In a reversal of a decision by the New Jersey District Court, the Court of Appeals for the Third Circuit in In re Congoleum Corporation held 2-1 that the bankruptcy court did not have jurisdiction to reopen an earlier proceeding to interpret findings within a confirmation order, holding interpretation of such orders constitutes a bankruptcy core proceeding.  Chief Judge Chagares also reversed the district court as to the effect of that confirmation order in CERCLA proceedings currently pending before the district court.

The long procedural history of the case relates to who is liable for environmental liabilities related to the Congoleum Flooring Business manufacturing facility in Kearny, New Jersey, (the “Kearny Facility”) recently operated by debtor, Congoleum Corporation (“Congoleum”).  In 2003, asbestos-related personal injury claims drove Congoleum into bankruptcy, and, during those proceedings, Congoleum’s insurer agreed to buy back its insurance policies from Congoleum in exchange for an injunction barring further claims under those policies.  As part of that settlement agreement, Congoleum represented that it was the sole successor-in-interest to the Congoleum Flooring Business and that additional named insureds under the relevant policies, including its former corporate sibling, Bath Iron Works (“BIW”) were not responsible for those liabilities.  When the bankruptcy court entered its 2010 confirmation order (the “Confirmation Order”) approving Congoleum’s reorganization plan (the “Plan”), it included factual findings to support that insurance settlement, including the “BIW Finding” that BIW has “no responsibility for any of the liabilities of the Congoleum Flooring Business.”

In advance of the bankruptcy court’s hearing on the Plan, Congoleum’s creditors were served with the Plan, the proposed Confirmation Order, notice of the hearing, and other documents.  Among these creditors was Occidental Chemical Corporation (“OCC”).

For seven years after the Plan became effective, the bankruptcy case remained closed.  Then in 2017, Congoleum reversed its position with respect to BIW’s liabilities, impleading BIW in litigation in which Congoleum was a defendant and asserting that BIW—not Congoleum—was responsible for contamination at the Kearny Facility.  Shortly thereafter, OCC filed its own suit in district court under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) seeking contribution from BIW for costs of remediating contamination allegedly caused by the Congoleum Flooring Business. 

Congoleum filed for bankruptcy a second time in 2020, during which BIW sought a declaration that Congoleum was bound by the BIW Finding and barred from claiming BIW inherited any liabilities of the Congoleum Flooring Business.  The bankruptcy judge in the second proceeding agreed, and, in light of that ruling, Congoleum dismissed its new claims against BIW related to environmental liabilities for the Kearny Facility.

OCC, however, refused to dismiss BIW from its CERCLA case and instead filed for summary judgment in August of 2021 on the issue of BIW’s liability.  In response, BIW filed a motion to reopen the 2003 bankruptcy proceeding and for an order that, based on the BIW Finding, BIW was not responsible for Congoleum Flooring Business’s liabilities.  The district court stayed its decision on OCC’s summary judgment motion pending the outcome of BIW’s motion to reopen the initial bankruptcy case.

Thereafter, the bankruptcy court granted BIW’s motion to reopen and found that OCC was bound by the BIW Finding, but the district court reversed.  The district court held that it was better suited to interpret the Confirmation Order and the BIW Finding within it, that the bankruptcy court lacked jurisdiction to hear the motion, and the BIW Finding was a third-party release that violated CERCLA. 

BIW appealed, and the Third Circuit affirmed in August 2024.  However, BIW’s petition for rehearing by the panel was granted in June 2025, and two months later, the panel reversed the district court’s decision.  Chief Judge Chagares, writing for the panel, held that the bankruptcy court properly exercised its jurisdiction, that there was no abuse of discretion in granting BIW’s motion to reopen, that OCC had actual and adequate notice of the Confirmation Order and BIW Finding, that the bankruptcy court’s interpretation of the BIW Finding was supported, and that res judicata barred OCC’s collateral attack on the BIW Finding in its current CERCLA case in the district court.

With respect to the bankruptcy court’s jurisdiction, the panel’s analysis began by noting that confirmation of plans is one of the core proceedings for a bankruptcy court.  Therefore, a motion to reopen the bankruptcy case to interpret and enforce an aspect of the Confirmation Order—the BIW Finding—is a core proceeding over which the bankruptcy court has jurisdiction.  On the motion to reopen, the panel found no abuse of discretion, as the bankruptcy court was well-positioned to interpret the BIW Finding and had in fact done so in a substantially similar dispute during Congoleum’s second bankruptcy.  The panel discerned no delay in BIW’s filing, noting it moved to reopen within a month of learning that OCC continued to prosecute its claims against BIW.   

Next, the panel found that OCC had actual and adequate notice in 2010 of Congoleum’s settlement with its insurer as well as of the Confirmation Order and BIW Finding.  In doing so, it rejected OCC’s argument that notice was insufficient because the BIW Finding was “conspicuous” in these documents, instead reaffirming that actual notice is sufficient to provide due process to a creditor.  OCC also argued that notice was defective because the Confirmation Order disavowed the ability to release environmental liabilities and that the BIW Finding did just that.  Again, the panel disagreed, concluding that the BIW Finding was a factual determination that BIW was never responsible for Congoleum Flooring Business’s liabilities; it could not be a release of liabilities never possessed.  The panel was not persuaded by any of OCC’s remaining arguments regarding interpretation of the BIW Finding, finding they were contradicted by the plain meaning of its text. 

Finally, the panel determined that OCC was bound by res judicata because it was a party to the proceedings regarding the Plan and Confirmation Order and therefore had the opportunity to challenge the BIW Finding.  The panel emphasized the Plan and Confirmation order are final judgments and that in the bankruptcy context in particular, finality is critical.  OCC’s argument that it did not actually litigate the BIW Finding was deemed “irrelevant” as it is the opportunity to do so that is necessary for res judicata to apply.  Finally, the panel held that the issue presented in OCC’s CERCLA lawsuit against BIW has an “essential similarity” to the issue litigated in the bankruptcy case:  both address whether BIW inherited the liabilities of the Congoleum Flooring Business.  In response to OCC’s final argument that the BIW Finding was an impermissible advisory opinion determining liabilities between non-debtors in a hypothetical future pursuit, the panel again disagreed, finding first that the argument was untimely, but as to the merits, that the BIW Finding stemmed from the live controversy as to the liability of BIW as a named insured and the insurer who wished to settle with Congoleum in its first bankruptcy case.  A factual determination on that liability was needed to facilitate that settlement and was not advisory.

In re Congoleum Corporation offers a cautionary tale on how years-old bankruptcy findings of fact regarding liability can influence outcomes in CERCLA litigation today.  Careful review of bankruptcy plans and confirmation orders for these determinations can help to avoid costly litigation and ensure maximum cost recovery.

Share | Email| Print| Comments|  Topics: Bankruptcy, CERCLA, Cleanup, Contamination, Contribution, Cost Recovery, New Jersey, Potentially Responsible Parties, Superfund, Third Circuit