Originally published December 15, 2008
Keywords: US Supreme Court, bankruptcy, subject matter jurisdiction, taxation, commerce clause, tonnage clause, asbestos, Traveler's Indemnity, Bailey, Polar Tankers, Valdez
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
- Taxation—Constitution—Commerce Clause, Equal Protection Clause, and Tonnage Clause
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.
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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.
Mayer Brown represents the petitioner in this case.
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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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