As we said in our case summary, the question in this case was whether federal bankruptcy law preempted plaintiffs’ state law claims against a non-debtor third-party for tortious interference with plaintiffs’ contract with a debtor. In a 4-3 decision, the Court (Stein, J.) held that the claims were not preempted. Judge Rivera authored a dissent, which was joined by Judge Fahey and Judge Garcia.
This case involved parties to a failed real estate deal. The deal was structured to make it impossible for one party (the landowner) to file for bankruptcy—or, at least, to make it so that any bankruptcy would be an expedited proceeding. When the deal fell apart, however, the landowner took actions with a third-party that were apparently designed to undermine the deal’s bankruptcy protections. The landowner filed for bankruptcy, and the other parties to the deal sued the third-party for tortious interference with contract based on the third-party’s dealings with the landowner.
The majority held that plaintiffs’ tortious interference claims were not preempted by federal law. There was no claim of express preemption, i.e., no claim that the Bankruptcy Code explicitly displaced these types of tort claims. And in the majority’s view, the claim of field preemption, i.e., that federal bankruptcy regulation so thoroughly occupied the field that it displaced any state regulation—did not “merit extended discussion.” The Bankruptcy Code comprehensively regulated the relationship between debtors and creditors, the majority explained, but did not contain any provisions purporting to regulate disputes unrelated to the bankruptcy estate between non-debtors.
The “more complex question” for the majority was whether plaintiffs’ tort claims were displaced through conflict preemption. On that question, the majority found no “direct conflict” as might warrant preemption because plaintiffs’ tort claims were premised on conduct that “occurred prior to those proceedings” and was “peripheral to, and [did] not impugn, the bankruptcy process.” The majority thus drew a distinction between tort claims based on conduct that occurred during a bankruptcy proceeding (which presumably would be preempted), and tort claims based on conduct that “occurred prior to, and separate from, the bankruptcy proceedings” (which the majority held should not be preempted). The majority acknowledged that tort claims like the ones in this case might create “some tension between the state court action and the bankruptcy proceeding.” But that tension was not enough, in the majority’s view, to foreclose plaintiffs’ claims altogether.
The dissent concluded that plaintiffs’ claims constituted a “workaround of the bankruptcy system” that should be preempted. The dissent disagreed primarily with the majority’s characterization of plaintiffs’ tort claims; it was “as if the majority read a different complaint than the one filed by plaintiff in Supreme Court.” For the dissent, it did not matter that plaintiffs were non-debtors, since they were creditors wrapped up in the “whole complex reticulated bankruptcy process.” Nor was there any “analytically sound basis” to distinguish between allegedly tortious conduct during a bankruptcy proceeding and “preparatory actions that make possible the bankruptcy filing.” What is more, the dissent warned that allowing pendent state tort claims for actions preparatory to a bankruptcy filing would restrict access to bankruptcy for the most vulnerable debtors, who “need legal counsel and financial assistance” to obtain the “fresh start” offered by bankruptcy relief.