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The Supreme Court granted certiorari on Friday, December 12th, in
three cases of interest to the business community, two of which were
consolidated:
Bankruptcy—Subject Matter Jurisdiction of Bankruptcy Courts
The Supreme Court consolidated and granted certiorari in two cases,
Traveler's Indemnity Co. v. Bailey (No. 08-295) and
Common Law
Settlement Counsel v. Bailey (No. 08-307), to resolve a major issue
in bankruptcy law: the scope of a bankruptcy court's authority to enjoin
lawsuits seeking recovery against a debtor's insurance companies.
In 1982, the Johns-Manville Corporation, one of the largest
manufacturers and suppliers of asbestos-related products and raw asbestos from
the 1920s until the 1970s, filed for Chapter 11 bankruptcy as it buckled under
the weight of a growing number of asbestos-related lawsuits. In 1986, as part of
Manville's reorganization plan under Chapter 11, the United States Bankruptcy
Court for the Southern District of New York issued an order that channeled the
asbestos claims— past, present, and future—into a trust. Manville's insurers,
including Travelers' Insurance, contributed millions of dollars into the
Manville Trust in exchange for an injunction barring "any person" from bringing
"any claims" "based upon, arising out of, or related to" Manville's insurance
policies. In 2002, the Bankruptcy Court issued an order clarifying that the 1986
injunction barred claims brought by various plaintiffs alleging that Travelers
had known the dangers of asbestos in the 1950s and had influenced Manville's
ostensible failure to disclose its knowledge of asbestos hazards. Although the
district court affirmed the bankruptcy court in relevant part, the Second
Circuit reversed on the ground that the bankruptcy court lacked subject matter
jurisdiction to enjoin the claims against Travelers, finding that those claims
alleged independent misconduct by Travelers and were unrelated to Manville's
insurance policy proceeds and the
res
of the Manville estate.
In re
Johns-Manville Corp., 517 F.3d 52, 55, 68 (2d Cir. 2008).
The Court's decision will be of particular significance to insurers
that have channeled or will decide whether to channel funds into Manville-type
trusts. Indeed, various insurers have contributed to these types of trusts in
reliance on 11 U.S.C. § 524(g), which was modeled after the 1986 Manville
channeling order. Specifically, Section 524(g)(4)(A)(ii) provides protection for
insurers against third-party claims that "aris[e] by reason of [an insurer's]
provision of insurance to the debtor or a related party." If the Second
Circuit's determination that Section 524(g)'s protections extend only to claims
alleging conduct related to the debtor's insurance policy proceeds and the
res
of a debtor's estate, the certainty for insurers provided by contribution to
524(g) trusts will be greatly diminished. Moreover, such a limitation would
reduce, if not eradicate, insurers' incentive to contribute funds to 524(g)
trusts that help asbestos victims.
Absent an extension, amicus briefs in support of the petitioner are
due February 2, 2009, and amicus briefs in support of the respondent are due
March 4, 2009. Any questions about this case should be directed to
Andrew
Tauber (+1 202 263 3324) in our Washington, DC office.
Taxation—Constitution—Commerce Clause, Equal Protection Clause, and Tonnage
Clause
In order to protect interstate commerce, the Constitution imposes a
variety of limitations on state taxation. The Supreme Court granted certiorari
in Polar
Tankers, Inc. v. City of Valdez, No. 08-310, to resolve a dispute
that implicates several of those limitations. The Court will decide whether,
consistent with the Tonnage Clause (U.S. Const. art. I, § 10, cl. 3), states may
impose property taxes that target vessels that frequent the states' ports, and
whether, consistent with the Commerce Clause (U.S. Const. art. I, § 8, cl. 3)
and Equal Protection Clause (U.S. Const. amend. XIV, § 1), states may tax
out-of-state vessels for the period of time that they spend on the high seas.
The Court's resolution of those questions will likely have
significant ramifications not only for ship owners, but for all businesses that
own movable property that travels between States. How states apportion taxes on
property that moves across state lines has tremendous practical implications
given the risk of duplicative taxation by multiple states.
Polar Tankers arises from a tax imposed by the City of Valdez, Alaska. In 2000,
the city responded to a budget shortfall by levying a tax against large vessels
that frequent its port for purposes other than commercial fishing. The tax falls
principally on tankers that transport oil from the terminus of the Trans-Alaska
Pipeline in Valdez to the continental United States. The city adopted a method
of apportioning the annual tax according to the ratio of days spent in port in
Valdez to days spent in any port. Polar Tankers, which operates oil tankers
covered by the tax, filed suit in Alaska state court, claiming that the tax and
the apportionment methodology are unconstitutional. The Alaska Supreme Court,
however, concluded that the tax is constitutional.
Absent an extension, amicus briefs in support of the petitioner are
due February 2, 2009, and amicus briefs in support of the respondent are due
March 4, 2009. Any questions about this case should be directed to
Charles
Rothfeld (+1 212 263 3233) in our Washington, DC office.
Mayer Brown represents the petitioner in this case.
In recent weeks, the Supreme Court invited the Solicitor General to
file briefs expressing the views of the United States in two cases of interest
to the business community:
Graham County Soil and Water Conservation District v. United States
ex rel. Wilson, No. 08-304. The question presented in this case is whether
federal courts have jurisdiction over False Claims Act suits based on
revelations in administrative reports or audits issued by state or local
governments, as opposed to the federal government. (Mayer Brown filed a
petition-stage amicus brief in support of the petitioners on behalf of the
National League of Cities.)
Mac's Shell Service, Inc. v. Shell Oil Products Company,
No. 08-240;
Shell Oil
Products Company v. Mac's Shell Service, No. 08-372. These
consolidated cases address the circumstances under which a service station
operator may bring suit against an oil refiner or distributor for "constructive
termination" under the Petroleum Marketing Practices Act.
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