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 bankruptcy, a tort 'claim' arises when an individual is exposed pre-petition to a product or other conduct giving rise to an injury, even if the injury does not manifest until after the confirmation of a debtor's reorganization plan. However, the discharge of such a claim is subject to the constitutional requirements of due process.
Facts:
- In 1977, Mary Van Brunt purchased products that allegedly contained asbestos from Grossman's Inc., a home improvement retailer, for a home remodeling project.
- Grossman's knew at the time of its later bankruptcy that it had previously sold asbestos-containing products and was aware of the associated health risks and litigation against asbestos manufacturers.
- Grossman's was not aware of any specific product liability lawsuits that had been filed against it for asbestos-related injuries.
- At the time of Grossman's bankruptcy proceedings and plan confirmation in 1997, Mary Van Brunt was unaware of any injury or potential claim, as she had not manifested any symptoms of disease.
- In 2006, nearly thirty years after her exposure, Mary Van Brunt began to manifest symptoms of mesothelioma, a cancer linked to asbestos.
- In March 2007, Ms. Van Brunt was formally diagnosed with mesothelioma.
Procedural Posture:
- In April 1997, Grossman's Inc. filed for Chapter 11 bankruptcy.
- The U.S. Bankruptcy Court confirmed Grossman's Plan of Reorganization in December 1997, which purported to discharge all claims arising before that date.
- In 2007, the Van Brunts filed a tort action against JELD-WEN, Inc. (Grossman's successor) in a New York state court.
- JELD-WEN moved to reopen the Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware, seeking a declaration that the Van Brunts' claims were discharged.
- The Bankruptcy Court, applying binding circuit precedent from Frenville, ruled that the tort claims were not discharged because they arose post-petition when the injury manifested.
- JELD-WEN (Appellant) appealed to the U.S. District Court for the District of Delaware.
- The District Court affirmed the Bankruptcy Court's ruling that the tort claims were not discharged.
- JELD-WEN (Appellant) appealed to the U.S. Court of Appeals for the Third Circuit, with Gordon Van Brunt (Appellee) as the responding party.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a tort claim for an injury that manifests post-petition 'arise' for bankruptcy discharge purposes at the time the cause of action accrues under state law, or at the time of the pre-petition exposure to the product that caused the injury?
Opinions:
Majority - Sloviter, Circuit Judge
No, a tort claim arises for bankruptcy purposes at the time of the pre-petition exposure that caused the injury, not when the state law cause of action accrues. The court overrules its precedent in Avellino & Bienes v. M. Frenville Co. (the 'accrual test'), which held that a claim arises when the underlying state law cause of action accrues. The court found that the Frenville test was universally criticized and imposed too narrow an interpretation of 'claim' under § 101(5) of the Bankruptcy Code, which Congress intended to be as broad as possible to include contingent and unmatured rights to payment. The court adopts a test closer to the 'conduct test' or 'pre-petition relationship' test, holding that a claim arises when an individual is exposed pre-petition to a product or conduct giving rise to an injury. While this means the Van Brunts' claims arose pre-petition in 1977, the court emphasized that their discharge is not automatic and must satisfy due process. Because the lower courts decided the case based on Frenville, they did not consider the due process implications, such as the adequacy of notice to unknown future claimants. The case is therefore remanded for the District Court to determine whether the Van Brunts' claims were actually discharged in a manner consistent with due process.
Analysis:
This en banc decision marks a significant shift in Third Circuit bankruptcy law by explicitly overruling the long-standing but heavily criticized Frenville 'accrual test.' By adopting a pre-petition exposure or conduct test, the court aligns itself with the majority of other circuits and promotes the Bankruptcy Code's 'fresh start' policy, allowing debtors to deal more comprehensively with future mass tort liabilities. However, the court's strong emphasis on due process as a constitutional limit on dischargeability signals that the inquiry is not over. Future litigation will now focus less on when a claim arises and more on the adequacy of notice and procedural fairness afforded to 'future claimants' who were unaware of their injuries during the bankruptcy proceedings.
