Article III Standing to Object to a Companys Bankruptcy Reorganization Plan

By: James Scahill

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Adhering to the constitutional limits on a particular party’s standing to object, the Third Circuit in In re W.R. Grace & Co. affirmed the district court’s ruling and held that Garlock Sealing Technologies, LLC, (“Garlock”), did not have standing to object to W.R. Grace & Co.’s (“Grace”) proposed chapter 11 plan of reorganization.[1] Grace filed for chapter 11 bankruptcy protection after being threatened by numerous asbestos-related personal injury lawsuits.[2]  Since Garlock often purchased materials from Grace, the two companies were named as co-defendants in thousands of personal injury lawsuits.[3]  Garlock objected to Grace’s reorganization plan, alleging that as a former, current, and potential co-defendant, it had suffered injury because its contribution rights would be denied under the plan.[4]  But, the Third Circuit ruled that those future claims were insufficient to establish Article III standing because they were entirely speculative.  In particular, the court found that Garlock failed to introduce any evidence that it ever sought contribution from Grace, implied Grace in any claim, or suffered any judgment that would have entitled Garlock to assert contribution or setoff rights.[5]  Moreover, the court noted that Garlock had not even filed a claim in Grace’s bankruptcy case.[6]  The Third Circuit opined that for Garlock to have standing to assert contribution claims, the plaintiffs must either win or settle their cases, thereby giving rise to a contribution claim against Grace. Instead, the court noted that Garlock’s alleged injury was contingent on plaintiff verdicts or settlements, which made it more conjectural or hypothetical than actual or imminent, especially given that no such contribution claims had ever been asserted notwithstanding the thousands of ongoing cases involving Grace and Garlock.[7]

 W.R. Grace follows the well-established rule that a party must have Article III standing in order to object in a bankruptcy case. In Reilly v. Ceridian Corp., the Third Circuit held that Article III requires that plaintiff’s injury be (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.[8]  The Reilly court held that a threatened injury might satisfy the standing requirement if it is certainly impending and will proceed with a high degree of immediacy.[9]   However, the Supreme Court in Lujan v. Defenders of Wildlife held that a party lacks standing if its injury stems from an indefinite risk of future harms inflicted by unknown third parties.[10]  In Lujan, the Court stated that allegations of possible future injury would not satisfy Article III.[11]

W.R. Grace reinforces that Article III requires a specific and actual injury. If an objecting party has not asserted a claim for contribution in the past, then it has not suffered an actual injury. Even though there were thousands of claims pending against Grace and Garlock, the mere possibility of future injury was not enough for Article III standing because potential injury was only hypothetical. Notwithstanding the court’s ruling, it is still possible that Garlock may suffer an actual injury arising from the pending lawsuits, but at that point it will be too late because the court will likely have already approved the reorganization plan. 

Ultimately, it is important to note that the Third Circuit’s decision relied heavily on the facts that (1) Garlock had never sought contribution against Grace despite the thousands of lawsuits against both that had been ongoing for over a decade and (2) Garlock had never filed a proof of claim in Grace’s bankruptcy case.  As such, W.R. Grace demonstrates that while the mere filing a proof of claim will not create standing, a court will consider a party’s failure to do so as evidence that that party lacks standing to participate in the bankruptcy case.  Therefore, if a party wants to preserve its rights to assert a contingent claim, that party should at the very least file a proof of claim asserting the contingent claim. 


[1] In re W.R. Grace & Co., 2013 WL3814966, at *1. (3d Cir., July 24, 2013).

[2] Id.

[3] Id.

[4] In re W.R. Grace & Co.475 B.R. 34, at 177 (D. Del. June 11, 2012).

[5] In re W.R. Grace & Co., 2013 WL3814966, at *1.

[6] Id.

[7] Id.

[8] Reilly v. Ceridian Corp., 664 F.3d 38 at 41 (3d Cir., 2011)

[9] Id.

9Lujan v. Defenders of Wildlife, 112 S.Ct. 2130, 2130, 119 L. Ed. 2d 351 (1992).

10 Id.