Jeld-Wen, Inc. v. Van Brunt (In Re Grossman's Inc.)
2010 U.S. App. LEXIS 11155, 607 F.3d 114, 53 Bankr. Ct. Dec. (CRR) 56 (2010)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
For purposes of the Bankruptcy Code, a 'claim' in a mass tort context arises at the time of the claimant's pre-petition exposure to the debtor's product or conduct, not at the later time when the injury manifests and a state law cause of action accrues.
Facts:
- In 1977, Mary Van Brunt purchased and was exposed to products containing asbestos from a Grossman's Inc. store while remodeling her home.
- In April 1997, Grossman's Inc. filed for Chapter 11 bankruptcy.
- At the time of its bankruptcy, Grossman's knew it had previously sold asbestos-containing products and was aware of the associated health risks and related litigation against manufacturers.
- Grossman's confirmed a plan of reorganization in December 1997, which purported to discharge all claims that arose before its effective date.
- Ms. Van Brunt was unaware of any injury at the time of Grossman's bankruptcy and therefore did not file a proof of claim.
- In 2006, Ms. Van Brunt began to manifest symptoms of mesothelioma, a cancer linked to asbestos exposure.
- She was formally diagnosed with mesothelioma in March 2007.
Procedural Posture:
- After her 2007 diagnosis, Mary Van Brunt and her husband sued JELD-WEN, Inc. (as successor to Grossman's) in New York state court.
- JELD-WEN moved to reopen Grossman's 1997 Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware.
- JELD-WEN sought a declaration that the Van Brunts' tort claims were discharged by Grossman's 1997 plan of reorganization.
- The Bankruptcy Court, following the binding precedent of Frenville, ruled for the Van Brunts, holding their claims arose post-petition when the injury manifested and were therefore not discharged.
- JELD-WEN, as appellant, appealed to the U.S. District Court for the District of Delaware.
- The District Court affirmed the Bankruptcy Court's decision, holding that it was bound by the Frenville precedent.
- JELD-WEN appealed to the U.S. Court of Appeals for the Third Circuit, which convened en banc to reconsider its holding in Frenville.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
For purposes of discharge in bankruptcy, does a tort claim based on pre-petition exposure to a harmful substance arise only when the injury later manifests, as determined by state law?
Opinions:
Majority - Sloviter
No. For purposes of discharge in bankruptcy, a tort claim based on pre-petition exposure to a harmful substance does not arise only when the injury later manifests. The court explicitly overrules its prior precedent in Frenville, which held that a bankruptcy claim arises when the underlying state law cause of action accrues (the 'accrual test'). The court found this test to be universally criticized and inconsistent with the Bankruptcy Code’s 'broadest possible definition' of a 'claim,' which is intended to encompass all of a debtor’s legal obligations, no matter how remote or contingent. Instead, the court adopts a version of the 'conduct test,' holding that a claim arises when an individual is exposed pre-petition to a product or conduct giving rise to the injury. Although this means the Van Brunts' claim is a pre-petition claim, the court remanded the case for a determination of whether discharging it would violate due process, particularly regarding the adequacy of notice to a claimant who was unaware of her injury.
Analysis:
This en banc decision marks a significant shift in the Third Circuit's bankruptcy jurisprudence, abandoning the outlier 'accrual test' from Frenville and aligning with the majority of circuits that employ a 'conduct' or 'exposure' test. This ruling broadens the scope of claims that are considered 'pre-petition' and thus potentially dischargeable, offering greater finality and a 'fresh start' to debtors facing mass tort liabilities. However, the decision also elevates the importance of the due process analysis, creating a critical new battleground over what constitutes adequate notice for 'future claimants' who are unaware of their injuries. Future cases in the circuit will now focus on the fact-intensive inquiry of whether discharging such claims is constitutionally permissible, rather than on the threshold question of when the claim arose.
