Warren E. Agin [Partner & Co-Founder, Swiggart & Agin]: "The Travelers Indemnity v. Bailey case addresses a difficult question faced in numerous large Chapter 11 cases, whether a bankruptcy court has the power to issue a channeling injunction as part of a Chapter 11 plan of reorganization and, if it does, how do practitioners structure effective channeling injunctions. From a practical standpoint, when a Chapter 11 debtor faces potential liability from a large number of unknown creditors, but shares that liability with third parties, the optimal solution is often a global resolution in which the debtor and third parties pool resources to create a settlement fund. The debtor then uses this settlement fund to satisfy the claims as they come in. The channeling injunction is one of the tools that makes this strategy work. It provides the third parties, such as co-defendants or insurance carriers, with protection against claimants, forcing the claimants to look toward the settlement fund. But, does a bankruptcy court have jurisdiction over the dispute between the claimants and the third-party obligors? If not, the bankruptcy court lacks the power to issue channeling injunctions as part of a plan of reorganization.

By facilitating both reorganization and claims payment, channeling injunctions are a good thing. But, the Supreme Court now needs to decide whether they work. Certainly, in the face of one or more Chapter 11 filings by auto manufacturers the issue is timely. Automobile reorganization cases will likely rely on channeling injunctions to address a number of issues. The Supreme Court's decision will have a significant effect on the course of these cases."