Whether a cause of action is held by a debtor’s estate or its creditors can significantly impact both creditor recoveries and the overall course of a chapter 11 case. The Third Circuit has addressed this issue in a series of four cases beginning with Foodtown. In 2014, it crystallized its analysis in Emoral, holding that causes of action are estate property “if the claim existed at the commencement of the filing and the debtor could have asserted the claim on his own behalf under state law.” If a cause of action belongs to the estate, it may only be pursued by the trustee unless the trustee chooses to abandon it.
The “Emoral test” is well established in the Third Circuit, and other circuits addressing this issue consistently apply a similar test. While a seemingly simple test, courts have noticed a recent spike in litigation over its application, suggesting practical difficulties in anticipating outcomes under the test. This article addresses the case law developments since Emoral and three issues that commonly arise when applying the Emoral test.
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Click the media file below to download “Who Can Resolve What? Challenges in Applying the Emoral Test,” authored by Danny Duerdoth and Samuel Husman, and published by the American Bankruptcy Institute Journal.