Cases & Deals

Peabody secures Eighth Circuit victory upholding chapter 11 discharge of global warming claims

Clients Peabody Energy Corporation

The U.S. Court of Appeals for the Eighth Circuit upheld a bankruptcy court order ordering three California municipalities to dismiss their global warming claims against Jones Day client Peabody Energy Corporation because those claims were discharged by Peabody's successful chapter 11 plan of reorganization. The unanimous decision adopted Jones Day's arguments, holding that all of the municipalities' causes of action were dischargeable "claims" within the meaning of the Bankruptcy Code and Peabody's confirmed plan, and that none fell into any exception to discharge in the plan.

The case arose when, just a few months after Peabody was reorganized, San Mateo County, Marin County, and the City of Imperial Beach, all California municipalities, sued Peabody and more than thirty other energy companies in California state court for their alleged contributions to global warming between 1965 and 2015. Although the municipalities had not participated in Peabody's chapter 11 reorganization, they nonetheless brought nuisance and other tort claims against Peabody and sought, among other things, abatement of the nuisance, damages, and disgorgement of profits. Observing that any such claims had been discharged by its confirmed plan of reorganization, Peabody asked the bankruptcy court to order the municipalities to dismiss their claims with prejudice. The bankruptcy court agreed, enjoining the municipalities from pursuing their claims. The district court upheld that order on appeal, and both courts refused to grant a stay pending appeal. The municipalities nonetheless declined to dismiss their claims.

The Eighth Circuit affirmed in a unanimous opinion tracking Jones Day's arguments. The court began by rejecting the municipalities' contention that language in Peabody's chapter 11 plan exempted their claims from discharge. First, the court explained that the bankruptcy court had not abused its discretion when interpreting the term "Environmental Law" in the plan not to include the types of tort claims, ultimately rooted in the common law, that the municipalities sought to bring. Second, the court rejected the municipalities' attempt to characterize their claims as exercises of "police or regulatory law," noting that the municipalities were asking for a pecuniary advantage over creditors who, unlike them, had participated in the reorganization proceedings. Finally, the court held that the municipalities' representative public nuisance actions were dischargeable claims under the Bankruptcy Code, even though the municipalities sought equitable relief. Almost any obligation to pay money is a claim, the court explained, and because a California court could order payments into an abatement fund, the nuisance causes of action were dischargeable claims.

The Eighth Circuit's ruling reaffirms the Bankruptcy Code's broad definition of "claims" dischargeable in bankruptcy and vindicates the law's commitment to ensuring that companies receive a fresh start after passing through orderly reorganization proceedings open to all stakeholders. Represented by Jones Day, Peabody successfully emerged from chapter 11 proceedings in less than a year in April 2017, allowing the company to reduce its debt burden by more than $5 billion.

In re Peabody Energy Corporation, 958 F.3d 717 (8th Cir. 2020)

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