“The Preemption of Contractual Antiassignment Provisions in Bankruptcy: A Survey of Cases from FCX to Federal-Mogul”
The law does not typically restrict assignment of contract rights unless the assignment would, among other things, materially change the duties of the contractual parties, reduce the value of the contract, or is otherwise forbidden by law or public policy. To protect against an undesired assignment, a contract may contain a “no assignment” or “anti-assignment” clause. Some antiassignment clauses broadly prohibit the right to assign, while others prohibit assignment without the affirmative consent of the other contracting party. The enforceability of anti-assignment provisions in the bankruptcy context has been the subject of numerous decisions, commonly arising in the context of asbestos litigation when a debtor seeks to assign its insurance policies (or the proceeds of such policies) to a post-confirmation trust created pursuant to 11 U.S.C.A. § 524(g). In these circumstances, insurers often argue that anti-assignment provisions contained within the policies prevent their assignment to the section 524(g) trust.
In its decision in In re Fed.-Mogul Global, Inc., the Court of Appeals for the Third Circuit provided a detailed analysis of the anti-assignment issue in the context of an asbestos bankruptcy case. Part I of this article will discuss the doctrine of preemption upon which the Federal-Mogul decision is premised. Part II of this article will survey the line of cases that have evaluated whether anti-assignment provisions are preempted by the Bankruptcy Code in situations where the debtor seeks to assign insurance policies to a section 524(g) trust. Lastly, Part III of this article will focus directly upon the Third Circuit’s ruling in Federal-Mogul III and, in particular, the court’s discussion of the preemptive reach of section 1123 of the Bankruptcy Code.