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

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: April 27, 2026)

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

1700 Seventh Avenue, Suite 1900

Seattle, WA 98101

Kathleen R. Hartnett [ARGUED]

COOLEY LLP

3 Embarcadero Center, 20th Floor

San Francisco, CA 94111

Elizabeth B. Prelogar

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

Matthew Oliver

COOLEY LLP

500 Boylston Street

Boston, MA 02116

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.

5

25 Main Street, 4th Floor

Hackensack, NJ 07601

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 claims related to their historical produc-

tion, storage, and distribution of asbestos-laden talc, Whittaker,

Clark & Daniels, Inc. (“Whittaker”) and three of its affiliates—

Brilliant National Services, Inc. (“Brilliant”), L.A. Terminals,

Inc. (“L.A. Terminals”), and Soco West, Inc. (“Soco,” and

jointly and severally with Whittaker, Brilliant, and L.A. Ter-

minals, the “Debtors”)—filed for bankruptcy in 2023. How-

ever, as is often the case in mass-tort bankruptcies, their pro-

ceedings were contested from the start.

On appeal, Appellants—the receiver appointed for

Whittaker by a South Carolina Court (the “South Carolina Re-

ceiver” or “Receiver”) and the Official Committee of Talc

7

Claimants (the “Committee”)—contest whether we should be

here at all because, in their view, Whittaker’s Chapter 11 peti-

tion was improperly filed. If the Debtors rightly entered bank-

ruptcy, the Committee further contends certain successor lia-

bility claims that have been or could be asserted against a third-

party purchaser belong exclusively to its constituent talc cred-

itors. 1 We conclude that Whittaker properly filed for bank-

ruptcy, and the successor liability claims the talc creditors seek

to assert against the purchaser are property of the Debtors’

bankruptcy estates. Accordingly, we affirm.

I. BACKGROUND

A. The Debtors’ Corporate History.

The Debtors were in the business of processing, manu-

facturing, storing, and distributing various industrial chemicals

and minerals, including asbestos-laden talc. Over time, how-

ever, their talc products prompted a tsunami of personal injury

claims by consumers who developed, among other things, mes-

othelioma—a form of cancer affecting the protective lining of

the lungs. To make matters worse, federal, state, and private

parties brought environmental claims alleging the Debtors pro-

duced and handled hazardous materials that contaminated

property in at least fourteen separate states.

In the face of those liabilities, the Debtors took action.

First, L.A. Terminals, which operated a chemical storage and

distribution facility at the Los Angeles Harbor, ceased

1

Throughout the discussion that follows, we refer to the Com-

mittee’s constituents as talc plaintiffs, talc creditors, and tort

creditors interchangeably.

8

operations in 1994 and began to resolve its liabilities through

ordinary-course claims management. Then, in 2004, Whit-

taker, Brilliant, and Soco sold substantially all of their operat-

ing assets to certain subsidiaries of Brenntag North America

through a series of corporate transactions too tortured to re-

count in full (collectively, the “2004 Transactions”).

Whittaker, Brilliant, and Soco collectively received ap-

proximately $200 million in cash consideration in exchange for

their operating assets. However, in an effort to limit their ex-

posure, Brenntag North America and its affiliates (collectively,

“Brenntag”) expressly contracted to exclude all pre-sale asbes-

tos and environmental liabilities from the scope of the 2004

Transactions. For their part, Whittaker, Brilliant, and Soco

took on the obligation to indemnify Brenntag for any liabilities

it accrued from asbestos and environmental tort claims. Thus,

in the aftermath of the 2004 Transactions, the Debtors contin-

ued to exist as shell companies holding limited assets to satisfy

their pending and future tort claims.

Over the next few years, National Indemnity Company,

a subsidiary of Berkshire Hathaway Inc., acquired Brilliant and

L.A. Terminals. It thereby acquired both Whittaker and Soco

indirectly, as subsidiaries of Brilliant. In the process, however,

National Indemnity assigned its acquisition rights to another

Berkshire affiliate, Ringwalt & Liesche Co., which remains the

ultimate parent of the Debtors. And, through a chain of indem-

nity agreements and obligations, National Indemnity currently

backstops certain asbestos-related successor liability claims

against Brenntag.

9

B. Proceedings in South Carolina.

In advance of their bankruptcy cases, the Debtors were

engulfed in litigation. Roughly 2,700 plaintiffs had asserted

claims alleging asbestos-related injuries as a result of the Debt-

ors’ talc products. Plaintiff Sarah Plant brought one such claim

against Whittaker in the South Carolina Court of Common

Pleas after she was diagnosed with mesothelioma as a result of

exposure to asbestos-contaminated talc manufactured by Whit-

taker. And in March 2023, a jury awarded Plant a $29 million

verdict.

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 as the South Carolina Re-

ceiver. Among other things, the Receivership Order vested him

“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

[its] interests.” Appellants’ Consolidated J.A. 217.

Whittaker promptly moved the South Carolina Court to

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

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

10

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.

With more than 1,000 asbestos claims still pending, the

Debtors promptly filed Chapter 11 petitions in the United

States Bankruptcy Court for the District of New Jersey. Before

they did so, Whittaker’s board passed a resolution authorizing

its filing without consulting or gaining approval from the South

Carolina Receiver. He promptly moved in the Bankruptcy

Court to dismiss Whittaker’s bankruptcy as an unauthorized

petition, arguing the Receivership Order “divested [its] board

of the authority to approve a bankruptcy filing on [its] behalf

and instead gave such authority to the Receiver alone.” Appel-

lants’ Consolidated Opening Br. 13.

The Bankruptcy Court denied the Receiver’s motion,

concluding the Receivership Order did not divest Whittaker’s

board of the authority to file a petition for bankruptcy because

the Order’s terms did not demonstrate that the Receiver dis-

placed the board. He appealed to the District Court, which af-

firmed the Bankruptcy Court’s ruling for substantially the

same reasons. The Receiver timely appealed to our Court while

the Debtors’ bankruptcy proceedings continued in parallel.

And in light of the Debtors’ substantial asbestos liabilities, the

11

United States Trustee appointed the Committee to represent the

talc creditors’ interests before the Bankruptcy Court.

With their proceedings well underway, the Debtors

sought to shore up funding for an exit from bankruptcy. How-

ever, they possessed few meaningful assets in the aftermath of

their 2004 Transactions. Further complicating matters, the

Debtors lacked one of the most obvious tools to centralize and

distribute assets because most fraudulent transfer claims they

might have asserted under the Bankruptcy Code in connection

12

with the 2004 Transactions were time-barred. 2 So, in lieu of

any avoidance actions, the Debtors wielded other successor li-

ability claims as leverage in their negotiations with Brenntag. 3

Their approach spurred a settlement (the “Settlement”),

subject to Bankruptcy Court approval, under which Brenntag

will pay approximately $535 million to the Debtors in

2

Sections 548 and 544 of the Bankruptcy Code “allow[] a

trustee to avoid a transaction if it lacked reasonably equivalent

value” and left the debtor with “unreasonably small capital.” 5

COLLIER ON BANKRUPTCY ¶ 548.05 (16th ed. 2025). So, for

example, a trustee may seek to avoid a transfer when “the

debtor is left solvent, but just barely so, and in a condition that

bankruptcy or liquidation is substantially likely.” Id. And—as

our precedents demonstrate—fraudulent transfer claims are

commonly asserted against third-party purchasers like

Brenntag. See, e.g., In re Wilton Armetale, Inc., 968 F.3d 273,

278 (3d Cir. 2020) (considering fraudulent transfer claims

asserted by creditors against a third-party purchaser of the

debtor’s assets); In re Emoral, Inc., 740 F.3d 875, 877 (3d Cir.

2014) (noting that the bankruptcy trustee asserted a fraudulent

transfer claim against a third-party purchaser that creditors

sought to hold liable on a “mere continuation” theory of

liability). The trouble is that Section 548 addresses transfers

that occurred within two years of the petition date. 11 U.S.C. §

548(a). Likewise, state-law avoidance claims asserted on

behalf of creditors under Section 544 typically expire four

years from the date of the challenged transfer or obligation. See

5 COLLIER ON BANKRUPTCY ¶ 548.01A (considering statutes

of limitation under the Uniform Fraudulent Transfer Act and

Uniform Voidable Transfer Act).

13

exchange for, among other things, a release of all successor li-

ability claims against it. The only problem was that certain of

the talc plaintiffs represented by the Committee had already

asserted successor liability claims against Brenntag before the

Debtors filed for bankruptcy. As a result, the Debtors needed

to resolve their competing claims to proceed with the Settle-

ment.

To do so, the Debtors filed an adversary proceeding

against, among others, Brenntag and hundreds of individual

talc plaintiffs represented by the Committee. They sought an

order enjoining the talc plaintiffs from pursuing successor lia-

bility claims against Brenntag, as well as a declaratory judg-

ment determining that all of those claims are property of their

respective bankruptcy estates under Section 541(a)(1) of the

Bankruptcy Code. The Committee intervened in the adversary

proceeding, and the Debtors moved for summary judgment

over its objection.

In support of their motion, the Debtors relied on our de-

cision in In re Emoral, 740 F.3d 875 (3d Cir. 2014). According

3

Successor liability claims form a list of exceptions to the

general rule of corporate successor nonliability. Ramirez v.

Amsted Indus., Inc., 431 A.2d 811, 815 (N.J. 1981). In that

sense, the term refers to a collection of different causes of

action that can be asserted against a successor corporation at

common law. Id. (discussing successor liability claims—

including those based on alter-ego, mere continuation, product-

line, and actual or constructive fraudulent transfer theories—

recognized under New Jersey law). The roster of cognizable

claims varies from one jurisdiction to another. See, e.g., id. at

815–20.

14

to the Committee, however, that decision narrowly concluded

that successor liability claims asserted on a “mere continua-

tion” theory under New Jersey law constitute property of the

estate. 4 So, the Committee explained, other successor liability

claims available to certain talc plaintiffs in a small minority of

states belong to those plaintiffs individually, as opposed to the

Debtors. More specifically, the Committee focused its objec-

tion on the subset of successor liability claims its constituents

had or could have asserted on a “product-line” theory of liabil-

ity (collectively, the “Product-Line Claims”).

That theory imposes strict liability for injuries caused

by defects of a product line on a corporation that acquires the

manufacturer’s assets and undertakes essentially the same op-

eration and production practices. Ramirez, 431 A.2d at 820.

Only a handful of state courts have recognized this “controver-

sial” theory of liability. David Hunt, Tort Law—Towards a

Legislative Solution to the Successor Products Liability Di-

lemma—Niccum v. Hydra Tool Corp., 438 N.W.2D 96 (Minn.

1989), 16 WM. MITCHELL L. REV. 581, 581–91 (1990). New

Jersey and California courts are among the minority. See, e.g.,

Ramirez v. Amsted Indus., Inc., 431 A.2d 811, 819–22 (N.J.

1981) (recognizing the product-line theory); Ray v. Alad Corp.,

560 P.2d 3, 7–11 (Cal. 1977) (same). And although the parties

4

As mentioned in footnote 3 above, the mere continuation

theory of liability is part of the traditional list of successor

liability claims recognized under New Jersey law. To assert a

mere continuation claim thereunder, a plaintiff must establish

sufficient “continuity in management, shareholders, personnel,

physical location, assets and general business operation

between selling and purchasing corporations following [an]

asset acquisition.” Ramirez, 431 A.2d at 816.

15

briefed their choice-of-law positions before the Bankruptcy

Court, it made no decision on the issue. In re Whittaker, Clark,

& Daniels, 663 B.R. 1, 26 (Bankr. D.N.J. 2024). Thus, it is

unclear precisely how many of the Committee’s constituents

have or could have asserted Product-Line Claims. Id. at 26

n.13.

After rounds of unsuccessful mediation, the Bankruptcy

Court granted summary judgment to the Debtors. Id. at 7. Fol-

lowing Emoral, it agreed that the Product-Line Claims are

property of the Debtors’ estates under Section 541. Id. at 25. In

the alternative, it held that Sections 541(a)(7) and 544(a)(1)

drew those claims into the Debtors’ respective estates. Id. at14-

16

21. 5 Recognizing the uncertainty of the law governing its rul-

ings, the Bankruptcy Court certified its order for direct appeal

to our Court under 28 U.S.C. § 158(d)(2). We granted the

Committee’s petition for direct appeal, ordered expedited

briefing, and issued a consolidated opinion in September 2025.

Following the Committee’s petition for, inter alia, panel re-

hearing, we requested supplemental briefing and now issue a

revised opinion reaching the same conclusions.

5

Under the former provision, property of the estate includes

“[a]ny interest in property the estate acquires after the com-

mencement of the case.” 11 U.S.C. § 541(a)(7). The latter

provision vests the trustee—or debtor in possession—with the

rights and powers of a hypothetical lien creditor who extended

credit at the time of the debtor’s petition. 11 U.S.C. § 544(a)(1).

In the Bankruptcy Court’s view, Section 544(a)(1) authorized

the Debtors—as debtors in possession bearing the rights of a

trustee—to pursue the Product-Line Claims after their petitions

were filed. Whittaker, 663 B.R. at 21–22. Thus, it concluded

the Product-Line Claims constitute after-acquired property of

the estate under Section 541(a)(7). Id. Several circuit courts,

however, have cast doubt on this analysis. See, e.g., In re Ica-

rus Holding, LLC, 391 F.3d 1315, 1319 n.5 (11th Cir. 2004);

Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118

(2d Cir. 1991); In re Ozark Rest. Equip. Co., Inc., 816 F.2d

1222, 1226 (8th Cir. 1987); but see In re Kwok, __ F.4th __,

2026 WL 922975, at *4–5 (2d Cir. Apr. 6, 2026) (narrowing

Wagoner’s limitations on trustee standing under Section 544).

And while the parties devoted a portion of their briefs to ad-

dressing the Bankruptcy Court’s alternate holding, we need not

do so because our precedents require us to conclude the

Product-Line Claims are property of the estate under Section

541(a)(1).

17

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

Before us are two issues, each with accompanying nu-

ance. First, the South Carolina Receiver and the Committee

contend that Whittaker’s Chapter 11 petition must be dis-

missed because the South Carolina Court vested the Receiver

with exclusive authority to file it. Second, the Committee ar-

gues that the Bankruptcy Court incorrectly concluded that the

Product-Line Claims belong to the Debtors’ bankruptcy es-

tates. We review each in turn.

A. Is Whittaker Properly in Bankruptcy?

In order to determine whether Whittaker’s Chapter 11

petition must be dismissed, we consider whether the South

Carolina Court divested its board of authority to file for bank-

ruptcy. Before doing so, however, we address a predicate ques-

tion: Does the validity of a Chapter 11 petition affect a court’s

subject matter jurisdiction? We conclude it does not and that

Whittaker’s petition was duly filed in any event.

18

1. A Chapter 11 Petition is Not Jurisdic-

tional.

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 Hightstown, 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.

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

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 a 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)). 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

19

Diversified, L.P., 661 B.R. 401, 415–20 (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. Sep. 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 are more precise about hanging the “juris-

dictional 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

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 of Internal Revenue, 596

U.S. 199, 203 (2022) (first quoting Sebelius v. Auburn Reg’l

Med. Ctr., 568 U.S. 145, 153 (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

20

“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 Section 301(a), which does deal with bankruptcy

petitions, 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.” 11 U.S.C. § 301(a). This provision focuses on the

commencement of a bankruptcy case by a debtor, not on the

power of the court. Simply put, Section 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 to a provision absent a “clear statement” to

the contrary, Wilkins, 598 U.S. at 158.

Accordingly, we hold that an improperly filed bank-

ruptcy 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. In doing so, we note that

our conclusion is consistent with the decisions of at least two

other circuits. See In re Parks Diversified, L.P., 168 F.4th

1188, 1193 (9th Cir. 2026) (“Corporate authority to file for

bankruptcy—while important and mandatory—is not

jurisdictional.”); In re Martin-Trigona, 760 F.2d 1334, 1340

(2d Cir. 1985) (concluding that a debtor corporation’s authority

to file for bankruptcy does not implicate subject matter

jurisdiction).

21

2. Whittaker Properly Filed Its Chapter

11 Petition.

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

sence of federal incorporation,” “local law” governs a corpo-

rate 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—typi-

cally 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 corpo-

rate directors’ powers,” id. So we look to governing state law

to determine the propriety of a corporation’s bankruptcy peti-

tion. 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?

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’ Second Supp. Br.

2, 11; Williams v. BASF Catalysts LLC, 765 F.3d 306, 317 (3d

Cir. 2014) (noting that where parties do not dispute governing

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

question becomes whether, under New Jersey law, the

22

Receivership 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 receiver-

ship in the late nineteenth century as a device for resolving cor-

porate insolvency), this case proves that state courts retain the

traditional equitable authority to appoint receivers for insolvent

corporations. 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). For that reason, where a foreign

court appoints a receiver, New Jersey courts generally “will

appoint an ancillary receiver, [and] the assets will be so admin-

istered that creditors in [New Jersey] and in the foreign juris-

diction shall fare alike.” Id.; accord Clark v. Painted Post Lum-

ber Co., 104 A. 728, 729 (N.J. Ch. 1918) (recognizing that “af-

ter the appointment of the receiver in New York, [an ancillary

receiver] was appointed” by a New Jersey court); Ware v. Su-

preme 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 [for-

eign] receiver”).

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

23

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

provision also permits the court to “enjoin the corporation, its

officers 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 appointed by a

court of a state other than the state of incorporation, and it is

intended to dissolve the corporation . . . , an ancillary receiver

should be appointed for those purposes by a court of the state

of incorporation.” RESTATEMENT (SECOND) OF CONFLICT OF

LAWS § 367 cmt. d (A.L.I. 1971). This is so because “only a

receiver appointed by a court in the state where the corporation

24

was incorporated can institute action to dissolve a corpora-

tion.” Id. 6

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 ap-

pointment of an ancillary receiver to displace Whittaker’s

board’s control over, inter alia, the company’s privileges, fran-

chises and assets. It did not do so. Whittaker’s board thus 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—as they involve

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

stance of dissolution, existence)—that their precepts apply to

the same extent when a board seeks to enter bankruptcy.

25

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 con-

trary in the Order, the default rule discussed above governs—

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 Section 1738 does not lead to a different out-

come.

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 what we

have here is not “effectively final” because state-court

litigation over the Order is not abandoned—it is merely stayed.

See 11 U.S.C. § 362(a). In fact, Appellants indicated they

would continue to litigate the Order if the stay were to be lifted.

26

Second, even if we assume the Receivership Order ex-

tends to corporate affairs, Appellants still did not attempt to

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

eign court may warrant recognition and enforcement under

Section 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). Even spotting Appellants the enforceability of the Or-

der, they needed to employ the enforcement mechanisms pro-

vided under New Jersey law outlined above. They did not do

so. 8 Consequently, their Section 1738 argument fails on this

basis too.

Third, and more fundamentally, even if the South Car-

olina Court issued an order purporting to place control of Whit-

taker’s corporate affairs in the hands of the South Carolina Re-

ceiver, we doubt its ability to do so. Our system of federalism

embodies “the fundamental principle of equal sovereignty”

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,” and characterizing Whittaker’s

position 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 inva-

lid.

27

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

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

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) (citation modified).

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, courts have long construed the Due Process Clause of

the Fourteenth Amendment to impose limitations on state

courts’ authority to determine non-resident parties’ rights. See,

e.g., Pennoyer v. Neff, 95 U.S. 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 of Ky. v. Davis, 553 U.S.

328, 337–38 (2008)).

It is no surprise that the Constitution places limits on the

authority a state court can exercise over companies that are in-

corporated in a sister state. Those limitations are as intuitive as

they are sensible. A corporation’s state of incorporation or

principal place of business determines its domicile. See

28

Daimler AG v. Bauman, 571 U.S. 117, 137 (2014). 9 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 they exert over their domiciliaries, states may deter-

mine “‘any and all claims’ brought against a [resident] defend-

ant.” Ford Motor Co., 592 U.S. at 358 (quoting Goodyear Dun-

lop 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 reserved some of the attributes of sovereignty, pre-

cludes 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. Ac-

cident Comm’n, 306 U.S. 493, 501 (1939). Thus, when it

comes to control over corporate decision-making, a state “has

no interest in regulating the internal affairs of foreign corpora-

tions.” Edgar v. MITE Corp., 457 U.S. 624, 645–46 (1982).

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

corporation—including the authority to file for bankruptcy.

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.

29

Oral Arg. Tr. 15:17. 10 However, as we explained above, the

Order, reasonably interpreted, does not extend so far. And if it

did, it would be an unprecedented exertion of power over a for-

eign corporation whose internal affairs are governed by the

laws of a sister state, as well as a radical intrusion into the prov-

ince of a co-equal sovereign.

These constitutional infirmities provide an independent

basis to reject Appellants’ appeal to Section 1738. Rendering

full faith and credit to foreign judgments does not entail blind

deference 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). Where, as here, the parties did not

litigate the constitutionality of the state-court judgment, Sec-

tion 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.

30

“Our Constitution ‘was framed upon the theory that the

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

Trucking Ass’ns, 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)). While bound together in this federal un-

ion, certain powers remain the province of a particular state.

The state of incorporation, for example, enjoys exclusive au-

thority to govern the internal affairs of its corporations. Thus,

consistent with relevant constitutional constraints, New Jersey

law governs and sanctions the authority of Whittaker’s board

to petition for bankruptcy.

B. Are the Product-Line Claims Property of

the Debtors’ Estates?

As Whittaker properly entered bankruptcy, we now turn

to consider whether the Product-Line Claims are property of

the Debtors’ bankruptcy estates. We conclude that they are un-

der both Emoral and Armetale. To that end, we begin with a

summary of the doctrinal landscape. 11

Under Section 541 of the Bankruptcy Code, the filing

of a bankruptcy petition automatically creates an “estate” com-

prised of “all legal or equitable interests of the debtor in prop-

erty.” 11 U.S.C. § 541(a)(1). This provision captures such in-

terests “wherever located and by whomever held.” Id. At the

same time, the Supreme Court has explained that “[p]roperty

interests are created and defined by state law.” Butner v. United

11

For the sake of clarity, we refer to “claims” and “causes of

action” interchangeably throughout the discussion that fol-

lows. Additionally, we generally use the term “debtor corpora-

tion” in reference to the applicable prepetition entity.

31

States, 440 U.S. 48, 55 (1979). The basic idea is that state law

defines a debtor corporation’s property interests, whereas fed-

eral law governs whether those interests are swept into its

bankruptcy estate. H.R. Rep. No. 95-595, at 367–68 (1977), as

reprinted in 1978 U.S.C.C.A.N. 5963, 6323; S. Rep. No. 95-

989, at 82–83 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787,

5869. 12

There is no dispute that causes of action may constitute

property of the estate. See United States v. Whiting Pools, Inc.,

462 U.S. 198, 205 n.9 (1983). However, it is often difficult to

apply Section 541 to causes of action because applicable non-

bankruptcy law sends mixed signals. In particular, it estab-

lishes a variety of so-called derivative actions in which “the

named plaintiff ‘is only a nominal plaintiff’” and “[t]he sub-

stantive claim belongs to the corporation.” Harrington v. Pur-

due Pharma L.P., 603 U.S. 204, 219 (2024) (quoting 2 J.

Macey, Corporation Laws § 13.20[D], p. 13–140 (2020–4

12

Courts frequently use the term “state law” because property

interests are ordinarily defined by the states. But federal law

may establish property interests, and this is particularly true

with respect to causes of action. See, e.g., Bd. of Trs. of

Teamsters Loc. 863 Pension Fund v. Foodtown, Inc., 296 F.3d

164, 168–69 (3d Cir. 2002) (considering whether claims

arising under federal law constitute property of the estate).

Thus, applicable non-bankruptcy law is the more apt term.

32

Supp.)). 13 As a result, claims held by a debtor corporation’s

creditors under applicable non-bankruptcy law must undergo

substantive scrutiny to ensure they are not misappropriated

from the debtor’s bankruptcy estate. See, e.g., Emoral, 740

F.3d at 879 (instructing courts to consider the theory of liabil-

ity); cf. Young v. Higbee Co., 324 U.S. 204, 210 (1945) (noting

that “the prime purposes” of bankruptcy include “bring[ing]

about a ratable distribution among creditors of a bankrupt’s as-

sets” and “protect[ing] the creditors from one another”).

The stakes of this exercise are significant. That is be-

cause Section 323 of the Bankruptcy Code gives the trustee ex-

clusive statutory authority to pursue claims that constitute

property of the estate under Section 541. In re Wilton Armetale,

Inc., 968 F.3d 273, 280 (3d Cir. 2020). 14 And the corollary of

13

We note that “the term ‘derivative’ has multiple meanings.”

In re TPC Grp. Inc., No. 22-10493, 2023 WL 2168045, at *9

(Bankr. D. Del. Feb. 22, 2023). However, with respect to our

inquiry under Section 541, derivative claims are those “based

on an injury to the debtor’s estate that creates a secondary harm

to all creditors regardless of the nature of their underlying

claims against the debtor.” Armetale, 968 F.3d at 283 (citation

modified); see also Off. Comm. of Unsecured Creditors v. R.F.

Lafferty & Co., 267 F.3d 340, 348–49 (3d Cir. 2001)

(explaining that derivative claims are predicated on an injury

to the debtor corporation).

14

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 appointed by the bankruptcy court. But trus-

tees are seldom appointed in Chapter 11 cases. Thus, a debtor’s

rights are, with certain exceptions, coextensive with those of a

trustee, and we use the terms interchangeably.

33

this rule proves especially troubling for interested parties: cred-

itors—like the Committee’s constituents—lack the authority to

prosecute, settle, and/or release any claim that constitutes prop-

erty of the estate unless the trustee relinquishes his or her stat-

utory authority over it. Id. at 284. 15

Courts have attempted to fix straightforward rules for

the classification of claims in light of these stakes. And in do-

ing so, they looked to the Supreme Court’s decision in Caplin

v. Marine Midland Grace Tr. Co. of N.Y., 406 U.S. 416 (1972).

Its facts are straightforward: A trustee appointed under Chapter

X of the Bankruptcy Act 16 asserted misconduct claims against

a non-debtor indenture trustee on behalf of estate bondholders

after concluding the latter trustee had either willfully or negli-

gently breached its obligations under the indenture. Id. at 418–

20. In response, the indenture trustee contended that the bank-

ruptcy trustee lacked authority to assert those claims on behalf

of the bondholders. See id. at 420–21.

15

This consequence rests at the heart of the Committee’s ap-

peal. It contends the Product-Line Claims belong exclusively

to the talc creditors in order to ensure the proceeds of those

claims are not shared with the full creditor constituency under

the ordinary rules of priority. In that sense, this case lays bare

the conflicting interests of the tort plaintiffs’ bar and the bank-

ruptcy bar.

16

Caplin focused on provisions of the Bankruptcy Code’s

predecessor—the Bankruptcy Act of 1938. The Bankruptcy

Act was replaced by the Bankruptcy Reform Act of 1978,

which is commonly referred to as the Bankruptcy Code. Many

Code provisions grew out of analogous sections under the Act.

As a result, judicial decisions and scholarship concerning the

Bankruptcy Act often inform our understanding of the Code.

34

On appeal, the Supreme Court determined that a provi-

sion of the Bankruptcy Act analogous to Section 544 of the

modern Code did not authorize the bankruptcy trustee to assert

the misconduct claims on behalf of bondholders. Id. at 422–28;

see also Koch Refin. v. Farmers Union Cent. Exch., Inc., 831

F.2d 1339, 1347 n.11 (7th Cir. 1987) (indicating that Section

544 supplanted the Bankruptcy Act provision considered by

Caplin); supra note 5 and accompanying text (explaining that

the Bankruptcy Court relied on Section 544 in connection with

its alternate holding in this case). Instead, the bankruptcy trus-

tee’s statutory authority was limited to asserting causes of ac-

tion that were property of the estate. Caplin, 406 U.S. at 428–

29. But the Supreme Court concluded that the misconduct

claims did not belong to the estate because, inter alia, they

sought recovery on account of a direct injury to certain bond-

holders, and the debtor corporation could not have asserted

those claims before its bankruptcy case began. Id. at 428–30.

Following Caplin, courts considered the same factors to

determine whether causes of action were property of the estate

under Section 541 of the Bankruptcy Code. See, e.g., Koch,

831 F.2d at 1347 n.11; In re Educators Grp. Health Tr., 25

F.3d 1281, 1285 n.4 (5th Cir. 1994). And, as the law developed,

many courts adopted the basic rule that a claim is property of

the estate when applicable non-bankruptcy law authorized the

debtor corporation to assert it prior to bankruptcy, and the

claim vindicates an injury to the debtor corporation that created

a secondary injury to all creditors. See, e.g., In re Icarus Hold-

ing, LLC, 391 F.3d 1315, 1319–20 (11th Cir. 2004), certified

question answered sub nom. Baillie Lumber Co. v. Thompson,

612 S.E.2d 296 (Ga. 2005) (“[M]ost courts require that (1) the

[disputed claim] be a general claim that applies equally to all

35

creditors, and (2) state law allows the [debtor] entity to bring

[the disputed claim].”).

Over time, however, the basic rule proved unworkable

with respect to successor liability claims that were nominally

vested with creditors on account of secondary harms derived

from prepetition injuries to the debtor corporation. See, e.g., St.

Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688,

700–02 (2d Cir. 1989) (explaining that “Caplin is not control-

ling” where claims vindicate derivative injuries to the full cred-

itor constituency). Those claims presented a contradiction be-

cause the derivative-injury aspect favored concluding the claim

at issue was property of the estate, whereas the debtor corpo-

ration’s inability to assert the claim outside of bankruptcy

36

supported the conclusion that it belonged to the individual

creditors. See id. (discussing both factors). 17

17

This phenomenon makes sense in context. Successor liability

claims frequently target an injury to the debtor corporation by

a controlling entity. See, e.g., Walensky v. Jonathan Royce

Int’l, Inc., 624 A.2d 613 (N.J. App. Div. 1993). However, as a

practical matter, the debtor corporation is unlikely to assert

those claims against a controlling entity. See, e.g., In re Build-

ings by Jamie, Inc., 230 B.R. 36, 42 (Bankr. D.N.J. 1998)

(noting that “principals of a solvent debtor will not be

compelled to pierce the veil of the very entity they use as a

conduit for their personal business” because doing so would

“effectively extinguish their limited liability and expose them

to the personal liability that the corporate form is employed to

avoid”); In re W. World Funding, Inc., 52 B.R. 743, 784

(Bankr. D. Nev. 1985), aff’d in part and rev’d in part on other

grounds sub nom., Buchanan v. Henderson, 131 B.R. 859 (D.

Nev. 1990), rev’d, 985 F.2d 1021 (9th Cir. 1993) (explaining

that “defendants who so completely dominate [a] corporation

as to constitute its alter egos are not likely to institute an action

to determine their own liability for corporate debts”). Accord-

ingly, state law nominally vests successor liability claims with

creditors to ensure they can be asserted.

37

We have considered two such cases, and we held the

claims at issue were property of the estate in both. 18 The first

was Emoral. 740 F.3d 875. Before its bankruptcy, the debtor

in that case manufactured diacetyl, a chemical used in the food

flavoring industry that was found to cause various lung ail-

ments. Id. at 877. Through a complicated procedural history, a

group of plaintiffs eventually sued a third-party purchaser that

acquired certain of the debtor’s assets for diacetyl-related per-

sonal injuries caused by the debtor’s products. Id. They pro-

ceeded against the purchaser on the theory that it was liable for

their diacetyl-related tort claims as the “mere continuation” of

the debtor. Id. at 876–77; see also supra note 4 (discussing the

mere continuation theory of liability). But the purchaser con-

tended the tort claimants could not assert the mere continuation

claims because they were property of the debtor’s bankruptcy

estate. See id. at 878.

Notably, our approach resembled the basic rule. We ex-

plained at the outset that a claim is property of the estate if it

(1) existed at the time the debtor corporation filed its bank-

ruptcy petition, (2) could have been asserted by the debtor cor-

poration outside of bankruptcy under applicable state law, and

(3) is a general claim “with no particularized injury arising

from it.” Id. at 879 (quoting Bd. of Trs. of Teamsters Loc. 863

Pension Fund v. Foodtown, Inc., 296 F.3d 164, 170 (3d Cir.

18

Counting our decision in Foodtown, we have applied Section

541 to causes of action in at least three cases. See 296 F.3d at

170–71. But that decision is not applicable because it

concerned federal pension withdrawal liability claims that did

not exist until the debtor filed for bankruptcy. Id. at 170. And

in our case, there is no dispute that the Product-Line Claims

existed prior to the Debtors’ bankruptcy cases.

38

2002)). As in this case, the parties did not dispute the first

prong, so we focused on the latter two.

The second prong was challenging to apply because it

was “difficult to imagine” that the debtor corporation “would

or could bring a claim for successor liability” outside of bank-

ruptcy. Id. at 881. That is because debtor corporations are—as

a practical matter—generally unable to assert certain successor

liability claims even when state law authorizes them to do so.

Id. (citing In re Buildings by Jamie, Inc., 230 B.R. 36, 42

(Bankr. D.N.J. 1998)); see also supra note 17 and accompany-

ing text (explaining that debtor corporations ordinarily refrain

from asserting successor liability claims). At the same time, we

noted that courts have classified successor liability claims as

property of the estate notwithstanding the practical considera-

tions that prevent their assertion by debtor corporations. See

Emoral, 740 F.3d at 881 (discussing cases). So, with respect to

the dispute before us, we expressed doubt that the debtor cor-

poration’s inability to assert the mere continuation claims out-

side of bankruptcy would be dispositive. See id.

The third prong was also challenging because the tort

claimants emphasized their underlying tort injuries in an effort

to demonstrate particularized harms. See id. at 879 (explaining

that the tort claimants “focus[ed] on the individualized nature

of their personal injury claims against [the debtor]” to obfus-

cate the derivative nature of the mere continuation theory of

liability). Indeed, the tort claimants had asserted personal in-

jury claims against the debtor to recover for the direct injuries

they sustained from products manufactured by the debtor. Id.

at 877. And according to the tort claimants, the mere continu-

ation claims they asserted against the third-party purchaser

39

were predicated on the same product-related injuries. Id. at

877–78.

We disagreed. As noted above, the mere continuation

theory of liability turns on “continuity in management, share-

holders, personnel, physical location, assets and general busi-

ness operation between selling and purchasing corporations

following [an] asset acquisition.” Id. at 880 (quoting Ramirez,

431 A.2d at 816). So, although the tort creditors “focus[ed] on

the individualized nature” of their underlying claims, id. at

879, they “fail[ed] to demonstrate how any of the factual alle-

gations that would establish their cause of action based on suc-

cessor liability [were] unique to them,” id. at 880. Likewise,

the tort creditors could not “demonstrate how recovery on their

successor liability cause of action would not benefit all credi-

tors.” Id. From that perspective, their theory of liability was

“based on a general injury suffered by a corporate debtor prior

to its bankruptcy filing,” id. at 882 (quoting Foodtown, 296

F.3d at 171), as opposed to “any direct injury” inflicted by the

purchaser they sought to hold liable, id. at 879. We thus con-

cluded the mere continuation claims were property of the es-

tate. Id. at 882. And in doing so, we cautioned courts to “ex-

amine the nature of the cause of action” to avoid misclassifying

successor liability claims on the basis of tort injuries inflicted

by the debtor. Id. at 879–80.

We decided Armetale next. 968 F.3d 273. In that case,

the former owner of Wilton Armetale, Inc. engineered a series

of transactions involving the sale of corporate assets for less

than fair value in exchange for a kickback from the purchaser.

Id. at 278. Eventually, however, one of Armetale’s creditors

discovered the scheme and asserted fraudulent transfer claims

against the colluding parties. Id. Armetale subsequently filed

40

for bankruptcy, which prompted a dispute as to whether those

fraudulent transfer claims belonged to the bankruptcy estate or

to the creditor that asserted them.

We explained that claims are property of the estate

where the theory of liability is “based on an injury to the

debtor’s estate that creates a secondary harm to all creditors

regardless of the nature of their underlying claim[s] against the

debtor.” Id. at 283 (quoting In re Tronox Inc., 855 F.3d 84, 104

(2d Cir. 2017)). Such is the case where the theory of liability is

“based on facts generally available to any creditor, and recov-

ery would serve to increase the pool of assets available to all

creditors.” Id. (quoting Emoral, 740 F.3d at 881). In contrast,

we stated that claims are personal to creditors “[o]nly when a

particular creditor suffers a direct, particularized injury that can

be ‘directly traced’ to the defendant’s conduct.” Id. (quoting

Tronox, 855 F.3d at 100). The disputed fraudulent transfer

claims, however, vindicated the prepetition depletion of corpo-

rate assets, which “lower[ed] the odds that the [debtor corpo-

ration] w[ould] repay its creditors.” Id. at 277. In that sense,

the claims “rel[ied] on a general theory of recovery derivative

of harm done to [the debtor corporation].” Id. at 283. We there-

fore determined they were property of the estate. Id.

41

Against this backdrop, the Committee argues the Prod-

uct-Line Claims are not property of the Debtors’ estate for

three reasons. 19 We address and reject them in turn.

1. Claims May Constitute Property of the

Estate Notwithstanding Whether the

Debtor Corporation Could Assert

Them Outside of Bankruptcy.

The Committee contends that the Debtors cannot satisfy

Emoral because state law does not establish “an independent

right” for them to assert the Product-Line Claims outside of

19

The Committee also claims that classifying the Product-Line

Claims as property of the estate would violate the Supreme

Court’s decision in Purdue Pharma. That decision held that

bankruptcy courts lack the power to extinguish creditor claims

against third parties absent consent from the affected creditors.

603 U.S. at 227. So, the Committee argues, treating the

Product-Line Claims as property of the estate—and thus per-

mitting the Debtors to settle them—would result in a non-con-

sensual third-party release. But this contention places the cart

before the horse. Our inquiry focuses on the antecedent ques-

tion of whether the Product-Line Claims substantively belong

to the tort creditors or to the estate under Section 541. See id.

at 219 (“[N]o one questions that [a debtor] may address in its

own bankruptcy plan claims . . . derivatively asserted by an-

other on its behalf.”).

42

bankruptcy. Appellant Committee’s Opening Br. 32. 20 For this

assertion, it points to a line from Emoral explaining that a cause

of action is property of the estate “if . . . the debtor could have

asserted the claim on [its] own behalf under state law.” Emoral,

740 F.3d at 879 (quoting Foodtown, 296 F.3d at 169 n.5). In

short, the Committee asks us to consider this aspect of the basic

rule a necessary, rather than sufficient, condition.

The problem is that this request is inconsistent with our

precedents. For example, we concluded the mere continuation

claims at issue in Emoral were property of the estate irrespec-

tive of whether the debtor could assert them outside of bank-

ruptcy. See id. at 881. Similarly, Armetale held that fraudulent

transfer claims are property of the estate, 968 F.3d at 283, yet

state law vests those claims exclusively with the creditors of a

debtor corporation outside of bankruptcy, see, e.g., In re

Cybergenics Corp., 226 F.3d 237, 242 (3d Cir. 2000)

(“[O]utside of the context of bankruptcy, it is clear that a fraud-

ulent transfer claim . . . belongs to [the debtor corporation’s]

creditors . . . .”); In re Global Grounds Greenery, LLC, 405

B.R. 659, 662 (Bankr. D. Ariz. 2009) (“There is no dispute that

the Uniform Fraudulent Transfer Act, as adopted in Arizona

20

In an effort to bolster its position, the Committee repeatedly

emphasizes that the Product-Line Claims are vested with, and

inure to the benefit of, tort creditors alone. In any event, that

may not be the case. See Mettinger v. Globe Slicing Mach. Co.,

709 A.2d 779, 786 (N.J. 1998) (holding that “distributors and

retailers may use the product-line exception to seek

indemnification from corporations that purchased all or

substantially all of the original manufacturer’s assets and

undertook essentially the same manufacturing operation as that

corporation”).

43

and elsewhere, only creates causes of action for creditors of the

transferor.”); In re ShengdaTech, Inc., 519 B.R. 292, 303–04

(D. Nev. 2014) (holding that, under Nevada’s Uniform Fraud-

ulent Transfer Act, a creditor is the only party with standing to

bring a claim).

Furthermore, the Committee’s request would subvert

the goals that Congress sought to advance through the Bank-

ruptcy Code. As we have repeatedly explained, Section 541

safeguards property to enable orderly administration and equi-

table distribution to all creditors of the bankrupt entity’s estate.

See, e.g., Emoral, 740 F.3d at 879, 881. These aims are partic-

ularly germane where the Committee’s approach would invite

any number of states to endow certain creditors with a windfall

recovery by vesting causes of action predicated on an injury to

the debtor corporation exclusively with those creditors. Ac-

cordingly, consistent with our analysis in both Emoral and Ar-

metale, we conclude that a claim may constitute property of the

estate notwithstanding whether the debtor corporation was au-

thorized to assert it outside of bankruptcy. 21

2. The Product-Line Claims Are Not

Based on Particularized Injuries Di-

rectly Traceable to the Conduct of

Brenntag.

The Committee also argues that the Product-Line

Claims cannot constitute property of the estate because they

21

For the sake of clarity, we agree that a debtor corporation’s

ability to assert a claim under applicable non-bankruptcy law

is sufficient—but not necessary—for that claim to constitute

property of the estate.

44

are “specific claims” that “arise from harms unique to [the tort

claimants] . . . based on [the] conduct of [Brenntag].” Appel-

lant Committee’s Opening Br. 33. However, we have already

explained that successor liability claims are property of the es-

tate because the facts on which successor liability depends—

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

plicate a claim that is “specific to the creditor.” Emoral, 740

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

The same principle applies here. The product-line the-

ory of liability pressed by the Committee turns on the succes-

sor’s relationship with the manufacturer, for it is the succes-

sor’s acquisition and continuation of the “same manufacturing

operation and practices” that seeds its potential liability to in-

dividual claimants. Appellant Committee’s Opening Br. 33

(citing Ramirez, 431 A.2d at 820). In contrast, the asbestos in-

juries endured by the tort claimants do not stem from the facts

underlying Brenntag’s status as a successor to the Debtors.

They trace only to their exposure to asbestos-contaminated

products manufactured by the Debtors before Brenntag came

into the picture. This precludes them from being “directly

traced” to Brenntag. Armetale, 968 F.3d at 283 (quoting

Tronox, 855 F.3d at 100).

To be sure, the Committee correctly observes that its

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

pellant Committee’s Opening Br. 33. But this argument simply

echoes the dissent in Emoral, which would have held that the

mere continuation claims at issue were based on a particular-

ized injury “[b]ecause the [tort creditors’] underlying allega-

tions are clearly individualized in nature.” Emoral, 740 F.3d at

883 (Cowen, J., dissenting). The Emoral majority rejected that

focus on “the nature of the [underlying tort] injury” in favor of

45

analyzing the theory of liability and the facts on which it relies.

Armetale, 968 F.3d at 282 (citing Emoral, 740 F.3d at 879).

And that analysis controls even though the harm suffered by

some creditors “might be worse in degree than that suffered by

other creditors.” Id. at 283.

3. The Product-Line Claims Are Based

on A Prepetition Injury to the Debtors

that Resulted in Secondary Harm to

All Creditors.

Finally, the Committee notes that the Debtors “did not

suffer the injuries endured by mesothelioma victims.” Appel-

lant Committee’s Petition for Rehearing 13. So, unlike the

fraudulent transfer claims we considered in Armetale, the

Committee contends that the Product-Line Claims at issue do

not involve a theory of recovery “derivative of harm that [the

debtor] suffered directly.” Id. at 8 (quoting 968 F.3d at 282).

We disagree. In our view, they are akin to fraudulent transfer

claims in two critical respects.

First, the product-line theory of liability serves the same

general purpose. As we explained above, the product-line the-

ory imposes 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 oper-

ations and practices. Ramirez, 431 A.2d at 820. But it grew out

of the traditional corporate view that successor liability claims

apply in “the absence of adequate consideration for [a] sale or

transfer.” Ramirez, 431 A.2d at 815, 819 (citation omitted).

Unsurprisingly, then, it serves to prevent the destruction of

creditor remedies based on complex commercial transactions

involving the transfer of corporate assets that would otherwise

46

be available to creditors of the transferor. Id. at 820 (citing Ray

v. Alad Corp., 560 P.2d 3, 9 (Cal. 1977)); see also Ray, 560

P.2d at 10 (justifying liability based on the depletion of corpo-

rate resources available to satisfy liabilities). Fraudulent trans-

fer claims are no different. They apply in the absence of “rea-

sonably equivalent value” for a transfer or sale. 5 Collier on

Bankruptcy ¶ 548.05 (16th ed. 2025). They serve “to ensure

that the debtor does not engage in transactions that diminish

the pool of assets available to creditors.” Douglas G. Baird,

Fraudulent Transfer Law’s Forgotten Foundations, 5 U. CHI.

BUS. L. REV. 53, 56 (2026). And they do so to prevent debtor

corporations from “evad[ing] ordinary creditor remedies.” Id.

at 75.

Second, fraudulent transfer claims turn on the same gen-

erally available facts as the product-line theory. A fraudulent

transfer is voidable if, among other things, “the debtor was in-

solvent at that time or the debtor became insolvent as a result

of the transfer.” N.J. Stat. Ann. § 25:2-27(a). On the other hand,

the product-line theory requires proof that the non-debtor de-

fendant’s “purchase of the product line destroyed the plaintiff’s

available remedies.” Appellant Committee’s PFR, at 11 (citing

Ramirez, 431 A.2d at 824–25). But these elements overlap

such that the generalized findings in support of one claim could

be asserted to establish the other. Suppose, for example, that

the Bankruptcy Court determined Brenntag’s acquisition of the

Debtors’ manufacturing assets rendered them insolvent. The

tort creditors could assert that finding in state court to establish

that Brenntag’s acquisition destroyed their available remedies.

And “[i]f [that] generalized finding[] would benefit their [prod-

uct-line] case[s], then their claims are no less generalized than

the fraudulent-conveyance claims.” Tronox, 855 F.3d at 107;

see also In re Bernard L. Madoff Inv. Sec. LLC, 740 F.3d 81,

47

91 (2d Cir. 2014) (concluding conspiracy-based claims were

property of the estate where the factual allegations made by tort

claimants echoed fraudulent transfer allegations made by the

trustee).

Our point is straightforward. The Committee readily

concedes that fraudulent transfer claims are property of the es-

tate. Appellant Committee’s PFR, at 10 (citing Armetale, 968

F.3d at 283). But the Product-Line Claims it challenges on ap-

peal are similar in object and purpose to the fraudulent transfer

claims we considered in Armetale. Indeed, as we have ex-

plained, both theories of liability address derivative injuries to

the full creditor constituency that resulted from the prepetition

diversion of corporate assets. And “[b]ecause [those] claims

depend on harm suffered directly by [the debtor corporation]

and only indirectly by [creditors], [the] theory of recovery is

not personal, but derivative of harm to the estate.” Armetale,

968 F.3d at 283; see also Emoral, 740 F.3d at 879 (instructing

courts to focus on the theory of liability to prevent creditors

from obfuscating prepetition harm to the debtor corporation).

Such claims belong squarely to the estate.

Contrary to the Committee’s assertion, our conclusion

is hardly anomalous. Other courts have adopted the same view

when creditors asserted successor liability claims predicated on

the prepetition diversion of corporate assets. For example, in

National American Ins. Co. v. Ruppert Landscaping Co., Inc.,

the Fourth Circuit held that creditors lacked standing to assert

successor liability claims because they were “so similar in ob-

ject and purpose to [fraudulent transfer] claims that the trustee

could bring in bankruptcy court.” 187 F.3d 439, 441 (4th Cir.

1999) (Wilkinson, J.). In that case, Ruppert Landscaping Com-

pany entered a series of contracts under which it agreed to

48

purchase certain of Green Thumb Enterprise’s notes and assets.

Id. at 440. But Green Thumb was pushed into bankruptcy when

it defaulted on various agreements bonded by sureties. Id.

Thereafter, the sureties asserted, inter alia, successor liability

claims against Ruppert. Id. at 440–41.

On appeal, the Fourth Circuit noted that “the [s]ureties

rel[ied] heavily on exposing the Ruppert/Green Thumb trans-

action to be fraudulent.” Id. at 441. And “[a]lthough the [s]ure-

ties’ claims and the trustee’s fraudulent conveyance claim [did]

not contain identical elements, they all share[d] this same un-

derlying focus.” Id. For that reason, “[a]ll creditors, not simply

the [s]ureties, ha[d] a stake in exposing any impropriety in the

Ruppert/Green Thumb transaction.” Id. at 442. Moreover, “al-

low[ing] selected creditors to artfully plead their way out of

bankruptcy court would unravel the bankruptcy process” and

prompt “a multijurisdictional rush to judgment whose organiz-

ing principle could only be first-come-first-served.” Id. (cita-

tions omitted). The Court thus concluded the successor liability

claims were property of the estate in an effort to “maintain[]

the integrity of the bankruptcy proceeding and ensure[] that in-

dividual creditors [did not] hijack the bankruptcy process.” Id.

The Second Circuit likewise held in Tronox that succes-

sor liability claims predicated on the prepetition depletion of a

debtor corporation’s assets were property of its bankruptcy es-

tate. See 855 F.3d at 106–07. Prior to the insolvency proceed-

ings that prompted the dispute, Kerr-McGee Corporation un-

derwent a series of transactions that split the company into two

distinct entities: New Kerr-McGee and Tronox. Id. at 88. The

former maintained control of Kerr-McGee Corporation’s oil

and gas assets, whereas Tronox was left a corporate shell sad-

dled with Kerr-McGee Corporation’s environmental and tort

49

liabilities. Id. And in order to manage the claims of several

thousand tort creditors, Tronox filed for bankruptcy in the

Southern District of New York. Id. at 91.

Shortly after the petition date, Tronox asserted fraudu-

lent transfer claims against New Kerr McGee to recover the

assets that were transferred to the latter through the spinoff

transactions. Id. at 88. Tronox ultimately prevailed on those

claims, but New Kerr-McGee agreed to an approximately $5

billion settlement before the court entered a final judgment on

damages. Id. at 92. And, as part of the settlement agreement,

Tronox agreed to release New Kerr-McGee from various

claims that belonged to its bankruptcy estate. Id. However, be-

lieving the scope of the estate did not extend to successor lia-

bility claims, the tort creditors sought to hold New Kerr-

McGee liable “as the alter ego and successor to the liabilities

of the former parent of the actual alleged tortfeasor.” Id. at 106.

Consistent with our approach in Emoral, the Second

Circuit explained that claims are property of the estate if they

vindicate an injury to the full creditor constituency “based

upon a secondary effect from harm done to the debtor.” Id. at

100 (citation modified). On the other hand, they belong to in-

dividual creditors if they vindicate an injury that can be “di-

rectly traced to the third party’s conduct.” Id. (citation modi-

fied). And insofar as the Court was concerned, the successor

liability claims constituted property of the estate because the

tort creditors failed to “trace their harm to New Kerr-McGee.”

Id. at 106.

Crucially, the Court emphasized that “plaintiffs often

try, but are not permitted, to plead around a bankruptcy.” Id. at

100. And in its view, the tort creditors had attempted to do just

50

that. See id. at 103–06. Indeed, they sought an opinion and or-

der permitting them “to sue third-party successors of [Tronox]

for claims that are truly aimed at recovering estate assets.” Id.

at 104 (discussing Emoral with approval). But “[e]very credi-

tor ha[d] a similar claim for the diversion of assets.” Id. at 103.

And “[t]he exact same claim advanced by the trustee on behalf

of the estate would be a win for all creditors of the estate.” Id.

at 104. Accordingly, the Court rejected the tort creditors’ re-

quest.

So too here. As in both Ruppert Landscaping and

Tronox, the tort claimants in our case have attempted to plead

their way around the Debtors’ bankruptcy proceedings by as-

serting the Product-Line Claims against Brenntag. They have

pursued those claims to recover from, among other things, the

operating assets that Brenntag acquired from the Debtors. And

they seek this recovery in satisfaction of asbestos injuries they

trace to talc products manufactured exclusively by the Debtors.

In that context, the Product-Line Claims are predicated on a

prepetition injury to the Debtors (from Brenntag’s diversion of

substantially all operating assets the Debtors possessed) that

resulted in a secondary injury to all creditors (by rendering

those assets unavailable for distribution on account of their

claims against the Debtors). The Product-Line Claims thus

constitute property of the estate.

In summary, claims are personal to creditors when the

theory of liability is based on a particularized injury directly

traceable to the conduct of the defendant. Armetale, 968 F.3d

at 283; Emoral, 740 F.3d at. 879. They are property of the

debtor’s bankruptcy estate if the theory of liability is instead

based on an injury to the debtor corporation that resulted in

secondary harm to all creditors. See, e.g., Armetale, 968 F.3d

51

at 283. And in many cases, claims in the latter category are

easy to identify because applicable non-bankruptcy law author-

izes the debtor corporation to assert them outside of bank-

ruptcy. See, e.g., Emoral, 740 F.3d at 879 (explaining that

property of the estate “includes” claims “the debtor could have

asserted . . . on his own behalf under state law”); In re S.I. Ac-

quisition, Inc., 817 F.2d 1142, 1152 (5th Cir. 1987) (conclud-

ing alter-ego claims were property of the estate where the

debtor corporation was authorized to assert them).

Nonetheless, certain states might seek to authorize a

subset of creditors to vindicate secondary harms derived from

the depletion of estate assets through successor-liability claims

vested exclusively with that subset. Courts must therefore scru-

tinize the theory of liability to prevent nominal plaintiffs from

commandeering the bankruptcy process. See, e.g., Emoral, 740

F.3d at 879 (focusing on the theory of liability—as opposed to

underlying tort injuries caused by the debtor—to prevent cred-

itors from obfuscating a general injury to the estate); Purdue

Pharma, 603 U.S. at 219 (explaining that derivative claims are

property of the estate because “[t]he substantive claim belongs

to the corporation”) (citation omitted).

To be sure, we “look to state law to determine if a prop-

erty right exists and to stake out its dimensions.” In re

Nejberger, 934 F.2d 1300, 1302 (3d Cir. 1991) (citing Butner,

440 U.S. at 54–55). But “[t]he whole point of channeling

claims through bankruptcy is to . . . promote an equitable dis-

tribution of debtor assets.” Tronox, 855 F.3d at 106 (citing

Koch, 831 F.2d at 1343). And “[t]o allow selected creditors to

artfully plead their way out of bankruptcy court would unravel

the bankruptcy process and undermine an ordered distribution

of the bankruptcy estate.” Ruppert Landscaping, 187 F.3d at

52

442. We decline to permit that result. Indeed, the Supreme

Court cautioned in Butner that property interests should be an-

alyzed in accordance with state law “[u]nless some federal in-

terest requires a different result.” 440 U.S. at 55.

IV. CONCLUSION

Whittaker filed for bankruptcy after its board exercised

its power to authorize the petition. The South Carolina Court

could not unilaterally divest Whittaker’s board of that author-

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

convince a New Jersey court to displace the board. Because

that did not occur, Whittaker properly entered bankruptcy.

And, once there, Section 541(a)(1) of the Bankruptcy Code

brought the Product-Line Claims into the Debtors’ estates. For

these reasons, we affirm the judgments of the District and

Bankruptcy Courts.

53

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

1

span the spectrum. Compare, e.g., Zachary D. Clopton,

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

2

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.,

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.

3

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

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

4

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

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

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

5

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

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

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.”).

6

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

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

7

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

proceedings and by the laws of another state where a federal

court is sitting in bankruptcy.” Id.

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).

8

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.

9

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

10

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

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,

11

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

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

12

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,

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.

13

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

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

14

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

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.

15

* * *

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

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.”).

16

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 Product-Line 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. 15. 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 10–12. 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 confl

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