Whittaker, Clark & Daniels, Inc.  –  Tort Victims’ Successor Liability Claims against Buyer of Debtors’ Business Belonged to Debtors’ Bankruptcy Estates

Dear constituency list members of the Insolvency Law Committee (ILC), the following is an ebulletin by Leonard Gumport that describes a recent case of interest.

SUMMARY

When does the bankruptcy estate of a corporate tortfeasor own the successor liability rights of its tort victims? On April 27, 2026, in In re Whittaker Clark & Daniels Inc., 176 F.4th 241 (3d Cir. 2026) (Whittaker 3), the U.S. Court of Appeals for the Third Circuit decided that tort claimants’ “product-line” successor liability claims against the debtor’s successor were property of the debtor’s bankruptcy estate under Section 541(a)(1) of the Bankruptcy Code, 11 U.S.C. § 541(a)(1). On that basis, Whittaker 3 affirmed a summary judgment in favor of debtors-in-possession Whittaker Clark & Daniels, Inc. (WCDI) and affiliates (collectively, Debtors). Whittaker 3 can be found here.

Overview: In 2004, Debtors sold their asbestos-related operations to Brenntag North America and certain affiliates (collectively, Brenntag). After the sale, tort creditors (Tort Claimants) of Debtors alleged disputed state law successor liability claims (Successor Liability Claims), including product-line claims (Product-Line Claims) and alter ego claims, against Brenntag. In 2023, Debtors filed chapter 11 petitions in the U.S. Bankruptcy Court for the District of New Jersey. In 2024, in Whittaker, Clark & Daniels, Inc. v. Brenntag AG (In re Whittaker, Clark, & Daniels), 663 B.R. 1 (Bankr. D.N.J. 2024) (Whittaker 1), the Bankruptcy Court decided that the Successor Liability Claims, including the alter ego and Product-Line Claims, belonged to Debtors’ estates under Section 541(a)(1) and, alternatively, a combination of 11 U.S.C. §§ 541(a)(7) and 544(a). In Whittaker 3, the Court of Appeals affirmed Whittaker 1 insofar as it relied on Section 541(a)(1). On July 14, 2026, the Official Committee of Talc Claimants (OCTC) applied to Justice Alito for an extension of time to petition for certiorari. The OCTC alleged that Whittaker 3 “presents a significant question of law dividing the circuits regarding when creditor tort claims are ‘property of the estate’ under Section 541 of the Bankruptcy Code.” OCTC App., p. 1.      

FACTS

Debtors are WCDI and its affiliates Brilliant National Services, Inc. (Brilliant), L.A. Terminals, Inc. (LATI), and Soco West, Inc. (Soco). Debtors processed, manufactured, stored, and distributed various industrial chemicals and minerals, including asbestos-laden talc. Whittaker 3, at 248-50. WCDI is incorporated in New Jersey. Id. at 255.

In 2004, in a complex series of transactions (2004 Transactions), WCDI, Brilliant, and Soco sold their operating assets to Brenntag for $200 million. Brenntag did not assume Debtors’ asbestos and environmental liabilities, and WCDI, Brilliant, and Soco agreed to indemnify Brenntag for any such liabilities. After 2004, Debtors were shell companies with limited assets to pay current and future claims. Id. at 249-50.

In 2007, National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway, Inc. (Berkshire), acquired Brenntag’s direct and indirect stock ownership of Debtors. In a chain of indemnity agreements, NICO agreed to backstop asbestos-related successor liability claims against Brenntag. See id. at 250.

Over time, Debtors’ talc products “prompted a tsunami of personal injury claims by consumers who developed, among other things, mesothelioma – a form of cancer affecting the protective linings of the lungs.” Id. at 249. By 2023, there were approximately 1,000 asbestos-related talc claims (Tort Claims) against one or more Debtors, and certain of the Tort Claimants alleged Successor Liability Claims against Brenntag. See id. at 250-52.

In April 2023, Debtors filed their chapter 11 petitions in the Bankruptcy Court in New Jersey. Id. at 248-49. By then, Debtors had few remaining assets, and Debtors “lacked one of the most obvious tools to centralize and distribute assets because most fraudulent transfer claims they might have asserted under the Bankruptcy Code in connection with the 2004 Transactions were time-barred.” Id. at 251. 

On September 7, 2023, Debtors commenced an adversary proceeding by filing a complaint against Brenntag and hundreds of Tort Claimants. Debtors sought a declaratory judgment that the Tort Claimants’ Successor Liability Claims against Brenntag belonged to Debtors’ estates pursuant to Section 541(a)(1). The next day, Debtors filed a motion for summary judgment.

The OCTC, appointed by the U.S. Trustee, intervened in the adversary proceeding and opposed Debtors’ summary judgment motion. The OCTC focused its objection on the Product-Line Claims, consisting of a subset of the Successor Liability Claims that the OCTC’s constituents had or could have asserted on a “product-line” theory. It imposes strict liability on a successor manufacturer for defects in the product-line of the predecessor manufacturer. “Only a handful of state courts have recognized this ‘controversial’ theory of liability.” Id. at 252 (citation omitted). “New Jersey and California courts are among the minority.” Ibid.

The OCTC argued, among other things, that the Successor Liability Claims did not belong to Debtors’ estates under Section 541(a)(1) because the applicable law of certain states, including California, did not permit Debtors to assert such claims. Whittaker 1, at 12-13. In addition, the OCTC reserved its right to argue on appeal that the Third Circuit incorrectly decided Emoral, Inc. v. Diacetyl (In re Emoral, Inc.), 740 F.3d 875 (3d Cir. 2014). In Emoral, a 2-1 split decision, the Third Circuit decided that tort claimants’ “continuation theory” successor liability claims were property of a debtor’s bankruptcy estate under Section 541(a)(1).

On August 13, 2024, in Whittaker 1, the Bankruptcy Court, Chief Bankruptcy Judge Michael B. Kaplan presiding, granted summary judgment. The Bankruptcy Court decided that the Successor Liability Claims, including the alter ego and Product-Line Claims, belonged to Debtors’ estates based on: (i) Section 541(a)(1) as interpreted by Emoral and (ii) a combination of Sections 541(a)(7) and 544(a)(1). The Bankruptcy Court stated: “Let’s not ignore the obvious: these Debtors have not operated in two decades and hundreds of claimants have already been waiting years and years to have their claims heard. They are deserving of a fair and equitable recovery in the near term, without the risk and delays inherent in the tort system.” Whittaker 1, at 29. In granting summary judgment, the Bankruptcy Court did not decide which state’s successor liability law applied, so it was unclear precisely how many of the OCTC’s constituents could have asserted Product-Line Claims. Whittaker 3, at 252. 

After Whittaker 1, the OCTC obtained leave to pursue a direct appeal to the Court of Appeals. Meanwhile, Debtors sought approval of a settlement (Settlement) with Brenntag, NICO, Berkshire, and others. In the Settlement, Debtors’ estates will receive approximately $535 million from the settling parties, including NICO and Berkshire, and Debtors’ estates will release the Successor Liability Claims. The OCTC opposed the Settlement. As of July 19, 2026, the Bankruptcy Court has not approved the Settlement.  

On September 10, 2025, in Protopapas v. Brenntag AG (In re Whittaker Clark & Daniels Inc.), 152 F.4th 432 (3d Cir. 2025) (Whittaker 2), the Court of Appeals affirmed Whittaker 1 insofar as it was based on Section 541(a)(1). During October 2025, the OCTC petitioned for rehearing, and Attorneys General for the District of Columbia and 14 states, including California, filed an amicus brief in support of the petition. On April 27, 2026, the Court of Appeals filed its amended opinion in Whittaker 3, which again affirmed the summary judgment insofar as it was based on Section 541(a)(1). On July 14, 2026, the OCTC applied for an extension of time through August 25, 2026 to file a petition for certiorari. As of July 19, 2026, the OCTC’s application is pending.

ANALYSIS

In Whittaker 3, in an opinion by Senior U.S. Circuit Judge Thomas L. Ambro, joined by Circuit Judges Cheryl Ann Krause and Paul B. Matey, the Court of Appeals explained why a “basic rule” concerning Section 541(a)(1) was discarded as “unworkable”:

[1] Section 541(a)(1) of the Bankruptcy Code provides that the filing of a bankruptcy petition by a debtor creates an estate comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” Property interests “are created and defined by state law.” Whittaker 3, at 260 (quoting Butner v. United States, 440 U.S. 48, 55 (1979) (Butner)). “The basic idea is that state law defines a debtor corporation’s property interests, whereas federal law governs whether those interests are swept into its bankruptcy estate.” Whittaker 3, at 260.   

[2] The Court of Appeals stated: “[I]t is often difficult to apply Section 541 to causes of action because applicable non-bankruptcy law sends mixed signals. In particular, it establishes a variety of so-called derivative actions in which ‘the named plaintiff is only a nominal plaintiff’ and ‘[t]he substantive claim belongs to the corporation.’” Id. at 260 (quoting Harrington v. Purdue Pharma L.P., 603 U.S. 204, 219 (2024) (Purdue) (internal quotations omitted)). “As a result, claims held by a debtor corporation’s creditors under applicable non-bankruptcy law must undergo substantive scrutiny to ensure they are not misappropriated from the debtor’s bankruptcy estate.” Whittaker 3, at 260. Courts must “scrutinize the theory of liability to prevent nominal plaintiffs from commandeering the bankruptcy process.” Id. at 269.

[3] There was a basic rule: “[A]s the law developed, many courts adopted the basic rule that a claim is property of the estate when applicable non-bankruptcy law authorized the debtor corporation to assert it prior to bankruptcy, and the claim vindicates an injury to the debtor corporation that created a secondary injury to all creditors.” Id. at 261. As an example of the basic rule, the Court of Appeals cited the Eleventh Circuit’s decision in Baillie Lumber Co. v. Thompson (In re Icarus Holding, LLC), 391 F.3d 1315, 1319-20 (11th Cir. 2004) (Baillie). See Whittaker 3, at 261.

[4] In 2014, in Emoral, the Third Circuit’s “approach resembled the basic rule. We explained at the outset that a claim is property of the estate if it (1) existed at the time the debtor corporation filed its bankruptcy petition, (2) could have been asserted by the debtor corporation outside of bankruptcy under applicable state law, and (3) is a general claim with no particularized injury arising from it.” Whittaker 3, at 262-63 (internal citations and quotations omitted). “The second prong was challenging to apply because it was ‘difficult to imagine’ that the debtor corporation ‘would or could bring a claim for successor liability’ outside of bankruptcy.” Id. at 263 (quoting Emoral, at 881).

[5] The basic rule was unworkable: “Over time, however, the basic rule proved unworkable with respect to successor liability claims that were nominally vested with creditors on account of secondary harms derived from pre-petition injuries to the debtor corporation.” Whittaker 3, at 262. As an example, the Court of Appeals cited St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989).

[6] After Emoral, the Court of Appeals stated, the Third Circuit decided Artesanias Hacienda Real S.A. de C.V. v. North Mill Capital, LLC (In re Wilton Armetale, Inc.), 968 F.3d 273 (3d Cir. 2020) (Armetale)), which involved a dispute as to whether “fraudulent transfer claims belonged to the bankruptcy estate or to the creditor that asserted them.” Whittaker 3, at 263-64. In Armetale, “[w]e explained that claims are property of the estate where the theory of liability is ‘based on an injury to the debtor’s estate that creates a secondary harm to all creditors regardless of the nature of their underlying claim[s] against the debtor.’” Whittaker 3, at 264 (quoting Armetale, at 283 (quoting In re Tronox Inc., 855 F.3d 84, 104 (2d Cir. 2017))).  

[7] Based on Emoral and Armetale, the Court of Appeals in Whittaker 3 decided that the Third Circuit did not apply the basic rule and that state law did not necessarily control whether the Product-Line Claims vested in Debtors’ bankruptcy estates under Section 541(a)(1). The Court of Appeals stated: “[C]onsistent with our analysis in both Emoral and Armetale, we conclude that a claim may constitute property of the estate notwithstanding whether the debtor corporation was authorized to assert it outside of bankruptcy.” Whittaker 3, at 265 (footnote omitted). The Court of Appeals added: “[W]e agree that a debtor corporation’s ability to assert a claim under applicable non-bankruptcy law is sufficient – but not necessary – for that claim to constitute property of the estate.” Id. at 265 n.33. Permitting state law to control whether a cause of action was property of a debtor’s estate “would invite any number of states to endow certain creditors with a windfall recovery by vesting causes of action predicated on an injury to the debtor corporation exclusively with those creditors.” Id. at 265.

[8] The Court of Appeals summarized: “In summary, claims are personal to creditors when the theory of liability is based on an injury directly traceable to the conduct of the defendant. They are property of the debtor’s bankruptcy estate if the theory of liability is instead based on an injury to the debtor corporation that resulted in secondary harm to all creditors.” Id. at 269 (citations omitted).

[9] The Product-Line Claims were property of Debtors’ bankruptcy estates under Section 541(a)(1) notwithstanding state law. The Product-Line Claims nominally asserted by the Tort Claimants “trace only to their exposure to asbestos-contaminated products manufactured by the Debtors before Brenntag came into the picture. This precludes them from being directly traced to Brenntag.” Id. at 265-66 (internal quotations omitted); see id. at 262 n.17(“[S]tate law nominally vests successor liability claims with creditors to ensure they can be asserted.”).

[10] The Product-Line Claims “are akin to fraudulent transfer claims in two critical respects. [¶] First, the product-line theory of liability serves the same general purpose.” Id. at 266. Successor liability law “serves to prevent the destruction of creditor remedies based on complex commercial transactions involving the transfer of corporate assets that would otherwise be available to creditors of the transferor.” Ibid. “Second, fraudulent transfer claims turn on the same generally available facts as the product-line theory.” Ibid. Fraudulent transfer and product-line successor liability theories “address derivative injuries to the full creditor constituency that resulted from the prepetition diversion of corporate assets.” Id. at 267.

[11] Allowing creditors to “artfully plead their way out of bankruptcy court would unravel the bankruptcy process and undermine an ordered distribution of the bankruptcy estate.” Id. at 269 (quoting National American Ins. Co. v. Ruppert Landscaping Co., Inc., 187 F.3d 439, 442 (4th Cir. 1999) (Ruppert)). The Tort Claimants “attempted to plead their way around the Debtors’ bankruptcy proceedings by asserting the Product-Line Claims against Brenntag. They have pursued those claims to recover from, among other things, the operating assets that Brenntag acquired from the Debtors. And they seek this recovery in satisfaction of asbestos injuries they trace to talc products manufactured exclusively by the Debtors. In that context, the Product-Line Claims are predicated on a prepetition injury to the Debtors (from Brenntag’s diversion of substantially all operating assets the Debtors possessed) that resulted in a secondary injury to all creditors (by rendering those assets unavailable for distribution on account of their claims against the Debtors). The Product-Line Claims thus constitute property of the estate.” Whittaker 3, at 268-69.

[12] Purdue did not apply. The Court of Appeals explained: “That decision [i.e., Purdue] held that bankruptcy courts lack the power to extinguish creditor claims against third parties absent consent from the affected creditors.” Id. at 264 n.19 (citing Purdue, 603 U.S. at 227). “Our inquiry focuses on the antecedent question of whether the Product-Line Claims substantively belong to the tort creditors or to the estate under Section 541.” Whittaker 3, at 264 n.19 (citing Purdue, 603 U.S. at 219).

AUTHOR’S COMMENTS

DISCLOSURE: I own shares in Berkshire, which owns Debtors and NICO, and all of them oppose arguments made by the OCTC.

[1] In a recent article, Carleen Bongat reports: “For insurers and indemnitors managing legacy asbestos books, the ruling [in Whittaker 3] carries practical significance. By channeling successor liability claims into the bankruptcy estate, the decision consolidates the universe of claims that an indemnitor like [NICO] must account for. The $535 million settlement, once approved, would resolve successor liability exposure in a single transaction rather than across individual state-court actions. That kind of certainty is what runoff carriers and legacy-liability managers look for when pricing and reserving long-tail exposures.” Carleen Bongat, “Berkshire Hathaway units score win in $535M asbestos-talc bankruptcy ruling,” Insurance Business, April 28, 2026.

[2] Don’t read Whittaker 3 too broadly. The Successor Liability Claims, including the Product-Line Claims, were liabilities that arose from Debtors’ pre-2005 conduct, not Brenntag’s conduct after it acquired Debtors’ business operations. In September 2024, when Debtors sought approval of the Settlement, including its release of the Debtors’ estates’ Successor Liability Claims against Brenntag, Debtors acknowledged: “Importantly, the Settlement Agreement does not prohibit claimants from pursuing any direct claims they may have against the Contributing Parties, including any claims against Brenntag for liabilities arising from Brenntag’s own post-February 2004 operations.” Debtors’ Settlement Motion [No. 3:23-bk-13575, ECF No. 1297, at 4] (underlining and italics in original).

[3] Why did Attorneys General for 14 states, including California, submit an amicus brief in support of the OCTC’s rehearing petition? The AGs argued: “The Code does not empower bankruptcy courts to second guess how states define their own tort claims and property interests.” Amicus Br. at 3 [ No. 25-1044, ECF No. 74]. In Whittaker 3, the Court of Appeals explained: “[C]ertain states might seek to authorize a subset of creditors to vindicate secondary harms derived from the depletion of estate assets through successor-liability claims vested exclusively with that subset. Courts must therefore scrutinize the theory of liability to prevent nominal plaintiffs from commandeering the bankruptcy process.” Id. at 269. The Court of Appeals identified California as among the “handful” of states that recognize the “controversial” product-line theory of successor liability. Id. at 252 (internal quotations and citation omitted). By relying on the broad scope and preemptive effect of Section 541(a)(1), the Court of Appeals did not have to make a choice-of-law decision about whether the controversial product-line liability laws of a handful of states applied. In a footnote, the Court of Appeals was skeptical that any Product-Line Claims under New Jersey law “are vested with, and inure to the benefit of, tort creditors alone.” Id. at 264 n.20.    

[4] Whittaker 3 deals with a significant recurring issue. “Whether the bankruptcy estate or creditors can pursue a claim against third parties is a recurring issue in bankruptcy law.” Meridian Capital CIS Fund v. Burton (In re Buccaneer Res., L.L.C.), 912 F.3d 291, 293 (5th Cir. 2019) (Buccaneer). The stakes “are significant because Section 323 of the Bankruptcy Code gives the trustee exclusive statutory authority to pursue claims that constitute property of the estate under Section 541.” Whittaker 3, at 260; see Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1250 (9th Cir. 2010) (Ahcom) (“When the trustee does have standing to assert a debtor’s claim, that standing is exclusive and divests all creditors of the power to bring the claim.”).

[5] A takeaway from Whittaker 3 is that Section 541(a)(1) includes successor liability claims “nominally vested with creditors on account of secondary harms derived from prepetition injuries to the debtor corporation.” Id. at 261. Relying on Second and Third Circuit precedent, the Court of Appeals concluded that Tort Claimants’ Product-Line Claims were property of Debtors’ estates regardless of whether Debtors had a right to enforce those claims under non-bankruptcy law. Section 541(a)(1) vested those claims in Debtors’ estates even though Section 541(a)(1) provides that a bankruptcy estate includes “interests of the debtor in property” and does not provide that a bankruptcy estate includes “interests of the debtor’s tort victims and other creditors in property.”

[6] According to Whittaker 3, the “basic rule” is that “a claim is property of the estate when applicable non-bankruptcy law authorized the debtor corporation to assert it prior to bankruptcy, and the claim vindicates an injury to the debtor that created a secondary injury to all creditors.” Id. at 261. Has the Ninth Circuit disavowed the basic rule? In the context of state law alter ego issues, it appears that the Ninth Circuit still follows the basic rule. See Ahcom, 623 F.3d at 1250 (“Although federal bankruptcy law applies to this action, state law determines whether a claim belongs to the trustee or to the creditor.”) (citing Butner, 440 U.S. at 54-55); Int’l Petro. Prods. & Additives Co. v. Black Gold S.A.R.L.,115 F.4th 1202 (9th Cir. 2024) (“[S]tate law determines whether a claim belongs to the trustee or to the creditor.”) (quoting Ahcom, 623 F.3d at 1250).      

[7] Whittaker 3 correctly prohibits creditors from using artful pleading to misappropriate claims belonging to a debtor’s estate. See id. at 269; Ruppert, 187 F.3d at 442 (“To allow selected creditors to artfully plead their way out of bankruptcy court would unravel the bankruptcy process and undermine an ordered distribution of the bankruptcy estate.”); Picard v. Fairfield Greenwich Ltd., 762 F.3d 199, 208 (2d Cir. 2013) (“If the Actions are fraudulent conveyance claims in disguise, they fall within the scope of the automatic stay.”); In re Mark One Corp., 619 B.R. 423, 439 (Bankr. E.D. Cal. 2020) (“Merely titling the alleged preferences or fraudulent conveyances as an intentional interference with prospective economic advantage does not allow Burger PTS to try to prosecute personal claims based on those rights of the bankruptcy estates.”); In re Spiech Farms, LLC, 603 B.R. 395, 403 (Bankr. W.D. Mich. 2019) (“Courts generally recognize that where causes of action are nothing more than disguised claims for fraudulent transfers and breach of fiduciary duties, they belong to the estate.”).

[8] In view of the rule against artful pleading, why did the Court of Appeals forgo characterizing the Product-Line Claims as fraudulent transfer claims, which vest in a debtor’s bankruptcy estate? See, e.g., Koeberer v. Cal. Bank of Commerce (In re Koeberer), 632 B.R. 680, 689 (BAP 9th Cir. 2021) (“A fraudulent conveyance action becomes property of the estate upon the filing of a bankruptcy petition.”). The Court of Appeals arguably could have ruled that: (a) creditors’ state law fraudulent transfer claims belong to a debtor’s estate under Section 544(b); (b) the Product-Line Claims were artfully pleaded fraudulent transfer claims; (c) artfully pleading around the Bankruptcy Code to misappropriate those claims was impermissible; and (d) therefore, the Product-Line Claims belonged to Debtors’ estates pursuant to Section 544(b). The problem was that the Tort Claimants’ fraudulent transfer claims arising from the 2004 Transactions apparently were time-barred. See Whittaker 3, at 251. A decision that characterized the Product-Line Claims as artfully pleaded fraudulent transfer claims would make them worthless, a result the OCTC and Debtors did not want. 

[9] Does a creditor’s cause of action belong to a debtor’s bankruptcy estate when the creditor’s cause of action doesn’t completely overlap with (i.e., isn’t entirely duplicative of) an estate’s rights under Sections 541(a)(1), 544, and 548? In Buccaneer, the Fifth Circuit stated: (a) “If the harm to the creditor comes about only because of harm to the debtor, then its injury is derivative, and the claim is property of the estate.”  Id., 912 F.3d 291, at 293. (b) “As for direct-injury claims that belong to a particular creditor or group of creditors, the simple case is when the claim does not involve any harm to the debtor. These cannot be part of the estate.” Ibid. (c) “But even when the conduct harms the debtor, the creditor may also have a claim if its asserted injury does not flow from injury to the debtor. This means that the estate and a creditor may have separate claims against a third party arising out of the same events. To pursue a claim on its own behalf, a creditor must show this direct injury is not dependent on injury to the estate.” Id. at 293-94 (citations and footnote omitted). See also Marshall v. Picard (In re Bernard L. Madoff Inv. Secs. LLC), 740 F.3d 81, 93 (2d Cir. 2014) (“We conclude, therefore, that [appellants’] purported conspiracy-based claims against the Picower defendants are ‘derivative’ of those asserted by the Trustee in his fraudulent conveyance action, and, therefore, the Bankruptcy Court was authorized to enjoin those actions.”) (footnote omitted); Ruppert, 187 F.3d at 441 (Fourth Circuit concluded that creditors lacked standing to assert claims that were “similar in object and purpose,” although not identical, to fraudulent transfer claim belonging to trustee); Lowe v. Bower (In re Nicole Gas Prod.), 916 F.3d 566, 573 (6th Cir. 2019) (“Absent being truly independent, the claims belong to the bankruptcy estate in toto.”) (internal quotations omitted).

[10] Does it matter whether creditors’ claims vest in a debtor’s estate via Section 541(a)(1) instead of Sections 544 and 548? Yes. In Whittaker 3, Debtors’ estates’ fraudulent transfer claims were time-barred, but Debtors’ ownership rights under Section 541(a)(1) were not. In addition, an estate’s claims under Section 541(a)(1) are subject to an in pari delicto defense based on the debtor’s conduct. See, e.g., Kelley v. BMO Harris Bank N.A., 115 F.4th 901, 905 (8th Cir. 2024) (“A trustee in bankruptcy stands in the shoes of the debtor.”); Uecker v. Zentil, 244 Cal. App. 4th 789, 797 (2016) (“In sum, under 11 [U.S.C.] section 541, we must analyze the applicability of the in pari delicto defense by considering whether the defense would have been successful if asserted against the Company at the commencement of the bankruptcy case.”); see also In re Litig. Practice Group P.C., 2024 Bankr. LEXIS 3145, at *50-54 (Bankr. C.D. Cal. 2024) (in pari delicto defense is available when trustee stands in shoes of debtor under Section 541 but not when trustee stands in shoes of creditors under Sections 544 and 548); In re We’ll Clean Inc., 659 B.R. 704, 711 (Bankr. N.D. Ill. 2024) (“It is only when the trustee is exercising his avoiding powers that he accedes to a superior status and possesses extraordinary rights.”) (internal quotations and citation omitted).

[11] Do creditors’ successor liability claims invariably vest in the predecessor debtor’s bankruptcy estate? No. See, e.g., In re GM LLC Ignition Switch Litig., 201 U.S. Dist. LEXIS 123740, at *348-49 (S.D.N.Y. 2017) (“In fact, where, as here, the party asserting a successor liability claim could not have asserted that claim at the time of a bankruptcy because the debtor (and debtor-in-possession) failed to give constitutionally adequate notice, it would be unreasonable to treat the claim as property of the bankruptcy estate, extinguished by the bankruptcy.”).

[12] In Whittaker 3, to avoid taking sides on a circuit split, the Court of Appeals declined to decide whether the Product-Line Claims belonged to Debtors’ estates under 11 U.S.C. §§ 541(a)(7) and 544(a). The Court of Appeals explained: “In the Bankruptcy Court’s view, Section 544(a)(1) authorized the Debtors – as debtors in possession bearing the rights of a trustee – to pursue the Product-Line Claims after the petitions were filed. [Whittaker 1], 663 B.R. at 21-22. Thus, it concluded the Product-Line Claims constitute after-acquired property of the estate under Section 541(a)(7). Id. Several circuits courts, however, have cast doubt on this analysis. [Citations omitted.] And while the parties devoted a portion of their briefs to addressing the Bankruptcy Court’s alternate holding, we need not do so because our precedents require us to conclude that the Product-Line Claims are property of the estate under Section 541(a)(1).” Whittaker 3, at 253 n.5. Although the Court of Appeals avoided taking sides on the circuit split concerning Sections 541(a)(7) and 544(a)(1), there is arguably a circuit split concerning the extent to which state law controls whether a claim is property of the estate under Section 541(a)(1). Compare Whittaker 3, at 265 (state law does not control) with Baillie, 391 F.3d at 1319 (“We must, therefore, look to Georgia law to determine whether Icarus is allowed to bring an alter ego action against its former principal, therefore making it property of the bankruptcy estate and Baillie Lumber’s separate state action subject to the automatic stay.”). On June 11, 2026, U.S. Bankruptcy Judge Craig T. Goldblatt stated that Whittaker 3 “at least arguably breaks with decisions of several other courts of appeals.” Joann Inc. v. Advantus Corp. (In re Joann Inc.), 2026 Bankr. LEXIS 1428, at *22 n.47 (Bankr. D. Del. 2026).

These materials were written by Leonard L. Gumport of Gumport Law Firm, PC in Pasadena (lgumport@gumportlaw.net). Editorial contributions were provided by the Hon. Meredith A. Jury (ret.) (majury470@gmail.com).  

Thank you for your continued support of the Committee.

Best regards,

Insolvency Law Committee

Co-Chair
Meredith King
Franklin Soto Leeds LLP
mking@fsl.law

Co-Chair
Maggie Schroedter
Robberson Schroedter LLP
maggie@thersfirm.com  

Co-Vice Chair
Joshua Scheer
Scheer Law Group LLP
jscheer@scheerlawgroup.com  

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Chase Stone
Ervin Cohen & Jessup LLP
cstone@ecjlaw.com

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