Bestwall LLC v. Official Committee of Asbestos Claimants, No. 22-1127 (4th Cir. 2023)
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The district court affirmed a bankruptcy court order that entered a preliminary injunction preventing thousands of third-party asbestos claims from proceeding against debtor Bestwall LLC’s affiliates, including affiliate and non-debtor Georgia-Pacific LLC (“New GP”). The Official Committee of Asbestos Claimants (“Committee”) and Sander L. Esserman, in his capacity as Future Claimants’ Representative (“FCR”) (collectively “Claimant Representatives”), appealed. They argued that the bankruptcy court lacked jurisdiction to enjoin non-bankruptcy proceedings against New GP and, alternatively, that the bankruptcy court erred in entering the preliminary injunction because it applied an improper standard.
The Fourth Circuit affirmed. The court agreed with the district court that the bankruptcy court had “related to” jurisdiction to issue the preliminary injunction and applied the correct standard in doing so. The court explained that the Claimant Representatives asserted that, under the first prong of the preliminary injunction test, the district court should have determined whether Bestwall would ultimately be able to obtain permanent injunctive relief. The court wrote that requiring a party to show entitlement to a permanent channeling injunction this early in the bankruptcy proceeding puts the cart before the horse; Section 524(g) does not require such proof until the plan confirmation stage. Contrary to the express intent of Congress as shown through the Bankruptcy Code, the position of Claimant Representatives would effectively eliminate reorganization under Chapter 11 as 27, an option for many debtors. Therefore, the court rejected the Claimant Representatives’ argument that the bankruptcy court needed to find that it would likely enter a permanent injunction in order to grant a preliminary injunction.
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