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the plaintiffs, rather than claims that are 'derivative' under Pennsylvania state law." The court then discussed the relevant case law on derivative liability in the context of bankruptcy jurisdiction. The court noted that MacArthus!the first case on derivative liability in bankruptcy- did not "hold that third-party suits that affect the res of the bankrupt estate but that are nonetheless not derivative, in some sense, of the debtor's rights and liabilities fall outside federal bankruptcy jurisdiction.... The primary thrust of the opinion in MacArthur focuses on the fact that the suits in question would impact the res of the bankruptcy estate." Next, the court discussed Manville, where the court had held that "the bankruptcy court had no jurisdiction 'to enjoin claims against Travelers that were predicated, as a matter of state law, on Travelers' own alleged misconduct and were unrelated to Manville's insurance policy proceeds and the res of the Manville estate.'" In short, the court noted that "[a]fter Manville, as before it, 'a bankruptcy court
... has jurisdiction to enjoin third-party non-debtor claims that directly affect the res of the bankruptcy estate." The court noted that the derivative/non-derivative distinction in Manville was used simply to determine whether the suits at issue would affect the res, stating that Manville did not impose a requirement that an action must both directly affect the estate and be derivative of the debtor's rights and liabilities for bankruptcy jurisdiction to exist." Accordingly, the court concluded that "where litigation of the Angelos suits against Pfizer would almost certainly result in the drawing down of insurance policies that are part of the bankruptcy estate of Quigley, the exercise of bankruptcy jurisdiction to enjoin these suits was appropriate." Finally, the court addressed the scope of the API and section 524(g). The court stated noted that "[a]n injunction under [section 524(g)] may thus properly bar an action against a third party only when that party is alleged to be liable 'for the conduct of, claims against, or demands on' the debtor and to the extent that such liability arises 'by reason of' one of the four relationships between the third party and the debtor enumerated in subsections (I) through (IV)." On this issue, the court agreed with Angelos. Said the court: "Each of the four relationships enumerated in subsections (I) through (IV), then, is a relationship between one party and another that, in appropriate circumstances, has commonly given rise to the liability of the one party for the conduct of or claims or demands against the other, long before § 524(g) came into being.... The background legal context against which § 524(g)(4)(A)(ii) was enacted [] suggests strongly that it was this sort of liability that Congress had in mind in enacting the provision." In short, the court concluded that the phrase "by reason of" in section 524(g) "requires that the alleged liability of a third party for the conduct of or claims against the debtor arises, in the circumstances, as a legal consequence of one of the four relationships between the debtor and the third party enumerated in subsections (I) through (IV). Pfizer does not argue that its ownership of Quigley is pertinent in any legal sense to the claims asserted in the Angelos suits. Indeed, as the district court very aptly noted, Pfizer's ownership interest in Quigley is "legally irrelevant" to the Angelos suits' § 400 claims [for liability for affixing the Pfizer name to defective products]." The court thus affirmed the district decision that the API did not enjoin the Angelos suits.
©2014 William L. Norton III
