Epstein v. Official Committee of Unsecured Creditors

United States Court of Appeals,
Eleventh Circuit.
No. 94-4745.
David G. EPSTEIN, Plaintiff-Appellant,
v.
The OFFICIAL COMMITTEE OF UNSECURED CREDITORS, OF the ESTATE OF
PIPER AIRCRAFT CORPORATION, Piper Aircraft Corporation, Defendants-
Appellees,
Pilatus Aircraft Limited, Amicus.
In re PIPER AIRCRAFT, CORP., Debtor.
July 26, 1995.
Appeal from the United States District Court for the Southern
District of Florida. (No. 94-8044-CIV-SMA), Sidney M. Aronovitz,
Judge.
Before DUBINA and BLACK, Circuit Judges, and MORGAN, Senior Circuit
Judge.
BLACK, Circuit Judge:
This is an appeal by David G. Epstein, as the Legal
Representative for the Piper future claimants (Future Claimants),
from the district court's order of June 6, 1994, affirming the
order of the bankruptcy court entered on December 6, 1993. The
sole issue on appeal is whether the class of Future Claimants, as
defined by the bankruptcy court, holds claims against the estate of
Piper Aircraft Corporation (Piper), within the meaning of § 101(5)
of the Bankruptcy Code. After review of the relevant provisions,
policies and goals of the Bankruptcy Code and the applicable case
law, we hold that the Future Claimants do not have claims as
defined by § 101(5) and thus affirm the opinion of the district
court.
I. FACTUAL AND PROCEDURAL BACKGROUND
The factual and procedural history of this appeal is fully set
forth in the bankruptcy court's Memorandum Opinion, see In re:
Piper Aircraft Corp., 162 B.R. 619 (Bankr.S.D.Fla.1994), and the
district court's Order Affirming Decision of the Bankruptcy Court,
see In re: Piper Aircraft Corp., 168 B.R. 434 (S.D.Fla.1994)
(Piper II), and therefore need not be repeated here in its
entirety. For purposes of this appeal, the relevant facts are as
follows.
Piper has been manufacturing and distributing general aviation
aircraft and spare parts throughout the United States and abroad
since 1937. Approximately 50,000 to 60,000 Piper aircraft still
are operational in the United States. Although Piper has been a
named defendant in several lawsuits based on its manufacture,
design, sale, distribution and support of its aircraft and parts,
it has never acknowledged that its products are harmful or
defective.1
On July 1, 1991, Piper filed a voluntary petition under
Chapter 11 of Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of Florida. Piper's plan of
reorganization contemplated finding a purchaser of substantially
all of its assets or obtaining investments from outside sources,
with the proceeds of such transactions serving to fund
distributions to creditors. On April 8, 1993, Piper and Pilatus
Aircraft Limited signed a letter of intent pursuant to which
Pilatus would purchase Piper's assets. The letter of intent
1
Piper made a decision in 1987 to self-insure and therefore
does not have any product liability insurance covering events or
occurrences taking place after that year.
required Piper to seek the appointment of a legal representative to
represent the interests of future claimants by arranging a
set-aside of monies generated by the sale to pay off future product
liability claims.
On May 19, 1993, the bankruptcy court appointed Appellant
Epstein as the legal representative for the Future Claimants. The
Court defined the class of Future Claimants to include:
All persons, whether known or unknown, born or unborn, who
may, after the date of confirmation of Piper's Chapter 11 plan
of reorganization, assert a claim or claims for personal
injury, property damages, wrongful death, damages,
contribution and/or indemnification, based in whole or in part
upon events occurring or arising after the Confirmation Date,
including claims based on the law of product liability,
against Piper or its successor arising out of or relating to
aircraft or parts manufactured and sold, designed, distributed
or supported by Piper prior to the Confirmation Date.
See Order, May 19, 1993 (Mark, J.). This Order expressly stated
that the court was making no finding on whether the Future
Claimants could hold claims against Piper under § 101(5) of the
Code.
On July 12, 1993, Epstein filed a proof of claim on behalf of
the Future Claimants in the approximate amount of $100,000,000.
The claim was based on statistical assumptions regarding the number
of persons likely to suffer, after the confirmation of a
reorganization plan, personal injury or property damage caused by
Piper's pre-confirmation manufacture, sale, design, distribution or
support of aircraft and spare parts. The Official Committee of
Unsecured Creditors (Official Committee), and later Piper, objected
to the claim on the ground that the Future Claimants do not hold §
101(5) claims against Piper. After a hearing on the objection, the
bankruptcy court agreed that the Future Claimants did not hold §
101(5) claims, and, on December 6, 1993, entered an Order
Sustaining the Committee's Objection and Disallowing the Legal
Representative's Proof of Claim. In a Memorandum Opinion dated
January 14, 1994, that court entered final findings of fact and
conclusions of law to support its December Order. Epstein, as
Legal Representative, then appealed from the bankruptcy court's
order. On June 6, 1994, the district court affirmed and accepted
the decision of the bankruptcy court. Epstein now appeals from the
district court's order, challenging in particular its use of the
prepetition relationship test to define the scope of a claim under
§ 101(5).
II. DISCUSSION
The sole issue on appeal, whether any of the Future Claimants
hold claims against Piper as defined in § 101(5) of the Bankruptcy
Code, is one of first impression in this Circuit. Interpretation
and application of the Bankruptcy Code is a question of law, to
which this Court will apply a de novo standard of review. In re:
James Cable Partners, L.P., 27 F.3d 534, 536 (11th Cir.1994).
A. Statute
Under the Bankruptcy Code, only parties that hold
preconfirmation claims have a legal right to participate in a
Chapter 11 bankruptcy case and share in payments pursuant to a
Chapter 11 plan. 11 U.S.C.A. §§ 101(10), 501, 502 (West 1993). In
order to determine if the Future Claimants have such a right to
participate, we first must address the statutory definition of the
term "claim." The Bankruptcy Code defines claim as:
(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; or
(B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, or unsecured.
11 U.S.C.A. § 101(5). The legislative history of the Code suggests
that Congress intended to define the term claim very broadly under
§ 101(5), 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." H.R.Rep. No. 595, 95th Cong., 2d Sess. 309
(1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6266. See In
re: St. Laurent II, 991 F.2d 672, 678 (11th Cir.1993) (stating
that "[t]he legislative history of the Bankruptcy Code indicates
that "claim' was to be given the "broadest possible definition' ").
B. Case Law
Since the enactment of § 101(5), courts have developed
several tests to determine whether certain parties hold claims
pursuant to that section: the accrued state law claim test, 2 the
conduct test, and the prepetition relationship test. The
2
The accrued state law claim theory states that there is no
claim for bankruptcy purposes until a claim has accrued under
state law. The most notable case adopting this approach is the
Third Circuit's decision in In re: M. Frenville Co., 744 F.2d
332 (3d Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 911, 83
L.Ed.2d 925 (1985). This test since has been rejected by a
majority of courts as imposing too narrow an interpretation on
the term claim. See e.g., Grady v. A.H. Robins Co., 839 F.2d
198, 201 (4th Cir.), cert. denied, 487 U.S. 1260, 109 S.Ct. 201,
101 L.Ed.2d 972 (1988); In re: Black, 70 B.R. 645 (Bankr.D.Utah
1986); Acevedo v. Van Dorn Plastic Machinery Co., 68 B.R. 495(Bankr.E.D.N.Y.1986); In re: Edge, 60 B.R. 690(Bankr.M.D.Tenn.1986); In re: Johns-Manville Corp., 57 B.R. 680(Bankr.S.D.N.Y.1986); In re: Yanks, 49 B.R. 56(Bankr.S.D.Fla.1985). We agree with these courts and decline to
employ the state law claim theory.
bankruptcy court and district court adopted the prepetition
relationship test in determining that the Future Claimants did not
hold claims pursuant to § 101(5).
Epstein primarily challenges the district court's application
of the prepetition relationship test. He argues that the conduct
test, which some courts have adopted in mass tort cases, 3 is more
4
consistent with the text, history, and policies of the Code.
Under the conduct test, a right to payment arises when the conduct
giving rise to the alleged liability occurred. See A.H. Robins,
839 F.2d at 199; Waterman, 141 B.R. at 556. Epstein's position is
that any right to payment arising out of the prepetition conduct of
Piper, no matter how remote, should be deemed a claim and provided
for, pursuant to § 101(5), in this case. He argues that the
relevant conduct giving rise to the alleged liability was Piper's
prepetition manufacture, design, sale and distribution of allegedly
defective aircraft. Specifically, he contends that, because Piper
performed these acts prepetition, the potential victims, although
not yet identifiable, hold claims under § 101(5) of the Code.
3
See, e.g., A.H. Robins Co., 839 F.2d at 203 (Dalkon
Shield); In re: Waterman Steamship Corp., 141 B.R. 552, 556
(Bankr.S.D.N.Y.1992) (asbestos), vacated on other grounds, 157
B.R. 220 (Bankr.S.D.N.Y.1993); In re: Johns-Manville Corp., 36
B.R. 743, 750 (Bankr.S.D.N.Y.1984) (asbestos).
4
Epstein claims that the prepetition relationship test, by
requiring identifiability of claimants, eliminates the words
"contingent," "unmatured," "unliquidated," and "disputed" from
the statute. He further argues that requiring a prepetition
relationship is contrary to the Congressional objective that
bankruptcy permit a complete settlement of the affairs of the
debtor and a complete discharge and fresh start, as the claims of
those persons whose injuries become manifest after the petition
is filed could prove a drain on the reorganized debtor's assets
for years to come.
The Official Committee and Piper dispute the breadth of the
definition of claim asserted by Epstein, arguing that the scope of
claim cannot extend so far as to include unidentified, and
presently unidentifiable, individuals with no discernible
prepetition relationship to Piper. Recognizing, as Appellees do,
that the conduct test may define claim too broadly in certain
circumstances, several courts have recognized "claims" only for
those individuals with some type of prepetition relationship with
the debtor. See In re: Jensen, 995 F.2d 925, 929-31 (9th
Cir.1993); In re: Chateaugay Corp., 944 F.2d 997, 1003-04 (2d
Cir.1991); In re: Correct Mfg. Corp., 167 B.R. 458, 459
(Bankr.S.D.Ohio 1994). The prepetition relationship test, as
adopted by the bankruptcy court and district court, requires "some
prepetition relationship, such as contact, exposure, impact, or
privity, between the debtor's prepetition conduct and the claimant"
in order for the claimant to hold a § 101(5) claim. In re: Piper,
162 B.R. at 627; Piper II, 168 B.R. at 440.
Upon examination of the various theories, we agree with
Appellees that the district court utilized the proper test in
deciding that the Future Claimants did not hold a claim under §
101(5). Epstein's interpretation of "claim" and application of the
conduct test would enable anyone to hold a claim against Piper by
virtue of their potential future exposure to any aircraft in the
existing fleet. Even the conduct test cases, on which Epstein
relies, do not compel the result he seeks. In fact, the conduct
test cases recognize that focusing solely on prepetition conduct,
as Epstein espouses, would stretch the scope of § 101(5).
Accordingly, the courts applying the conduct test also presume some
prepetition relationship between the debtor's conduct and the
claimant. See A.H. Robins, 839 F.2d at 203; Waterman, 141 B.R. at
556.
While acknowledging that the district court's test is more
consistent with the purposes of the Bankruptcy Code than is the
conduct test supported by Epstein, we find that the test as set
forth by the district court unnecessarily restricts the class of
claimants to those who could be identified prior to the filing of
the petition. Those claimants having contact with the debtor's
product post-petition but prior to confirmation also could be
identified, during the course of the bankruptcy proceeding, as
potential victims, who might have claims arising out of debtor's
prepetition conduct.
We therefore modify the test used by the district court and
adopt what we will call the "Piper test" in determining the scope
of the term claim under § 101(5): an individual has a § 101(5)
claim against a debtor manufacturer if (i) events occurring before
confirmation create a relationship, such as contact, exposure,
impact, or privity, between the claimant and the debtor's product;
and (ii) the basis for liability is the debtor's prepetition
conduct in designing, manufacturing and selling the allegedly
defective or dangerous product. The debtor's prepetition conduct
gives rise to a claim to be administered in a case only if there is
a relationship established before confirmation between an
identifiable claimant or group of claimants and that prepetition
conduct.5
In the instant case, it is clear that the Future Claimants
fail the minimum requirements of the Piper test. There is no
preconfirmation exposure to a specific identifiable defective
product or any other preconfirmation relationship between Piper and
the broadly defined class of Future Claimants. As there is no
preconfirmation connection established between Piper and the Future
Claimants, the Future Claimants do not hold a § 101(5) claim
arising out of Piper's prepetition design, manufacture, sale, and
distribution of allegedly defective aircraft.
III. CONCLUSION
For the foregoing reasons, we hold that the Future Claimants
do not meet the threshold requirements of the Piper test and, as a
result, do not hold claims as defined in § 101(5) of the Bankruptcy
Code.
AFFIRMED.
5
This modified test was set forth by the bankruptcy court in
a related case, In re: Piper Aircraft Corp., 169 B.R. 766(Bankr.S.D.Fla.1994). By changing the focal point of the
relationship from the petition date to the confirmation date, the
test now encompasses those with injuries occurring post-petition
but pre-confirmation, consistent with the policies underlying the
Bankruptcy Code.