K. Rodney May, United States Bankruptcy Judge.
In this adversary proceeding, the Debtor, whose Chapter 11 plan was confirmed more than 20 years ago, seeks a declaratory judgment that recently-filed lawsuits in Alabama state court are barred by its 1995 bankruptcy discharge. The parties have filed motions for summary judgment and they agree that the outcome depends on application of the principles enunciated in Epstein v. Official Committee of Unsecured
United States Pipe & Foundry Company, LLC ("Debtor") was previously a wholly-owned subsidiary of Walter Industries, Inc., now known as Walter Energy, Inc. Debtor manufactured ductile iron pipe for industries and municipalities. Its plant in Birmingham, Alabama, was constructed in 1910; manufacturing began around 1911; and operations ceased around 2010. The plant was ultimately dismantled in 2012 after the surrounding area was designated as a Superfund site.
Debtor, its parent, and affiliated companies filed voluntary petitions for relief under Chapter 11 in this Court on December 27, 1989. The initial claims bar date was October 30, 1992.
Debtor and its affiliates filed an Amended Joint Plan of Reorganization, dated as of December 9, 1994 (the "Plan"). On December 15, 1994, this Court entered a Second Confirmation Hearing Notice, which was published in newspapers in Birmingham, Alabama, and throughout the United States, including the national editions of The Wall Street Journal and the New York Times.
Section 12.1 of the Plan provided for the re-vesting of all assets in the Debtor, free and clear of all claims. The term "claims" in the Plan was adopted from § 101(5) of the Bankruptcy Code.
Section 12.2 of the Plan provided:
Section 12.3 of the Plan called for the discharge to be enforced by an injunction.
The Plan was confirmed by an order entered on March 2, 1995 (the "Confirmation Order"). The Confirmation Order provided, among other things, for the discharge of all claims arising before the Effective Date. It enjoined holders of claims from pursuing the Debtor and other released parties (as defined in the Plan) from liability on account of such claims. Under § 1141(d) of the Bankruptcy Code and the Confirmation Order, the Debtor was discharged of all claims arising before March 2, 1995.
In 2006, the Debtor was sued for claims similar to those being asserted by the Defendants — personal injuries and property damages arising from the release or discharge of toxic chemicals from Debtor's plant. Those claims were settled; the complaint and the settlement documents were filed under seal.
In 2009, the EPA began testing areas near the plant. Sometime between 2009 and 2012, an area around the plant was designated as a Superfund site. In 2013, Debtor was named as a potentially responsible party for cleanup activities in that designated site.
In September of 2015, the Defendants filed twenty-four complaints against Debtor in Alabama state court.
The state court complaints are virtually identical, with counts for negligence, wanton conduct, nuisance, negligence per se, and trespass.
Debtor filed this adversary proceeding on January 18, 2017, to obtain a declaratory judgment that, as a matter of law, the claims asserted by the Defendants arising out of prepetition or pre-confirmation exposures were discharged in 1995. Thus, such claims are enjoined by the Confirmation Order and the statutory discharge injunction. In their presentations to the Court on August 4, 2017, the parties agreed that the proceeding is directed at persons who, prior to the entry of the Confirmation Order, had contact with the neighborhood surrounding the plant by working or visiting there, or by owning property there.
Section 1141(d)(1)(A) provides that confirmation of a plan of reorganization "discharges the debtor from any debt that arose before the date of such confirmation. . . ."
The legislative history of § 101(5) of the Bankruptcy Code indicates that Congress intended the term "claim" to be given broad interpretation so that "all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case."
The Court must determine whether the Defendants, who did not know of their personal injuries or property damages until some years later, nevertheless held "claims" during Debtor's Chapter 11 case. If the Defendants did not then have "claims," the liabilities asserted in their state court lawsuits were not discharged.
Federal courts have articulated different tests to determine whether a "claim" for a tort exists at the time of bankruptcy where debtor's conduct occurred prepetition, but the personal injury may not be discovered until after the bankruptcy case is concluded. These approaches to the issue are denominated
Here, the parties agree that Piper is the governing legal precedent; but, they disagree on the application of the so-called Piper test. Specifically, the issue is whether a person must know, during the bankruptcy case, that they have a right to payment before they can have a claim that may be discharged.
Prior to its bankruptcy filing, Piper Aircraft Corporation ("PAC") had been sued in a number of product liability actions.
The bankruptcy court appointed the future claims representative, who filed a proof of claim for $100 million, based on a statistical estimate of future claims from PAC's prepetition negligent design or manufacture of aircraft.
The bankruptcy court rejected the "state law accrual" test as being inconsistent with the Bankruptcy Code's broad definition of claim, which includes contingent and unmatured obligations.
The bankruptcy court adopted, instead, a "prepetition relationship" test. When defining the outer limits of the concept of a "claim," "there must be some prepetition relationship, such as contact, exposure, impact, or privity, between the debtor's prepetition conduct and the claimant."
Because future injury claimants had not yet used PAC's defective airplanes or parts, such future claimants did not have "claims" in PAC's bankruptcy case.
The Eleventh Circuit affirmed, after reviewing the tests that the bankruptcy court had considered. The court adopted this version of the relationship test:
The Eleventh Circuit concluded that the class of future injury claimants would not meet this threshold requirement because they had no pre-confirmation exposure to PAC's products; nor was there any other pre-confirmation relationship between PAC and the broadly defined class of future injury claimants.
Debtor argues that the determination of whether a claim exists in a bankruptcy case is not dependent on a claimant's knowledge. Debtor cites In re Pan American Hospital Corporation,
Debtor also cites In re Johns-Manville, a 2016 asbestos case where the wife of a retired mill worker brought an action in state court claiming that she contracted cancer in 2015 as a result of exposure to asbestos on her husband's work clothes. The claimant opposed a motion filed by a successor in interest to the debtor to enforce the confirmation orders entered by the bankruptcy court in 1984.
It is significant that the claimant admitted being exposed to asbestos before the 1982 bankruptcy case.
Relying on these cases, Debtor argues that Defendants' allegations in their state court complaints — that the discharge of contaminants from 1911 had an "immediate and/or permanent adverse effect" — is sufficient to put them within the Piper test. But, there is nothing in the record to support a finding that during the Debtor's Chapter 11 there existed any basis to suspect that there were exposures from Debtor's conduct. Neither Debtor, nor Defendants knew of any harmful exposure from the plant during Debtor's Chapter 11 case.
The bankruptcy court in Piper recognized that in the asbestos cases, the claimants were known to have exposure.
The Piper test's requirement of a "relationship" between a debtor's conduct and an "identifiable" claimant implies the further requirement that either (1) the debtor itself is able to identify, during the bankruptcy case, from knowledge of its own conduct, a class of potential future injury claimants or (2) future injury claimants have, during the bankruptcy case, knowledge of objective facts connecting them or their property to the debtor's conduct (e.g. from employment, or purchase or use of a product) so as to be aware of the potential impact of a bankruptcy discharge.
Here, Defendants' exposure to toxic chemicals in the air, ground, and water surrounding the plant was unknown until sometime after 1995. Looking back, hypothetically, if the Piper test had been applied during Debtor's Chapter 11 case, none of the residents of, or visitors to, the neighborhood could have been identified as future claimants based on the contamination, because the tortious conduct had not yet been disclosed or discovered. Nor, had it yet resulted in a known injury.
The Court rejects the argument that Debtor's discharge of harmful chemicals into the air, water or soil since 1911, by itself, created the necessary relationship of conduct to identifiable claimant, as required by the Piper test. Defendants did not have claims prior to the Confirmation Order. Thus, the claims they now assert in the state court lawsuits were not discharged in 1995.
Summary judgment is appropriate here because there is no genuine issue of material fact. The issue here is susceptible of decision solely as a matter of law.
ORDERED that:
ORDERED.
See In re Nat'l Gypsum Co., 139 B.R. at 405; LTV Steel Comp., Inc. v. Shahaha (In re Chateaugay Corp.), 53 F.3d 478, 497 (2d Cir. 1995) (quoting In re Nat'l Gysum Co., 139 B.R. at 405); Olin Corp. v. Riverwood Int'l Corp., 209 F.3d 125, 129 (2d Cir. 2000). But, the bankruptcy court noted that the Second Circuit had not conclusively applied these formulations to future tort claims. In re Johns-Manville, 552 B.R. at 234. As a result,
Id.
Hexcel Corp. v. Stepan Co. (In re Hexel Corp.) 239 B.R. 564, 568 (N.D. Cal. 1999). Hexcel stems from the Ninth Circuit's opinion in In re Jensen, 995 F.2d 925 (9th Cir. 1993), where the court adopted the "fair contemplation" test in a bankruptcy case involving a potential Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") liability claim against the debtors resulting from contamination cleanup. The "fair contemplation" test provides "all future response and natural resource damages costs based on pre-petition conduct that can be fairly contemplated by the parties at the time of the [d]ebtor's bankruptcy are claims under the [Bankruptcy] Code." Id. at 930 (citing In re Nat'l Gypsum Co., 139 B.R. at 409).
In other jurisdictions, courts have ruled that future tort claimants do not hold dischargeable "claims" under the relationship test where, as here, the tort claimant has no basis for learning of its claim prior to confirmation of the debtor's plan. See Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus.), 467 B.R. 694, 704-05 (S.D.N.Y. 2012) (citing Lemelle v. Universal Mfg. Corp., 18 F.3d 1268, 1277 (5th Cir. 1994).