PRECEDENTIAL
`
`UNITED STATES COURT OF APPEALS
`FOR THE THIRD CIRCUIT
`_______________
`
`No. 23-1111
`_______________
`
`
`In re MALLINCKRODT PLC,
` Debtor
`
`
`
`
`
`
`SANOFI-AVENTIS U.S. LLC,
` Appellant
`
`_______________
`
`
`On Appeal from the United States District Court
`for the District of Delaware
`(D.C. No. 1:21-cv-01636)
`Circuit Judge: Honorable Thomas L. Ambro,
`sitting by designation
`_______________
`
`Argued: December 11, 2023
`
`Before: BIBAS, PORTER, and FREEMAN, Circuit Judges
`
`(Filed: April 25, 2024)
`
`
`
`
`
`UNITED STATES COURT OF APPEALS
`FOR THE THIRD CIRCUIT
`_______________
`
`No. 23-1111
`_______________
`
`
`In re MALLINCKRODT PLC,
` Debtor
`
`
`
`
`
`
`SANOFI-AVENTIS U.S. LLC,
` Appellant
`
`_______________
`
`
`On Appeal from the United States District Court
`for the District of Delaware
`(D.C. No. 1:21-cv-01636)
`Circuit Judge: Honorable Thomas L. Ambro,
`sitting by designation
`_______________
`
`Argued: December 11, 2023
`
`Before: BIBAS, PORTER, and FREEMAN, Circuit Judges
`
`(Filed: April 25, 2024)
`
`
`
`
`
`[ARGUED]
`
`[ARGUED]
`
`
`
`Stuart M. Brown
`R. Craig Martin
`DLA PIPER
`1201 N. Market Street
`Suite 2100
`Wilmington, DE 19801
`
`Ilana H. Eisenstein
`DLA PIPER
`1650 Market Street
`One Liberty Place, Suite 5000
`Philadelphia, PA 19103
` Counsel for Appellant
`
`
`Melissa Arbus Sherry
`LATHAM & WATKINS
`555 11th Street NW
`Suite 1000
`Washington, DC 20004
`
`Michael J. Merchant
`Amanda R. Steele
`RICHARDS, LAYTON & FINGER
`920 N. King Street
`One Rodney Square
`Wilmington, DE 19801
`Counsel for Debtor-Appellee
`
`
`
`
`
`
`
`
`
`2
`
`
`
`_______________
`
`OPINION OF THE COURT
`_______________
`
`BIBAS, Circuit Judge.
`
`Creditors take on risks. When a debtor goes bankrupt, those
`risks can become reality. Years ago, Sanofi sold its rights in a
`drug to Mallinckrodt in exchange for $100,000 plus a perpetual
`annual royalty. Though the drug was a hit, Mallinckrodt filed
`for bankruptcy and tried to turn Sanofi’s right to royalties into
`an unsecured claim. That right is contingent and unliquidated.
`Yet under the Bankruptcy Code, it is still a claim. And because
`that claim arose when the parties signed the drug-rights contract,
`it can be discharged in bankruptcy. So we will affirm.
`
`I. THE AGREEMENT TO SELL ACTHAR GEL
`
`Acthar Gel relieves chronic inflammation and treats auto-
`immune diseases. In 2001, Sanofi sold Mallinckrodt the rights
`to the drug outright. Mallinckrodt paid Sanofi $100,000 up
`front and promised a perpetual royalty of 1% of all net sales
`over $10 million per year. Sanofi took a security interest in the
`up-front payment but not the royalty.
`
` For years, the annual royalty was immense. By 2019, sales
`hit almost one billion dollars. But then Mallinckrodt filed for
`bankruptcy. Now it seeks to discharge all future royalty pay-
`ments and to keep selling the drug royalty-free, leaving Sanofi
`with only an unsecured claim.
`
`The bankruptcy court approved Mallinckrodt’s discharge.
`It held that because Sanofi had fully performed its side of the
`
`3
`
`
`
`bargain by transferring ownership outright decades earlier, the
`contract was not executory. It also held that Sanofi’s remaining
`contractual right to future royalties was an unsecured, contin-
`gent claim, so Mallinckrodt could discharge it. The District
`Court affirmed. We review these rulings of law de novo. In re
`Grossman’s Inc., 607 F.3d 114, 119 (3d Cir. 2010) (en banc).
`
`The bankruptcy court had jurisdiction under 28 U.S.C.
`§§ 157(b) & 1334. The District Court had jurisdiction under
`§ 158(a)(1). And we have jurisdiction over Sanofi’s appeal
`under §§ 158(d)(1) & 1291.
`
`II. THE ROYALTIES CAN BE DISCHARGED IN BANKRUPTCY
`
`Bankruptcy settles debts, distributing a debtor’s assets
`among competing creditors. But a creditor with a bankruptcy
`claim might recover only pennies on the dollar through the
`bankruptcy process. Yet if its entitlement survives bankruptcy,
`and the debtor becomes profitable again, the creditor could
`then collect in full.
`
`The Bankruptcy Code defines a claim broadly as any “right
`to payment.” 11 U.S.C. § 101(5)(A). And if a claim for money
`arises before the bankruptcy ends, the debtor pays only what it
`can in bankruptcy—nothing more. § 1141(d)(1)(A). Because
`Sanofi’s right to payment arose before Mallinckrodt filed for
`bankruptcy, its royalties are dischargeable in bankruptcy.
`
`A. The royalties are a contingent, unliquidated
`contract claim
`
`Sanofi argues that the future royalties are too indefinite to
`be a claim. In any year, Mallinckrodt pays royalties only if it
`sells more than ten million dollars’ worth of Acthar Gel. So we
`
`4
`
`
`
`never know in advance whether there will be royalties or how
`much they will be. But Sanofi’s argument fails because the
`Bankruptcy Code allows for claims that are both contingent
`and unliquidated. § 101(5)(A).
`
`Sanofi has a contingent claim to future royalties. We give
`the term “claim” in the Bankruptcy Code “the broadest availa-
`ble definition.” Johnson v. Home State Bank, 501 U.S. 78, 83
`(1991). A contingent claim is one that “has not accrued and
`[that] is dependent on some future event that may never hap-
`pen.” Contingent Claim, Black’s Law Dictionary (5th ed.
`1979). So, to be contingent, a right to payment must not be
`guaranteed until something triggers it. And that trigger must be
`contemplated by the contract. See Contingent (def. 9), Oxford
`English Dictionary (2d ed. 1989) (“Dependent on a pre-
`contemplated probability….”); cf. In re Manville Forest
`Prods. Corp., 209 F.3d 125, 128–29 (2d Cir. 2000). Here, the
`contractual trigger is express: once Mallinckrodt sells $10 mil-
`lion in Acthar Gel, it must start paying Sanofi royalties. The
`royalties are contingent on the sales.
`
`Sanofi’s contingent claim is also unliquidated. Though
`Sanofi complains that the amount of royalties is unknown, that
`uncertainty does not place the royalties outside the broad defi-
`nition of “claim.” Rather, the Code explicitly covers claims
`that are unliquidated, meaning “[n]ot ascertained in amount;
`not determined.” Unliquidated, Black’s Law Dictionary (5th
`ed. 1979). Thus, though the royalties are contingent and
`unliquidated, they are a claim.
`
`5
`
`
`
`B. Like most contract claims, this one arose with
`the agreement
`
`Next, Sanofi insists that bankruptcy cannot resolve its roy-
`alties claim because it will not exist until Mallinckrodt hits the
`sales trigger each year. Bankruptcy cannot discharge claims
`that have not yet arisen. 11 U.S.C. § 1141(d)(1)(A). But a claim
`can arise before it is triggered. Confusing those concepts reads
`“contingent” out of the Code’s broad definition of claims.
`
`Sanofi tries to analogize its claim to a tort claim. In tort, a
`post-bankruptcy injury is a contingent claim if the claimant
`was exposed to the debtor’s injurious product or conduct be-
`fore the bankruptcy filing. In re Grossman’s, 607 F.3d at 125.
`We require pre-bankruptcy exposure so that claimants could
`know about their claims before losing their chance to sue. Id.
`at 125–26. Applying that rule here, Sanofi says it will not be
`exposed to Mallinckrodt’s injurious conduct until Mallinckrodt
`hits the sales trigger and refuses to pay.
`
`But the tort analogy is inapt. A contract embodies the par-
`ties’ consent. The contracting parties not only know of their
`contingent right to payment, but also negotiate for it. So rather
`than analogize to torts, we rely on the regular rule: most con-
`tract claims arise when the parties sign the contract. See St.
`Catherine Hosp. of Ind., LLC v. Ind. Fam. & Soc. Servs. Admin.,
`800 F.3d 312, 316 (7th Cir. 2015); In re THC Fin. Corp., 686
`F.2d 799, 802–04 (9th Cir. 1982). That is when the parties fix
`their liability—even if it is still unliquidated or contingent. See
`In re U.S. Pipe & Foundry Co., 32 F.4th 1324, 1330 (11th Cir.
`2022) (Pryor, C.J.).
`
`6
`
`
`
`Once the parties agree to a contingent right to payment, the
`claim exists. And once the claim exists, bankruptcy can reach
`it. We have said this before in dicta in In re M. Frenville Co.,
`744 F.2d 332, 337 (3d Cir. 1984). And though In re Gross-
`man’s overruled Frenville’s holding, its discussion of contract
`claims is correct.
`
`A few contract claims may not fit this general rule. For
`instance, we might hesitate to find a pre-bankruptcy claim if a
`debtor’s post-bankruptcy conduct is so unexpected that the
`contract could not give the creditor notice. See In re Castellino
`Villas, A.K.F. LLC, 836 F.3d 1028, 1035–36 (9th Cir. 2016).
`Or we might worry if a debtor games bankruptcy, wielding it
`as both a sword and a shield. See In re Ruben, 774 F.3d 1138,
`1141 (7th Cir. 2014); Siegel v. Fed. Home Loan Mortg. Corp.,
`143 F.3d 525, 533 (9th Cir. 1998); In re Sure-Snap Corp., 983
`F.2d 1015, 1018 (11th Cir. 1993). In both circumstances, fair-
`ness might compel special treatment.
`
`But Sanofi confuses these exceptions for the rule. It argues
`that a claim does not exist in bankruptcy if it must be triggered
`by a debtor’s post-bankruptcy choices, as opposed to an
`“extrinsic event.” Yet nothing in the statutory text or Sanofi’s
`out-of-circuit case citations supports such a broad carve-out.
`And because this case does not involve lack of notice or games-
`manship, the equities do not call for an exception. Sanofi knew
`that Mallinckrodt’s royalties would be contingent on its sales.
`By selling the drug, Mallinckrodt is doing exactly what the
`contract “contemplat[es].” Castellino Villas, 836 F.3d at 1037.
`So once bankruptcy discharges Sanofi’s claim, it cannot collect
`future royalties. See In re Weinstein Co. Holdings, 997 F.3d
`497, 506 (3d Cir. 2021).
`
`7
`
`
`
`To protect itself, Sanofi could have structured the deal dif-
`ferently. It could have licensed the rights to the drug, kept a
`security interest in the intellectual property, or set up a joint
`venture to keep part ownership. But it chose not to do so.
`Instead, it sold its rights outright, leaving itself with only a
`contingent, unsecured claim for money. And under the Bank-
`ruptcy Code, that claim is dischargeable.
`
`* * * * *
`
`Bankruptcy frees debtors from lingering claims like this
`one. Sanofi kept no property or security interest in Acthar Gel,
`but only a contractual right to a royalty. Because that contin-
`gent claim arose before Mallinckrodt went bankrupt, it is dis-
`chargeable in bankruptcy. We will thus affirm.
`
`8
`
`
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