In Official Committee of Asbestos Claimants of G-I Holdings Inc. v. Building Materials Corporation of America (In re G-I Holdings Inc.), 327 B.R. 730 (Bankr. D. N.J. 2005), the U.S. Bankruptcy Court for the District of New Jersey had the rare opportunity to explore and address the intersection between two federal provisions arguably conferring equitable powers upon bankruptcy courts, namely, the federal "All Writs Act," 28 U.S.C. §§1651 and 105 of the Bankruptcy Code. It is traditionally understood that bankruptcy courts, as courts of equity, have "broad authority" to accomplish the overriding goals of bankruptcy law and to oversee the proper functioning of the Code, including the ability to modify the relationships between debtors and creditors.¹ Without question, parties to a bankruptcy proceeding often rely on §105(a) of the Code "as a means of enlisting the aid of judicial authority whenever the Bankruptcy Code does not expressly address a particular situation."² While disagreement exists generally with respect to the extent of the powers conferred upon a bankruptcy court by virtue of §105, bankruptcy courts have nonetheless utilized this section to craft an "enormous array of orders."³ Perhaps the most widespread use of §105 has been in the area of injunctive relief in situations such as an extension of the automatic stay to nondebtor parties, the substantive consolidation of separate business entities, and the direction for third parties to either affirmatively act or refrain from taking a prescribed course of action.

However, by its very terms, §105(a) limits a bankruptcy court's equitable powers, which must and can only be exercised within the confines of the Bankruptcy Code.⁴ Section 105 does not authorize a bankruptcy court to create substantive rights "that are otherwise unavailable under applicable law," and the provision does not grant a bankruptcy court a "roving commission to do equity."⁵ Stated slightly differently, the equitable power conferred on the bankruptcy court by §105(a) is the power to exercise equity in carrying out the provisions of the Code, rather than to further the purposes of the Code generally or "otherwise to do the right thing."⁶ In light of this limitation, a bankruptcy court may be called upon to exercise its equitable powers but find itself powerless to act if the requested remedy cannot be tied to a specific provision of the Code.

Thus, the question arises as to whether a bankruptcy court can invoke its equitable powers from any other source.⁷ 28 U.S.C. §1651. The All Writs Act is the historic precursor to §105 of the Code and provides as follows: "The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law."⁸ In In re G-I Holdings Inc., the official committee of asbestos claimants of G-I Holdings, suing on behalf of the chapter 11 estate of G-I Holdings, filed a motion against a nondebtor, indirect subsidiary of G-I Holdings seeking to prevent the subsidiary from paying regularly scheduled debt instruments owed to other nondebtor parties. The committee premised its injunctive relief upon §105 of the Code and the All Writs Act. Consequently, the U.S. Bankruptcy Court for the District of New Jersey was called upon to address the scope of the All Writs Act in relation to the equitable power of a bankruptcy court under §105 of the Code.

Utilizing the In re G-I Holdings Inc. decision as a framework for how such a contest between §105 and the All Writs Act might arise, this article explores whether a bankruptcy court has the power to craft equitable relief under the All Writs Act independent of §105, and if so, in what manner and to what extent the All Writs Act can be used by a bankruptcy court today to fashion equitable relief.

Background of In re G-I Holdings Inc.

On Jan. 5, 2001, G-I Holdings filed a voluntary chapter 11 petition. G-I Holdings is the successor-in-interest to GAF Corp., an entity named in approximately 500,000 asbestos actions prior to merging into G-I Holdings.⁹ G-I Holdings remains potentially liable for approximately 150,000 asbestos lawsuits filed, but unresolved, as of the petition date and for unknown numbers of asbestos claims that will be filed in the future.¹⁰ Building Materials Corp. of America (BMCA) is an indirect subsidiary of G-I Holdings and is also the primary operating subsidiary and principal asset of G-I Holdings.¹¹ BMCA is not a debtor in any bankruptcy proceeding. Established in 1994, BMCA received substantially all the assets of GAF's roofing products business and expressly assumed $204 million of asbestos liability with G-I Holdings indemnifying BMCA against any additional asbestos liability.¹² Despite the fact that BMCA claims to have never manufactured any products containing asbestos, the company has been named as an additional defendant in more than 1,000 asbestos bodily injury lawsuits against GAF since September 2000.¹³ Simply stated, the claims against BMCA are premised on theories of successor liability or alter ego status.¹⁴

Several days after filing for chapter 11 relief, G-I Holdings moved pursuant to §105(a) of the Code seeking a preliminary injunction prohibiting the filing or prosecution of present and future asbestos claims against BMCA, pending confirmation of a plan of reorganization for G-I Holdings or the issuance of a declaratory judgment as to whether BMCA bears successor liability or alter ego liability for asbestos claims.¹⁵ According to G-I Holdings, an injunction was necessary to protect the value of the estate, because otherwise BMCA would itself be forced into bankruptcy.¹⁶

The U.S. Bankruptcy Court for the District of New Jersey granted the relief requested by G-I Holdings and entered a preliminary injunction enjoining any asbestos claimants from prosecuting pending actions and future actions against either G-I Holdings or BMCA.¹⁷ Moreover, the preliminary injunction order permitted BMCA to continue to operate its business in the ordinary course as a nondebtor, but required BMCA to make certain disclosures to the official committee of asbestos claimants with respect to its operations and financing, and prohibited BMCA from engaging in certain specified transactions without first providing 30-days' notice to the committee.¹⁸ Significantly, the transactions subject to this notice requirement included the refinancing or replacement of BMCA's then-existing credit facility, as well as the making of any pre-payments on BMCA's outstanding public notes.¹⁹

In accordance with the terms of the preliminary injunction order, G-I Holdings subsequently alerted the committee of its intent to issue approximately $150 million of new senior secured notes.²⁰ The proceeds generated from the issuance of these notes would be used to redeem outstanding senior notes with higher interest rates.²¹ In response to G-I Holdings's proposal to issue new notes, the committee filed a motion requesting that the preliminary injunction order be modified in order to permit the committee to commence an adversary proceeding as the representative of G-I Holdings' bankruptcy estate for the purposes of (1) avoiding and recovering the transfer of GAF Corp.'s roofing business to BMCA, (2) avoiding certain liens imposed on the assets of the roofing business in connection with a previous refinancing, and (3) avoiding and recovering payments made under color of those liens after the filing of G-I Holdings's bankruptcy case.²² The committee proposed to challenge the transfer of the business as a fraudulent transfer under state law pursuant to §544(b) of the Code, suing BMCA as the initial transferee under §550(a)(1) of the Code and joining the syndicate of banks and the outstanding noteholders as mediate or immediate transferees under §550(a)(2) of the Code.²³ The bankruptcy court granted the committee's motion and permitted it to file the proposed adversary proceeding against BMCA and its outstanding noteholders.²⁴

Subsequent to the filing of its adversary proceeding, the committee filed a motion seeking the entry of an order pursuant to §105(a) of the Code directing that BMCA pay into escrow $150 million due to be paid in the near future to certain holders of notes issued by BMCA.²⁵ According to the committee, the looming repayment of $150 million to certain of the noteholders threatened the bankruptcy court's jurisdiction by rendering the estate's claims against them in the adversary proceeding moot before the court had the opportunity to adjudicate the merits of those claims.²⁶ The committee maintained as follows:

The looming repayment of $150 million in principal to the... [n]oteholders threatens to impair the court's jurisdiction by rendering the estate's claims against them moot before the court can adjudicate the merits of those claims. Fortunately, §105(a), the "All Writs" provision of the Bankruptcy Code, authorizes the court to take any action necessary or appropriate to preserve the G-I [Holdings] estate's avoidance claims and to protect the court's own effective jurisdiction over this matter. In order to preserve the court's jurisdiction and to maintain the status quo, it is imperative that this court order that the $150 million in principal payments...be held in escrow pending final adjudication of the merits of the claims asserted herein.

Section 105(a) of Title 11 is the "All Writs" provision of the Bankruptcy Code. It serves the same functions in bankruptcy cases that §1651 of the Judicial Code plays in civil litigation outside of bankruptcy. Under its "All Writs" powers, this court "may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of" the Bankruptcy Code. Another recognized function of "All Writs" jurisdiction, both in and out of the bankruptcy context, is to protect the effective jurisdiction of the courts by preventing matters that come before them from becoming moot before judgment can be rendered on the merits. Here, these proper uses of §105(a) combine to give this court ample authority to enjoin the payment and redemption of BMCA's outstanding ...notes, to preserve the estate's interest in claims and causes of action against the...noteholders, and to safeguard the jurisdiction of this court over this adversary proceeding.²⁷

Consequently, the argument raised by the committee in support of its motion for injunctive relief summoned the court to address the intersection between the All Writs Act and §105 of the Code.

The Federal All Writs Act

As previously noted, the All Writs Act provides as follows: "The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law."²⁸ The All Writs Act "invests a court with a power that is essentially equitable and, as such, not generally available to provide alternatives to other, adequate remedies at law.²⁹ The basic purpose of §1651(a) is to assure the various federal courts the power to issue appropriate writs and orders of an auxiliary nature in aid of their respective jurisdictions as conferred by other provisions of law.³⁰ Despite the express language "in aid of...jurisdictions" contained within the statute, the All Writs Act empowers federal courts to issue injunctions or other orders to protect or effectuate their judgments.³¹ In permitting the federal courts to protect "their respective jurisdictions," the All Writs Act enables them "to safeguard not only ongoing proceedings, but potential future proceedings, as well as already-issued orders and judgments."³²

The All Writs Act does not create any substantive federal jurisdiction. Rather, "it is a codification of the federal courts' traditional, inherent power to protect the jurisdiction they already have, derived from some other source."³³ As contemplated by the U.S. Supreme Court in Pennsylvania Bureau of Correction v. United States Marshals Service,³⁴ the All Writs Act "is a residual source of authority to issue writs that are not otherwise covered by statute. Where a statute specifically addresses the particular issue at hand, it is that authority, and not the All Writs Act, that is controlling."³⁵ Moreover, while the All Writs Act empowers federal courts to "fashion extraordinary remedies when the need arises, it does not authorize them to issue ad hoc writs whenever compliance with statutory procedures appears inconvenient or less appropriate."³⁶ Notably, writs issued pursuant to the All Writs Act may be directed to not only the immediate parties to a proceeding, but to "'persons who, though not parties to the original action or engaged in wrongdoing, are in a position to frustrate the implementation of a court order or the proper administration of justice, and...even those who have not taken any affirmative action to hinder justice.'"³⁷ The power conferred upon federal courts by operation of §1651(a) may be granted or withheld in the sound discretion of the court.³⁸ Further, application of the All Writs Act "is entirely permissive in nature; it in no way mandates a particular result or the entry of a particular order."³⁹ The authority granted to a federal court pursuant to the All Writs Act is to be utilized sparingly, and only in the most critical and exigent circumstances.⁴⁰

Author's Note: Part II of this article will examine §105 of the Code, address the legal and theoretical intersection of §105 and the All Writs Act, discuss the conclusions reached by the court in In re G-I Holdings Inc. and suggest a framework for harmonizing both statutory provisions.

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Footnotes

1 United States v. Energy Res. Co., 495 U.S. 545, 549, 110 S.Ct. 2139, 2142, 109 L.Ed.2d 580 (1990).

2 Leal, Manuel D., "The Power of the Bankruptcy Court: §105," 29 S. Tex. L. Rev. 487, 489 (1988).

3 Bogart, Daniel B. "Resisting the Expansion of Bankruptcy Court Power Under §105 of the Bankruptcy Code: The All Writs Act and an Admonition from Chief Justice Marshall," 35 Ariz. St. L.J. 793, 794 (2003).

4 New England Dairies Inc. v. Dairy Mart Convenience Stores Inc. (In re Dairy Mart Convenience Stores Inc.), 351 F.3d 86, 92 (2d Cir. 2003) (citations omitted).

5 Id. (quoting United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986)).

6 Id.

7 For purposes of this article, any "inherent" powers possessed by a bankruptcy court, sitting as a court of equity, to fashion equitable relief outside the province of §105(a) of the Code will not be addressed.

8 28 U.S.C.A. §1651(a) (1994).

9 327 B.R. at 734.

10 Id.

11 Id.

12 Id.

13 Id. at 734-35.

14 Id. at 735.

15 Id.

16 Id.

17 Id. at 736.

18 Id.

19 Id.

20 Id. at 737.

21 Id.

22 Id.

23 Id. at 738.

24 Id.

25 Id. at 739.

26 Id.

27 Id.

28 28 U.S.C.A. §1651(a) (1994). The All Writs Act originally was codified in §14 of the Judiciary Act of 1789 and provided that "all the...courts of the United States shall have power to issue writs of scire facias, habeas corpus and all other writs not specifically provided for by statute, which may be necessary for the exercise of their respective jurisdictions, and agreeable to the principles and usages of law." See Pa. Bureau of Corr. v. United States Marshals Serv., 474 U.S. 34, 40-41, 106 S.Ct. 355, 360, 88 L.Ed.2d 189 (1985). Black's Law Dictionary defines a "writ" as a "written judicial order to perform a specified act, or giving authority to have it done, as in a writ of mandamus or certiorari, or as in an 'original writ' for instituting an action at common law." Black's Law Dictionary 1608 (6th Ed. 1990).

29 Clinton v. Goldsmith, 526 U.S. 529, 537, 119 S.Ct. 1538, 1543, 143 L.Ed.2d 720 (1999).

30 Edgerly v. Kennelly, 215 F.2d 420, 422 (7th Cir. 1954), cert. denied, 348 U.S. 938, 75 S.Ct. 359, 99 L.Ed. 735 (1955), overruled on other grounds by Stone v. Morris, 546 F.2d 730 (7th Cir. 1976). See, also, ITT Cmty. Dev. Corp. v. Barton, 457 F.Supp. 224, 232 (M.D. Fla. 1978) ("The All Writs Act provides a federal court with those writs necessary to the preservation or exercise of its subject matter jurisdiction. Power under the All Writs Act is limited to that necessary to facilitate a federal court's effort to manage a case to judgment").

31 Wesch v. Folsom, 6 F.3d 1465, 1470 (11th Cir. 1993) (citations omitted).

32 Klay v. United Healthgroup Inc., 376 F.3d 1092, 1099 (11th Cir. 2004) (citing Folsom, 6 F.3d at 1470).

33 Id. (citing Procup v. Strickland, 792 F.2d 1069, 1074 (11th Cir. 1986) (en banc)).

34 474 U.S. 34, 106 S.Ct. 355, 88 L.Ed.2d 189 (1985).

35 Id. at 43, 106 S.Ct. at 361, 88 L.Ed.2d 189.

36 Id.

37 Klay, 376 F.3d at 1100 (quoting United States v. New York Tel. Co., 434 U.S. 159, 174, 98 S.Ct. 364, 373, 54 L.Ed.2d 376 (1977)).

38 Roche v. Evaporated Milk Ass'n., 319 U.S. 21, 25, 63 S.Ct. 938, 941, 87 L. Ed. 1185 (1943). See, also, Padilla ex rel. Newman v. Bush, 233 F. Supp.2d 564, 603 (S.D.N.Y. 2003) (noting that the decision whether to grant or withhold an order under the All Writs Act lies within the sound discretion of the court), rev'd. on other grounds, Rumsfeld v. Padilla, 542 U.S. 426, 124 S.Ct. 2711, 159 L.Ed.2d 513 (2004); Morrow v. Dist. of Columbia, 417 F.2d 728, 738 (D.C. Cir. 1969) ("The Supreme Court has stressed the theme that the issuance of the writ is a matter of sound discretion").

39 Application of the United States of Am. in the Matter of an Order Authorizing the Use of a Pen Register or Similar Mech. Device, 538 F.2d 956, 961 (2d Cir. 1976), rev'd. on other grounds sub nom., United States v. New York Tel. Co., 434 U.S. 159, 98 S.Ct. 364, 54 L.Ed.2d 376 (1977).

40 Wisconsin Right to Life Inc. v. Fed. Election Comm'n., 542 U.S. 1305, 1306, 125 S.Ct. 2, 3, 159 L.Ed.2d 805 (2004) (citation omitted).