Jimmy Williams, Sr. v. Placid Oil Company , 753 F.3d 151 ( 2014 )

Case: 12-11120 Document: 00512641681 Page: 1 Date Filed: 05/27/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 12-11120 United States Court of Appeals
Fifth Circuit
FILED
In the Matter of: PLACID OIL CO., May 27, 2014
Lyle W. Cayce
Debtor Clerk
------------------------------
JIMMY WILLIAMS, SR.; JIMMY WILLIAMS, JR.; DALTON GLEN
WILLIAMS; JEANETTE WILLIAMS SHOWS; GWENDOLYN WILLIAMS
PEACOCK, Individually and on Behalf of the Deceased, Myra Williams,
Appellants
v.
PLACID OIL COMPANY,
Appellee
Appeal from the United States District Court
for the Northern District of Texas
Before DAVIS, GARZA, and DENNIS, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
Mr. Williams and his children (“Williamses”) brought tort claims against
Placid Oil Company (“Placid”) in connection with the allegedly asbestos-related
illness and death of his wife. The bankruptcy court granted Placid’s motion for
summary judgment, and the district court affirmed. Because we conclude that
the Williamses were unknown creditors whose pre-petition claims were
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discharged by Placid’s constructive notice and that Placid’s notice was not
substantively deficient, we AFFIRM.
I
Placid, a Texas company, owned and operated a large natural gas
production and processing facility near Black Lake, Louisiana. The company
filed for bankruptcy in 1986. The bankruptcy court set January 31, 1987, as
the bar date by which potential creditors were required to file claims. On three
occasions in January 1987, Placid published a Notice of Bar Date in the Wall
Street Journal, a newspaper of national circulation available in Louisiana. The
notice informed creditors of the existence of the bankruptcy case, their
opportunity to file proofs of claim, relevant deadlines, consequences of not
filing a proof of claim, and how proofs of claim should be filed. On September
30, 1988, Placid confirmed its Fourth Amended Plan of Reorganization
(“Plan”). The court order provided that all claims against Placid that arose on
or before this confirmation date were forever discharged except for Placid’s
obligations under the Plan, which did not address potential future asbestos
liability.
Mr. Williams worked at the Black Lake facility from 1966 to 1995. For
the purposes of this proceeding, the parties agreed that Mr. Williams was
occupationally exposed to insulation containing asbestos, that Mrs. Williams
was exposed to asbestos dust and fibers when laundering Mr. Williams’s
clothing, and that the insulation was in Placid’s care, custody, and control prior
to the sale of the facility in 1988. In 2003, Mrs. Williams’s health suddenly
deteriorated. She was diagnosed with the asbestos-related lung cancer
mesothelioma and passed away on August 9, 2003. In March 2004, in
Louisiana state court, the Williamses brought a tort action against Placid,
alleging that its negligence caused Mrs. Williams’s death and attendant
damages. In November 2008, Placid filed a motion to reopen its bankruptcy
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case, and in September 2009, Placid filed a complaint asking the bankruptcy
court to determine whether the Williamses’ claims were discharged, thereby
commencing this adversary proceeding.
By the early 1980s, Placid was aware, generally, of the hazards of
asbestos exposure and, specifically, of Mr. Williams’s exposure in the course of
his employment. Prior to the Plan’s confirmation, no asbestos-related claims
had ever been filed against Placid, and the Williamses did not file any proof of
claim. After confirmation, other plaintiffs commenced asbestos-related suits
against Placid, but Placid has neither been found liable in nor settled any such
case. To Mr. Williams’s knowledge, none of his co-workers or their spouses has
ever developed mesothelioma. Additionally, Mr. Williams testified that he was
generally aware of Placid’s bankruptcy but does not recall any meetings,
updates, or newspaper notices regarding the bankruptcy. To date, Placid has
not been found liable in any lawsuit alleging asbestos exposure at a Placid
facility, nor has it paid any money to settle such a case.
The bankruptcy court granted Placid’s motion for summary judgment
and denied the Williamses’ cross-motion. The court found that the Williamses
had pre-confirmation claims and that the claims were discharged by Placid’s
constructive notice. The district court affirmed. The Williamses now appeal,
contending that because the method and substance of Placid’s notice were
insufficient on due process grounds, their claims were not discharged.
II
We review a bankruptcy court’s grant of summary judgment de novo.
See In re Kinkade, 707 F.3d 546, 548 (5th Cir. 2013). Summary judgment is
proper when there is “no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Id. (quoting Fed. R. Civ.
P. 56(a)); Fed. R. Bankr. P. 7056. To make this determination, we must view
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facts and inferences “in the light most favorable to the nonmoving party.” In
re Kinkade, 707 F.3d at 548.
III
The Williamses first contend that the bankruptcy court erred in finding
that they were “unknown” creditors for whom constructive notice of the bar
date satisfied due process. 1
Section 523(a)(3)(A) of the Bankruptcy Code provides that a creditor’s
claim may be discharged upon the bankruptcy plan’s confirmation if the
“creditor had notice or actual knowledge of the case in time for . . . timely
filing.” 11 U.S.C. § 523(a)(3)(A); see also In re Kendavis Holding Co., 249 F.3d
383, 385–86 (5th Cir. 2001). Due process requires that notice be “reasonably
calculated, under all the circumstances, to inform interested parties of the
pendency” of a proceeding. Mullane v. Cent. Hanover Bank & Trust Co., 339
U.S. 306, 314 (1950).
1 Because the Williamses do not contest on appeal the bankruptcy court’s finding that
they possessed pre-confirmation claims subject to discharge, this issue is waived. Procter &
Gamble Co. v. Amway Corp., 376 F.3d 476, 499 n.1 (5th Cir. 2004). The dissent recognizes
this omission as well. Post at 2. We note, however, that Wright v. Owens Corning, 679 F.3d
101 (3d Cir. 2012), raises doubts as to whether the Williamses actually had dischargeable
claims. In that case, the Third Circuit held that for due process purposes, the existence of a
pre-confirmation claim is governed by the law at the time of notice, and not by retroactive
application of current law. Id. at 108. Here, Placid provided constructive notice to its
unknown creditors in 1987. In finding that the Williamses had pre-petition claims, the
bankruptcy court relied on our 1994 decision in Lemelle v. Universal Manufacturing
Corporation (In re Lemelle), 18 F.3d 1268 (5th Cir. 1994). Even if we assume that the district
court correctly read Lemelle to establish that the pre-petition relationship test governs the
existence of asbestos claims, that case post-dated Placid’s bankruptcy. But because this issue
has not been squarely presented, we do not opine on it today and proceed from the premise
that the Williamses had pre-confirmation claims. The dissent begins from the opposite
premise—that the Williams had no dischargeable pre-confirmation claims—by rendering
Lemelle inapplicable to latent disease-related claims. Post at 1. Assisted by proper briefing,
a future panel may well opt to narrow Lemelle in this way, but we observe today that the
dissent’s “context-specific approach,” id. at 9, would effectively require firms across
innumerable industries to appoint a future-claims representative and reserve assets of the
estate pro forma, in order to definitively resolve any “unknown, future latent-disease claims”
at bankruptcy, id. at 7.
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The level of notice required by the Due Process Clause depends on
whether a creditor is “known” or “unknown.” A debtor must provide actual
notice to all “known creditors” in order to discharge their claims. City of New
York v. New York, N.H. & H.R. Co., 344 U.S. 293, 295–97 (1953). Known
creditors include both claimants actually known to the debtor and those whose
identities are “reasonably ascertainable.” Tulsa Prof’l Collection Servs., Inc. v.
Pope, 485 U.S. 478, 489–490 (1988). A claimant is “reasonably ascertainable”
if he can be discovered through “reasonably diligent efforts.” Id. at 490
(citation omitted). “[I]n order for a claim to be reasonably ascertainable, the
debtor must have in his possession, at the very least, some specific information
that reasonably suggests both the claim for which the debtor may be liable and
the entity to whom he would be liable.” In re Crystal Oil, 158 F.3d at 297. 2 By
contrast, the debtor need only provide “unknown creditors” with constructive
notice by publication. Id. at 295, 298. Publication in a national newspaper
such as the Wall Street Journal is sufficient. Id. at 295, 297–98.
The crux of this dispute is the meaning of Crystal Oil. In Crystal Oil, the
Louisiana Department of Environmental Quality (“LDEQ”) brought
environmental damage claims against Crystal Oil Company after its
bankruptcy plan’s confirmation. Prior to the bankruptcy, a company
representative had briefly corresponded with LDEQ. The LDEQ
2 We reject the Williamses’ interpretation at oral argument of the Third Circuit case
In re Grossman’s. The Williamses asserted that under Grossman’s, sufficiency of notice
hinges on whether claimants were aware of their vulnerability to asbestos or on a
“reasonableness” standard. Regarding the first test, awareness of vulnerability was only one
of many factors that the court in dicta recommended that the lower court consider in its
discharge analysis. Another factor was “whether the claimants were known or unknown
creditors.” Jeld-Wen, Inc. v. Van Brunt (In re Grossman’s Inc.), 607 F.3d 114, 127 (3d Cir.
2010). In any case, Mr. Williams was aware of his vulnerability: He knew that he was
exposed to asbestos in his work, and the dangers of asbestos were widely known at the time,
as even the Williamses contend. As for “reasonableness” of notice, the Third Circuit
articulated no such amorphous standard; rather, the overall test is whether the notice
comported with due process. Id. at 125, 127.
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representative knew of contamination on a plot of land and, without informing
Crystal Oil of the contamination or any potential environmental claim, asked
only whether the company owned the land. After a faulty but good-faith title
investigation, Crystal Oil replied in the negative. Id. at 293–95.
We held that although the issue was factually close, the bankruptcy
court’s determination that LDEQ was an unknown creditor was not clear error.
Id. at 298. We first synthesized the case law: “[I]n order for a claim to be
reasonably ascertainable, the debtor must have in his possession, at the very
least, some specific information that reasonably suggests both the claim for
which the debtor may be liable and the entity to whom he would be liable.” Id.
We reasoned that LDEQ might arguably be a known creditor since the Crystal
Oil employee expressed concern that “there could be environmental problems”
after speaking with the LDEQ representative. Id. at 298. Moreover, the fact
that the LDEQ representative had mentioned Crystal Oil’s predecessor—the
previous title holder of the land—meant that Crystal Oil had notice that LDEQ
might have a claim. Id. On the other hand, LDEQ’s inquiry mentioned nothing
about environmental problems, and Crystal Oil lacked concrete notice of any
claim. Id. We thus concluded that the bankruptcy court’s finding that LDEQ
was an unknown creditor was not clear error.
Here, we clarify this Circuit’s understanding of the rule of Crystal Oil.
At one extreme, the law does not require that a creditor serve upon the debtor
a formal complaint in order to make himself “reasonably ascertainable” or
“known.” However, at a minimum, the debtor must possess “specific
information” about a manifested injury, to make the claim more than merely
foreseeable.
This understanding of Crystal Oil is informed by several authorities and
by our sensitivity to the policy concerns underlying bankruptcy law. First, the
Supreme Court’s opinion in Mullane, the origins of due process jurisprudence
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in the pre-discharge notice context, teaches that unknown creditors are those
whose “interests are either conjectural or future or, although they could be
discovered upon investigation, do not in due course of business come to
knowledge [of the debtor].” Mullane, 339 U.S. at 317. The Court specifically
declined to impose upon the debtor “ordinary standards of diligence,” given
countervailing concerns for efficiency. 3 Id. Thus, the Court recognized a
temporal distinction; “conjectural” claims of a creditor that arise too far in the
future cannot make that creditor “known.” Id.; see also In re Hunt, 146 B.R.
178, 182 (Bankr. N.D. Tex. 1992) (“Unknown creditors include those whose
identities or claims are not reasonably ascertainable and those who have
merely conceivable, conjectural, or speculative claims.” (emphasis added)).
The decisions of other courts of appeals also establish that the claim of a
known creditor must be based on an actualized injury, as opposed to merely
foreseeable. The Third Circuit’s Chemetron decision, which we cited favorably
in Crystal Oil, held that known claimants must be “reasonably ascertainable,
not reasonably foreseeable.” Chemetron Corp. v. Jones, 72 F.3d 341, 348 (3d
Cir. 1995). In Chemetron, the claims at issue were filed by residents of and
occasional visitors to an area contaminated by radioactive waste. Id. at 344–
45. The court explained that a foreseeability test conflicted with other
authorities and would “place an impossible burden on debtors,” given the
difficulty of defining the affected geography and individuals. Id. at 347–48; see
also COLLIER ON BANKRUPTCY ¶ 342.02 (6th ed. 2013) (quoting Chemetron
definition of unknown creditors).
3Although Mullane defined unknown creditors in the context of judicial settlement of
accounts by the trustee of a common trust fund, in Tulsa Professional Collection Services, the
Supreme Court applied the Mullane definition to the analogous context of claims discharge
in bankruptcy. Tulsa Prof’l Collection Servs., 485 U.S. at 490.
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Two appeals court opinions are particularly persuasive because they
apply Crystal Oil. Those courts concluded that creditors were “known” because
the debtor knew of specific complaints or injuries. The First Circuit in In re
Arch Wireless, Inc., 534 F.3d 76 (1st Cir. 2008), concluding that the bankruptcy
court did not clearly err in finding a creditor to be “known,” cited emails sent
by the creditor to the debtor prior to the bankruptcy. The emails alleged that
the debtor’s faulty products had caused substantial losses and “could
reasonably be understood to assert an entitlement to affirmative
compensation.” Id. at 81–82. Similarly, the Fourth Circuit in In re J.A. Jones,
Inc., 492 F.3d 242 (4th Cir. 2007), explained that an employee of the debtor
was fully aware of a fatal and widely publicized accident in a construction zone
for which the debtor served as the general contractor. Accordingly, the
bankruptcy court did not clearly err in finding that the estate of an accident
victim was a known creditor, even though no pre-petition claims had been filed.
Id. at 251–52 & n.9. Thus, to conclude that a creditor is known, a court must
determine that, at a minimum, a debtor has “specific information” related to
an actual injury suffered by the creditor. In re Crystal Oil, 158 F.3d at 297. 4
Information, however specific, that makes a claim only foreseeable or
conjectural is insufficient. 5
4 To use the words of Mullane invoked by the dissent, post at 10 n.5, individuals who
lack any actual injury have only “interests [that] are either conjectural or future,” Mullane,
339 U.S. at 317, and cannot be deemed “interested parties” or “known present beneficiaries”
requiring actual notice, id. at 318.
5 In Chemetron, the Third Circuit also recognized that a creditor could become
“known” without actually entering its claim into the “books and records” of the debtor, but
that the facts of that case did not present the opportunity to address the issue. Chemetron,
72 F.3d at 347 n.2 (“Situations may arise when creditors are ‘reasonably ascertainable,’
although not identifiable through the debtor’s books and records.”). In this case, we shed
additional light on the space between mere foreseeability and books-and-records knowledge
by requiring that the debtor possess information regarding a creditor’s actual injury, in order
for that creditor to be known.
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Furthermore, policy concerns specific to bankruptcy weigh heavily
against defining known creditors as those with merely foreseeable claims.
Bankruptcy offers the struggling debtor a clean start. In the interests of
facilitating this recovery and balancing due process considerations, the courts
have established a practical limit to the debtor’s duty to notify creditors: Actual
notice is required only for “known” creditors. We decline today to alter this
limit.
Applying the above principles, we hold that the bankruptcy court did not
err in finding that the Williamses were unknown creditors under the
undisputed facts presented here. Although Placid knew of the dangers of
asbestos and Mr. Williams’s exposure, such information suggesting only a risk
to the Williamses does not make the Williamses known creditors. Here, Placid
had no specific knowledge of any actual injury to the Williamses prior to its
bankruptcy plan’s confirmation. Cf. City of New York, 344 U.S. at 296
(concluding that holder of known liens was entitled to actual notice).
Furthermore, no instances of asbestos-related injury or illness were known to
Placid prior to confirmation. In re J.A. Jones, Inc., 492 F.3d at 251–52
(accident-caused injuries known to debtor). Press clippings about widely-
known, but general, risks of asbestos exposure do not establish that Placid
knew of any specific injury to its employees or any asbestos-related claim. 6
The Williamses invoke a series of policy arguments that are either
inapplicable or unpersuasive. They first contend that delivering actual notice
to Mr. Williams “would have been simple.” The proper threshold inquiry,
however, is not the cost of providing actual notice, which is inevitably
The Williamses also submit that a periodical article about risks to family members
6
of asbestos factory workers demonstrates that Placid was aware of Mrs. Williams’s potential
claim. However, Mr. Williams did not work in an asbestos factory, and the Williamses have
not shown that Placid was aware of the level of Mrs. Williams’s exposure.
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negligible when contemplating only an individual creditor. Rather, the
bankruptcy court must assess the reasonableness of ascertaining known
creditors. As for this threshold question, the Williamses fail to explain how
Placid should have reasonably ascertained that some of its hundreds of
employees (not to mention former employees) had actual asbestos-related
injuries. Next, the Williamses submit that because Placid had superior
knowledge of asbestos-related risks, it must bear the consequences of its choice
to provide constructive notice where it had “no contemplation of future claims.”
But this theory misses the bankruptcy overlay: If a debtor has “no
contemplation” of a creditor’s pre-petition claim, then that creditor is by
definition unknown, and constructive notice discharges the claim upon
confirmation. Finally, the Williamses emphasize the unique situation
presented by the latency of asbestos-related illness. We are not unsympathetic
to fairness concerns, but on the record and briefing before us, we again
conclude that bankruptcy norms must trump: Parties with merely foreseeable
claims are not “known” creditors. 7
IV
The Williamses further contend that even if they were unknown
creditors, Placid’s general notices of the bar date, published in the Wall Street
Journal and not mentioning potential asbestos claims, were substantively
insufficient for due process purposes.
7We again note the Williamses’s failure to appeal the bankruptcy court’s finding that
they had dischargeable pre-confirmation claims. See supra n.1. Furthermore, as the
bankruptcy court observed, Congress can enact a solution, as it has indeed begun to do in the
asbestos injury context. But we reject the Williamses’ policy-driven reliance on Congress’s
amendment to the Bankruptcy Code. As the bankruptcy court correctly explained, the Code
provisions providing special protection to asbestos victims would not have applied to Placid’s
bankruptcy since Placid had never been subjected to asbestos claims. See 11 U.S.C. § 524(g).
We opt not to extend the statute beyond its scope.
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We have never required bar date notices to contain information about
specific potential claims. To the contrary, we have determined that publication
in the national edition of the Wall Street Journal discharges the pre-
confirmation claims of unknown creditors. In re Crystal Oil, 158 F.3d at 295,
297–98. Furthermore, neither the Bankruptcy Code nor Rules require bar date
notices to apprise creditors of potential claims. See Fed. R. Bankr. P. 2002(f)
(requiring only that notice state “time allowed for filing claims”).
We hold that because a bar date notice need not inform unknown
claimants of the nature of their potential claims, Placid’s notices were
substantively sufficient to satisfy due process. Placid’s notice informed
claimants of the existence of the bankruptcy case, the opportunity to file proofs
of claim, relevant deadlines, consequences of not filing a proof of claim, and
how proofs of claim should be filed. 8 We decline to articulate a new rule that
would require more specific notice for unknown, potential asbestos claimants. 9
8 Furthermore, in Shelton Property Rural Acreage, L.L.C. v. Placid Oil Co. (In re
Placid Oil Co.), 450 F. App’x 323 (5th Cir. 2011) (unpublished), we found that the same notice
in the same bankruptcy case was sufficient to discharge environmental damage claims
brought by an unknown creditor. Id. at 326 (“[N]otice by publication in the Wall Street
Journal is sufficient for unknown creditors.”).
9 The Williamses’ reading of the case law is unpersuasive. In DPWN Holdings (USA),
Inc. v. United Air Lines, Inc., 871 F. Supp. 2d 143 (E.D.N.Y. 2012), a debtor allegedly
fraudulently concealed an antitrust conspiracy from a creditor. Confronted with these unique
facts, the district court held that notice of specific claims is required prior to discharge “where
a debtor is aware of certain claims against it due to information uniquely within its purview.”
Id. at 159. Another case cited by the Williamses deals with known, not unknown, claimants.
See Acevedo v. Van Dorn Plastic Mach. Co., 68 B.R. 495, 499 (Bankr. E.D.N.Y. 1986)
(reasoning that because employer knew of employee’s machine-related injury before its
bankruptcy, its failure to notify machine’s manufacturer about the injury would make
manufacturer’s post-confirmation claim non-dischargeable). AmChem Products v. Windsor,
521 U.S. 591 (1997), suggests that inadequate notice might raise due process concerns in the
class action context, but the Court’s observations were dicta. See post at 4–5. Similarly,
other discussion in In re Hexcel Corporation invoked by the Williamses lay beyond that court’s
holding; that case concerned the distinct question of when and whether a pre-confirmation
claim arose. See In re Hexcel Corp., 239 B.R. 564, 570–72 (N.D. Cal. 1999). Finally, the
Williamses’ contention that “sufficiency of notice is determined on a creditor-by-creditor
basis” takes the Supreme Court’s words in Tulsa Professional Collection Services out of
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V
For the foregoing reasons, we AFFIRM.
context. In that case, the Court explained that actual notice is required for known creditors,
whereas constructive notice is sufficient for unknown creditors. Tulsa Prof’l Collection
Servs., 485 U.S. at 484. We have already explored this principle and need not revisit it.
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JAMES L. DENNIS, Circuit Judge, dissenting:
The underlying legal issue in this case is whether a bankruptcy court
may, consistent with the Constitution’s guarantee of due process, hold that a
state-law wrongful-death claim based on the death of a housewife, who fatally
contracted mesothelioma from asbestos fibers on her husband’s work clothes,
was discharged in a bankruptcy filed by her husband’s former employer fifteen
years before she developed or was aware of any symptom of the disease. In my
view, the bankruptcy court in this case erred in failing to recognize that such
a result would violate the constitutional guarantee of due process of law. The
bankruptcy court was led into this constitutional error by its misinterpretation
of our decision in Lemelle v. Universal Manufacturing Corp.,18 F.3d 1268, 1276
(5th Cir. 1994), as adopting the “pre-petition relationship test” formulated by
other circuits and calling for the discharge of any asbestos-related claim
resulting from a victim’s exposure to asbestos by a debtor prior to the debtor’s
petition for bankruptcy. Contrary to the bankruptcy court’s reading, however,
Lemelle did not address whether an unknown, future claim, 1 such as the
housewife’s latent mesothelioma claim in this case, was dischargeable in
bankruptcy and it certainly did not hold that this circuit has adopted the pre-
petition relationship test for application in bankruptcy cases involving
asbestos-related injuries. 2
1 For the purpose of this opinion, and unless otherwise stated, “unknown, future
claim” refers to the future claim of an asbestos-exposed individual whose disease has not
manifested itself by the time of the bankruptcy filing. In other words, it is a claim that is
unknown to either the debtor or the potential creditor at that time.
2 Because there was no evidence in the record regarding whether the claimant, the
mother of two men injured in mobile-home fire, had purchased or acquired an allegedly
defective mobile home from the debtor, a manufacturer of such homes, the Lemelle court
concluded:
Where, as here, the injury and the manifestation of that injury occurred
simultaneously—more than three years after [the debtor] filed its petition and
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Our duty to correct the bankruptcy court’s constitutional errors as well
as its misreading of Lemelle is complicated, however, by the plaintiffs’ failure
to adequately brief those issues in this court. On appeal, the plaintiffs squarely
address only the issue of whether the constructive notice by publication
provided to unknown, future claimants, such as the latent mesothelioma
victim in this case, passed constitutional muster. Nevertheless, that alleged
error inextricably relates directly to, and cannot adequately be addressed
without considering, a more fundamental due process issue, viz., whether a
latent asbestos claim of an asbestos-exposed, but not yet knowingly injured,
person is dischargeable in bankruptcy and, if so, under what circumstances.
Therefore, I believe that the plaintiffs have sufficiently preserved and argued
all such errors for our review. Even if the majority of this panel refuses to
grant the plaintiffs relief because of their deficient appellate briefing, this
panel still owes a duty to oversee the orderly development of our jurisprudence,
and a duty to future victims of mesothelioma and other latent diseases, to
acknowledge and correct, rather than to paper over, the errors plainly evident
in the bankruptcy court’s decision below.
more than two years after the plan was confirmed, we think that, at a
minimum, there must be evidence that would permit the debtor to identify,
during the course of the bankruptcy proceedings, potential victims and thereby
permit notice to these potential victims of the pendency of the proceedings.
This record is devoid of any evidence of any pre-petition contact, privity, or
other relationship between [the debtor], on the one hand, and [the mother] or
the decedents, on the other. We think the absence of this evidence precludes a
finding by the district court that the claims asserted by [the mother] were
discharged in [the debtor]’s bankruptcy proceedings.
18 F.3d at 1277 (citation omitted). In other words, this court had no occasion to adopt a
definitive test defining a “claim” for the purposes of § 101(5)(A) of the Bankruptcy Code—
much less one with respect to unknown, future mesothelioma claimants—because it was
unnecessary for the disposition of the case.
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In Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950),
the Supreme Court considered what notice is mandated by the Due Process
Clause. Due process, the Court said, “at a minimum” requires notice and an
opportunity to be heard before a court may deprive a person of his or her
property. Id. at 313. Personal notice, however, is not always necessary; rather,
the Constitution requires “notice reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action and
afford them an opportunity to present their objections.” Id. at 313-14. To
determine what form the notice must take, the Mullane Court distinguished
between two types of claimants: known and unknown. See id. at 317-19. The
Court explained that for claimants “whose interests are either conjectural or
future,” “extended searches are not required” and constructive notice by
publication is sufficient. Id. at 317-18. The Mullane Court did not indicate,
however, that the unknown-claimants category includes asbestos-exposed
persons with latent-disease damage that is as yet unknown to those future
victims.
Although “Mullane allows constructive notice to unknown claimants so
long as no other method would be more effective in reaching them, the Court
has not endorsed such an approach to claimants who are not only unknown but
‘unselfconscious and amorphous,’ as are future claimants in bankruptcy,” such
as Myra Williams with her unknown, latent asbestos claim. Laura B. Bartell,
Due Process for the Unknown Future Claim in Bankruptcy—Is This Notice
Really Necessary?, 78 AM. BANKR. L.J. 339, 351-52 (2004) (footnote omitted)
(quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 628 (1997)); see also
Georgene Vairo, Mass Tort Bankruptcies: The Who, the Why and the How, 78
AM. BANKR. L.J. 93, 134 (2004) (“[N]either Mullane nor any case following it
involved claimants who were not only unknown to the party sending the notice
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but who were in essence unknown to themselves and who therefore would not
recognize themselves as the intended targets of the notice even were the notice
actually received.”). Not only has the Court never endorsed such an approach,
but a majority of the Court has also strongly indicated that requiring only
constructive notice to individuals exposed to asbestos but who do not know
about either their exposure or the harm that may result would present grave
problems. In Amchem Products, Inc. v. Windsor, the Supreme Court
considered certification of a class action under Rule 23(b)(3) that included
individuals who had been exposed to asbestos but had yet to manifest any
injuries. 521 U.S. at 597, 602-03. The Court ruled that the class as certified
failed to satisfy Rule 23’s predominance and adequacy-of-representation
requirements, id. at 622-28, and further cautioned that
[m]any persons in the exposure-only category, the Court of Appeals
stressed, may not even know of their exposure, or realize the extent
of the harm they may incur. Even if they fully appreciate the
significance of class notice, those without current afflictions may
not have the information or foresight needed to decide,
intelligently, whether to stay in or opt out.
Family members of asbestos-exposed individuals may
themselves fall prey to disease or may ultimately have ripe claims
for loss of consortium. Yet large numbers of people in this
category—future spouses and children of asbestos victims—could
not be alerted to their class membership. And current spouses and
children of the occupationally exposed may know nothing of that
exposure.
Because we have concluded that the class in this case cannot
satisfy the requirements of common issue predominance and
adequacy of representation, we need not rule, definitively, on the
notice given here. In accord with the Third Circuit, however, we
recognize the gravity of the question whether class action notice
sufficient under the Constitution and Rule 23 could ever be given
to legions so unselfconscious and amorphous.
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No. 12-11120
Id. at 628 (citation omitted). Although Amchem emphasized the grave question
regarding whether class-action notice sufficient under the Constitution and
Rule 23 can ever be given to unselfconscious and amorphous individuals
exposed to asbestos but who have yet to manifest any injuries, the same serious
question exists as to whether notice sufficient under the Constitution can ever
be given to workers exposed to asbestos and their families so as to properly
discharge their claims in bankruptcy.
Several courts and commentators have also recognized that constructive
notice to such unknown—and unknowing—future claimants fails to comport
with the guarantee of due process. See, e.g., In re Hexcel Corp., 239 B.R. 564,
571 (N.D. Cal. 1999) (stating that publication notice may be sufficient for
“creditors who could contemplate that they might have a claim” but reasoning
that this is not the case “for a potential creditor who had no way of knowing
that it may have a claim against the debtor some time in the future”); Bartell,
supra, at 354 (“If they are alive and actually see the notice, [future claimants]
could not recognize themselves as affected in any way by the bankruptcy court
case and will, therefore, take no action to ensure their interests are
represented.”). Unknown, future claimants, even if they receive notice of a
bankruptcy proceeding, are often unable to recognize that their rights will be
affected by the bankruptcy, for instance because they are unaware that the
debtor has exposed them to toxic substances or because they have yet to
manifest any injuries by the time the debtor files for bankruptcy. “Even if they
fully appreciate the significance of [the] notice, those without current
afflictions may not have the information or foresight needed to decide,
intelligently, whether” to participate in the bankruptcy. Amchem, 521 U.S. at
628. This is especially true for claimants with asbestos-related injuries, which
often take years to manifest themselves. See id. at 598 (noting “a latency
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period that may last as long as 40 years for some asbestos related diseases”)
(internal quotation marks omitted); Kane v. Johns-Manville Corp., 843 F.2d
636, 639 (2d Cir. 1988) (“A significant characteristic of these asbestos-related
diseases is their unusually long latency period. An individual might not
become ill from an asbestos-related disease until as long as forty years after
initial exposure. Hence, many asbestos victims remain unknown, most of
whom were exposed in the 1950’s and 1960’s before the dangers of asbestos
were widely recognized. These persons might not develop clinically observable
symptoms until the 1990’s or even later.”); In re Evans Prods. Co., 2009 WL
2448145, at *8 (Bankr. S.D. Fla. Aug. 6, 2009) (noting that “[d]ecades might
pass before these persons even realize any harm has come to them” from
asbestos).
“[W]hen an individual cannot recognize that he or she has a claim in a
bankruptcy case and, therefore, cannot make a decision about how to assert
that claim, that person is functionally or constructively ‘incompetent’ for
purpose of the bankruptcy case.” Bartell, supra, at 366. “These claimants . . .
have no ability to represent their own interests in the bankruptcy case because
they cannot be given the information necessary to enable them to make
decisions about those interests.” Id. at 370. Consequently, “[c]onstructive
notice cannot reach [them because they] do not know of their claims.” Id. In
other words, “[p]ublication is not notice at all.” Id.
However, “a bankruptcy court may appropriately appoint a guardian ad
litem”—or, stated differently, a future-claims representative—“to represent
their interests in an adversary proceeding under [Bankruptcy] Rule 7017.” Id.
at 367; see FED. R. BANKR. P. 7017 (stating that Federal Rule of Civil Procedure
17 “applies in adversary proceedings”); FED. R. CIV. P. 17(c) (permitting “a
general guardian,” “a committee,” “a conservator,” or “a like fiduciary” to “sue
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or defend on behalf of a minor or an incompetent person” and providing that
“[t]he court must appoint a guardian at litem—or issue another appropriate
order—to protect a minor or incompetent person who is unrepresented in an
action”); cf. 11 U.S.C. § 524(g). 3 Not only could notice to a future-claims
representative appointed in this manner satisfy due process, see, e.g., In re
Schicke, 97 F. App’x 249, 251 (10th Cir. 2004) (notice to judgment creditor’s
attorney satisfied due process); In re De La Cruz, 176 B.R. 19, 23-24 (9th Cir.
B.A.P. 1994) (notice to attorney for guardian of minor creditor satisfied due
process); In re Chi., Rock Island & Pac. R.R. Co., 788 F.2d 1280, 1281-83 (7th
Cir. 1986) (notice to minor creditor’s mother satisfied due process), but failure
to appoint a future-claims representative likely means that unknown, future
latent-disease claims may not, consistent with due process, be discharged, see
In re Chance Indus., Inc., 367 B.R. 689, 708-10 (Bankr. D. Kan. 2006)
(concluding in the alternative that “a confirmation order that discharges the
claims of an unknown future tort claimant without any notice [to the creditor
or to a future-claims representative] and an opportunity to be heard violates
due process” (citing Bartell, supra, at 354-56)); Bartell, supra, at 370; see also
Jones v. Chemetron Corp., 212 F.3d 199, 209 (3d Cir. 2000) (“[I]f a potential
claimant lacks sufficient notice of a bankruptcy proceeding, due process
3 “Under § 524(g), a court-appointed fiduciary stands in for . . . future asbestos
claimants, and the court ensures that any proposed plan is fair to them.” In re Plant
Insulation Co., 734 F.3d 900, 906 (9th Cir. 2013) (citing 11 U.S.C. § 524(g)(4)(B)(i)-(ii)).
Although Congress enacted § 524(g) in 1994—six years after Placid’s bankruptcy—Congress
did so “in light of the approach taken in the celebrated Johns-Manville bankruptcy case,” id.
at 905, which pre-dated confirmation of Placid’s 1988 plan of reorganization, see In re Johns-
Manville Corp., 68 B.R. 618, 626-27 (Bankr. S.D.N.Y. 1986), aff’d 78 B.R. 407 (S.D.N.Y. 1987),
aff’d sub nom. Kane, 843 F.2d at 636. The bankruptcy court was therefore able to appoint a
future-claims representative at the time of Placid’s bankruptcy. Regardless, the bankruptcy
court’s chief error in this case stems from neglecting to recognize that discharging Myra
Williams’s unknown, future mesothelioma claim based on constructive notice alone failed to
comport with the requirements of due process.
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considerations dictate that his or her claim cannot be discharged by a
confirmation order. Such due process considerations are often addressed by
the appointment of a representative to receive notice for and represent the
interests of a group of unknown creditors.”) (citations omitted); cf. Covey v.
Town of Somers, 351 U.S. 141, 146 (1956) (concluding that “[n]otice to a person
known to be an incompetent who is without the protection of a guardian” does
not satisfy Mullane). Recognizing this, many courts have discharged unknown,
future claims but only when constructive notice has been coupled with the
appointment of a future-claims representative. See, e.g., In re Johns-Manville
Corp., 68 B.R. 618, 626-27 (Bankr. S.D.N.Y. 1986), aff’d 78 B.R. 407 (S.D.N.Y.
1987), aff’d sub nom. Kane, 843 F.2d at 636; cf. Jones, 212 F.3d at 209-10
(holding that if a claimant who was unborn at the time of confirmation had a
“claim,” it was not discharged when no representative had been appointed to
represent his interests in the bankruptcy).
These and other authorities 4 recognize the grave due process problems
presented by the discharge of unknown—and unknowable—future claims,
4 See Wright v. Owens Corning, 679 F.3d 101, 108 n.7 (3d Cir. 2012) (“express[ing] no
opinion on the broader issue of whether discharging unknown future claims comports with
due process” but stating that “[b]ecause a future claims representative was not appointed in
these bankruptcy cases, we leave open whether, when [a future-claims] representative
provides persons with unknown future claims an opportunity to participate in the bankruptcy
case through that representation, they are afforded due process through otherwise adequate
notice to the future claims representative” (citing Jones, 212 F.3d at 209; Bartell, supra, at
340)); In re Grossman’s Inc., 607 F.3d 114, 127-28 (3d Cir. 2010) (“In determining whether an
asbestos claim has been discharged, the court may wish to consider, inter alia, the
circumstances of the initial exposure to asbestos, whether and/or when the claimants were
aware of their vulnerability to asbestos, whether the notice of the claims bar date came to
their attention, whether the claimants were known or unknown creditors, whether the
claimants had a colorable claim at the time of the bar date, and other circumstances specific
to the parties, including whether it was reasonable or possible for the debtor to establish a
trust for future claimants as provided by § 524(g).”); cf. Fogel v. Zell, 221 F.3d 955, 960-61
(7th Cir. 2000) (questioning whether exposure-only asbestos claimants possess a “claim”
under the Bankruptcy Code and reasoning that “[i]t seemed arbitrary to devote the entirety
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such as Myra Williams’s latent asbestos claim, when constructive notice to
individuals exposed to toxic substances but who lack knowledge of either their
exposure or any as-yet unaccrued injury is effectively no notice at all.
Therefore, neither Lemelle nor Mullane—which did not consider notice with
respect to unknown and unperceivable future claims—should be read as
holding that due process has been satisfied when all that is provided is
constructive notice to exposure-only individuals who may be unaware of their
exposure, unaware of the severe harm that may ultimately result, and unable
to recognize that their rights may be affected in bankruptcy. Rather, careful
thought and a context-specific approach is required before concluding that
unknown, future claimants have been provided with notice and an opportunity
to be heard such that their claims may, consistent with the guarantee of due
process, be discharged. See In re Grossman’s Inc., 607 F.3d 114, 127 (3d Cir.
of the estates of the bankrupt asbestos manufacturers to compensating those sufferers whose
diseases had happened to manifest themselves before rather than after (perhaps shortly
after) the bar dates set in the various bankruptcy proceedings”); In re Chateaugay Corp., 944
F.2d 997, 1003-04 (2d Cir. 1991) (“Accepting as claimants those future tort victims whose
injuries are caused by pre-petition conduct but do not become manifest until after
confirmation, arguably puts considerable strain not only on the Code’s definition of ‘claim,’
but also on the definition of ‘creditor’—an ‘entity that has a claim against the debtor that
arose at the time of or before the order for relief concerning the debtor.’” (quoting 11 U.S.C. §
101(9)(A))); In re UNR Indus., Inc., 725 F.2d 1111, 1120 (7th Cir. 1984) (noting the “difficult
and far-reaching questions” concerning whether future asbestos victims have pre-petition
claims); In re Hexcel Corp., 239 B.R. 564, 567 (N.D. Cal. 1999) (holding that “[a]ny future,
unknown claim that could not have been reasonably contemplated does not fall within the
purview of [§] 101(5) and must not be discharged, even if the conduct giving rise to the claim
took place before the bankruptcy proceedings” and reasoning that “[i]t would be incongruent
for the Code to provide so extensively for notice to parties affected by the bankruptcy
proceedings, yet to define a pre-petition claim under [§] 101(5) so broadly as to adversely
affect the interests of those who could not possibly have notice of their rights and interests”);
In re Evans Prods. Co., 2009 WL 2448145, at *7-10 (Bankr. S.D. Fla. Aug. 6, 2009) (“[T]he
extremely long latency period for asbestos-related illness means that[] . . . [some victims] will
have no knowledge of their exposure or their illness, and cannot be said to have had any
cognizable relationship with the debtor, or any identifiable injury at the time of the
bankruptcy.”).
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2010) (“Whether a particular claim has been discharged by a plan of
reorganization depends on factors applicable to the particular case[.]”).
The record in this case fails to demonstrate that Myra Williams was
aware of either her exposure to asbestos dust and fibers or that she might
someday grow ill and die as a consequence of that exposure. Under these
circumstances, she was functionally incompetent to receive notice of Placid’s
bankruptcy because, even if she had in fact received notice of the proceedings,
she would not have been able to recognize their effect on her or to understand
that her rights could be affected by them. And because there was no future-
claims representative to represent her interests, the bankruptcy court erred by
concluding that she received constitutionally adequate notice that her claim
would be discharged in the bankruptcy if she did not participate in the
proceedings. In sum, constructive notice by publication to asbestos-exposed
individuals with unmanifested or latent mesothelioma, without appointment
of a representative for such future claimants, does not satisfy due process. As
the Court said in Mullane, “[w]e have before indicated in reference to notice by
publication that, ‘Great caution should be used not to let fiction deny the fair
play that can be secured only by a pretty close adhesion to fact.’” 339 U.S. at
320 (quoting McDonald v. Mabee, 243 U.S. 90, 91 (1917)).
For these reasons, I respectfully dissent. 5
5Additionally, I believe that the majority also errs in attempting to put a gloss on
what constitutes a “known” claim under Mullane. In Mullane, the Court said:
As to known present beneficiaries of known place of residence, however,
notice by publication stands on a different footing. Exceptions in the name of
necessity do not sweep away the rule that within the limits of practicability
notice must be such as is reasonably calculated to reach interested parties.
Where the names and post office addresses of those affected by a proceeding
are at hand, the reasons disappear for resort to means less likely than the
mails to apprise them of its pendency.
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Id. at 318. Nowhere in Mullane does the court say that a claim is not known unless the injury
giving rise to it is “manifested” or “actual.” Compare, e.g., ante, at 6, 8. At most, the Court
indicated that a state may “dispense with more certain notice to those beneficiaries whose
interests are either conjectural or future or, although they could be discovered upon
investigation, do not in due course of business come to knowledge of the common trustee.”
Id. at 317.
23