Grady v. A.H. Robins Co.
839 F.2d 198, 1988 WL 6635 (1988)
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Rule of Law:
For the purpose of the Bankruptcy Code's automatic stay, a tort claim arises when the acts giving rise to the debtor's liability are performed, even if the injury or its manifestation occurs after the bankruptcy petition is filed, because the term 'claim' is broadly defined to include contingent rights to payment.
Facts:
- A.H. Robins Co., Inc. (Robins), a pharmaceutical company, manufactured and marketed the Dalkon Shield, an intrauterine contraceptive device, from 1971 to 1974.
- Robins discontinued production of the Dalkon Shield in 1974 due to increasing concerns about its safety.
- Rebecca Grady had a Dalkon Shield inserted some years before 1985 but believed the device had fallen out.
- On August 21, 1985, Rebecca Grady was admitted to Salinas Valley Memorial Hospital, complaining of abdominal pain, fever, and chills.
- X-rays and sonograms revealed the presence of the Dalkon Shield inside Rebecca Grady.
- On August 28, 1985, the Dalkon Shield was surgically removed from Rebecca Grady.
- Rebecca Grady later returned to the hospital on November 14, 1985, was diagnosed with pelvic inflammatory disease, and underwent a hysterectomy, which she blamed on the Dalkon Shield.
Procedural Posture:
- A.H. Robins Co., Inc. filed a petition for reorganization under Chapter 11 of the Bankruptcy Code on August 21, 1985.
- On October 15, 1985, Rebecca Grady filed a civil action against Robins in the United States District Court for the Northern District of California.
- The civil action was subsequently transferred to the Eastern District of Virginia.
- Mrs. Grady filed a motion in the bankruptcy court (which was presided over by the district court, acting as the bankruptcy court), seeking a decision that her claim did not arise before the bankruptcy petition filing date so it would not be subject to the automatic stay.
- The bankruptcy court determined that Mrs. Grady’s claim against Robins arose when the acts giving rise to Robins’ liability were performed and was therefore subject to the automatic stay.
- Rebecca Grady and the Legal Representative of the Future Claimants appealed the district court's order to the Fourth Circuit Court of Appeals.
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Issue:
Does a tort claim, where the debtor's alleged tortious conduct occurred pre-petition but the injury manifested post-petition, constitute a 'claim' that arose before the commencement of the bankruptcy case for purposes of the automatic stay under 11 U.S.C. § 362(a)(1)?
Opinions:
Majority - Widener, Circuit Judge
Yes, a tort claim where the debtor's alleged tortious conduct occurred pre-petition but the injury manifested post-petition constitutes a 'claim' that arose before the commencement of the bankruptcy case for purposes of the automatic stay. The court declined to follow the reasoning of other courts, such as `Matter of M. Frenville Co.`, which held that a 'right to payment' (and thus a claim) arises only when it accrues under state law. Instead, the court emphasized the broad definition of 'claim' under 11 U.S.C. § 101(4)(A), which explicitly includes a 'right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.' The legislative history of the Bankruptcy Code indicates that Congress intended for this definition to be as broad as possible, contemplating that 'all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy.' The court adopted the dictionary definition of 'contingent' to mean 'conditioned upon the occurrence of some future event which is itself uncertain.' Rebecca Grady's claim, like those of the Future Tort Claimants, was contingent, depending on the future manifestation of injury from the pre-petition use of the Dalkon Shield. The court reasoned that there is no requirement for a right to immediate payment for a claim to exist under § 362(a)(1) when the acts giving rise to liability occurred pre-petition. This broad interpretation is essential for the automatic stay to provide the debtor with a crucial 'breathing spell' to reorganize, preventing the 'dismemberment rather than reorganization' that would result from numerous individual lawsuits. The court clarified that it was only deciding the applicability of the automatic stay, not the dischargeability of the claims or whether they constitute administrative expenses.
Analysis:
This case is highly significant for its clarification of when tort claims, particularly in the context of mass torts, are deemed to arise for bankruptcy purposes. By rejecting a state-law-based accrual test (like `Frenville`) in favor of a broad federal interpretation focused on the debtor's pre-petition conduct, the Fourth Circuit ensured that a wider universe of potential liabilities falls under the automatic stay. This decision reinforces the bankruptcy system's ability to centralize and efficiently manage claims against a debtor undergoing reorganization, thereby promoting the legislative goals of providing debtors with a 'breathing spell' and ensuring equitable distribution among creditors. It sets an important precedent for future mass tort bankruptcies, directing that claims should generally be addressed within the bankruptcy proceedings rather than through fragmented litigation.
