In Re Federal-Mogul Global Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

Nos. 09-2230 & 09-2231

___________

In re: FEDERAL-MOGUL GLOBAL INC., et al,

Reorganized Debtors

Hartford Accident and Indemnity Company;

First State Insurance Company;

New England Insurance Company;

*Allianz Global Corporate & Specialty AG,

(as successor-by-patial-merger to Allianz Vericherungs AG

as to Policy No. H O 001 456);

*Allianz Global Risks U.S. Insurance Company,

(f/k/a Allianz Insurance Company);

*Allianz Underwriters Insurance Company,

(f/k/a Allianz Underwriters, Inc.);

Columbia Casualty Company;

Continental Casualty Company;

The Continental Insurance Company,

(both in its individual capacity and as successor to

certain interests of Harbor Insurance Company);

Fireman's Fund Insurance Company;

National Surety Company;

Certain Underwriters at Lloyd’s London;

Certain London Market Companies,

Appellants

(*Dismissed pursuant to Court Order dated 12/28/10)

_______________________

On Appeal from the United States District Court

for the District of Delaware

D.C. Civil Action Nos. 08-cv-00229 & 08-cv-00230

(Honorable Joseph H. Rodriguez)

______________

Argued November 9, 2011

Before: SCIRICA, SMITH and JORDAN, Circuit Judges.

(Filed: May 1, 2012)

DANIELLE M. SPINELLI, ESQUIRE (ARGUED)

CRAIG GOLDBLATT, ESQUIRE

Wilmer Cutler Pickering Hale & Dorr

1875 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Attorneys for Appellants,

Hartford Accident and Indemnity Company;

First State Insurance Company;

New England Insurance Company

DAVID C. CHRISTIAN II, ESQUIRE

Seyfarth Shaw

131 South Dearborn Street, Suite 2400

2

Chicago, Illinois 60603

Attorney for Appellants,

Columbia Casualty Company;

Continental Casualty Company;

The Continental Insurance Company

JOHN D. DEMMY, ESQUIRE

Stevens & Lee

1105 North Market Street, Suite 700

Wilmington, Delaware 19801

Attorney for Appellants,

Fireman’s Fund Insurance Company;

National Surety Company

EILEEN T. McCABE, ESQUIRE

Mendes & Mount

750 Seventh Avenue

New York, New York 10019

MICHAEL A. SHINER, ESQUIRE

Tucker Arensberg

1500 One PPG Place

Pittsburgh, Pennsylvania 15222

RUSSELL W. ROTEN, ESQUIRE (ARGUED)

Duane Morris

865 South Figueroa Street, Suite 3100

Los Angeles, California 90017

RICHARD W. RILEY, ESQUIRE

3

Duane Morris

222 Delaware Avenue, Suite 1600

Wilmington, Delaware 19801

Attorneys for Appellants,

Certain Underwriters at Lloyd’s London;

Certain London Market Companies

WILLIAM A. EVANOFF, ESQUIRE

JEFFREY C. STEEN, ESQUIRE

Sidley Austin

One South Dearborn Street

Chicago, Illinois 60603

LAURA D. JONES, ESQUIRE

JAMES E. O'NEILL, III, ESQUIRE

Pachulski Stang Ziehl & Jones

919 North Market Street, 17th Floor

P.O. Box 8705

Wilmington, Delaware 19801

Attorneys for Appellees,

Federal-Mogul Global, Inc., et al.

KATHLEEN C. DAVIS, ESQUIRE

Campbell & Levine

800 North King Street, Suite 300

Wilmington, Delaware 19801

PETER VAN N. LOCKWOOD, ESQUIRE (ARGUED)

Caplin & Drysdale

One Thomas Circle, N.W., Suite 1100

4

Washington, D.C. 20005

Attorneys for Appellee,

Official Committee of Asbestos Claimants

EDWIN J. HARRON, ESQUIRE

SHARON M. ZIEG, ESQUIRE

Young Conaway Stargatt & Taylor

1000 North King Street

Rodney Square

Wilmington, Delaware 19801

Attorneys for Appellee,

Eric D. Green, Legal Representative for

Future Asbestos Claimants of

Federal-Mogul Global Inc., et al.

_________________

OPINION OF THE COURT

_________________

SCIRICA, Circuit Judge.

Federal-Mogul Global and its affiliates filed for

Chapter 11 bankruptcy and sought to resolve asbestos-related

liability through the creation of a personal-injury trust under

11 U.S.C. § 524(g). 1 As part of its reorganization plan, it

1

Besides the Reorganized-Debtors Federal-Mogul, there are

two additional Appellees: the Official Committee of Asbestos

Claimants and the Legal Representative for Future Asbestos

5

sought to transfer rights under insurance liability policies to

the trust. Appellants Insurers 2 had provided liability policies

to the debtors prior to bankruptcy and objected that the

transfer violated the policies’ anti-assignment provisions.

Federal-Mogul contended that 11 U.S.C. § 1123(a)(5)(B)

preempts those provisions, and the bankruptcy and district

courts agreed. We will affirm.

I.

A.

Claimants. For the sake of brevity, we will refer to the

Appellees collectively as “Federal-Mogul.”

2

Appellants are five groups of insurers: (1) Hartford Accident

and Indemnity Company, First State Insurance Company, and

New England Insurance Company; (2) Allianz Global

Corporate & Specialty AG, Allianz Global Risks U.S.

Insurance Company (formerly known as Allianz Insurance

Company), and Allianz Underwriters Insurance Company

(formerly known as Allianz Underwriters, Inc.); (3) Columbia

Casualty Company, Continental Casualty Company, and the

Continental Insurance Company (both in its individual

capacity and as successor to certain interests of Harbor

Insurance Company); (4) Fireman’s Fund Insurance

Company and National Surety Company; and (5) Certain

Underwriters at Lloyd’s, London and Certain London Market

Companies. Briefs were filed on behalf of the first four

groups under the caption “Certain Appellants,” and on behalf

of the fifth under the caption “London Market Insurers”

(“LMI”). We refer to Appellants collectively as “Insurers.”

6

For almost two decades, Chapter 11 bankruptcies have

employed a statutory mechanism created by 11 U.S.C. §

524(g) to resolve massive asbestos liability and to evaluate

claims and allocate payments to current and future asbestos

claimants. When this provision’s requirements are satisfied,

the bankruptcy court may issue an injunction channeling all

current and future claims based on the debtor’s asbestos

liability to a personal injury trust. This case centers on these

trusts.

The salience of § 524(g) trusts stems from the ongoing

dilemma of asbestos liability, “the longest-running mass tort

litigation in the United States.” Stephen J. Carroll et al.,

RAND Inst. for Civil Justice, Asbestos Litigation 21-24

(2005). 3 As courts and commentators have noted, a just and

efficient resolution of asbestos claims has often eluded the

3

By the end of 2002, over 730,000 claimants had sought

relief from over 8,400 defendants. Carroll, supra, at 70-79.

More recent data demonstrates that asbestos filings peaked in

2003 and have fallen significantly since then, with the annual

number of filings at around 20% of 2001 levels. Mary

Elizabeth C. Stern et al., NERA Econ. Consulting, Snapshot

of Recent Trends in Asbestos Litigation: 2011 Update fig. 1

(2011), available at http://www.nera.com/nera-

files/PUB_Recent_Trends_Asbestos_Litigation_0711.pdf.

The number of pending claims has also fallen below 2001

levels after peaking mid-decade, while the value of each

resolved claim rose, likely due to a larger proportion of

malignant over non-malignant claims. Id. at 4-7.

7

traditional tort system. 4 See In re Congoleum Corp., 426

F.3d 675, 693 (3d Cir. 2005); In re Combustion Eng’g, Inc.,

4

Asbestos liability has also fit poorly into the usual dynamics

of insurance coverage. While the dangers of asbestos were

becoming known when insurers drafted comprehensive

general liability policies in the 1950s and 1960s, they likely

did not foresee the rise of enormous mass tort liability

decades later. See Kenneth S. Abraham, The Maze of Mega-

Coverage Litigation, 97 Colum. L. Rev. 2102, 2105 (1997).

Written on an injury- or occurrence-basis, the policies were

ill-fitted to address long-latency diseases based on prolonged

exposure. Id. Courts interpreted the policies’ coverage

language to impose a “continuous trigger” of insurance

coverage for asbestos liability, holding that every policy on

the risk between first exposure to manifestation—often a

period of decades—was triggered. See Keene Corp. v. Ins.

Co. of N. Am., 667 F.2d 1034, 1042-47 (D.C. Cir. 1981);

James M. Fischer, Insurance Coverage for Mass Exposure

Tort Claims: The Debate over the Appropriate Trigger Rule,

45 Drake L. Rev. 625, 646-50 (1997) (summarizing the

development and justifications for the continuous trigger of

coverage).

The result of the continuous trigger rule has been the

apportionment of liability among numerous insurers, often

posing difficult questions of allocation and likely

incentivizing policyholders to file suit against all insurers

who sold them coverage during the trigger period. Abraham,

supra, at 2106-07. Further complicating the situation is the

distorting effect of multiple insurance layers on insurers’

8

391 F.3d 190, 200 (3d Cir. 2004); see also Richard A.

Nagareda, Mass Torts in a World of Settlement x-xiii (2007).

The aggregate pressure of such claims has led to a variety of

quasi-administrative approaches to asbestos liability, 5 but

incentives. Primary insurers had the duty to defend against

claims that exceeded their policy limits, so they allegedly

minimized defense costs by rushing into aggregate

settlements that included claims of dubious value while

passing the settlements’ cost onto excess insurers. Richard A.

Nagareda, Mass Torts in a World of Settlement 27-28 (2007);

Michelle J. White, Why the Asbestos Genie Won’t Stay in the

Bankruptcy Bottle, 70 U. Cin. L. Rev. 1319, 1334-36 (2002).

5

Both courts and corporations have attempted to implement

innovative solutions to remedy the perceived deficiencies of

the tort system to address the flood of asbestos claims, but

these have proved unsuccessful because of the limitations on

the powers of courts and of private parties. In the Eastern

District of Texas, Judge Robert Parker sought to implement a

three-part trial procedure for addressing three thousand

asbestos claims by using statistical sampling and test trials to

create a compensation grid that would be extrapolated to all

pending claims. Cimino v. Raymark Indus., Inc., 751 F.

Supp. 649 (E.D. Tex. 1990). This plan was overturned on

appeal for violating the defendants’ Seventh Amendment

rights. Cimino v. Raymark Indus., Inc., 151 F.3d 297 (5th

Cir. 1998). Owens Corning, a major asbestos manufacturer,

sought to create a “National Settlement Program” outside the

judicial system by entering private contracts with plaintiffs’

firms that would have settled the claims of the firms’ clients

9

Congress has yet to create the “national asbestos dispute-

resolution scheme” requested by the Supreme Court, Amchem

Prods., Inc. v. Windsor, 521 U.S. 591, 598 (1997) (citing

Judicial Conference of the U.S., Report of the Judicial

Conference Ad Hoc Committee on Asbestos Litigation 3, 27-

35 (1991)); see also Ortiz v. Fibreboard Corp., 527 U.S. 815,

821 & n.1 (1999). 6 Initial attempts to employ the class action

device to resolve the claims of present and future asbestos

victims failed to adequately protect the interests of absent

class members. Amchem, 521 U.S. at 625-28; Ortiz, 527 U.S.

at 848-59.

A consequence of the failure to create a

comprehensive resolution to asbestos litigation has been a

reliance on the Bankruptcy Code to provide some

based on an administrative grid. Nagareda, supra, 108-13.

But Owens Corning could not create a universal binding

system through private contract, and so the innovation failed.

Id. The company filed for bankruptcy, creating a § 524(g)

trust to address its asbestos liability. Id.

6

Various alternatives have been proposed in Congress,

including several proposals along the lines of the

administrative scheme adopted for black lung compensation,

but they have not been enacted. See U.S. Gov’t

Accountability Office, GAO-11-819, Asbestos Injury

Compensation: The Role and Administration of Asbestos

Trusts app’x I (2011), available at

http://www.gao.gov/new.items/d11819.pdf (summarizing

congressional proposals to address asbestos litigation since

1973).

10

predictability and regularity in addressing mass tort liability.

Bankruptcy has proven an attractive alternative to the tort

system for corporations because it permits a global resolution

and discharge of current and future liability, while claimants’

interests are protected by the bankruptcy court’s power to use

future earnings to compensate similarly situated tort claimants

equitably. S. Elizabeth Gibson, Fed. Judicial Ctr., Judicial

Management of Mass Tort Bankruptcy Cases 1-2 (2005). The

primary bankruptcy innovation for addressing mass tort

liability has been the post-confirmation trust, which first

appeared in the bankruptcy proceedings of the Johns-

Manville Corporation, the largest producer of asbestos-

containing products. Lloyd Dixon et al., RAND Inst. for

Civil Justice, Asbestos Bankruptcy Trusts: An Overview of

Trust Structure and Activity with Detailed Reports on the

Largest Trusts 5 (2010) [hereinafter RAND Trust Report]. In

that case, the bankruptcy court issued a channeling injunction

under 11 U.S.C. § 105 requiring future asbestos claims be

brought against a trust created to compensate victims, and

barring actions against the reorganized debtor, its

subsidiaries, or any settling insurance company. 7 In re Johns-

Manville Corp., 68 B.R. 618, 624-28 (Bankr. S.D.N.Y. 1986),

7

Initially, the Johns-Manville trust paid claimants the full

value of their claims. RAND Trust Report, supra, at 5-6. The

number of claims quickly exceeded projections, and in 1995

the trust was reorganized to pay less than the full value of

claims, to give priority to seriously-ill claimants, and to create

an administrative role for a representative to protect future

claimants’ interests. Id.

11

aff’d, 78 B.R. 407 (S.D.N.Y. 1987), aff’d sub nom. Kane v.

Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d

636 (2d Cir. 1988).

Congress codified the Johns-Manville trust mechanism

as a “creative solution to help protect . . . future asbestos

claimants,” H.R. Rep. No. 103-835, at 47 (1994), reprinted in

1994 U.S.C.C.A.N. 3340, 3348, in the Bankruptcy Reform

Act of 1994, Pub. L. 103-394, § 111, 108 Stat. 4106, 4113-17

(codified at 11 U.S.C. § 524(g)-(h)). Congress intended the

trusts as a means to give “full consideration” to the interests

of future claimants by ensuring their claims would be

compensated comparably to present claims, while

simultaneously enabling corporations saddled with asbestos

liability to obtain the “fresh start” promised by bankruptcy. 8

H.R. Rep. No. 103-835, at 46-48. To achieve these goals and

“protect the due process rights of future claimants,” section

524(g) imposed “many statutory prerequisites” that must be

8

As one senator described it, § 524(g) “affirm[s] what

Chapter 11 reorganization is supposed to be about: allowing

an otherwise viable business to quantify, consolidate, and

manage its debt so that it can satisfy its creditors to the

maximum extent feasible, but without threatening its

continued existence and the thousands of jobs that it

provides.” 140 Cong. Rec. 28,358 (1994) (statement of Sen.

Brown).

12

satisfied before a channeling injunction may issue. 9

Combustion Eng’g, 391 F.3d at 234 n.45.

As of May 2011, there were fifty-six asbestos

personal-injury trusts, with several more in process. Lloyd

Dixon & Geoffrey McGovern, RAND Inst. for Civil Justice,

Asbestos Bankruptcy Trusts and Tort Compensation 1 n.1

(2011). Through 2010, the trusts have paid about 3.3 million

claims valued at roughly $17.5 billion. U.S. Gov’t

Accountability Office, supra, at 16. There is substantial

similarity among the various trusts in structure and function.

Nearly all the trusts are governed by trustees who manage

financial affairs, while a committee of advocates, consisting

of representatives of current and future claimants, must

approve substantial trust activities. 10 RAND Trust Report,

9

Under the law, the bankruptcy court may grant a channeling

injunction only if (1) the debtor is subject to substantial and

uncertain future asbestos liability, (2) the trust owns a

majority of the voting shares of the debtor or corporate

parent, (3) seventy-five percent of current claimants vote to

approve the plan, and (4) the trust operates through

mechanisms that assure the plan will pay “present claims and

future demands . . . in substantially the same manner.” 11

U.S.C. § 524(g)(2)(B). The injunction may bind future

claimants only if a future claims representative is appointed

during the reorganization and the bankruptcy court

determines the injunction is “fair and equitable” with respect

to future claimants. Id. § 524(g)(4)(B).

10

Although there are usually more representatives of current

than future claimants, they possess equal authority and must

13

supra, at 11-14. Moreover, like the Johns-Manville trust on

which they are modeled, 11 asbestos personal-injury trusts

receive funding from three primary sources: debtor cash,

debtor stock, and insurance settlements. See id. at app. B

(categorizing the initial funding of the 26 largest asbestos

trusts as “Cash from debtor(s),” “Stock from debtors(s) [sic],”

“Insurance settlements,” or “Other assets”). While some

trusts have been funded primarily with an initial infusion of

cash from the debtor, id. at 65, 105, 137, and others have

consisted primarily of funds obtained from insurance, id. at

55, 79, 115, 123, most rely on a mix of assets. Finally, all

trusts have Trust Distribution Protocols (TDPs) to govern

both consent to substantial modifications of the trust. RAND

Trust Report, supra, at 13-14.

11

When drafting § 524(g), Congress observed that the Johns-

Manville trust was funded “through stock of the emerging

debtor company and a portion of future profits, along with

contributions from Johns-Manville’s insurers.” H.R. Rep.

No. 103-835, at 47. The insurers’ contributions to the Johns-

Manville trust consisted of a negotiated settlement with

Johns-Manville following protracted litigation. The insurers

ultimately agreed to pay $770 million in return for injunctive

protection against all future claims. MacArthur Co. v. Johns-

Manville Corp. (In re Johns-Manville Corp.), 837 F.2d 89, 90

(2d Cir. 1988). This funding constituted “most of the initial

corpus of the Trust,” and was considered the “cornerstone of

the Manville reorganization.” Travelers Indem. Co. v. Bailey,

557 U.S. 137, ----, 129 S. Ct. 2195, 2199 (2009) (internal

quotation marks omitted).

14

how claims are processed and compensated. 12 These

procedures are approved as part of the bankruptcy

reorganization plan but may later be modified. Id. at 14.

12

TDP procedures are similar across most trusts, including

the Federal-Mogul trust. Claimants generally select between

expedited or individual review. RAND Trust Report, supra,

at 15. Under expedited review, a claimant presents evidence

to satisfy pre-established medical and exposure criteria. Id. at

17-19. Once met, the claim is liquidated according to a

compensation grid based on eight disease levels that provide

the highest payment to those suffering from mesothelioma

and other malignant diseases. Id. If a claimant seeks

individual review—mandated when medical and exposure

criteria are not satisfied, but also used to assess whether

special circumstances might warrant greater compensation—

the processing facility determines whether the claim would be

compensable in the tort system, with valuation based on

historical tort awards for similarly situated plaintiffs. Id. at

19-20. In the event of a dispute, claims are submitted to

nonbinding arbitration, or, if that fails, to the courts, although

such resolutions are reportedly rare. Id. at 21. Finally, after

valuation, claims are paid based on a payment percentage on

a first-in-first-out basis, subject to an annual cap on total

compensation and, in some trusts, a claim ratio that reserves a

certain percentage of annual compensation to claimants with

the most serious diseases. Id. at 21-22. Under the TDPs, few

trusts pay the full value of submitted claims: current payment

percentages range widely, but the median is 25%, with most

15

As a quasi-administrative scheme, § 524(g) trusts have

drawn considerable commentary. 13 While Congress sought to

protect the interests of current claimants by requiring that

75% of them approve the trust, some have suggested that this

provision, without the “cram down” otherwise available in

bankruptcy, grants plaintiffs’ attorneys a de facto veto over

reorganization, allowing them to leverage concessions at the

expense of other stakeholders. 14 S. Todd Brown, Section

trusts paying between ten and forty-six percent of a claim’s

liquidated value. Id. tbl. 4.4.

13

See, e.g., Todd R. Snyder & Deanne C. Siemer, Asbestos

Pre-Packaged Bankruptcies: Apply the Brakes Carefully and

Retain Flexibility for Debtors, 13 Am. Bankr. Inst. L. Rev.

801 (2005); Ronald Barliant et al., From Free-Fall to Free-

for-All: The Rise of Pre-Packaged Asbestos Bankruptcies, 12

Am. Bankr. Inst. L. Rev. 441 (2004); Mark D. Plevin et al.,

Pre-Packaged Asbestos Bankruptcies: A Flawed Solution, 44

S. Tex. L. Rev. 883 (2003).

14

Another significant question that has received attention is

the relationship between tort and trust compensation, which

are linked in complex ways that vary from state to state. See

Dixon & McGovern, Asbestos Bankruptcy Trusts and Tort

Compensation, supra, at 3-7 (outlining the linkages between

the trusts and tort claims). Some have contended that the

confidentiality of the trust system allows claimants to

“double-dip” in both the tort and trust system and permits

reliance on dubious medical reports, while others have

disagreed with this assessment. See How Fraud and Abuse in

the Asbestos Compensation System Affect Victims, Jobs, the

16

524(g) Without Compromise: Voting Rights and the Asbestos

Bankruptcy Paradox, 2008 Colum. Bus. L. Rev. 841, 856-70;

cf. In re Congoleum Corp., 426 F.3d at 680 & n.4 (noting

that, in the absence of a cramdown provision, “[t]he realities

of securing favorable votes from thousands of claimants to

meet the 75% approval requirement [in 11 U.S.C. § 524(g)]

forc[e] debtors to work closely with the few attorneys who

represent large numbers of injured claimants.”). Others

criticize the voting procedure because it allows the more

numerous holders of small claims to outvote those with

mesothelioma and other serious injuries, who, unlike in a

class action settlement, cannot opt out of the trust mechanism.

See Nagareda, supra, at 20-21, 171-73. Our case law has

acknowledged some of these concerns. In Combustion

Engineering, we held that the use of a two-trust structure that

granted current asbestos claimants “privileged treatment”

prior to voting on the reorganization plan may have lacked

both the “good faith” and “indicia of support” among

creditors required by the Bankruptcy Code, as well as likely

contravening the constitutional guarantee of procedural due

process. 391 F.3d at 244-47. We also noted that the apparent

preferential treatment granted to slightly impaired claimants

Economy, and the Legal System: Hearing Before the

Subcomm. on the Constitution of the H. Comm. on the

Judiciary, 112th Cong. (2011) (presenting testimony on both

sides of this question); U.S. Gov’t Accountability Office,

supra, at 29-33 (summarizing differing views and various

proposals on whether and how trust claimant information

should be made available to outside parties) .

17

was “especially problematic in the asbestos context, where a

voting majority can be made to consist of non-malignant

claimants whose interests may be adverse to those of

claimants with more severe injuries.” Id. at 244. A later case

presented an allegation “of collusion between [the debtor] and

the asbestos’ claimants counsel” suggesting that the debtor

had “sold out . . . insurers by setting up a system in which

they would pay newly ginned-up silica claims in exchange for

the asbestos claimants casting their votes in favor of the

[Reorganization] Plan.” In re Global Indus. Techs., Inc., 645

F.3d 201, 214 (3d Cir. 2011) (en banc). We characterized this

assertion as a “profoundly serious charge . . . not without

record support.” Id.

Unlike in our earlier cases, these issues are not

properly before us. Conflicts of interest or other procedural

and structural deficiencies are properly raised in proceedings

to confirm the reorganization plan. Nevertheless, London

Market Insurers contend the plan here did not satisfy the

confirmation requirements of 11 U.S.C. § 524(g) because the

debtor employed complicated financial maneuvers to avoid

adequate trust funding. But no objection was raised before

the bankruptcy court in the confirmation proceedings, and we

decline to entertain a collateral attack on a final, non-

appealable judgment. Moreover, none of the parties here

allege, nor does the record provide, evidence of collusion of

the sort that was so troubling in Combustion Engineering and

Global Technologies.

Furthermore, the trusts appear to have fulfilled

Congress’s expectation that they would serve the interests of

18

both current and future asbestos claimants and corporations

saddled with asbestos liability. In particular, observers have

noted the trusts’ effectiveness in remedying some of the

intractable pathologies of asbestos litigation, especially given

the continued lack of a viable alternative providing a just and

comprehensive resolution. Empirical research suggests the

trusts considerably reduce transaction costs and attorneys’

fees over comparable rates in the tort system. Compare

RAND Trust Report, supra, at xiv & n. 1 (citing evidence that

the claimants received 95% of trust expenditures, while

limiting attorneys’ contingent fees at around 25%), with

Carroll, supra, at 98-103 (determining that in the tort system

claimants ultimately received 42% of total spending on

asbestos litigation, with contingency fee rates averaging 34%

of claimants’ recoveries), and Judicial Conference of the

U.S., supra, at 3, 12-14 (noting that transaction costs in

asbestos litigation exceeded victims’ recoveries by nearly two

to one). Recently, the trusts have required more rigorous

medical evidence, and significantly reduced the valuation for

non-malignant claims. Francis E. McGovern, The Evolution

of Asbestos Bankruptcy Trust Distribution Plans, 62 N.Y.U.

Ann. Surv. Am. L. 163, 171-74 (2006). Others have stressed

that problems over the difficulty of reconciling competing

interests of present and future claimants are not limited to the

creation of § 524(g) trusts, but extend to the current state of

asbestos and mass tort litigation generally. See Nagareda,

supra, at 182 (observing that the “challenge” raised in

Combustion Engineering of setting terms for both present and

future claimants “is not limited to the bankruptcy context but .

. . forms the fundamental problem posed by any peace

19

arrangement for mass tort litigation.”). Nevertheless, we

leave such systemic public policy questions to Congress.

In sum, section 524 trusts are the only national

statutory scheme extant to resolve asbestos litigation through

a quasi-administrative process. In function, the trusts are

similar to workers’ compensation or other administrative

remedies that employ valuation grids to compensate injuries,

subject to individualized and judicial review. Unlike those

schemes, the trusts place the authority to adjudicate claims in

private rather than public hands, a difference that has at times

given us and other observers pause, since it endows

potentially interested parties with considerable authority.

With this context, we turn to the specific facts of this

case.

B.

On October 1, 2001, Federal-Mogul Global, Inc., one

of the world’s largest manufacturers of automobile parts, and

over 150 affiliates filed Chapter 11 bankruptcy petitions in

the District of Delaware. The principal purpose of the

petitions was the resolution of Federal-Mogul’s enormous

asbestos-related liabilities. The company alleges that 500,000

personal-injury claims were pending on the petition date, with

many more anticipated in the future, and asserts it expended

over $350 million in the preceding year defending and

indemnifying asbestos claims. See generally In re Federal-

Mogul Global, Inc., 300 F.3d 368, 372-73 (3d Cir. 2002)

(describing the origins of the Federal-Mogul bankruptcy and

20

the “[t]ens of thousands” of asbestos claims against the debtor

at issue on appeal).

In its proposed plan for reorganization, Federal-Mogul

sought to obtain an injunction under 11 U.S.C. § 524(g) to

channel present and future asbestos-related claims to a post-

confirmation trust. The plan assigned various assets to the

trust, including Federal-Mogul’s rights to recovery under

liability insurance. The plan also contained “insurance

neutrality” provisions granting insurers the right to assert

against the trust any defense to coverage already available

under the policies, excepting only the defense that the transfer

to the trust violated the policies’ anti-assignment provisions.

Insurers here had issued liability policies to Federal-

Mogul prior to bankruptcy. They objected to the plan’s

confirmation, asserting the plan violated the policies’ anti-

assignment provisions—standard clauses in liability policies

that bar the insured from transferring the policies or insurance

rights without the insurers’ consent. See 2 Lee R. Russ,

Couch on Insurance § 34:25 (3d ed. 2011). Federal-Mogul

argued the anti-assignment provisions were preempted under

11 U.S.C. § 1123(a)(5)(B), which provides that a Chapter 11

reorganization plan shall provide adequate means for its

implementation, potentially including transfer of estate

property, “notwithstanding otherwise applicable

nonbankruptcy law.” The parties agreed to bifurcate the

proceedings and resolve this issue separately, with the right to

appeal the bankruptcy court’s preemption judgment. On

November 8, 2007, with all other objections resolved, the

Bankruptcy Court confirmed the plan of reorganization, and

21

the District Court affirmed. The plan went into effect on

December 27, 2007.

On March 19, 2008, the Bankruptcy Court issued its

Preemption Order and Memorandum Opinion, holding the

Bankruptcy Code preempted the anti-assignment provisions

within the insurers’ policies. In re Federal-Mogul Global

Inc., 385 B.R. 560 (Bankr. D. Del. 2008). It reasoned that 11

U.S.C. § 541 permitted the assignment of the insurance rights

to the bankruptcy estate, and 11 U.S.C. § 1123(a)(5) allowed

transfer of the rights to the § 524(g) trust. Id. at 566-67

(citing In re Combustion Eng’g, 391 F.3d at 219 & n.27). It

also relied on state insurance-law doctrine that assignment

after the occurrence giving rise to liability does not violate

anti-assignment provisions, since “there will be no additional

risk to the insurance companies by virtue of the assignments.”

Id. at 567-71. The court also rejected a number of the

insurers’ contentions, holding that the presumption against

preemption was inapplicable given the plain meaning of §

1123(a), that the preemptive scope of § 1123(a)(5) reaches

private contracts, and that the asbestos insurance policies

were not executory contracts subject to 11 U.S.C. § 365. Id.

at 571-76.

The District Court affirmed. In re Federal-Mogul

Global, 402 B.R. 625 (D. Del 2009). The Court first

determined that the “notwithstanding” clause in § 1123(a)

evinced clear congressional intent to expressly preempt

conflicting state law. Id. at 631-32. It then turned to the

scope of preemption, declining to entertain the insurers’

various arguments to distinguish the holding in Combustion

22

Engineering and agreeing with the Bankruptcy Court that the

case was dispositive on the question of whether § 1123(a)

preempted insurance policies’ anti-assignment provisions. Id.

at 632-38. Although the court believed that this conclusion

“effectively ends the matter,” it went on to address insurers’

statutory interpretation claims. Id. at 638. It distinguished as

contrary to circuit precedent and plain statutory meaning a

Ninth Circuit holding, rooted in legislative history, that

limited the scope of § 1123(a) to that of a similar clause in 11

U.S.C. § 1142(a) preempting only nonbankruptcy law

“relating to financial condition.” Id. at 640-44 (citing Pac.

Gas & Elec. Co. v. Cal. ex. rel. Cal. Dep’t of Toxic

Substances Control, 350 F.3d 932 (9th Cir. 2003)). Turning

to the “parade of horribles” the insurers claimed would ensue

from a broad preemptive reading, 15 the Court dismissed them

as speculative and declined to construct a limiting principle

when the relief sought fell “within the heartland of 1123(a).”

Id. at 642-44 (citing Nat’l Cable & Telecomms. Ass’n v. Gulf

Power Co., 534 U.S. 327, 341-342 (2002)). The court

concluded by noting that the assignment of the insurance

policies was consistent with public policy, since the contrary

result would grant the insurers a windfall because “debtors

with sizeable insurance assets could never avail themselves of

15

The insurers alleged that a broad reading of § 1123(a)

“would allow selling liquor to minors, trading with foreign

enemies, dumping toxic wastes, retaining unlawful controlled

substances such as drugs or explosives, or creating

monopolies—all in contravention to federal or state laws.” In

re Federal-Mogul Global, Inc., 402 B.R. at 642.

23

the very trust meant to alleviate” crushing asbestos liability.

Id. at 644-45.

Certain Appellants and London Market Insurers timely

appealed, and we consolidated their appeals. 16

16

We have jurisdiction over final judgments of a district court

under 28 U.S.C. § 1291, and over district court judgments on

appeal from a bankruptcy court under 28 U.S.C. § 158(d)(1).

We review the bankruptcy court’s order using the same

standard the district court applies. In re Cont’l Airlines, 203

F.3d 203, 208 (3d Cir. 2000). The scope of preemption

presents a pure question of law, which we review de novo.

Horn v. Thoratec Corp., 376 F.3d 163, 166 (3d Cir. 2004).

24

II.

“It is a familiar and well-established principle that the

Supremacy Clause, U.S. Const., Art. VI, cl. 2, invalidates

state laws that ‘interfere with, or are contrary to,’ federal

law.” Hillsborough Cnty., Fla. v. Automated Med. Labs.,

Inc., 471 U.S. 707, 712 (1985) (quoting Gibbons v. Ogden, 22

U.S. (9 Wheat.) 1, 211 (1824)). State law may be preempted

“by express language in a congressional enactment, by

implication from the depth and breadth of a congressional

scheme that occupies the legislative field, or by implication

because of a conflict with a congressional enactment.”

Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 541 (2001)

(citations omitted).

Two foundational principles of preemption

jurisprudence inform our analysis. First, in every preemption

case, “[t]he purpose of Congress is the ultimate touchstone,”

which “primarily is discerned from the language of the pre-

emption statute and the statutory framework surrounding it,”

as well as from “the structure and purpose of the statute as a

whole.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485-86

(1996) (internal quotation marks omitted; alteration in

original). Second, we begin with a “presumption against pre-

emption” rooted in the respect for states as independent

sovereigns in our federal system. Wyeth v. Levine, 555 U.S.

555, 565 n.3 (2009). This presumption operates most

forcefully when Congress legislates “in a field which the

States have traditionally occupied,” particularly “regulation of

matters of health and safety.” Lohr, 518 U.S. at 485 (quoting

Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)).

25

This “strong presumption against inferring Congressional

preemption” also applies “in the bankruptcy context.”

Integrated Solutions, Inc. v. Serv. Support Specialists, Inc.,

124 F.3d 487, 493 (3d Cir. 1997). The presumption may be

overcome, however, where “a Congressional purpose to

preempt . . . is clear and manifest.” Farina v. Nokia Inc., 625

F.3d 97, 117 (3d Cir. 2010), cert. denied, 132 S. Ct. 365

(2011) (quoting Fellner v. Tri-Union Seafoods, L.L.C., 539

F.3d 237, 249 (3d Cir. 2008)) (internal quotation marks

omitted).

A.

Insurers contend the disputed issue is one of first

impression. Federal-Mogul argues, and the Bankruptcy and

District Courts agreed, that our opinion in Combustion

Engineering, 391 F.3d 190, determined that § 1123(a)(5)

preempts anti-assignment provisions that would otherwise bar

the transfer of insurance rights to a § 524(g) trust.

Like the present case, Combustion Engineering arose

from the bankruptcy proceedings of a corporation that sought

to channel asbestos-related liabilities to a § 524(g) trust

funded in part through insurance. 391 F.3d at 204-07. As

here, various of the debtor’s insurers claimed assignment to

the trust would violate the terms of their policies. Id. at 208.

Unlike here, the plan at issue in Combustion Engineering

involved the participation of non-debtor affiliates in the trust

in return for a bar against asbestos claims, a provision we

ultimately determined exceeded the scope of the bankruptcy

court’s jurisdiction. Id. at 227-38.

26

The preemption of anti-assignment provisions was not

one of the paramount issues on appeal, id. at 202, but the

question was raised in the proceedings below and the parties’

briefs, and we discussed it briefly in a section on the appellate

standing of London Market Insurers to challenge the

reorganization plan. We held that, “[w]ith respect to the anti-

assignment provisions, we agree with the District Court that

even if the subject insurance policies purported to prohibit

assignment of Combustion Engineering’s insurance proceeds,

these provisions would not prevent the assignment of

proceeds to the bankruptcy estate.” Combustion Eng’g, 391

F.3d at 218. In a footnote, we expanded:

Section 541 effectively preempts any

contractual provision that purports to limit or

restrict the rights of a debtor to transfer or

assigns [sic] its interest in bankruptcy. 11

U.S.C. § 541(c)(1) (“[A]n interest of the debtor

in property becomes property of the estate . . .

notwithstanding any provision in an agreement,

transfer instrument, or applicable

nonbankruptcy law—(A) that restricts or

conditions transfer of such interest by the

debtor”). The Bankruptcy Code expressly

contemplates the inclusion of debtor insurance

policies in the bankruptcy estate. Section

1123(a)(5) provides:

Notwithstanding any otherwise

applicable nonbankruptcy law, a

plan shall-

...

27

(5) provide adequate means for

the plan’s implementation, such

as

...

(B) transfer of all or any part of

property of the estate to one or

more entities, whether organized

before or after the confirmation of

such plan.

Id. at 218 n.27.

This statement is clearer in context. There was no

dispute over whether Combustion Engineering could transfer

its insurance rights to the bankruptcy estate, a right well-

established under circuit law at the time. See Estate of

Lellock v. Prudential Ins. Co. of Am., 811 F.2d 186, 189 (3d

Cir. 1987) (“We hold that an insurance policy is property of

the estate within 11 U.S.C. § 541(a)(1).”). Rather, as we

noted elsewhere in the opinion, the assignment issue hinged

on whether Combustion Engineering could “contribute its

rights to proceeds under certain insurance policies” to “the

Asbestos PI Trust.” Combustion Eng’g, 391 F.3d at 206; see

also id. at 216 (“The Bankruptcy Court found the assignment

of insurance proceeds to the Asbestos PI Trust did not impair

the rights of insurers.”). Further context comes from our

stated agreement with the district court on this issue, since

that court had held that the anti-assignment provisions did not

28

bar transfer to the trust. 17 Moreover, although the language

refers to the bankruptcy estate alone, the reference to Section

1123—which describes transfers from the estate to other

“entities”—makes it clear that we contemplated transfers to a

trust as well as inclusion in the estate, since the citation would

otherwise be superfluous. See In re Congoleum Corp., No.

03-51524, 2008 WL 4186899, at *2 (Bankr. D.N.J. Sept. 2,

2008) (describing the “two stage analysis” necessarily

implicated in Combustion Engineering requiring first transfer

to the estate and then to the asbestos trust, and noting that

“any other conclusion” would make the citation to §

1123(a)(5) “nonsensical”).

As this context demonstrates, the question we

addressed in Combustion Engineering was the same we

confront here: whether a debtor could transfer its insurance

rights to a § 524(g) trust notwithstanding the policies’ anti-

17

In its unpublished oral opinion, that court rebuffed the

insurers’ contention that the assignment of “insurance

proceeds to the personal injury trust . . . violates anti-

assignment provisions in their policies.” Transcript of Oral

Opinion at 145, In re Combustion Eng’g, No. 03-10495 (D.

Del. July 31, 2003). It reasoned that, since contracts that

provide for forfeiture in the event of bankruptcy are “void

under Section 541 of the Code . . . . [i]f the insurers were

correct in reading the anti-assignment provisions of

Combustion Engineering’s insurance policies to bar even a

simple assignment of proceeds to a trust fund for claimants

created by the reorganization, then these provisions, too,

should be considered void.” Id. at 146.

29

assignment provisions. 18 Footnote 27 sets forth our

conclusion that any objection to the reorganization plan based

18

Insurers’ other attempts to distinguish Combustion

Engineering are unavailing. They suggest the term

“proceeds” in the opinion referred only to liquidated

insurance coverage, rather than insurance “rights,” as are at

issue here. But the opinion itself refers to “rights to

proceeds,” and makes it clear that the actual value of many of

Combustion Engineering’s insurance policies “had yet to be

determined.” Combustion Eng’g, 391 F.3d at 206 & n.11.

Insurers also suggest that we would not have reached a

different conclusion from the Ninth Circuit in Pacific Gas

without more than a brief discussion in a footnote. But

Pacific Gas had been brought to our attention, Letter Pursuant

to Rule 28(j) from Elit R. Felix, Esq., Counsel for Allianz

Insurance, In re Combustion Eng’g, 391 F.3d 190 (3d Cir.

May 27, 2004) (No. 03-3445), and it did not alter our

conclusion. We agree with the District Court that these

contentions are at base an argument that we “did not mean

what [we] said.” In re Federal-Mogul Global, 402 B.R. at

637.

Insurers also claim that a broad reading of Combustion

Engineering would conflict with our precedent in Integrated

Solutions, Inc. v. Service Support Specialties, Inc., 124 F.3d

487 (3d Cir. 1997). There, we held the Bankruptcy Code did

not preempt state law restrictions on the transfer of tort

claims. Id. at 491-96. Insurers argue that this transaction

would be allowed under a broad reading of § 1123(a). This

assertion is incorrect. The issue in Integrated was preemption

30

on the anti-assignment provisions could be overcome through

a combination of § 541 and § 1123. Furthermore, in a recent

en banc holding, we held that “the discussion of anti-

assignment provisions in Combustion Engineering should

suffice” to resolve whether insurance policies could be

transferred to a personal-injury trust. In re Global Indus.

Techs., 645 F.3d at 212 n.27 (internal citations removed); id.

at 218 n.4 (J. Nygaard, dissenting) (“[O]ur holding in

Combustion Engineering . . . validated the Bankruptcy Code’s

authorization to preempt anti-assignment policy provisions.”);

see also Motor Vehicle Cas. Ins. Co. v. Thorpe Insulation Co.

(In re Thorpe Insulation Co.), 671 F.3d 980, 1000 (9th Cir.

2012) (citing Combustion Engineering for the proposition that

“Congress has expressly preempted Appellants’ contract

rights” restricting the transfer of insurance rights to a 524(g)

trust), amended by --- F.3d ----, 2012 WL 1089503 (9th Cir.

2012); 7 Collier on Bankruptcy ¶ 1123.01[5] n.24 (Alan N.

Resnick & Henry J. Sommer eds., 16th ed. 2009) (citing

under §§ 363(b)(1) and 704(1), neither of which contained an

express preemption clause. 124 F.3d at 493. We contrasted

these sections with “other provisions of the Bankruptcy

Code” where Congress had employed “explicit language” that

showed it “intend[ed] to displace state nonbankruptcy law ,”

particularly the “notwithstanding” clause contained in §

1123(a). Id. Moreover, the sale of the tort claim at issue in

Integrated was not part of the reorganization plan, and so §

1123(a) was not applicable. Id. at 489-90.

31

Combustion Engineering for the proposition that § 1123(a)(5)

preempts state law). 19

Nevertheless, the proper scope of § 1123(a) was not

the focus of the many disputes in Combustion Engineering,

and our brief discussion of the provision did not examine the

statutory language, structure, and legislative history of § 1123

for a thorough preemption analysis. We turn to these factors

now.

B.

Section 1123 of the Bankruptcy Code establishes the

contents of a plan for reorganization under Chapter 11.

Subsection (a), at issue here, reads in part: 20

19

Numerous lower courts have also interpreted our holding

this way, including both lower courts in this case. See, e.g.,

Hartford Acc. and Indem. Co. v. Global Indus. Technologies,

Inc., No. 07-1749, 2008 WL 6838582, at *5-6 (W.D. Pa. July

25, 2008), rev’d on other grounds sub nom. In re Global

Indus. Technologies, 645 F.3d 201 (3d Cir. 2011); In re

Kaiser Aluminum Corp., 343 B.R. 88, 94-95 (D. Del 2006);

In re W.R. Grace & Co., 446 B.R. 96, 132 n.59 (Bankr. D.

Del. 2011); In re Congoleum Corp., No. 03-51524, 2008 WL

4186899, at *1-2 (Bankr. D.N.J. Sept. 2, 2008); In re

Pittsburgh Corning Corp., 417 B.R. 289, 313 (Bankr. W.D.

Pa. 2006).

20

The entirety of § 1123(a) provides:

32

(a) Notwithstanding any otherwise applicable

nonbankruptcy law, a plan shall—

(1) designate, subject to section 1122 of this

title, classes of claims, other than claims of a

kind specified in section 507(a)(2),

507(a)(3), or 507(a)(8) of this title, and

classes of interests;

(2) specify any class of claims or interests

that is not impaired under the plan;

(3) specify the treatment of any class of

claims or interests that is impaired under the

plan;

(4) provide the same treatment for each

claim or interest of a particular class, unless

the holder of a particular claim or interest

agrees to a less favorable treatment of such

particular claim or interest;

(5) provide adequate means for the plan’s

implementation, such as—

(A) retention by the debtor of all or any

part of the property of the estate;

(B) transfer of all or any part of the

property of the estate to one or more

entities, whether organized before or

after the confirmation of such plan;

(C) merger or consolidation of the debtor

with one or more persons;

(D) sale of all or any part of the property

of the estate, either subject to or free of

33

any lien, or the distribution of all or any

part of the property of the estate among

those having an interest in such property

of the estate;

(E) satisfaction or modification of any

lien;

(F) cancellation or modification of any

indenture or similar instrument;

(G) curing or waiving of any default;

(H) extension of a maturity date or a

change in an interest rate or other term of

outstanding securities;

(I) amendment of the debtor’s charter; or

(J) issuance of securities of the debtor, or

of any entity referred to in subparagraph

(B) or (C) of this paragraph, for cash, for

property, for existing securities, or in

exchange for claims or interests, or for

any other appropriate purpose;

(6) provide for the inclusion in the charter of

the debtor, if the debtor is a corporation, or

of any corporation referred to in paragraph

(5)(B) or (5)(C) of this subsection, of a

provision prohibiting the issuance of

nonvoting equity securities, and providing,

as to the several classes of securities

possessing voting power, an appropriate

distribution of such power among such

classes, including, in the case of any class of

34

(a) Notwithstanding any otherwise applicable

nonbankruptcy law, a plan shall—

...

(5) provide adequate means for the plan's

implementation, such as—

...

(B) transfer of all or any part of

the property of the estate to one or

equity securities having a preference over

another class of equity securities with

respect to dividends, adequate provisions for

the election of directors representing such

preferred class in the event of default in the

payment of such dividends;

(7) contain only provisions that are

consistent with the interests of creditors and

equity security holders and with public

policy with respect to the manner of

selection of any officer, director, or trustee

under the plan and any successor to such

officer, director, or trustee; and

(8) in a case in which the debtor is an

individual, provide for the payment to

creditors under the plan of all or such

portion of earnings from personal services

performed by the debtor after the

commencement of the case or other future

income of the debtor as is necessary for the

execution of the plan.

35

more entities, whether organized

before or after the confirmation of

such plan.

Besides the transfer of estate property, § 1123(a)(5)(A)-(J)

lists nine other transactions that can constitute “adequate

means” for plan implementation. Collier notes, “The types of

means listed in section 1123(a)(5) are clearly illustrative and

not exclusive.” 7 Collier on Bankruptcy ¶ 1123.01[5].

“When a federal law contains an express preemption

clause, ‘we focus on the plain wording of the clause, which

necessarily contains the best evidence of Congress’

preemptive intent.’” Chamber of Commerce of U.S. v.

Whiting, --- U.S. ----, 131 S.Ct. 1968, 1977 (2011) (quoting

CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664 (1993)).

The plain language of § 1123(a) evinces Congress’s clear

intent to preempt state law.

The critical words here are “Notwithstanding any

otherwise applicable nonbankruptcy law . . . .” The Supreme

Court has held that a “notwithstanding” clause “clearly

signals the drafter’s intention that the provisions of the

‘notwithstanding’ section override conflicting provisions,”

noting numerous instances when the courts of appeals “have

interpreted similar ‘notwithstanding’ language . . . to

supersede all other laws, stating that ‘[a] clearer statement is

difficult to imagine.’” Cisneros v. Alpine Ridge Grp., 508

U.S. 10, 16 (1993) (alteration in original) (internal quotation

marks omitted) (quoting in part N.J. Air Nat’l Guard v. Fed.

Labor Relations Auth., 677 F.2d 276, 283 (3d Cir. 1982), and

36

citing In re FCX, Inc., 853 F.2d 1149 (4th Cir. 1988)). We

have specifically cited § 1123(a) as an instance where

Congress used “explicit language” to demonstrate its intent

“to displace state nonbankruptcy law,” Integrated Solutions,

Inc., 124 F.3d at 493, and two other courts of appeals have

determined that the “notwithstanding” clause in § 1123(a)

expressly preempts state law, Pac. Gas, 350 F.3d at 946; In re

FCX, Inc., 853 F.2d at 1154-55.

Our conclusion that § 1123(a) preempts state law does

not end our inquiry, since we must still “identify the domain

expressly pre-empted” by the statutory language. Lohr, 518

U.S. at 484 (quoting Cippolone v. Liggett Grp., Inc., 505 U.S.

504, 517 (1992)). Even in instances of express preemption,

the presumption in favor of state law applies, requiring us to

accept “a plausible alternative reading . . . that disfavors pre-

emption.” Bates v. Dow Agrosciences LLC, 544 U.S. 431,

449 (2005). Federal-Mogul argues that the plain text of §

1123 forecloses any alternative reading and requires a

preemptive scope that reaches the transfer of insurance rights

at issue here. But Insurers offer several limiting principles

they contend construe § 1123 just as sensibly while

comporting with traditional respect for state law.

Insurers first argue from the structure of § 1123(a).

Section 1123(a) contains eight numbered subsections, (1)-(8),

specifying the required elements of a reorganization plan. As

discussed, under subsection (5) it also contains ten

transactions, (A)-(J), that can constitute “adequate means for

the plan’s implementation” as required by § 1123(a)(5).

These “means” include the “transfer of . . . the property of the

37

estate,” § 1123(a)(5)(B), at issue here, but also, among others,

the debtor’s retention of estate property, (A); sale or

distribution of estate property, (D); cancellation or

modification of any indenture, (F); and curing or waiving of a

default, (G).

Insurers propose a reading of § 1123(a) that excises §

1123(a)(5)(A)-(J) from the scope of § 1123(a), contending the

“means” listed there are not subject to the “notwithstanding”

clause. In other words, Insurers draw a sharp dichotomy

between what they style as the “illustrative examples of non-

required transactions” enumerated as adequate means and the

rest of subsection § 1123(a). Br. for Certain Appellants at 24-

25.

We disagree. It is hardly natural to read the

“notwithstanding” clause in § 1123(a) as applying only to

some, but not all, of subsection(a), an approach that

contravenes any normal method of statutory interpretation.

“The presumption is that the statute flows in orderly

progression from general statement to specific instance so

that ordinarily the qualification of a later clause upon an

earlier one is to be expected.” 1A Norman J. Singer & J.D.

Shambie Singer, Sutherland Statutes and Statutory

Construction § 20:7 (7th ed. 2007). This approach is also at

odds with the interpretation of the Fourth Circuit, which held

that, “[b]y its plain language,” the “notwithstanding” clause

encompassed § 1123(a)(5)(D). In re FCX, Inc., 853 F.2d at

1154. It could hardly be read otherwise; no other express

preemption provision is necessary. We also agree with the

District Court that the contrary interpretation would have

38

absurd results: many of the means listed would be impossible

to accomplish without preempting nonbankruptcy law. 21 For

these reasons, we conclude the preemptive scope of § 1123(a)

reaches all the provisions in subsection (a).

London Market Insurers further contend the phrase

“otherwise applicable nonbankruptcy law” in § 1123(a) does

not encompass private contracts. They note that elsewhere in

the Bankruptcy Code Congress used language that explicitly

preempts private contracts as well as governmental

enactments. See, e.g., 11 U.S.C. § 363(l) (“notwithstanding

any provision in a contract, a lease, or applicable law”); 11

U.S.C. § 1124(2) (“notwithstanding any contractual provision

or applicable law”).

We agree with the District Court in rejecting this

interpretation. Many of the transactions listed under §

21

We also find relevant § 1123(d), which provides:

“Notwithstanding subsection (a) of this section and sections

506(b), 1129(a)(7), and 1129(b) of this title, if it is proposed

in a plan to cure a default the amount necessary to cure the

default shall be determined in accordance with the underlying

agreement and applicable nonbankruptcy law.” The reference

to subsection (a) indicates that, absent this provision, § 1123

would operate to preempt nonbankruptcy law governing the

curing of defaults. The only reference to curing a default in §

1123 appears at § 1123(a)(5)(G), in the list of transactions

that could constitute “adequate means.” We find this strong

evidence that Congress interpreted § 1123(a) to reach the ten

transactions listed under § 1123(a)(5).

39

1123(a)(5) implicate contractual rights, and so demonstrate

clear congressional intent that the phrase “nonbankruptcy

law” encompass private contracts. The Fourth Circuit

endorsed this view when it held that § 1123(a) preempts the

contractual provisions of patronage certificates. In re FCX,

Inc., 853 F.2d at 1154- 55. Moreover, the Supreme Court

has held that the phrase “all other law” in a preemption

provision preempts private contracts. Norfolk & W. Ry. Co. v.

Am. Train Dispatchers Ass’n, 499 U.S. 117 (1991). Since

“[a] contract has no legal force apart from the [state] law that

acknowledges its binding character,” the Court concluded that

the preemptive language at issue “effects an override of

contractual obligations . . . by suspending application of the

law that makes the contract binding.” 22 Id. at 130. This

22

London Market Insurers attempt to distinguish Norfolk on

the ground that the collective bargaining agreement at issue in

that case was required by law, a fact that played no role in the

Court’s reasoning or conclusions about the preemptive scope

of the statute in that case. They also point to two other

Supreme Court cases, Cipollone v. Liggett Group, Inc., 505

U.S. 504 (1992), and American Airlines, Inc. v. Wolens, 513

U.S. 219 (1995), where the Court refused to apply preemption

clauses to contract provisions. But in both cases, the Court

specifically distinguished the language at issue in those

cases—which spoke to state “requirements and prohibitions”

and “enact[ments] and enforce[ments]” respectively—from

the “all other law” provision in Norfolk. Cipollone, 505 U.S.

at 526 n.24; Wolens, 513 U.S. at 229 nn.5-6. The Wolens

Court also stressed that, in Norfolk, the railroad

40

reasoning applies to § 1123(a) and the insurance policies at

issue. Accordingly, on the strength of statutory language and

precedent, we conclude the phrase “otherwise applicable

nonbankruptcy law” encompasses private contracts, including

the insurance policies at issue here.

Insurers also claim that the context and structure of the

Bankruptcy Code support a narrow reading of preemption.

See United Sav. Ass’n of Tex. v. Timbers of Inwood Forest

Assocs., Ltd., 484 U.S. 365, 371 (1988) (describing the

interpretation of the Bankruptcy Code as “a holistic

endeavor” where a single ambiguous provision “is often

clarified by the remainder of the statutory scheme”). They

point to other Code provisions they argue would be rendered

superfluous by a broad interpretation of § 1123(a)’s scope,

contending that Congress could not have intended § 1123 to

make a hash out of a carefully defined and balanced statutory

scheme.

As an initial matter, § 1123(a) by its express terms

does not displace other portions of the Bankruptcy Code.

Other Code provisions that place specific limitations on the

satisfaction of a lien, 11 U.S.C. § 1129(b)(2)(A), on the

curing of a default, id. § 365(b), on the issuance of securities

notwithstanding certain securities laws, id. § 1145, or on the

reorganization scheme at issue would have been impossible to

effect if collective bargaining agreements were not

preempted—an argument readily analogized to the context of

bankruptcy reorganization and private contracts. Wolens, 513

U.S. at 229 n.6.

41

use or sale of estate property, id. § 363(l), still operate to

condition § 1123(a). 23 Had Congress wanted to limit the

23

Moreover, we are unconvinced these provisions conflict

with § 1123(a). 11 U.S.C. § 1145—which appears in the

subchapter on “postconfirmation matters”—includes far more

than those securities issued under a reorganization plan and

encompasses numerous situations where § 1123 would not

apply. 11 U.S.C. § 1129 places specific limitations on when a

bankruptcy court may approve a plan, and so constitutes an

unambiguous check on a debtor’s power under § 1123. For

instance, the statement in § 1123(b)(1) that “a plan may

impair . . . any class of claims” is obviously not an

untrammeled right, but subject to the careful procedure set

out in § 1129 establishing when a plan may impair a claim

without a creditor’s consent. 11 U.S.C. § 365—which relates

only to executory contracts and leases, not the entire range of

potential defaults—is consonant with § 1123(d), described

above, which limits the otherwise applicable scope of

preemption under § 1123(a)(5)(G) concerning defaults.

Finally, the authorization in 11 U.S.C. § 363(l) for the “use,

sale, or lease of [estate] property” in a plan “notwithstanding

any provision in a contract, a lease, or applicable law that is

conditioned on the insolvency or financial condition of the

debtor” is distinct from the transfer provision at 11 U.S.C. §

1123(a)(5)(B). Although neither “sale” nor “use” are defined

terms in the Bankruptcy Code, the transfer of insurance rights

from the debtor to the § 524(g) trust at issue here would

constitute neither under the common and legal definitions of

those terms. Sections 363(l) and 1123(a)(5)(B) also address

42

preemptive scope of § 1123 based on specific sections of the

Bankruptcy Code, as Insurers suggest, it knew how to do

so—the Bankruptcy Code features many instances when the

exercise of a statutory right is expressly “subject to” the

provisions of another part of the Code. 24 But rather than

addressing the relationship between § 1123(a) and the rest of

the Code clause-by-clause, Congress unambiguously limited

the scope of the “notwithstanding” clause in § 1123(a) to

“nonbankruptcy law,” leaving other Code provisions intact.

different stages of the bankruptcy. As its location in the Code

makes clear, § 363 focuses on the consequences of entering

the bankruptcy process. It does not describe the requirements

for proposing and approving a Chapter 11 reorganization

plan, which are found in §§ 1121-1129. See In re Federal-

Mogul Global Inc., 385 B.R. at 572-73.

24

Several such instances appear within § 1123 itself. See,

e.g., 11 U.S.C. § 1123(a)(1) (“[A] plan shall designate,

subject to section 1122 of this title, classes of claims, other

than claims of a kind specified in section 507(a)(2), 507(a)(3),

or 507(a)(8) of this title, and classes of interests”); id. §

1123(b)(2) (“[A] plan may[,] subject to section 365 of this

title, provide for the assumption, rejection, or assignment of

any executory contract or unexpired lease of the debtor not

previously rejected under such section”); id. § 1123(c) (“In a

case concerning an individual, a plan proposed by an entity

other than the debtor may not provide for the use, sale, or

lease of property exempted under section 522 of this title,

unless the debtor consents to such use, sale, or lease.”).

43

Insurers particularly urge that a broad reading of the

preemptive scope of § 1123(a) is inconsistent with 11 U.S.C.

§ 1142, which governs the implementation of the

reorganization plan. Section 1142(a) provides,

“Notwithstanding any otherwise applicable nonbankruptcy

law, rule, or regulation relating to financial condition, the

debtor and any entity organized or to be organized for the

purpose of carrying out the plan shall carry out the plan and

shall comply with any orders of the court.” 25 Insurers argue it

would be illogical for the scope of preemption in § 1123,

which provides what the plan should contain, to exceed that

provided for in § 1142, which provides for the plan’s

implementation, and so the two provisions must be read in

pari materia.

This contention finds support in Pacific Gas, 350 F.3d

932, where the court confronted a bankruptcy reorganization

plan that would have allowed the debtor, a public utility, to

25

The District Court ruled that, even if § 1142(a) did apply,

under the rule of the last antecedent the phrase “relating to

financial condition” referred only to regulations and not a

“law” or “rule.” We agree with Insurers that in this instance

this canon should not apply. See Shendock v. Dir., Office of

Workers’ Comp. Programs, 893 F.2d 1458, 1464 (3d Cir.

1990) (“[W]here the sense of the entire act requires that a

qualifying word or phrase apply to several preceding or even

succeeding sections, the word or phrase will not be restricted

to its immediate antecedent.” (quoting 2A N. Singer,

Sutherland Statutes and Statutory Construction § 47.33, at

245 (4th ed. 1984))).

44

contravene state law by disaggregating. Id. at 935-37. The

court limited the express preemptive scope of § 1123(a)(5) to

that of § 1142(a)—that is, to state laws “relating to financial

condition”—and remanded. Id. The court reached this

conclusion based primarily on legislative history, which we

will discuss, but also reasoned that importing the language of

§ 1142(a) into § 1123(a) made structural sense, because the

two sections work in tandem: § 1123(a) establishes what a

confirmable reorganization plan must contain, while §

1142(a) provides for the implementation of the plan. Id. at

946-48.

Although we regard Pacific Gas as factually

distinguishable from this case, 26 we are also unconvinced that

§§ 1123 and 1142 are so similar that they must be read

together. See Tooahnippah v. Hickel, 397 U.S. 598, 606

(1970) (declining to read two sections dealing with the same

subject in pari materia when “the coverage of these sections

26

After briefing and oral argument in this case, the Ninth

Circuit published an opinion holding that federal law

preempts anti-assignment provisions that purport to bar the

transfer of insurance rights to a § 524(g) trust. In re Thorpe

Insulation, 671 F.3d at 999-1001. Distinguishing Pacific Gas

and limiting its holding solely to the scope of § 1123, the

court determined that 11 U.S.C. § 541(c) expressly preempts

anti-assignment provisions and that 11 U.S.C. § 524(g)

impliedly preempts them as an obstacle to congressional

purposes. Id. Accordingly, even under Ninth Circuit case

law, the anti-assignment provisions at issue here would be

preempted.

45

is not identical”). Collier describes the plan provisions under

§ 1123 as “self-executing,” 7 Collier ¶ 1123.01[5], which

would seem to obviate the need for subsequent

“implementation” under § 1142. Federal-Mogul suggests

that, since § 1142 appears in a subchapter addressing

“postconfirmation matters,” it implicates a different stage in

the bankruptcy proceeding from § 1123 and provides a post-

confirmation safe harbor for certain actions taken in

conformity with the plan. This interpretation is at least

plausible, especially in light of the absence of any contrary

case law examining preemption under § 1142(a). 27 Section

1142 is also distinguishable from § 1123 because it

encompasses “orders of the court,” suggesting that the limited

27

The case law on preemption under § 1142(a) is sparse. The

handful of relevant cases include In re Sugarhouse Realty,

Inc., No. 92-23024 SR, 1995 WL 114151 at *31-*32 (Bankr.

E.D. Pa. March 15, 1995) (holding that under § 1142 the

bankruptcy court may require specific performance when it

might not be available under Pennsylvania law on the ground

that applying state law “would eviscerate the language of 11

U.S.C. § 1142 and seemingly contravene the supremacy

clause”); In re Am. Freight Sys., Inc., 179 B.R. 952, 961

(Bankr. D. Kan. 1995) (rejecting a claim by a freight carrier

that under § 1142 it may pursue certain post-confirmation

claims prohibited by federal law); In re Pearson Indus., 152

B.R. 546, 557 (Bankr. C.D. Ill. 1993) (holding that, while a

debtor post-confirmation was generally expected to comply

with “all applicable laws” like “any other business entity,” §

1142 preempted parts of the Illinois Corporation Act).

46

preemptive language might serve primarily as a check on the

court’s authority to trump non-bankruptcy law in

supplemental orders enacting the plan. Case law supports this

interpretation, since nearly all of the cases construing § 1142

have involved the proper scope of the bankruptcy court’s

postconfirmation jurisdiction and authority. 28

We need not resolve the scope of § 1142(a), however,

because well-established principles of statutory interpretation

militate against assimilating the two sections where Congress

employed different words. “[W]here the legislature has

inserted a provision in only one of two statutes that deal with

closely related subject matter, it is reasonable to infer that the

failure to include that provision in the other statute was

deliberate rather than inadvertent.” 2B Sutherland Statutes

and Statutory Construction § 51.2. Thus, “limiting words”

that appear in one provision are not ordinarily read into

another that omits them, because we presume that “Congress

28

See, e.g., Goodman v. Phillip R. Curtis Enters., 809 F.2d

228 (4th Cir. 1987) (limiting the authority of the bankruptcy

court following confirmation of the plan to matters

concerning implementation or execution); Walnut Assocs. v.

Saidel, 164 B.R. 487 (E.D. Pa. 1994) (holding that subject

matter jurisdiction is conferred on the bankruptcy court only

to resolve postconfirmation matters); In re Johns-Manville

Corp., 97 B.R. 174 (Bankr. S.D.N.Y 1989) (determining that

bankruptcy court retains postconfirmation jurisdiction over

fundamental questions of the interpretation and

administration of plan in the context of asbestos suits filed

against debtor).

47

acts intentionally and purposely in the disparate inclusion or

exclusion.” Burlington N. & Santa Fe Ry. Co. v. White, 548

U.S. 53, 62-63 (2006) (quoting in part Russello v. United

States, 464 U.S. 16, 23 (1983)). 29 Moreover, even if §§ 1123

and 1142 were properly read in pari materia, “where two

statutes deal with the same subject matter, the more recent

enactment prevails as the latest expression of legislative will.”

2B Sutherland Statutes and Statutory Construction § 51.2.

Pacific Gas reversed this presumption by making the reading

of the 1984 amendment of § 1123 conditional on the earlier

passage of § 1142 in 1978. We believe the logical course is

to assume that Congress was aware of the preemptive

language of § 1142 when it subsequently amended § 1123 to

contain a preemptive provision with a different scope.

Therefore, we decline to limit the preemptive scope of §

1123(a) to those state laws relating to financial condition. 30

29

A number of cases have applied this canon in the

bankruptcy context. See Bank of Am. Nat’l Trust & Sav.

Ass’n. v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 450 (1999)

(“It is unlikely that the drafters of legislation so long and

minutely contemplated as the 1978 Bankruptcy Code would

have used two distinctly different forms of words for the

same purpose”); Rea v. Federated Investors, 627 F.3d 937,

940-42 (3d Cir. 2010) (stating, in the context of two similar

bankruptcy provisions, “[w]e will not contravene

congressional intent by implying statutory language that

Congress omitted”).

30

We find further support for this conclusion in 11 U.S.C. §

1123(d). As discussed above, subsection (d) establishes that,

48

In sum, we find no textual support to limit the scope of

the “notwithstanding” clause only to part of § 1123(a), to

state enactments, or to the preemptive reach of § 1142(a).

The plain language of § 1123(a) evinces clear congressional

intent for a preemptive scope that includes the transactions

listed under § 1123(a)(5) as “adequate means” for the plan’s

implementation, including the transfer of property authorized

by (a)(5)(B). The plain language also reaches private

contracts enforced by state common law, and overcomes the

presumption against preemption. As we will discuss, we do

not believe that the scope is limitless, but it is broad enough

to encompass the anti-assignment provisions of insurance

policies that purport to bar transfer to a § 524(g) trust.

“[n]otwithstanding subsection (a) of this section,” the amount

necessary to cure a default under the plan is determined by

applicable nonbankruptcy law. If subsection (a) only

preempted nonbankruptcy law related to financial condition,

such a proviso would likely be unnecessary, since a law

defining the amount necessary to cure a default does not

relate to financial condition, at least as that term is currently

defined as analogous in meaning to insolvency, see 11 U.S.C.

§ 541(c)(1)(B) (invalidating restrictions of the transfer of

property to the estate when “conditioned on the insolvency or

financial condition of the debtor”); In re Transcon Lines, 58

F.3d 1432, 1439-40 (9th Cir. 1995); In re Am. Freight Sys.,

Inc., 179 B.R. at 960.

49

C.

Insurers also urge a narrow reading of § 1123(a) on the

basis of prior practice and legislative history. They suggest

preemption deviates from pre-Code bankruptcy practice and

should be disfavored, and legislative history establishes that

Congress intended the 1984 revisions to the Code to be

minor. But the evidence from these sources is too equivocal

to overcome the plain meaning of the text, which provides

compelling evidence of Congress’s intent to preempt contrary

non-bankruptcy law.

The legislative history of the “notwithstanding” clause

in § 1123(a) is thin and inconclusive. Section 1123, enacted

as part of the Bankruptcy Code in 1978, codified a similar

provision at § 77B(b)(9) of the earlier Bankruptcy Act. Pac.

Gas, 350 F.3d at 938. In its original form, § 1123(a)

specified, as it does now, the elements a Chapter 11

reorganization plan shall contain, mandating that it provide

“adequate means” including “the transfer of all or any of the

property of the estate.” An Act to Establish a Uniform Law

on the Subject of Bankruptcies, Pub. L. No. 95-598, §

1123(a), 92 Stat. 2549, 2631-32 (1978). It contained no

preemption provision. But § 1142(a), also enacted as part of

the 1978 Bankruptcy Code, provided for the “execution” of a

reorganization plan “notwithstanding any otherwise

applicable nonbankruptcy law . . . relating to financial

condition.” Id. § 1142, at 2639. During debate, one senator

read this preemptive language to encompass § 1123 as well,

noting that under § 1123 “[i]f the [reorganization] plan is

confirmed, then any action proposed in the plan may be taken

50

notwithstanding any otherwise applicable bankruptcy law in

accordance with section 1142(a) of title 11.” 124 Cong. Rec.

34,005 (1978) (statement of Sen. DeConcini). 31

The addition of the clause “notwithstanding any

otherwise applicable nonbankruptcy law” to § 1123(a) was

first proposed in 1980, reintroduced in 1983, and enacted as

part of the Bankruptcy and Federal Judgeship Act of 1984.

31

The import of this statement is the cause of some debate.

In Pacific Gas, the Ninth Circuit cited this as evidence that

Congress intended §§ 1123 and 1142 to be read together. 350

F.3d at 941-42, 948. The District Court in this case rejected

this view, citing “the inherent infirmity of relying on the floor

remarks of a single senate subcommittee chairman as

controlling authority,” and instead stressed the importance of

the difference in language between the two provisions. In re

Federal-Mogul Global, 402 B.R. at 640-41 (citing In re

Pelkowski, 990 F.2d 737, 743 (3d Cir. 1993)). This was

particularly true, the District Court found, because Congress

presumably had knowledge of the language of § 1142 when it

altered § 1123 six years later, and chose not to adopt it. Id.

We agree with the District Court that a statement by a single

senator suggesting the preemptive scope of § 1123 in 1978 is

not dispositive of its scope after modification in 1984. If

anything , Senator DeConcini’s statement seems to support

the presumption that Congress acted purposefully in selecting

different language for § 1123. Cf. In re FCX, Inc., 853 F.2d

at 1154 n.7 (citing Sen. DeConcini’s statement to support the

claim that § 1123(a) preempted the private contract

restrictions at issue).

51

This modification occasioned little discussion. When

originally proposed as part of a package of “technical

amendments” intended to redress errors in “printing, spelling,

punctuation, grammar, syntax, and numeration,” the changes

to § 1123 were described as “mak[ing] it clear that the rules

governing what is to be contained in the reorganization plan

are those specified in this section.” H.R. Rep. No. 96-1195,

at 1, 22 (1980). 32 In 1983, a Senate report described the

amendment as making “technical stylistic changes.” S. Rep.

No. 98-65, at 84 (1983). The amendment, including the

“notwithstanding” clause, passed the following year as part of

a subsection labeled “Miscellaneous Amendments to Title

11.” Pub. L. No. 98-353, Subtitle H, § 502, 98 Stat. 333, 367

& 385 (1984).

Insurers argue that the relative congressional silence

on the amendment of § 1123 is telling. Courts will not

presume a departure from pre-Code bankruptcy practice in

the absence of clear congressional intent. Hamilton v.

Lanning, --- U.S. ----, 130 S. Ct. 2464, 2473-74 (2010);

Cohen v. de la Cruz, 523 U.S. 213, 221-22 (1998); Pac. Gas,

350 F.3d at 943-44. Insurers characterize pre-Code practice

as requiring reorganization plans to conform to state law,

32

Insurers point to this statement as evidence for their

contention that preemption applies only to part of § 1123(a).

But this brief sentence is too equivocal to prove much. It

might also be reasonably interpreted to support the opposing

conclusion that the rules specified in the section, including

the transactions listed as “adequate means,” are the only laws

governing the contents of a reorganization plan.

52

arguing that an amendment characterized as “technical” and

“stylistic” does not demonstrate congressional intent to

substantially revise bankruptcy practice. This argument was

endorsed by the Ninth Circuit in limiting the preemptive

scope of § 1123 to laws relating to financial condition, Pac.

Gas, 350 F.3d at 947, and it also finds support, Insurers

claim, in the Supreme Court’s ruling in Cohen, which found

that a “stylistic change” enacted in the same 1984

amendments at issue here did not alter the meaning of a

different provision of the Bankruptcy Code, 523 U.S. at 221.

We see no reason to question Insurers’ account of pre-

Code bankruptcy practice, which seems borne out by case law

and commentary. 33 But we disagree with the inference that

this practice, coupled with the thin legislative history of §

1123, establishes their proposed narrow preemptive scope for

§ 1123.

Pre-Code bankruptcy practice was not the law when

the “notwithstanding” clause was added to § 1123 in 1984;

33

See, e.g., Brocket v. Winkle Terra Cotta Co., 81 F.2d 949

(8th Cir. 1936) (refusing to allow the issuance of stock under

a reorganization plan without adequate financial support

required by state law); 6A Collier on Bankruptcy ¶10.19, at

89 & n. 8 (14th ed. 1977) (“Whatever the means chosen [for

reorganization], it must be remembered that conformity with

other applicable state or federal laws may be necessary. . . .”);

Br. for Certain Appellants at 36 n.8 (collecting similar cases).

We are unconvinced by Federal-Mogul’s efforts to

demonstrate that pre-Code practice was otherwise.

53

the existing law was the 1978 Bankruptcy Code. The 1978

Code substantially altered earlier practice, see generally

David Skeel, Debt’s Dominion: A History of Bankruptcy Law

in America 131-83 (2001) (describing the Code’s

“transformative effect on bankruptcy as we know it”),

including the addition of the preemptive language in § 1142

that modified prior practice and allowed the implementation

of a plan notwithstanding some nonbankruptcy laws. 34 The

fifteenth edition of Collier, which came out after the 1978

Code, broke with prior editions’ admonition that a plan’s

terms may be required to conform to state law, and stated

instead that under § 1123, “a plan may propose such actions

notwithstanding nonbankruptcy law or agreements.” In re

Kizzac Mgmt. Corp., 44 B.R. 496, 504 (Bankr. S.D.N.Y.

1984) (quoting 5 Collier on Bankruptcy ¶ 1123.01 [5] at

1123–10 (15th ed. 1979)). Case law from the period between

1978 and 1984 generally, although not unanimously, held that

§ 1123 preempted state law. See In re Taddeo, 685 F.2d 24,

29 (2d Cir. 1982) (holding that, since § 1123(a)(5)(G)

provides the authority to cure a default in a Chapter 11

proceeding, “[a] state law to the contrary must fall before the

Bankruptcy Code”); Valente v. Sav. Bank of Rockville, 34

34

The addition of the “notwithstanding” clause in § 1142 was

the only meaningful modification of that section from the

corresponding Bankruptcy Act provision. 8 Collier ¶

1142.LH. This constituted a substantial break from pre-Code

practice: cases like Brocket would come out differently post-

Code, since the state law at issue in that case related to the

debtors’ financial condition under § 1142(a).

54

B.R. 362, 365-67 & n.3 (D. Conn. 1983) (concluding that §

1123(a)(5)(G) allows for the curing of defaults

notwithstanding state court judgments under the Supremacy

Clause); In re Kizzac Mgmt. Corp., 44 B.R. at 504 (holding

that § 1123(a)(5)(E) grants the bankruptcy court the power to

compel an assignment rather than a satisfaction of a

mortgage). 35 But see In re Celeste Court Apartments, Inc., 47

B.R. 470, 473-74 (D. Del. 1985) (finding no evidence in the

unamended text of § 1123 or its legislative history that

Congress intended it to upset a state court judgment on a

defaulted mortgage). Taken together, this evidence suggests

that the 1984 amendment did not mark a sharp break with

earlier practice under the Code, but rather clarified and

expanded the scope of preemption under § 1123. Notably,

this conclusion was endorsed by the Fourth Circuit. See In re

FCX, Inc., 853 F.2d at 1154 n.7 (“We do not understand the

amendment [to § 1123(a)] to have effected a substantive

change in prior law.”).

But whatever the proper characterization of prior

practice, it deserves little weight here. We decline to rely on

it, or on a thin and vague legislative history that says nearly

nothing about the intended preemptive scope of § 1123(a), to

overcome the plain and unambiguous meaning of the words

Congress chose. “As always, the most authoritative

35

Insurers argue that Valente and Kizzac stand only for the

proposition that the Bankruptcy Court may modify the rights

of creditors. Certain Appellants Reply Br. at 20 n.8. Yet

both courts analyzed the question presented under the Court’s

power under § 1123 to preempt state law.

55

indicators of what Congress intended are the words that it

chose in drafting the statute.” United States v. Lavin, 942

F.2d 177, 184 (3d Cir. 1991). Thus, “while pre-Code practice

informs our understanding of the language of the

[Bankruptcy] Code, it cannot overcome that language.”

Hartford Underwriters Ins. Co. v. Union Planters Bank, 530

U.S. 1, 10 (2000) (internal quotation marks and citation

omitted). “[W]here the meaning of the Bankruptcy Code’s

text is itself clear . . . its operation is unimpeded by contrary .

. . prior practice.” Id. (alteration and omissions in original)

(quoting BFP v. Resolution Trust Corp., 511 U.S. 531, 546

(1994)). Here, Congress chose words that it employed

throughout the Bankruptcy Code to mandate preemption,

words the Supreme Court has interpreted as the clearest

possible statement of preemptive intent. It would be an odd

method of interpretation to rummage deep into the legislative

history, and, finding practically nothing, conclude that this

silence implies that Congress could not have meant what it

said when it wrote the statute. The more sensible course

reads the statutory text itself as indicative of congressional

intent, which, based on the unambiguous language here, was

to preempt nonbankruptcy state and federal law.

The Supreme Court’s opinion in Cohen supports this

view. There, the petitioner argued the 1984 addition of the

phrase “to the extent obtained by” to 11 U.S.C. §

523(a)(2)(A), which barred discharge from liability for fraud,

limited recovery from his estate to the actual amount of fraud

and did not include the treble damages awarded by the

bankruptcy court in an adversary proceeding. Cohen, 523

U.S. at 215. In rejecting this argument, the Court turned first

56

to the plain language of the provision, noting that the

petitioner’s proposed interpretation was at odds with both the

“most straightforward reading” of the statute as well as the

phrase’s meaning in parallel provisions. Id. at 218-21. Only

after exhausting the statute’s wording did the Court turn to

the provision’s history, noting that, in addition to its

description in the legislative history as only a “stylistic

change,” the language of the 1984 amendment “in no way

signals an intention to narrow the established scope of the

fraud exception.” Id. at 221-22. “If . . . Congress wished to

limit the exception [to the amount of actual fraud],” the

Court continued, “one would expect Congress to have made

unmistakably clear its intent.” Id.

As this overview makes clear, the legislative history of

the 1984 amendment to the Bankruptcy Code was a minor

piece of corroborating evidence in an opinion that looked

primarily to plain text of the provision to discern

congressional intent. Fidelity to this approach in this case

demonstrates that Congress made its intent clear. As we have

discussed, the “most straightforward reading” of § 1123(a)

cuts against Insurers’ proposed narrow interpretation.

Moreover, unlike the ambiguous amendment in Cohen, the

addition of the “notwithstanding” clause to § 1123 is an

“unmistakably clear” signal of congressional intent to

preempt that overcomes any inference based on passing

references to “technical” or “stylistic” changes. In short, we

believe Cohen mandates rather than undermines an

interpretation derived from a statute’s plain text.

57

Having examined the history of § 1123, we find

nothing that indicates we should read its preemptive scope

narrowly. While pre-Code practice may suggest that

historically courts did not allow a reorganization plan to

preempt contrary state law, the 1978 Code altered that prior

practice. The thin legislative history of the 1984 amendment

of § 1123 characterizing the change as “stylistic” and

“technical” does not overcome the plain and explicit language

of the preemption provision. That language unambiguously

provides for preemption, at least in this context, and we give

its meaning effect.

D.

Although our discussion resolves the legal question

before us, it bears noting that preemption here furthers the

purposes of the Bankruptcy Code. The debtor here seeks to

use its existing assets to address current and future claims

arising out of past occurrences and resolve its asbestos

liability, a goal consonant with the “fresh start” purpose of

bankruptcy. Because a 524(g) trust is created only through a

Chapter 11 proceeding, a contractual limitation on the

assignment of the debtors’ property to a trust functions

analogously to contract provisions that alter a debtor’s rights

in the event of insolvency. Such provisions are preempted

under 11 U.S.C. § 541(c)(1)(B), which provides that “an

interest of the debtor in property becomes property of the

estate . . . notwithstanding any provision in an agreement,

transfer instrument, or applicable nonbankruptcy law . . . that

is conditioned on the [debtor’s] insolvency.” The purpose of

this provision is to prevent creditors and others from

58

employing a debtor’s bankruptcy filing to diminish post-filing

contractual rights. Its inclusion in the Code establishes that

preemption in this instance—where the transfer of insurance

rights corresponds with the transfer of the debtor’s

preexisting liabilities into an asbestos trust authorized by the

Code—furthers the purposes of bankruptcy. Cf. In re Thorpe

Insulation, 671 F.3d at 1000 (holding that § 541(c) itself

preempts anti-assignment provisions that bar transfer to a

524(g) trust). 36

Preemption in this instance also furthers the purposes

of 11 U.S.C. § 524(g). Congress created 524(g) as the best

course to harmonize the interests of asbestos claimants and

reorganized debtors alike. See H.R. Rep. No. 103-835, at 46-

48 (1994). This approach would “help asbestos victims

receive maximum value,” 140 Cong. Rec. 28,358 (1994)

(statement of Sen. Heflin), but also ensure a company’s

continued profitability, converting it into the “goose that lays

the golden egg by remaining a viable operation and

maximizing the trust’s assets to pay claims,” id. at 8,021

(statement of Sen. Brown). The trust mechanism furthered

“the fundamental rationale of chapter 11, that a reorganized

debtor emerges from bankruptcy free and clear other than the

liability set by the plan.” Id.; see also H.R. Rep. No. 103-

835, at 47 (noting that the uncertainties surrounding asbestos-

related bankruptcies had “undermined the ‘fresh start’

36

Federal-Mogul did not argue either before the District

Court or on appeal that the trust is part of the estate, as the

Ninth Circuit concluded in Thorpe.

59

objectives of bankruptcy”). As these statements demonstrate,

Congress believed the transfer of a corporation’s assets to a

trust to ensure the equitable compensation of present and

future claimants, in return for a release from future liability,

served the “fundamental” purposes of bankruptcy. The anti-

assignment provisions at issue would impede these objectives

by depriving both debtors and claimants access to assets

specifically intended to compensate for potential losses. In

these circumstances, construing § 1123(a) to preempt these

contracts is consonant with congressional intent and public

policy. Cf. In re Thorpe Insulation, 671 F.3d at 1000-01

(holding that anti-assignment provisions barring transfer to a

trust are impliedly preempted because they are an “obstacle to

the accomplishment and execution of the full purposes and

objectives of Congress” in enacting § 524(g)).

Insurers argue, however, that the anti-assignment

provisions serve an important purpose in protecting them

from covering a risk different from the one they bargained

for. Although insurance neutrality language in the

reorganization plan preserves all other defenses to coverage,

Insurers contend that the transfer here nonetheless increases

their exposure because the trust allows claims that would be

barred in the tort system.

We doubt whether transfer in this instance materially

alters Insurers’ risk. The bankruptcy here shifted debtor’s

asbestos-related liabilities—based on events which had

already occurred and for which the insurers were already

potentially responsible—to the post-confirmation trust. We

have questioned whether such a transfer in the asbestos

60

context changes the risk an insurer agreed to cover. 37 See

Global Indus. Techs., Inc., 645 F.3d at 212 (observing that in

the Combustion Engineering reorganization plan, “the pre-

petition quantum of asbestos liability was known from four

decades of asbestos litigation, and moving the pre-petition

asbestos claims out of the tort system and into a trust system

did not increase in any meaningful way the insurers’ pre-

petition exposure to asbestos liability.”); see also 3 Couch on

Insurance § 35.8 (“The purpose of a no assignment clause is

to protect the insurer from increased liability, and after events

giving rise to the insurer's liability have occurred, the insurer's

risk cannot be increased by a change in the insured's

identity.”). Here, both the District and Bankruptcy Court

strongly challenged Insurers’ argument that their risk was

substantially altered. In re Federal-Mogul Global, Inc., 402

37

Global Industrial Technologies found that insurers’ risk

altered when a reorganization plan’s creation of a Silica Trust

expanded the number of silica claims from 169 to over 4,600,

a twenty-seven-fold increase, and when there was substantial

evidence of collusion. 645 F.3d at 213-14. No record

evidence supports a similar finding here. Instead, Insurers

argue transfer to the asbestos trust increases their risk solely

because it may “put[] administration of the trust and claims

resolution process in the hands of plaintiffs’ lawyers” or may

“pay[] claims that would not be entitled to payment in the tort

system.” Br. for Certain Appellants at 53-54; see also LMI

Br. at 14-16. These bare assertions do not rise to the

exceptional and well-documented increase in risk we found in

Global Industrial Technologies.

61

B.R. at 645 (“Appellants have no economic incentive to

prevent this assignment, particularly whereas here, the events

creating exposure to asbestos liability have already

occurred.”); In re Federal-Mogul Global, Inc., 385 B.R. at

567-69 (collecting cases to establish that “[i]n this case, to the

extent that the events giving rise to liability have already

occurred, there will be no additional risk to the insurance

companies by virtue of the assignments. Coverage issues . . .

are all preserved.”). Insurers have presented no evidence that

the transfer here alters their risk except, perhaps, through the

procedural shift that provides recovery through Trust

Distribution Protocols rather than through the tort system.

Significantly, those TDPs are mandated by Congress for

asbestos trusts and must be approved by the bankruptcy court.

11 U.S.C. § 524(g)(2)(B)(ii)(V). We cannot seriously

entertain a claim that the insurers had a contractual right to a

particular public policy. If, as has been proposed, Congress

removed all asbestos claims to a nationwide asbestos trust

that could recover from Federal-Mogul and other responsible

parties, with procedures identical to those currently provided

in the § 524(g) trusts, the insurers would have no anti-

assignment claim. As this hypothetical demonstrates,

Insurers’ true objection seems to be against the public policy

Congress chose to enact. 38

38

Insurers also urge that the anti-assignment defense is no

different from the other defenses specifically preserved to

them under the plan’s insurance neutrality, and so should also

be preserved. We disagree. Insurers could have offered the

fact-specific coverage defenses preserved to them in any

62

Insurers also allege the trust mechanism might distort

ordinary incentives between insurer and insured, encouraging

the debtor to collude with claimants and impose costs on the

insurer. But as Federal-Mogul points out, this shift in

incentives is not unique to the asbestos context and occurs in

bankruptcy where there is a discharge of the liability of the

debtor but not that of the insurer. See 11 U.S.C. § 524(e)

(“[D]ischarge of the debt of the debtor does not affect the

liability of any other entity on, or the property of any other

entity for, such debt.”). Nor do the Insurers provide any

evidence of such collusion in this case. Such bare speculation

does not establish an increase in risk.

Although not present here, there may be circumstances

where the creation of a trust does alter an insurer’s

exposure—for instance, when its mere existence attracts

dramatically more claimants—although this is less likely

given the lengthy history of asbestos liability. See In re

Global Indus. Techs., Inc., 645 F.3d at 212 (detailing how the

creation of a silica trust alone “staggeringly increased—by

more than 27 times—the pre-petition liability exposure,”

while distinguishing the asbestos context because the

asbestos proceeding prior to bankruptcy. By contrast, the

anti-assignment defense here would exist only after and by

virtue of the bankruptcy reorganization, and could be invoked

by an insurer against any claim by the Trust, no matter how

meritorious. Moreover, to the extent a determination rested

on the legitimacy of the TDPs as a method of adjudication, it

could invite courts to second-guess the judgment of Congress

and the bankruptcy court.

63

quantum of liability has been established from “four decades

of asbestos litigation.”). As our precedent has also

recognized, there may also be instances where the evidence

suggests possible collusion between the debtor and the

claimants. See id. at 214. But granting a private party

powerful leverage that may amount to a de facto veto over the

reorganization proceeding does not seem a promising solution

to these potential problems. Cf. In re Thorpe Insulation Co.,

671 F.3d at 1001 (“[E]nforcing the anti-assignment

provisions would subject virtually all § 524(g)

reorganizations to an insurer veto”).

Congress sought to address these issues when it

enacted § 524(g) by codifying the “exceptional precautions at

every stage of the proceeding” employed in the original

Manville case. H.R. Rep. No. 103-835, at 47. Section 524(g)

accordingly contains many requirements that must be

satisfied before such a trust can be approved. See

Combustion Eng’g, 391 F.3d at 234 & n.45. In conjunction

with the requirements for plan approval and the rest of the

Bankruptcy Code, these provisions are intended to protect the

interests of all affected parties. Id. We recently ruled that

insurers have standing to participate in bankruptcy

proceedings when the creation of a trust “staggeringly

increase[s]” insurers’ risk and exposure. In re Global Indus.

Techs., Inc., 645 F.3d at 204, 212; see also In re Thorpe

Insulation, 671 F.3d at 999 (holding that insurers have

bankruptcy standing “to participate in the proceedings

culminating in approval of [a] § 524(g) plan”). We have

redressed procedural deficiencies in asbestos-related

bankruptcies that did not adequately satisfy the requirements

64

of the Code, including § 524(g). In re Congoleum Corp., 426

F.3d at 687-93; In re Combustion Eng’g, 391 F.3d at 233-48.

As these examples underscore, we believe careful

consideration of the protections of the Bankruptcy Code,

together with traditional requirements of procedural due

process, adequately guard the interests of all affected parties.

III.

Insurers raise hypotheticals proposing scenarios where

Chapter 11 debtors might employ the Bankruptcy Code to

avoid the strictures of federal or state law, and argue

Congress could not have intended this absurd result. Because

the Bankruptcy Code clearly provides preemption in this

instance, we need not decide whether it would also be proper

in the situations imagined by Insurers. Nonetheless, we

would find problematic attempts under § 1123(a) to disregard

large swaths of state and federal regulatory schemes. Cf. Pac.

Gas, 350 F.3d at 937 (rejecting an “across-the-board, take-no-

prisoners preemption strategy” in which the debtor, a public

utility, sought to disaggregate notwithstanding contrary state

law under § 1123(a), thereby avoiding regulation by the

California Public Utility Commission). Eighteen states have

previously filed an amicus brief with us on this issue,

cautioning that an “overly broad reading” of § 1123(a)

“would destroy [their] ability to preserve their regulatory

authority in the face of a bankruptcy filing.” Br. and App. of

Amicus Curiae States at 1-3, In re Global Indus. Techs., Inc.,

645 F.3d 201 (3d Cir. 2011) (No. 08-3650), 2008 WL

8134099 at *1-*3.

65

But the scope of preemption under § 1123(a) is not

unlimited, and our holding does not suggest otherwise. Any

reorganization plan must still comply with all aspects of the

Bankruptcy Code and be approved by the bankruptcy court.

In particular, it must satisfy 11 U.S.C. § 1129(a)(3), which

provides that a court shall confirm a reorganization plan only

if it “has been proposed in good faith and not by any means

forbidden by law.” We have stated that this good faith

standard ensures that a plan will “fairly achieve a result

consistent with the objectives and purposes of the Bankruptcy

Code.” In re PWS Holding Corp., 228 F.3d 224, 242 (3d Cir.

2000) (quoting In re Abbotts Dairies of Pa., Inc., 788 F.2d

143, 150 n.5 (3d Cir. 1986)).

Moreover, although the text of § 1123(a) does not

explicitly state a limitation on its preemptive scope, well-

established principles suggest that its scope is not unbounded.

One important restriction is the long-standing presumption

against preemption of state police power laws and regulations

rooted in “federalism concerns and the historic primacy of

state regulation of matters of health and safety.” Lohr, 518

U.S. at 485. The Supreme Court relied on similar principles

to hold that the trustee of a debtor in Chapter 7 liquidation

proceedings could not abandon property in contravention of

state environmental law, despite enjoying the authority under

11 U.S.C. § 554(a) to abandon “any property of the estate that

is burdensome to the estate.” Midlantic Nat’l Bank v. N.J.

Dep’t of Envtl. Prot., 474 U.S. 494 (1986). Notwithstanding

the language of the statute, the Court reasoned that Congress

did not intend the abandonment power under § 554 to

preempt all state laws, citing as evidence pre-Code practice,

66

the Bankruptcy Code’s general solicitude for state safety and

health regulations, and congressional interest in enforcing

similar laws. Id. at 500-07. Although prior practice is more

mixed in this case, 39 the other justifications the Court invoked

to construct a common-law limitation also apply to § 1123(a).

In Montgomery County, Md. v. Barwood, Inc., 422 B.R. 40

(D. Md. 2009), the District of Maryland applied the Court’s

holding in Midlantic, as well as other relevant precedent, to

the preemptive scope of § 1123(a). It concluded that “§

1123(a) does not preempt otherwise applicable

nonbankruptcy laws that are concerned with protecting public

health, safety, and welfare.” Id. at 47.

The anti-assignment provisions at issue here do not

implicate public health, safety, and welfare. But limitation of

§ 1123(a)’s preemptive scope on these grounds is sensible,

and seemingly consonant with congressional intent, the

purposes of the Bankruptcy Code, and precedent. It has often

been noted that the Code exists not to provide a “haven for

wrongdoers,” but to “relieve the honest debtor from the

weight of oppressive indebtedness and permit him to start

afresh.” In re Davis, 194 F.3d 570, 573-74 (5th Cir. 1999)

(quoting in part Local Loan Co. v. Hunt, 292 U.S. 234, 244

39

At oral argument, Insurers distinguished Midlantic on this

basis. Tr. of Oral Arg. at 76, Nov. 9, 2011. But, as noted,

prior practice was only one of three grounds for the Court’s

decision. Moreover, under the Insurers’ characterization of

prior practice—one which, as discussed above, we regard as

accurate in part—the logic the Court employed in Midlantic

would control here as well.

67

(1934)). Extending the well-established presumption against

preemption of state police powers to § 1123(a) seems to

balance these aims, and might also forestall some of the more

problematic hypotheticals advanced by Insurers.

IV.

For the foregoing reasons, we hold that the anti-

assignment provisions in the relevant insurance policies are

preempted by § 1123(a)(5)(B) to the extent they prohibit

transfer to a § 524(g) trust. We will affirm the judgment of

the District Court.

68