## Facts

- In 1986, the State of New Jersey issued an environmental-cleanup order against Hexcel Corporation regarding contamination at a New Jersey site.
- In 1993, Hexcel filed for Chapter 11 bankruptcy protection.
- In 1995, the bankruptcy court confirmed Hexcel’s reorganization plan. Under 11 U.S.C. § 1141, confirmation discharged prepetition “claims,” even if a claimant did not accept the plan or file a proof of claim.
- In 1997, New Jersey residents filed a state-court class action against Stepan Company, alleging Stepan discharged pollutants that caused harm.
- In 1998, Stepan filed a third-party complaint in the class action against Hexcel, alleging Hexcel contributed to the pollution and seeking contribution and/or indemnity.
- Hexcel returned to the bankruptcy court and sought a preliminary injunction to stop Stepan’s third-party action, arguing Stepan’s claim was a prepetition “claim” that had been discharged at confirmation.
- Applying the Ninth Circuit’s fair-contemplation approach (from environmental-liability discharge cases), the bankruptcy court concluded the 1986 cleanup order did not make it reasonably foreseeable that Stepan would later face mass-tort litigation and seek contribution from Hexcel. The bankruptcy court denied the requested injunction.
- Hexcel appealed to the U.S. District Court for the Northern District of California.

## Issues

1. For § 1141 discharge purposes, did Stepan’s contribution/indemnity demand against Hexcel “arise” before Hexcel’s bankruptcy filing or plan confirmation?
2. Did the bankruptcy court correctly apply the Ninth Circuit’s fair-contemplation test (rather than a debtor’s-conduct test) to determine whether Stepan held a discharged prepetition claim?
3. Did Hexcel establish a sufficient likelihood of success on its discharge argument to justify a preliminary injunction barring Stepan’s state-court third-party complaint?

## Decision

- The district court affirmed the bankruptcy court’s order denying Hexcel’s request for a preliminary injunction.
- The court held the bankruptcy court used the proper standard by applying the Ninth Circuit’s fair-contemplation test.
- The court agreed that the 1986 cleanup order did not provide a reasonable basis for Hexcel or Stepan to anticipate that Stepan would later be sued in a mass-tort class action and then assert a contribution claim against Hexcel.
- Because Stepan’s asserted right to payment depended on post-bankruptcy events that were not reasonably anticipated at the time of the bankruptcy case, Hexcel did not show the contribution claim was discharged, and injunctive relief was not warranted.

## Legal Principles

- A Chapter 11 confirmation order discharges the debtor from prepetition debts and claims under 11 U.S.C. § 1141, including claims held by parties who did not file proofs of claim or accept the plan.
- The Bankruptcy Code defines “claim” broadly and includes contingent and unmatured rights to payment, but courts still must decide when a claim arises for discharge purposes.
- In the Ninth Circuit, environmental-related claims tied to prepetition conduct are treated as prepetition only if they could be fairly contemplated by the parties before the bankruptcy filing (or, as applied, during the bankruptcy case leading to confirmation).
- A rule that automatically treats any liability linked to a debtor’s prepetition conduct as a prepetition claim is inconsistent with the fair-contemplation approach.
- When a debtor seeks to stop litigation based on discharge (including through a preliminary injunction), the debtor must show a strong likelihood that the challenged claim is in fact barred by the bankruptcy discharge.

## Conclusion

The district court affirmed the denial of a preliminary injunction because Stepan’s contribution/indemnity claim—filed after New Jersey residents brought later mass-tort litigation against Stepan—was not a discharged prepetition claim under the Ninth Circuit’s fair-contemplation standard, even though Hexcel had been subject to a prepetition cleanup order.


Hexcel Corp. v. Stepan Co. (In re Hexcel Corp.), 239 B.R. 564 (1999)