To answer my own question above, I found these posts:
https://lkml.org/lkml/2018/1/8/81 .

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https://bugs.launchpad.net/bugs/1629509

Title:
  Cannot mount overlay with upperdir on overlay

Status in linux package in Ubuntu:
  Confirmed
Status in linux source package in Xenial:
  Confirmed

Bug description:
  I have a docker setup using overlay as its storage driver. I mount an
  overlay in the container. Both the lower, upper and work directories
  are themselves on an overlay filesystem. This mount started to fail
  after upgrading to kernel 4.4.0-38 from 4.4.0-34 with the error
  message "overlayfs: filesystem on '/mnt/overlay/upper' not supported
  as upperdir".

  ProblemType: Bug
  DistroRelease: Ubuntu 16.04
  Package: linux-image-4.4.0-38-generic 4.4.0-38.57
  ProcVersionSignature: Ubuntu 4.4.0-38.57-generic 4.4.19
  Uname: Linux 4.4.0-38-generic x86_64
  ApportVersion: 2.20.1-0ubuntu2.1
  Architecture: amd64
  AudioDevicesInUse:
   USER        PID ACCESS COMMAND
   /dev/snd/controlC0:  shaw       2257 F.... pulseaudio
   /dev/snd/controlC1:  shaw       2257 F.... pulseaudio
  CurrentDesktop: Unity
  Date: Fri Sep 30 20:06:03 2016
  HibernationDevice: RESUME=UUID=f23b927f-5173-43fe-9269-8c7714fb0927
  InstallationDate: Installed on 2016-07-23 (69 days ago)
  InstallationMedia: Ubuntu 16.04.1 LTS "Xenial Xerus" - Release amd64 
(20160719)
  MachineType: Dell Inc. XPS13 9333
  ProcFB: 0 inteldrmfb
  ProcKernelCmdLine: BOOT_IMAGE=/boot/vmlinuz-4.4.0-38-generic 
root=UUID=306f5ab9-de0e-4920-be20-3f4081e13c7e ro persistent quiet splash 
vt.handoff=7
  RelatedPackageVersions:
   linux-restricted-modules-4.4.0-38-generic N/A
   linux-backports-modules-4.4.0-38-generic  N/A
   linux-firmware                            1.157.3
  SourcePackage: linux
  UpgradeStatus: No upgrade log present (probably fresh install)
  dmi.bios.date: 03/19/2014
  dmi.bios.vendor: Dell Inc.
  dmi.bios.version: A04
  dmi.board.vendor: Dell Inc.
  dmi.chassis.type: 8
  dmi.chassis.vendor: Dell Inc.
  dmi.chassis.version: 0.1
  dmi.modalias: 
dmi:bvnDellInc.:bvrA04:bd03/19/2014:svnDellInc.:pnXPS139333:pvr:rvnDellInc.:rn:rvr:cvnDellInc.:ct8:cvr0.1:
  dmi.product.name: XPS13 9333
  dmi.sys.vendor: Dell Inc.

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