Third Circuit: Plan and Confirmation Order in Closed Chapter 11 Case Barred Environmental Claims Against Former Affiliate of Debtor
Section 350(b) of the Bankruptcy Code permits a bankruptcy court under certain circumstances to reopen a bankruptcy case even after the estate has been fully administered and the case is closed. In In re Congoleum Corp., 149 F.4th 318 (3d Cir. 2025), the U.S. Court of Appeals for the Third Circuit reconsidered whether it was appropriate to reopen a chapter 11 case that had been closed for more than a decade to determine whether environmental claims asserted against one of the debtor's former affiliates, based upon the debtor's use of asbestos in its flooring products, were barred by the order confirming the debtor's chapter 11 plan.
A divided three-judge panel of the Third Circuit ruled that the bankruptcy court properly reopened the debtor's chapter 11 case and had subject matter jurisdiction to do so even though the order confirming the debtor's plan had been issued by a district court, rather than the bankruptcy court. The majority also found no fault with the bankruptcy court's determinations that: (i) the party opposing reopening of the bankruptcy case had adequate notice of and was bound by provisions in the plan and confirmation order stating that the former affiliate was never liable for the debtor's environmental liabilities; and (ii) the terms of the plan were not a third-party release that violated the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA").
Bankruptcy Court Jurisdiction
Article III, Section 1 of the U.S. Constitution provides that "[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." It further states that such judges "shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office."
The exercise of the "judicial Power of the United States" is vested in Article III judges. Bankruptcy judges, however, are not Article III judges. They do not have life tenure—bankruptcy judges are appointed for a 14-year term (subject to reappointment) by the circuit courts of appeals under 28 U.S.C. § 152—and their salaries are subject to diminution. Bankruptcy judges are technically authorized under Article I, which governs the legislative branch and authorizes the establishment of a uniform system of federal bankruptcy laws. U.S. Const. Art. I § 8 cl. 4. Under principles of separation of powers, bankruptcy judges cannot exercise the judicial power reserved for Article III judges.
In Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), the U.S. Supreme Court struck down the Bankruptcy Act of 1978 because it conferred Article III judicial power upon bankruptcy judges who lacked life tenure and protection against salary diminution. Two years later, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984 to fix the Marathon issue. The 1984 jurisdictional scheme for bankruptcy courts continues in force today.
That scheme vests bankruptcy jurisdiction in the first instance in the U.S. federal district courts.
Federal district courts have "original and exclusive jurisdiction" of all "cases" under the Bankruptcy Code. 28 U.S.C. § 1334(a). District courts also have "original but not exclusive jurisdiction of all civil proceedings arising under" the Bankruptcy Code, "or arising in or related to cases" under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may (and do), however, refer these cases and proceedings to the bankruptcy courts in their districts, which are constituted as "units" of the district courts. 28 U.S.C. § 157(a). That reference may be withdrawn by the district court "for cause shown," and must be withdrawn "if the [district] court determines that resolution of the proceeding requires consideration of both [the Bankruptcy Code] and other laws of the United States regulating organizations or activities effecting interstate commerce." 28 U.S.C. § 157(d).
A bankruptcy "case" is the umbrella under which all of the proceedings that follow the filing of a bankruptcy petition take place. The filing of a voluntary or involuntary petition for relief commences a bankruptcy case. After an order for relief is entered (on the petition date, in a voluntary case, and after a trial on the petition, in an involuntary case), the bankruptcy case may involve many civil proceedings, whether denominated administrative matters, controversies, adversary proceedings, contested matters, suits, actions, or disputes.
Matters "arising under" and "arising in" bankruptcy cases are generally referred to as "core" proceedings. In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999). Twenty-eight U.S.C. § 157(b)(2) contains a non-exclusive catalog of "core" proceedings, including, among other things, matters concerning the administration of the bankruptcy estate; the allowance, disallowance, or estimation of claims; counterclaims by the estate against persons filing claims against the estate; orders to turn over property of the estate; confirmation of plans; motions to modify or terminate the automatic stay; and proceedings to avoid and recover preferential or fraudulent transfers.
A matter "arises under" the Bankruptcy Code "if it invokes a substantive right provided by title 11," Southmark, 163 F.3d at 930. In other words, when a cause of action is created by title 11, that civil proceeding is one "arising under" the Bankruptcy Code. See generally Collier on Bankruptcy ("Collier") ¶ 3.01[3][e][i] (16th ed. 2025).
Similarly, claims that "arise in" a bankruptcy case are claims that by their nature, rather than their particular factual circumstances, could arise only in the context of a bankruptcy case. Stoe v. Flaherty, 436 F.3d 209, 218 (3rd Cir. 2006).
A civil proceeding is "related" to a bankruptcy case when "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1985); accord Celotex Corp. v. Edwards, 514 U.S. 300 (1995).
A bankruptcy court may enter a final judgment in a core proceeding (a proceeding "arising under" or "arising in a case" under the Bankruptcy Code). 28 U.S.C. § 157(b)(1). The court may also hear non-core related matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Unless all the parties consent to a bankruptcy court's final adjudication of a non-core related matter, the court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c).
A bankruptcy court may not try personal injury or wrongful death claims, which must be tried in the district court. 28 U.S.C. § 157(b)(5). If a party in a proceeding that may be heard by a bankruptcy court has a right to a jury trial, the bankruptcy court may conduct the jury trial if the parties expressly consent and the court is "specially designated to exercise such jurisdiction by the district court." 28 U.S.C. § 157(e).
In addition to statutory authority, a bankruptcy judge must have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in non-core matters, where the matter is either one that falls within the "public rights exception," (i.e., cases involving "public rights" that Congress could constitutionally assign to "legislative" courts for resolution), or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g., Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").
Closing and Reopening Bankruptcy Cases
Generally, after a bankruptcy estate has been "fully administered"—e.g., the debtor's chapter 11 plan has been confirmed, all bankruptcy claims have been resolved, and the plan is "substantially consummated"—the court, pursuant to section 350(a) of the Bankruptcy Code, is required to close the case by issuing a "final decree" in accordance with Rule 3022 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"). Once a case is closed, the bankruptcy court's jurisdiction over the debtor and its estate normally terminates.
However, section 350(b) of the Bankruptcy Code and Bankruptcy Rule 5010 authorize the court, on motion of the debtor or another party in interest, to reopen a closed bankruptcy case "to administer assets, to accord relief to the debtor, or for other cause" (emphasis added). Pursuant to Bankruptcy Rule 9024(1), a motion to reopen a case is not subject to the one-year time limit that generally applies to motions for relief from an order of the court. A decision on a motion to reopen is committed to the sound discretion of the bankruptcy court.
Common reasons that have warranted reopening a closed case under section 350(b) include: (i) the discovery of unadministered assets that were unknown at the time of closure; (ii) amending schedules to add a previously omitted debt or creditor; (iii) avoiding a lien impairing exempt property; (iv) granting the debtor a discharge if the case was closed before a discharge was granted; and (v) enforcing the discharge injunction under section 524(a) of the Bankruptcy Code. See generally Collier at ¶ 350.03.
Neither section 350(b) nor any other provision of the Bankruptcy Code specifies what constitutes "other cause" for reopening a closed case. In the absence of statutory guidance, bankruptcy courts have broad discretion in making this determination. For example, courts have granted motions to reopen a case to modify a chapter 11 plan or to interpret a provision in a previously confirmed plan. Id. (citing cases).
Courts are generally reluctant to reopen closed cases. Reopening a case removes the element of certainty and finality that comes with full administration of an estate and entry of a final decree. For this reason, courts consider a number of factors in determining whether reopening a case is justified under the particular circumstances of each case. For example, bankruptcy courts in the Southern District of New York have applied the following six-factor test:
- The length of time that the case was closed;
- Whether a non bankruptcy forum has jurisdiction to determine the issue cited for reopening the case;
- Whether prior litigation in the bankruptcy court determined that another court would be a more appropriate forum;
- Whether any parties would suffer prejudice if the court grants or denies the motion to reopen;
- The extent of any benefit to any party by reopening the case; and
- Whether it would be futile to reopen the case because the requested relief cannot be granted.
See In re Atari, 2016 WL 1618346, at *5 (Bankr. S.D.N.Y. Apr. 20, 2016); In re Easley-Brooks, 487 B.R. 400, 407 (Bankr. S.D.N.Y. 2013); In re PlusFunds Grp., Inc., 2015 WL 1842224, at *5 (Bankr. S.D.N.Y. Apr. 21, 2015), on remand from In re PlusFunds Grp., Inc., 589 F. App'x 41 (2d Cir. 2015). The moving party bears the burden of establishing "other cause" to reopen.
Courts in other circuits have considered similar factors. See, e.g., Redmond v. Fifth Third Bank, 624 F.3d 793, 798 (7th Cir. 2010); In re Zinchiak, 406 F.3d 214, 225 (3d Cir. 2005); In re Roberts, 659 B.R. 271, 278 (Bankr. W.D. Pa. 2024).
Congoleum
Beginning in 1886, various predecessors of Congoleum Corp. (the "debtor") operated a flooring business in New Jersey. Because certain flooring products manufactured by the companies contained asbestos, nearly 100,000 asbestos-related personal injury claims were pending against the debtor when it first filed for chapter 11 protection in 2003 in the District of New Jersey.
After the bankruptcy filing, an indemnitor for Occidental Chemical Corporation ("Occidental"), which had environmental claims stemming from the operation of a New Jersey manufacturing facility, filed a claim against the debtor on Occidental's behalf.
During the chapter 11 case, the debtor reached a settlement (the "Century Settlement") with one of its insurers—Century Indemnity Co. ("Century")—whereby Century, to fund distributions under a chapter 11 plan, agreed to buy back its insurance policies from the debtor in exchange for an injunction barring future claims under the policies.
One of the debtor's predecessors had briefly owned Maine shipbuilder Bath Iron Works Corp. ("BIW"). In 1986, the debtor sold BIW and its flooring business to unaffiliated entities as part of a restructuring.
In connection with the Century Settlement, the debtor informed the bankruptcy court that the debtor was the sole successor in interest to the flooring business, and that BIW was in no way responsible for the liabilities of the flooring business.
The bankruptcy court approved the Century Settlement after notice of the proposed settlement was given to certain creditors, including Occidental.
The U.S. District Court for the District of New Jersey later withdrew the reference of the debtor's chapter 11 case, and in 2010 confirmed a plan of reorganization for the debtor. The plan provided in relevant part that "[n]othing in the Confirmation Order or Plan shall be construed as releasing or relieving any entity of any liability under any Environmental Law." The confirmation order included findings in support of the Century Settlement that certain named insureds under the debtor's policies, including BIW, "have no responsibility for any of the liabilities of the Congoleum Flooring Business."
Occidental was provided with notice of the confirmation hearing, a copy of the plan, a disclosure statement stating that the Century Settlement resolved both asbestos and non-asbestos claims, and the proposed confirmation order. Occidental did not appear at the confirmation hearing or object to the plan.
The confirmed chapter 11 plan became effective in 2010, after which the district court referred the debtor's bankruptcy case back to the bankruptcy court, which later closed the case.
Seven years later, the debtor apparently reversed its stance on BIW's responsibility for the liabilities stemming from the flooring business. The debtor accordingly impleaded BIW in federal district court litigation commenced in 2018 against the debtor in the New Jersey district court asserting claims arising from environmental contamination at the New Jersey facility. Occidental filed a similar suit against BIW seeking contribution for environmental remediation costs associated with the flooring business.
The debtor filed for chapter 11 protection again in 2020 in the same district but with a different bankruptcy judge. BIW then filed an adversary proceeding against the debtor in its second bankruptcy seeking a declaration that the debtor was bound by the court's findings in connection with the Century Settlement and the plan and confirmation order, and therefore barred from claiming that BIW inherited the flooring business's liabilities, including environmental liabilities.
The bankruptcy court ruled in BIW's favor, concluding that, in accordance with the court's previous findings, BIW was not responsible for the flooring business liabilities. The court also held that those findings had been "actually litigated" and were necessary to both the Century Settlement and the confirmation order. Based on the bankruptcy court's ruling, the debtor agreed in June 2021 to dismiss its claims in the district court litigation that BIW was responsible for any environmental liabilities arising from the New Jersey flooring facility.
Occidental, however, continued to press those claims in its own district court litigation. After Occidental moved for summary judgment on those claims in August 2021, BIW moved to reopen the debtor's 2003 bankruptcy case and for an order directing that BIW was not responsible for the flooring business liabilities. The case was then transferred to the judge presiding over the debtor's 2020 chapter 11 case.
The bankruptcy court granted BIW's motion to reopen the 2003 chapter 11 case and held that the court's previous findings regarding BIW's lack of liability were binding on Occidental. In so ruling, the bankruptcy court determined that it, rather than the district court that confirmed the debtor's chapter 11 plan, was best positioned to interpret those findings. The bankruptcy court rejected Occidental's argument that BIW had waited too long to file its motion to reopen the case, finding that BIW filed its motion promptly after Occidental made clear that it would not agree to dismiss its litigation.
In addition, the bankruptcy court held that the court's previous findings did not amount to an improper third-party release under CERCLA, but merely a determination regarding BIW's liability that was necessary to the Century Settlement. Finally, the court held that: (i) the plan confirmation order had res judicata effect and bound Occidental because Occidental had received notice and was a party to the confirmation proceedings; and (ii) "it was more than likely that Occidental received adequate notice" of the motion to approve the Century Settlement.
The district court reversed on appeal. According to the district court, it, rather than the bankruptcy court, was best suited to interpret a plan confirmation order entered by a district court (albeit with a different judge), and the district court was already presiding over separate litigation involving the debtor, Occidental, and BIW regarding environmental contamination at the New Jersey flooring facility. It also ruled that: (i) the bankruptcy court lacked jurisdiction to reopen the case and grant the relief requested by BIW because the motion did not impact the debtor's bankruptcy estate; (ii) the bankruptcy court erred in finding "cause" to reopen the case because the debtor's estate would not be affected and the issues raised in BIW's motion were already pending in Occidental's lawsuit against BIW; (iii) the motion was untimely, having been filed more than a decade after closure of the debtor's 2003 bankruptcy case; (iv) the bankruptcy court's findings in approving the Century Settlement were a third-party release that violated CERCLA; and (v) the court's res judicata finding was erroneous because Occidental had not received adequate notice of the proceedings.
On appeal by BIW, the Third Circuit initially ruled in favor of Occidental. However, the Third Circuit later granted BIW's motion for rehearing and vacated its ruling affirming the district court's decision.
The Third Circuit's Ruling
On rehearing, a divided three-judge panel of the Third Circuit reversed the district court's ruling.
Writing for the majority, Chief U.S. Circuit Court Judge Michael Chagares explained that one of the "core" proceedings delineated in 28 U.S.C. § 157(b)(2) is "confirmation of plans." Therefore, he concluded, because BIW sought both declaratory relief and enforcement of the bankruptcy court's findings regarding the Century Settlement—in other words, seeking to "interpret and enforce" the plan confirmation order—the motion to reopen the debtor's bankruptcy case and interpret those findings was a core proceeding over which the bankruptcy court had jurisdiction.
The Third Circuit majority rejected Occidental's argument that only the district court had such jurisdiction because it, rather than the bankruptcy court, entered the confirmation order. According to Judge Chagares, "this distinction is of no significance because the District Court in this case entered the Confirmation Order while sitting in bankruptcy." Moreover, he noted, after the case was referred again to the bankruptcy court in 2010, "it was the Bankruptcy Court, not the District Court, that was tasked with adjudicating the case." Congoleum, 149 F.4th at 329.
Next, the Third Circuit majority ruled that the bankruptcy court did not err in granting BIW's motion to reopen the 2003 bankruptcy case. Considering the factors applied by other courts to the determination of "cause" under section 350(b), the majority concluded that the bankruptcy court correctly determined that it was best suited to adjudicate the motion. Judge Chagares explained that the motion required "careful analysis of the history of the bankruptcy case" and hinged substantially on the "correct interpretation" of the court's findings, which the bankruptcy court was "well-positioned to interpret" and had in fact already considered in a substantially similar dispute in the debtor's second chapter 11 case. Id. at 330.
In addition, he noted, the bankruptcy court properly rejected Occdental's argument that there was no cause to reopen the 2003 bankruptcy because the relief sought by BIW did not affect the debtor's estate or the administration of its assets. According to Judge Chagares, although impact on the estate or the administration of a debtor's assets are factors that can support a motion for reopening a case, "they are not prerequisites under § 350(b)." Otherwise, he emphasized, the provision's "for other cause" language would be redundant. Id.
The Third Circuit majority also did not fault the bankruptcy court's determination that BIW's motion to reopen was timely because BIW filed the motion approximately one month after Occidental made it clear in July 2021 that it would continue to litigate its claim against BIW despite an order from the bankruptcy court resolving a substantially similar question (in BIW's favor). Id. at 330–31.
Next, the Third Circuit majority held that the bankruptcy court correctly determined that Occidental had adequate notice of and was bound by the terms of the plan confirmation order, the Century Settlement order, and the court's related findings, and was provided with notice of the motion seeking approval of the settlement and the confirmation hearing. It rejected Occidental's argument that the court's findings in the confirmation order and the order approving the Century Settlement were not "conspicuous" or contradicted the plan statement that nothing in the plan or the confirmation order "release[ed] or reliev[ed] any Entity of any liability under any Environmental Law." According to Judge Chagares, the plan and related documents provided to Occidental "were sufficient to notify it that its interests might be implicated by the Confirmation Order," and, had Occidental actually attended the confirmation hearing (of which it was notified), it would have been aware of the court's findings regarding BIW's lack of liability. Id. at 332.
The majority also explained that the bankruptcy court's findings that BIW was not liable for environmental claims arising from the debtor's flooring business did not contradict the terms of the plan. Rather, Judge Chagares noted, those finding established that BIW was never liable for such claims, not that it was released from environmental claims in derogation of CERCLA. Id. at 333.
In addition, the Third Circuit majority held that the doctrine of res judicata barred Occidental's collateral attack on the bankruptcy court's findings because: (i) Occidental, despite its contention that it "litigated nothing at all" in the 2003 chapter 11 case, was a party to the bankruptcy case and had an opportunity to challenge the findings; (ii) a chapter 11 plan and the order confirming it are final orders binding on all creditors; (iii) the proceedings that resulted in the bankruptcy court's findings resolved the same issues raised in Occidental's lawsuit against BIW. Id. at 335–36.
Finally, the majority rejected Occidental's argument (raised for the first time on appeal), that the bankruptcy court's findings were an impermissible advisory opinion and that the bankruptcy court "lacked jurisdiction to determine the liability between non-debtors in a hypothetical future dispute." Even if Occidental's contention was timely, Judge Chagares emphasized, the bankruptcy court's findings were not an advisory opinion because they were "the result of a live controversy regarding the liabilities of BIW and the insurance companies." Id. at 337.
Dissenting Opinion
U.S. Circuit Judge Paul B. Matey filed a dissenting opinion in which he wrote that the Third Circuit panel, after "a few academics warned the sky was poised to fall," voted to rehear its previous ruling and "change[d] course … [to] empower[] a congressionally created adjudicative body to wrest jurisdiction from an Article III court." Id. at 338 (dissenting opinion).
According to Judge Mahey, the inclusion of the language "for other cause" in section 350(b) of the Bankruptcy Code in 1978 was informed by a narrow interpretation of a bankruptcy court's power to reopen closed cases under predecessor statutes, and decisions interpreting that standard under section 350(b) "cannot be read to countenance a bankruptcy judge wresting jurisdiction from an Article III court competent and capable of interpreting an order collateral to the bankruptcy." Id. at 340.
Judge Matey also disputed the majority's conclusion that the bankruptcy court was "best suited" to adjudicate the motion to reopen. He wrote that the 2010 confirmation order "was entered by the District Court exercising its supervisory authority over the bankruptcy judge following a series of errors, leaving the trial judge well-suited to confirm its meaning." Id.
Outlook
Congoleum is an unusual case given: (i) the 10-year lag between confirmation of the chapter 11 plan and BIW's motion to reopen the case; (ii) the pendency of a second chapter 11 case involving the debtor; and (iii) the debtor's reversal of its previous position (memorialized in the settlement, the plan, and the plan confirmation order) that BIW had no liability for environmental claims arising from the flooring business.
Even so, the decision is instructive in addressing the factors a court should consider in deciding whether to reopen a bankruptcy case under section 350(b). It also demonstrates that the terms of bankruptcy settlements, chapter 11 plans, and plan confirmation orders, as well as the bankruptcy courts supporting factual findings, are binding on all duly notified parties to the proceedings. Finally, Congoleum demonstrates the sometimes confusing jurisdictional framework applicable to district and bankruptcy courts in bankruptcy cases.
