 U.S. 213, 218 (1997) (quoting Wallis v. Pan Am.

Petrol., 384 U.S. 63, 68 (1966)). But when that happens,

federal courts no doubt have the power to create special federal

common law, including choice-of-law rules.

To recap: When Congress or federal courts validly

promulgate some federal rule of decision under a source of

constitutional authority, then federal law displaces contrary

state law. Absent that kind of federal law, then the Rules of

4

Decision Act applies, which commands federal courts to apply

state rules of decision. Even after Erie, federal courts retain the

power to promulgate special federal common-law rules when

a strong federal interest requires such rules. Those cases,

however, are rare.

III. WHAT CHOICE - OF - LAW RULES GOVERN

WHEN FEDERAL COURTS SIT IN BANKRUPTCY ?

This leaves our main questions: (1) Does Klaxon apply

in federal bankruptcy litigation, and if so, (2) may federal

courts ever use special federal common-law choice-of-law

rules instead?

The circuits are split. The Ninth Circuit limits Klaxon to

diversity cases, and thus federal courts must apply federal

choice-of-law principles in bankruptcy cases. In re Lindsay, 59

F.3d 942, 948 (9th Cir. 1995). 1 The Eighth Circuit has arguably

held that Klaxon applies categorically in federal bankruptcy

cases without exception. In re Payless Cashways, 203 F.3d

1081, 1084 (8th Cir. 2000). I say “arguably” because that

decision passes on the issue in a single conclusory sentence

with no further analysis. It is thus hard to conclude that the

1

The Fifth Circuit at one time took a similar view but seems

more recently to have second-guessed whether it conclusively

settled the question. Compare Wallace Lincoln-Mercury Co. v.

Gentry, 469 F.2d 396, 400 n.1 (5th Cir. 1972) (“In this federal

bankruptcy case the District Court is not obliged to use the

choice-of-law methodology of the forum state, Louisiana.”),

with Fishback Nursery, Inc. v. PNC Bank, N.A., 920 F.3d 932,

935 (5th Cir. 2019) (“[I]t is an open question in this circuit as

to whether courts exercising bankruptcy jurisdiction should

apply forum or federal choice-of-law rules.”).

5

Eighth Circuit contemplated and rejected the possibility of

exceptions. Finally, the Second and Fourth Circuits have held

that Klaxon applies in federal bankruptcy proceedings unless a

strong federal interest justifies creating federal choice-of-law

rules as a matter of federal common law. In re Merritt Dredging

Co., 839 F.2d 203, 206 (4th Cir. 1988); In re Gaston & Snow,

243 F.3d 599, 605–06 (2d Cir. 2001).

I believe that the Second and Fourth Circuits have it

right. The Ninth Circuit is wrong because Erie, and thus

Klaxon, is not limited to federal diversity jurisdiction.

Whenever federal courts encounter an issue whose resolution

is not a matter of federal law, the Rules of Decision Act

compels them to use state substantive law, which includes

choice-of-law rules. If the Eighth Circuit held that Klaxon

applies without exception in federal bankruptcy cases, it is

wrong as well. Federal courts after Erie retain constitutional

power to promulgate special federal common-law rules,

including choice-of-law rules, when strong federal interests

justify doing so. “Erie did not fence off a ‘local law field’

constitutionally immune to federal influence; it was quite clear

that exclusive state power takes up only where federal power

leaves off.” John Hart Ely, The Irrepressible Myth of Erie, 87

HARVARD L. REV. 693, 705 (1974).

A. Erie and Klaxon Apply Outside General Diversity

Jurisdiction.

I believe it is wrong to conclude that Erie applies only

in federal diversity cases. It applies to any “questions which

arise in federal court but whose determination is not a matter

of federal law.” Merritt Dredging, 839 F.2d at 206; see also

Fagin v. Gilmartin, 432 F.3d 276, 285 n.2 (3d Cir. 2005)

(Ambro, J.) (invoking Erie to apply New Jersey law in a federal

securities-law case brought under federal-question

6

jurisdiction). Given the three-bucket framework I described

above, this makes sense. Without on-point federal law, the

Rules of Decision Act governs. And that statute does not turn

on the basis of federal jurisdiction. Erie applies just as much

when a court is sitting in its federal-question or bankruptcy

jurisdiction as it does in general diversity. See, e.g., United

Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966) (applying

Erie in pendent jurisdiction cases); Griffin v. McCoach, 313

U.S. 498, 503 (1941) (applying Erie in interpleader cases). 2

If we accept that Erie applies whatever the basis of

federal jurisdiction, then it does not take much more analysis

to conclude that the same is true for Klaxon. Both Erie and

Klaxon “make clear that federal law may not be applied to

questions which arise in federal court but whose determination

is not a matter of federal law.” Merritt Dredging, 839 F.2d at

206. That includes in bankruptcy. As the Fourth Circuit

explained, “[i]t would be anomalous to have the same property

interest governed by the laws of one state in federal diversity

2

Vanston Bondholders Protective Comm. v. Green suggests that

federal courts have wide latitude to devise common-law

choice-of-law rules in bankruptcy. 329 U.S. 156, 161–62

(1946). When the Court decided that case, however, the Rules

of Decision Act covered only common-law claims, and so it

would not have applied to claims created by federal bankruptcy

law. Clopton, supra, at 2205 n.76 (“For those who believe that

the Rules of Decision Act plays an important role in Erie cases,

that statute exclusively referred to common[-]law claims until

two years after Vanston ….”). The Court’s mature Erie cases

came only later. See, e.g., Day & Zimmermann, Inc. v.

Challoner, 423 U.S. 3 (1975); Hanna, 380 U.S. 460; Byrd v.

Blue Ridge Rural Elec., Inc., 356 U.S. 525, 537 (1958).

7

proceedings and by the laws of another state where a federal

court is sitting in bankruptcy.” Id.

B. Federal Courts May Still Apply Federal Common-

Law Choice-of-Law Rules in Bankruptcy Cases

When Strong Federal Interests Warrant Doing So.

Klaxon applies in bankruptcy proceedings when

addressing state-law questions; that much we agree on. The

sole remaining wrinkle is whether federal courts sitting in

bankruptcy must always apply the forum state’s choice-of-law

rules when the underlying issue is governed by state law. That

is where I part with our concurring colleague. In Judge

Krause’s view, federal courts sitting in bankruptcy jurisdiction

can never create federal common-law choice-of-law rules for

some combination of five reasons. 3

First, the Bankruptcy Code generally absorbs state laws

to define the parties’ property interests, and so it follows that

state choice-of-law rules must also apply. Conc. Op. 4–6.

Second, the Bankruptcy Code is intended to facilitate the

orderly resolution of competing creditors’ claims without

significantly affecting their underlying entitlements, and

federal choice-of-law rules, if allowed, could change the

outcome. Id. at 6–9. Third, federal courts have limited power

to make federal common law. Id. at 19–20. Fourth, if there

were some reason to create a federal rule of decision in

bankruptcy, federal courts would be better off creating a rule

3

To avoid confusion on what follows, Judge Krause in part

offers numbered reasons to extend Klaxon to the bankruptcy

context. Those numbered reasons do not correspond to the

numbered reasons I note below for why she believes federal

courts in bankruptcy can never create special federal choice-

of-law rules.

8

of decision rather than a choice-of-law rule. Id. at 19–21. And

fifth, any federal interest strong enough to generate a federal

choice-of-law rule would be explicit in the Bankruptcy Code

itself; the absence of choice-of-law rules in the Code means

there is never any such interest. E.g. id. at 21.

None of the first four arguments supports the claim that

federal courts can never create choice-of-law rules in

bankruptcy—they support only the lesser claim that state

choice-of-law rules will almost always apply. As noted, I agree

with that conclusion. My colleague’s fifth argument, however,

is where we part, as the Supreme Court has recognized that

even when bankruptcy otherwise looks to state law, sufficiently

strong federal interests may warrant creating special federal

common law.

1. Bankruptcy typically absorbs state law.

Our concurring colleagues observes, rightly, that federal

courts sitting in bankruptcy “regularly look to governing non-

bankruptcy law—often ‘state law’—to determine parties’

‘rights and obligations when the Code does not supply a federal

rule.’” Conc. Op. 4 (citation omitted). If federal courts in

bankruptcy used special federal choice-of-law rules that

differed from those of the forum state, then the parties’ choice

of forum (or even the basis of federal jurisdiction) could

change their primary rights.

This is true, but it does not establish more than we

already know—Klaxon should ordinarily apply in bankruptcy.

That federal courts confronted with state-law questions should

use state choice-of-law rules to avoid jurisdiction-shopping is

not an interest unique to bankruptcy. Yet even federal courts

sitting in diversity jurisdiction may theoretically formulate

special federal common law to protect important federal

9

interests. See, e.g., Banco Nacional de Cuba v. Sabbatino, 376

U.S. 398 (1964) (applying act-of-state doctrine in diversity

case). And when courts do so, neither Erie nor Klaxon prevents

them from using those rules instead of state law.

At most, that bankruptcy ordinarily absorbs state

substantive law supports a background presumption that

federal courts in bankruptcy will rarely have a good reason to

create federal choice-of-law rules. It does not support the

broader argument that federal courts can never create special

choice-of-law rules in bankruptcy.

2. Bankruptcy should rarely alter the parties’

underlying entitlements.

Our concurring colleague next cites “renowned

scholars” endorsing the “‘creditors’[-]bargain’ theory,” which

“conceptualizes bankruptcy’s primary role as a means to

resolve the collective action problem posed by self-interested

creditors who, absent a centralized insolvency resolution

system, would engage in individual collection actions under

applicable non-bankruptcy law.” Conc. Op. 6. On this view,

bankruptcy ordinarily should not alter the parties’ underlying

entitlements.

I take no position on whether the creditors’-bargain

theory is the best interpretation of the Bankruptcy Code as a

whole. But even if it were, it would not provide an argument in

support of the claim that federal courts sitting in bankruptcy

lack the power to create federal choice-of-law rules. As above,

this argument at most suggests that the circumstances are rare

under which federal courts could justifiably create federal

common law that affects the parties’ underlying rights and

entitlements. Rare is not never. There may be times when the

purpose of the Bankruptcy Code may be best served by special

10

federal choice-of-law rules. It may be unlikely that such a

circumstance would arise, but it strikes me as overconfident

and unnecessary to disclaim the possibility once and for all.

3. Federal common law is rare.

Judge Krause next observes, again correctly, that “the

creation of federal common law is appropriate only in

‘situations where there is a significant conflict between some

federal policy or interest and the use of state law.’” Conc.

Op. 20 (quoting O’Melveny, 512 U.S. at 87). “‘[S]uch a

conflict [is] a precondition for’ federal common law-making.”

Id.

Once again, the premise is true, but it does not support

the conclusion. If anything, Judge Krause acknowledges that

federal courts can create federal common-law rules when there

is a sufficiently strong federal interest threatened by state law.

As with her argument that bankruptcy should rarely change the

parties’ underlying rights and interests, this argument mistakes

rareness for impossibility. For common lawmaking to be rare,

rather than impossible, courts must be able to do it in at least

some cases.

Judge Krause also appeals at times to separation-of-

powers principles and cautions against leaving courts “to

divine untold rules from some brooding cloud of federal

interests.” Conc. Op. 10. But this misses the point. No one has

suggested that federal courts can or should exercise

freewheeling lawmaking power or identify federal interests

without congressional guidance. See generally CoreCivic, Inc.

v. Governor of N.J., 2025 WL 2046488 (3d Cir. July 22, 2025)

(Ambro, J., dissenting) (rejecting that view). But Congress

may express federal interests through statute—for example, the

Bankruptcy Code—and courts may, in rare circumstances,

11

create federal common law to give effect to those

congressionally endorsed interests, particularly when applying

state law would undermine Congress’s objectives.

4. Federal courts should create substantive rules

of decision instead of choice-of-law rules.

Next, Judge Krause claims that it is hard to imagine a

case involving a federal interest strong enough to justify

federal common law, but not strong enough to justify a

substantive rule of decision rather than a choice-of-law rule. In

her view, “for the Second and Fourth Circuits’ approach to be

correct, … a federal interest has to fall into the goldilocks

zone.” Conc. Op. 20–21. Maybe so, but it will not surprise the

reader to hear that this also is not an argument against the

power of federal courts to create federal choice-of-law rules in

bankruptcy. It is an argument for the claim that the

circumstances when courts would need to do so are “few and

restricted.” O’Melveny, 512 U.S. at 87 (quoting Wheeldin, 373

U.S. at 651). Judicial humility cautions against making the

sweeping claim, in the absence of a case or controversy before

us, that no such interest can exist just because one has not

presented itself.

5. The Bankruptcy Code contains all relevant

federal interests, and a choice-of-law rule is

not among them.

The only argument my colleague makes that

theoretically supports her claim that federal courts can never

develop choice-of-law rules in bankruptcy is that the

Bankruptcy Code is a comprehensive and reticulated statutory

regime whose text exhausts all potential federal interests that

could justify federal common-law rules. The lack of special

12

choice-of-law rules in the Code means, in her view, that there

is no such interest.

That premise is faulty because it would apply with equal

strength to the power of federal courts to create substantive

common-law rules in bankruptcy. Yet the Supreme Court has

rejected that argument: “Property interests are created and

defined by state law … [u]nless some federal interest requires

a different result.” Butner v. United States, 440 U.S. 48, 55

(1979) (emphasis added). If the Supreme Court has recognized

that strong federal interests can sometimes allow federal courts

to devise special rules of decision governing the parties’

underlying property interests, I do not know why those

interests could not also justify special choice-of-law rules.

Judge Krause claims that Butner stands only for the

limited proposition that a strong federal interest can justify a

federal substantive rule, “not that this federal interest [could]

favor[] one state law over others.” Conc. Op. 22. But Butner

does not turn on the difference between substantive law and

choice-of-law rules. It supports the broader principle that the

selection of state rules of decision in bankruptcy must yield to

overriding federal interests. On Judge Krause’s view, a

sufficiently strong federal interest could warrant a federal

substantive rule, but never a choice-of-law rule. The unstated

assumption seems to be that there could not be a strong federal

interest that would justify a federal choice-of-law rule that

ultimately selects state substantive law instead of a federal

substantive rule. But that assumption is also faulty. Federal

courts can and do develop federal rules that select state

substantive law. See, e.g., Kamen v. Kemper Fin. Servs., 500

U.S. 90 (1991) (formulating federal common-law rule for

demand futility in federal derivative actions that incorporates

the corporate law of the state of incorporation); Semtek Int’l

13

Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001)

(formulating federal common-law rule for preclusion in

general diversity actions and “adopting, as the federally

prescribed rule of decision, the law that would be applied by

state courts in the State in which the federal diversity court

sits”).

Judge Krause insists that cases like Kamen and Semtek

are distinguishable because they involved “federal common

law rules of decision—not choice-of-law rules—that

incorporate the contents of state law.” Conc. Op. 23 n.10. But

it is unclear how that distinction defends her central claim,

which I understood to be that any federal interest strong

enough to authorize federal common law can justify nothing

less than a uniform substantive rule. If federal courts can

sometimes formulate a rule of decision whose content absorbs

the law of the defendant’s state of incorporation, then I do not

understand why, at least in theory, they could not also

formulate a choice-of-law rule that selects the law of the

defendant’s state of incorporation.

* * *

It is worth stepping back to get a clear view of my

concurring colleague’s argument. As I understand her, she

does not believe Erie’s constitutional rule prohibits federal

courts from developing special federal common law when the

Constitution or federal statute authorizes them to do so. Nor

does she believe that federal courts properly exercising their

limited common-lawmaking authority lack the power to create

a rule of decision that always incorporates the contents of state

substantive law. At its core, her argument is merely that she

cannot imagine a case in which a federal court would need to

create a federal choice-of-law rule in bankruptcy. As she

rightly notes, I cannot think of such a case either. Conc. Op. 27

14

n.11. But this is not an argument that federal courts lack the

authority to make choice-of-law rules in bankruptcy.

IV . CONCLUSION

We should not succumb to the “beguiling tendency” to

make “[c]onflict-of-law problems … more complicated than

they are.” Vanston, 329 U.S. at 169 (Frankfurter, J.,

concurring). If Klaxon’s application in bankruptcy becomes an

issue, then I would endorse the sensible, never-say-never

approach of the Second and Fourth Circuits: Absent an

“overwhelming federal policy [that] requires us to formulate a

choice of law rule as a matter of independent federal judgment,

we adopt the choice of law rule of the forum state.” Merritt

Dredging, 859 F.2d at 206; see also Gaston, 243 F.3d at 607

(“We necessarily limit our holding to cases where no

significant federal policy, calling for the imposition of a federal

conflicts rule, exists.”).

15