Chemetron Corp. v. Jones

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
12-18-1995
Chemetron Corp. v. Jones
Precedential or Non-Precedential:
Docket 94-3371
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1
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 94-3371
CHEMETRON CORPORATION
v.
PHYLLIS JASKEY JONES; PAMELA JO SWANSINGER;
SANDRA JASKEY HUJARSKI; PATRICIA HUJARSKI;
TERESA HUJARSKI ROSS; JANICE JASKEY BUTVIN;
FRANK BUTVIN; ROBERT BUTVIN; BRIAN BUTVIN;
SUSAN BUTVIN; WALTER ANIELSKI; ARLENE VANS;
YVONNE VANS BEKOSCKE; ANTHONY VANS; GREGORY
VANS; CAROL SCHULTZ; MARY SHAFFER; BRITTANY
CULL; STEPHANIE SCHAFFER,
Appellants.
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 93-cv-01582)
Argued February 3, 1995
Before: SCIRICA, ROTH and SAROKIN, Circuit Judges
(Opinion Filed December 18, 1995)
William Mitchell, Esq. (Argued)
Deborah J. Papushak, Esq.
Armstrong, Mitchell & Damiani
1725 The Midland Building
101 Prospect Avenue, West
Cleveland, Ohio 44115-1091
Attorneys for Appellants
2
Dennis G. Terez Esq. (Argued)
Squire, Sanders & Dempsey
4900 Society Center
127 Public Square
Cleveland, Ohio 44114-1304
George L. Cass, Esq.
Buchanan, Ingersoll, Professional Corporation
5800 USX Tower
600 Grant Street
Pittsburgh, PA 15219-2887
Attorneys for Appellee
OPINION OF THE COURT
ROTH, Circuit Judge:
In this appeal, we consider whether a group of former
residents and occasional visitors to a neighborhood containing a
toxic site were "known" creditors entitled to actual written
notice of the debtor's bankruptcy filing and bar claims date. We
hold that the members of this group were not known creditors and
that therefore publication notice satisfied the requirements of
due process. However, we also conclude that the district court
failed to adequately consider whether the group's late filing was
due to "excusable neglect" and that the district court improperly
reached the issue of whether their claims had been discharged.
Accordingly, we will affirm the district court's finding that
3
notice was sufficient but reverse its findings on excusable
neglect and discharge.
I.
Beginning in 1965, appellee Chemetron Corporation
("Chemetron") owned and operated a manufacturing facility on
Harvard Avenue in Cuyahoga Heights, Ohio, as well as a nearby
landfill on Bert Avenue in Newburgh Heights, Ohio. From 1965 to
1972, Chemetron manufactured an antimony oxide catalyst at the
Harvard Avenue facility in a process that utilized depleted
uranium. After catalyst production ceased in 1972, a portion of
the Harvard Avenue facility was demolished. In 1975, Chemetron
placed a quantity of rubble from the Harvard Avenue demolition in
the Bert Avenue landfill. Later in 1975, Chemetron sold both
sites to McGean Chemical Company. McGean Chemical Co.
subsequently merged with Rohco, Inc., to become McGean-Rohco,
Inc., the current owner of both sites.
Beginning in 1980, potential problems at the sites
received significant attention from major newspapers in the
Cleveland area. On July 8, 1980, the Cleveland Press reported on
radiation levels at a site "near Harvard Avenue" in Newburgh
Heights. On July 9, 1980, the Cleveland Plain Dealer published a
similar article. Related articles appeared in The Plain Dealer
on September 5 and September 12. On September 23, 1990, The
Plain Dealer ran a front-page article on "Cuyahoga County's only
known radioactive dump." App. at 289-95. The September 23
article quoted Phyllis Jones, the lead plaintiff in this case,
discussing problems at the sites. Id. at 295.
3
Between 1980 and 1988, Chemetron was involved in
periodic clean-up efforts at both sites at the
direction of Nuclear Regulatory Commission. The efficacy of
these efforts remains dubious.
On February 20, 1988, Chemetron and other debtors filed
a joint petition for reorganization under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court for the Western District
of Pennsylvania. Following Bankruptcy Rule 3003(c)(3), the
bankruptcy court issued a bar date order, fixing the bar claims
date at May 31, 1988. Stated simply, under bankruptcy law, the
bar claims date is the last day on which existing claims can be
filed against the debtor. See discussion Part III, infra.
The bar date order required that actual notice be
provided to all persons known to have claims against the debtors.
The order required notice to all other claimants by publication
in the national editions of the New York Times and Wall Street
Journal. It is undisputed that the debtors complied with the
order and, in addition, voluntarily published notice in seven
other newspapers in areas where they were doing business at the
time of the filing. On July 12, 1990, the bankruptcy court
confirmed Chemetron's reorganization plan.
On March 2, 1992, almost four years after the bar
claims date, twelve years after the first newspaper articles
detailing problems at the sites, and two years after her comments
in The Plain Dealer's front page article, Phyllis Jones and
fourteen other individuals brought suit against Chemetron, McGean
Chemical Co., and McGean-Rohco, Inc., in the Court of Common
4
Pleas of Cuyahoga County, Ohio. The suit was later amended to
name a total of twenty-one plaintiffs. The gravamen of the
complaint alleged injury from exposure to toxic chemicals as a
result of time spent in the Bert Avenue area.
Plaintiffs' ties to the Bert Avenue area centered
around visits to or occupancy of two houses in the vicinity. Only
two members of the group actually occupied the properties during
the period from 1965-1975 when Chemetron owned the sites. The
other members of the group visited the properties periodically,
ranging from "several times per week," App. at 8, to "weekly,"
App. at 14, to "monthly," App. at 16, to "occasional" visits,
App. at 9. The record indicates that the visits stopped in 1985,
three years prior to Chemetron's bankruptcy petition. None of
the plaintiffs currently resides near either site. Sixteen of
the plaintiffs still reside in Ohio. Five of the plaintiffs live
in Texas.
In the state court action, Chemetron moved to dismiss
the suit, arguing that any such claim had been discharged in
bankruptcy. The plaintiffs responded by seeking permission from
the bankruptcy court to file late claims. By separate motion,
plaintiffs sought a declaration from the bankruptcy court that
their claims had not been discharged by the reorganization plan.
This second motion was converted to an adversary proceeding.
On August 2, 1993, the bankruptcy court granted the
motion to file late claims, finding that plaintiffs were known
creditors entitled to actual notice of the bankruptcy proceeding
and bar claims date. The bankruptcy court also, sua sponte,
5
permitted the plaintiffs to proceed against Chemetron in the Ohio
lawsuit and dismissed without prejudice the adversary proceeding.
Chemetron appealed to the district court, which
reversed the grant of the motion to file late claims. The
district court held that plaintiffs were not known creditors and
that publication notice was sufficient. The district court then
concluded, without explanation, that plaintiffs' "claims were
dischargeable and were discharged." Chemetron v. Jones (In re
Allegheny Int'l), 170 B.R. 83, 90 (W.D. Pa. 1994). This appeal
followed.
II.
Jurisdiction in this appeal is proper pursuant to 28
U.S.C. § 158(d). We review the bankruptcy court's findings of
fact for clear error, the same standard of review used by the
district court. See Universal Minerals, Inc. v. C.A. Hughes &
Co., 669 F.2d 98, 101-02 (3d Cir. 1981). When reviewing mixed
questions of law and fact, we exercise plenary review over the
bankruptcy court's choice, interpretation, and application of the
underlying rule of law. See Mellon Bank, N.A. v. Metro
Communications, Inc., 945 F.2d 635, 642 (3d Cir. 1991), cert.
denied, 503 U.S. 937 (1992).
III.
The central issue before us is whether plaintiffs were
"known" or "unknown" claimants at the time of the bankruptcy
court's order. If claimants were "known" creditors, then due
process entitled them to actual notice of the bankruptcy
proceedings. Absent such notice, their suit may proceed. If
6
claimants were "unknown" creditors, however, then notice by
publication was sufficient to satisfy the requirements of due
process and their claims are barred, absent some other basis for
relief. We hold that the claimants in the instant case were
"unknown" creditors.
Our inquiry is guided by one of the principal purposes
of bankruptcy law, to secure within a limited period the prompt
and effectual administration and settlement of the debtor's
estate. Katchen v. Landy, 382 U.S. 323, 328 (1966). To this
end, Bankruptcy Rule 3003(c) requires that claimants against an
estate in bankruptcy under Chapter 11 file timely proofs of claim
in order to participate in a reorganization. Under Rule
3003(c)(3), these proofs of claim must be filed prior to a bar
date established by the bankruptcy court. After the passage of
the bar claims date, a claimant cannot participate in the
reorganization unless she establishes sufficient grounds for the
failure to file a proof of claim. See In re Best Products Co.,
140 B.R. 353, 357 (Bankr. S.D.N.Y. 1992). Except for narrow
statutory exceptions not relevant here, confirmation of the
debtor's reorganization plan discharges all prior claims against
the debtor. 11 U.S.C. § 1141; Charter Crude Oil Co. v. Petroleos
Mexicanos (In re Charter Co.), 125 B.R. 650, 654 (M.D. Fla.
1991).
Inadequate notice is a defect which precludes discharge
of a claim in bankruptcy. Due process requires notice that is
"reasonably calculated to reach all interested parties,
reasonably conveys all the required information, and permits a
7
reasonable time for a response." Greyhound Lines, Inc. v. Rogers
(In re Eagle Bus Mfg., Inc.), 62 F.3d 730, 735 (5th Cir. 1995)
(citation omitted). For notice purposes, bankruptcy law divides
claimants into two types, "known" and "unknown." In re Charter
Co., 125 B.R. 650, 654 (M.D. Fla. 1991). Known creditors must be
provided with actual written notice of a debtor's bankruptcy
filing and bar claims date. City of New York v. New York, N. H.
& H. R. Co., 344 U.S. 293, 296 (1953). For unknown claimants,
notification by publication will generally suffice. See In re
Argonaut Fin. Serv., Inc., 164 B.R. 107, 112 (N.D. Cal. 1994); In
re Thomas McKinnon Sec., Inc., 130 B.R. 717, 719-20 (Bankr.
S.D.N.Y. 1991).
As characterized by the Supreme Court, a "known"
creditor is one whose identity is either known or "reasonably
ascertainable by the debtor." Tulsa Professional Collection
Serv., Inc. v. Pope, 485 U.S. 478, 490 (1988). An "unknown"
creditor is one 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 v. Central Hanover Bank & Trust Co., 339 U.S. 306, 317
(1950).1
1
Although Mullane involved the notice due beneficiaries
on judicial settlement of accounts by the trustee of a common
trust fund, subsequent courts have interpreted the case to set
the standard for notice required under the Due Process Clause in
Chapter 11 bar date cases. See In re Pettibone Corp., 162 B.R.
791, 806 (Bankr. N.D. Ill. 1994); In re R.H. Macy & Co., 161 B.R.
355, 359 (Bankr. S.D.N.Y. 1993).
8
A creditor's identity is "reasonably ascertainable" if
that creditor can be identified through "reasonably diligent
efforts." Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798
n.4 (1983). Reasonable diligence does not require "impracticable
and extended searches . . . in the name of due process." Mullane,
339 U.S. at 317. A debtor does not have a "duty to search out
each conceivable or possible creditor and urge that person or
entity to make a claim against it." In re Charter Co., 125 B.R.
650, 654 (M.D. Fla. 1991).
Precedent demonstrates that what is required is not a
vast, open-ended investigation. See Mullane, 339 U.S. at 317("Nor do we consider it unreasonable for the State to 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."); see also Trump Taj
Mahal Assocs. v. O'Hara (In re Trump Taj Mahal Assocs.), 1993
U.S. Dist. LEXIS 17827 at *9 (D.N.J. Dec. 13, 1993) (explaining
that "those creditors who hold only conceivable, conjectural or
speculative claims" are unknown). The requisite search instead
focuses on the debtor's own books and records. Efforts beyond a
careful examination of these documents are generally not
required.2 Only those claimants who are identifiable through a
2
Although some courts have held, regardless of the
circumstances, that the "reasonably ascertainable" standard
requires only an examination of the debtor's books and records,
without an analysis of the specific facts of each case, see
e.g., In Re Best Products Co., l40 B.R. 353, 358 (Bankr. S.D.N.Y.
l992); In re Texaco, Inc., l82 B.R. 937, 955 (Bankr. S.D.N.Y.
9
diligent search are "reasonably ascertainable" and hence "known"
creditors.
In the instant case, the bankruptcy court failed to
apply the "reasonably ascertainable" standard. It instead
crafted a "reasonably foreseeable" test from dictum in In re
Brooks Fashion Stores, Inc., 124 B.R. 436 (Bankr. S.D.N.Y. 1991).
In applying this test, the bankruptcy court found that "Chemetron
knew or should have known that it was reasonably foreseeable that
it could suffer claims from individuals living near the Bert
Avenue Dump. . . ." It therefore found that claimants were known
creditors.
We hold that in substituting a broad "reasonably
foreseeable" test for the "reasonably ascertainable" standard,
the bankruptcy court applied an incorrect rule of law. This
constitutes clear error. The bankruptcy court's expansive test
departed from established rules of law and produced a result in
conflict with other decisions. See In re New York Trap Rock
Corp., 153 B.R. 642, 646 (Bankr. S.D.N.Y. 1993) (holding
government agency that failed to file claim for environmental
cleanup to be an "unknown creditor" even where debtor had entered
real estate contract with another agency of same governmental
l995), we do not construe it so narrowly. Situations may arise
when creditors are "reasonably ascertainable," although not
identifiable through the debtor's books and records. See, e.g.,
Tulsa Professional Collection Serv., Inc. v. Pope, 485 U.S. at
49l (hospital's claim against deceased patient's estate possibly
reasonably ascertainable). We need not address this possibility
precisely, because, as we discuss, plantiffs' claims in this case
are so speculative that the identities of the plaintiffs could
not be ascertained with "reasonably diligent efforts."
Mennonite, 462 U.S. at 798, n.4.
10
entity); see also In re Trans World Airlines, Inc., 182 B.R. 102,
106 (D. Del. 1995) (holding claim unknown where plaintiffs had
not filed suit until one year after bar claims date); In re
Texaco Inc., 182 B.R. 937, 954-55 (Bankr. S.D.N.Y. 1995) (holding
claim unknown where owners of adjacent land filed environmental
action after bar claims date); In re Hunt, 146 B.R. 178, 182
(Bankr. N.D. Tex. 1992) (holding claims unknown where plaintiffs
filed state court suit and counterclaim after bar claims date).
Even if we were writing on a blank slate, we would reject the
bankruptcy court's expansive standard. Put simply, such a test
would place an impossible burden on debtors.
A review of the facts in the case at bar reveals why
the bankruptcy court's standard should not be followed. None of
the claimants involved currently resides near either site. The
claimants instead are scattered across Ohio and as far away as
Texas. We are hard-pressed to conceive of any way the debtor
could identify, locate, and provide actual notice to these
claimants.
It has been suggested that Chemetron could have
conducted a title search on all properties surrounding the sites
to determine all persons who might have lived in the area during
the twenty years between Chemetron's operation of the sites and
the Chapter 11 proceeding. We decline to chart a jurisprudential
course through a Scylla of causational difficulties and a
Charybdis of practical concerns.
The causational difficulties are manifold and apparent.
Under the bankruptcy court's rule, the debtor would have to
11
notify all reasonably foreseeable claimants, a determination that
would rise and fall on potentially attenuated and certainly
ambiguous causal nexi. At the most basic level, it remains
unclear in the instant case what geographic area might be
affected and hence how great an expanse the debtor's title search
need cover. There is no indication whether a sufficient search
would address properties one mile from the sites or one hundred
miles away. The geographic area would presumably be affected by
the potential for contaminant migration by air, water, or other
carrier, further expanding the necessary notification area. Nor
is the temporal dimension any more defined. With lingering
contaminants and slow rates of decay, there would be no reason to
limit future debtors to searching only for those exposed during
their periods of ownership. And while we might be urged to bring
these determinations under Mullane's "reasonably calculated under
the circumstances" umbrella, 339 U.S. at 314, we hesitate to
thrust the judiciary into a domain where decisions turn on rarely
pellucid and often disputed scientific studies, requiring
different varieties of technical expertise from case to case. In
light of these problems of causation, the bankruptcy court's rule
is unworkable.
We also anticipate grave practical difficulties with
the bankruptcy court's broad notice requirement. Even if
Chemetron had been required to search all potentially relevant
title documents, its efforts would have come to no avail in this
case. The vast majority of the claimants involved here were not
property owners, but guests. No title search could reveal the
12
identity of claimants who merely visited houses in the vicinity
of the sites at some point in the distant past, and we decline to
impose any Orwellian monitoring requirements on Chemetron and
similarly situated corporations. Moreover, as demonstrated by
the claimants here, debtors also face the problem of identifying
all individuals whose parents might have lived in or visited
houses in the vicinity of the site. And the problems of
ascertaining, let alone notifying, all such persons implicate yet
again all the difficulties of causation previously discussed.
Such an investigation, which would be required by the
bankruptcy court's finding that claimants are known creditors,
clearly contradicts both the caselaw cited above and common
sense. Creditors cannot be required to provide actual notice to
anyone who potentially could have been affected by their actions;
such a requirement would completely vitiate the important goal of
prompt and effectual administration and settlement of debtors'
estates. We reject the "reasonably foreseeable" test and follow
the "reasonably ascertainable" standard.
In reaching this result, we are not unsympathetic to
the alleged injury suffered by the claimants in this case. We
stress that our holding addresses the burden placed on the
bankruptcy debtor to provide actual notice to potential
claimants, not the merits of a timely and properly filed tort
suit. Where a debtor has sought the protection of bankruptcy
law, however, procedural protections such as the bar claims date
apply. These provisions cannot be circumvented by forcing
debtors to anticipate speculative suits based on lengthy chains
13
of causation. Accordingly, the bankruptcy court erred in finding
that the claimants in this case were "known" creditors, and the
district court's decision reversing the bankruptcy court on this
finding will therefore be affirmed.
IV.
Having held that claimants were "unknown" creditors, we
have little difficulty holding that the notice which Chemetron
published in the New York Times and the Wall Street Journal was
sufficient. It is well established that, in providing notice to
unknown creditors, constructive notice of the bar claims date by
publication satisfies the requirements of due process. New York,
344 U.S. at 296. Such notice must be "reasonably calculated,
under the circumstances, to apprise interested parties of the
pendency of the action and afford them an opportunity to present
their objections." Mullane, 339 U.S. at 314. We find that
Chemetron's notice met this standard.
Claimants argue that, given Chemetron's ongoing
difficulties in cleaning up the Cleveland area sites as well as
Chemetron's knowledge of the hazardous materials deposited there,
Chemetron should have published notice in a Cleveland area paper.
This argument fails.
"It is impracticable . . . to expect a debtor to
publish notice in every newspaper a possible unknown creditor may
read." Best Products, 140 B.R. at 358. Publication in national
newspapers is regularly deemed sufficient notice to unknown
creditors, especially where supplemented, as here, with notice in
papers of general circulation in locations where the debtor is
14
conducting business. See, e.g., Brown v. Seaman Furniture Co.,
171 B.R. 26 (E.D. Pa. 1994) (holding publication in local and
national editions of the New York Times sufficient notice to
claimant in Pennsylvania); In re Chicago, Milwaukee, St. Paul &
Pacific R.R. Co., 112 B.R. 920 (N.D. Ill. 1990) (holding
publication notice in the Wall Street Journal adequate under
bankruptcy law); Wright v. Placid Oil Co., 107 B.R. 104 (N.D.
Tex. 1989) (holding publication in The Wall Street Journal
sufficient notice to unknown creditor injured in Louisiana).
Furthermore, claimants' argument is undermined by the fact that
none of the claimants resided near the Cleveland sites at the
time of the publication notice. Even publication in a Cleveland
newspaper would not have reached the claimants currently residing
in Texas or any other potential claimants who had moved away from
Cleveland.
Because Chemetron's publication notice was reasonably
designed to reach all interested parties, the district court's
finding that the notice was sufficient to apprise unknown parties
of the claims bar date is affirmed.
V.
Although we find little merit in claimants' notice
arguments, we believe their claim of "excusable neglect" received
inadequate consideration. Bankruptcy Rule 9006(b)(1) empowers a
bankruptcy court to permit a creditor to file a late claim if the
movant's failure to comply with an earlier deadline "was the
result of excusable neglect." See Pioneer Inv. Serv. Co. v.
Brunswick Assocs. Ltd. Partnership, ___ U.S. ___, ___, 113 S. Ct.
151489, 1491-92 (1993). In the instant case, because claimants are
unknown creditors and Chemetron's publication notice was
sufficient, claimants must show that their failure to file in a
timely manner was due to "excusable neglect;" otherwise, their
claims arising pre-petition will be barred. See Best Products,
140 B.R. at 359.
The determination whether a party's neglect of a bar
date is "excusable" is essentially an equitable one, in which
courts are to take into account all relevant circumstances
surrounding a party's failure to file. See Pioneer, 113 S. Ct.
at 1498. The considerations to be weighed include:
the danger of prejudice to the debtor, the length of
the delay and its potential impact on judicial
proceedings, the reason for the delay, including
whether it was within the reasonable control of the
movant, and whether the movant acted in good faith.
Id.3
The bankruptcy court, in considering whether claimants
should be permitted to file a late claim under the totality of
the circumstances, wrote:
3
As the district court properly noted, it is unsettled
whether "excusable neglect remains a viable defense for filing a
late proof of claim when the claimant is entitled to only
publication notice." Chemetron, 170 B.R. at 89 (citing Trump Taj
Mahal Assocs. v. O'Hara (In re Trump Taj Mahal Assocs.), 1993
U.S. Dist. LEXIS 17827 at *18 n.7 (D.N.J. Dec. 13, 1993)).
Under Bankruptcy Rule 9006(b), which allows the
bankruptcy court to permit a late filing in cases of "excusable
neglect," no differentiation is made between known and unknown
creditors. Accordingly, claimants are not foreclosed from
pursuing an "excusable neglect" defense in the instant matter.
16
This court's understanding of In re Remington Rand is
that acting promptly and diligently is but one factor
when a court is considering the totality of the
circumstances. The court finds that [claimants], while
not acting very promptly or diligently, were not so
sluggish as to outweigh the fact that Chemetron did not
provide reasonably calculated notice to alert
[claimants] of the bankruptcy proceedings and the
claims Bar Date. Therefore, the totality of the
circumstances dictate that [claimants] are entitled to
file a late claim.
Jones v. Chemetron Corp. (In re Allegheny Int'l, Inc.), Ch. 11
Case No. 88-00448 JLC, Adv. No. 92-2418, slip op. at 11 (Bankr.
W.D. Pa. July 24, 1993). This analysis failed to adequately
consider the totality of the circumstances presented. Not only
was the bankruptcy court incorrect in its assumption that
claimants were known creditors entitled to actual notice, but the
court failed to make additional relevant factual findings,
including the danger of prejudice to the debtor, the length of
the delay and its potential impact on judicial proceedings, the
reason for the delay, and whether the movant acted in good faith.
On appeal, the district court undertook its own review
of the record to determine whether the totality of the
circumstances supported claimants' filing of late claims. The
district court wrote:
We agree with the Bankruptcy Court that [claimants] did
not act promptly or diligently. Their motion to file a
late claim occurred more than four years after the bar
date, two years after the Plan of Reorganization had
been confirmed and twelve years after media and
neighborhood attention first focused on the hazardous
substances at the Bert Avenue Site. That [claimants]
were allegedly unaware of their claims does not
constitute excusable neglect. To permit [claimants] to
file a late claim would prejudice Chemetron by denying
a "fresh start" to which it is entitled. We conclude
17
that the totality of the circumstances weighs heavily
against late filing of [claimants'] claims.
Chemetron, 170 B.R. at 89-90 (citations omitted).
Although the totality of the circumstances analysis
conducted by the district court was more appropriate than that
conducted by the bankruptcy court, the district court's analysis
also fell short of that required under Pioneer. The district
court failed to undertake a comprehensive analysis of how the
claimants' late filing would prejudice Chemetron, and also failed
to consider the role that Chemetron might have played in
contributing to the delay. Accordingly, we remand this issue to
the bankruptcy court, with directions that the bankruptcy court
undertake a more comprehensive and thorough determination of
whether the totality of the circumstances support claimants'
defense of "excusable neglect."
VI.
Finally, we disagree with the district court's
treatment of the discharge issue. In the final paragraph of its
memorandum and order, the district court concluded that the
instant claims "were dischargeable and were discharged."
Chemetron, 170 B.R. at 90. The bankruptcy court, however, had
declined to reach the issue of discharge, deciding instead to
dismiss claimants' adversary proceeding without prejudice. In
fact, the district court itself noted that "[t]he Bankruptcy
Court reserved ruling on the issue whether Appellants' claims are
discharged in light of the permission to file the late claims."
18
Id. at 86. We hold that the district court improperly reached
the issue of discharge.
Chemetron contends that the issue of discharge was
properly before the district court because Chemetron, in its
notice of appeal to the district court, expressly appealed from
the memorandum opinion and final order of the bankruptcy court in
both the Chapter 11 proceeding and "the related Adversary
Proceeding." This reference to the adversary proceeding,
however, was not sufficient to create jurisdiction in the
district court. Because the bankruptcy court reserved ruling on
the issue of discharge, the bankruptcy court's dismissal without
prejudice was not a final appealable order under 28 U.S.C.
§158(d) and therefore was not properly before the district court.
Accordingly, we will vacate the district court's ruling on
discharge and remand this issue to the bankruptcy court.
VII.
For these reasons, we will affirm the district court's
rulings that claimants were known creditors and that Chemetron's
publication notice was sufficient. We will vacate and remand to
the bankruptcy court the district court's judgment that claimants
failed to demonstrate excusable neglect. We will also vacate and
remand to the bankruptcy court the district court's ruling on
discharge.
19
Chemetron v. Jones
No. 94-3371
SAROKIN, Circuit Judge, concurring in the judgment.
I concur with the majority's judgment to affirm. I
write separately, however, because I disagree with the majority's
analysis regarding the definition of a "known" creditor entitled
to actual notice under the law. The majority rejects the
"reasonably foreseeable" test in favor of the "reasonably
ascertainable" test. I believe that both are applicable.
I.
The "reasonably foreseeable" test determines which
persons are entitled to receive notice. The "reasonably
ascertainable" test determines the type of notice these persons
are entitled to receive. All reasonably foreseeable claimants
are entitled to receive some form of notice. Those who are
reasonably ascertainable are entitled to actual notice. Those
who are not are entitled to constructive notice -- usually some
form of publication reasonably calculated to reach them.
The bankruptcy court adopted the following standard to
evaluate who qualifies as a known creditor in a bankruptcy
proceeding:
[I]f at the time of the filing it is
reasonably foreseeable to a debtor, who is or
should be aware of the potential consequences
of its actions, that a party that is
foreseeable will most likely file a claim
20
against the debtor, that party is a "known"
creditor of the debtor. Furthermore, the
fact that a debtor does not know the name and
address of a creditor does not prevent that
creditor from being "known."
In re Allegheny International, Inc., No. 88-00448, typescript at
5-6 (Bankr. W.D. Pa. July 14, 1993). The court's standard would
entitle a party whose claim was "reasonably foreseeable" to
actual notice irrespective of whether or not that party's name
and address was readily ascertainable. That result is not only
illogical; it is contrary to Supreme Court jurisprudence. Tulsa
Professional Collection Serv., Inc. v. Pope, 485 U.S. 478, 490
(1988).
I do not believe, however, that in restoring the
"ascertainable" test to its proper place, as the majority does,
we need go so far as to discard the "reasonably foreseeable"
standard entirely. These tests are not mutually exclusive, or
even at odds. They address separate issues. The "reasonably
foreseeable" test has to do with whether the debtor knew or
should have known that a claim would be brought; the "reasonably
ascertainable" test has to do with the debtor's ability to learn
the identity and location of the potential claimant or claimants.
The manufacturer of a product which it knows to be
defective and who filed for bankruptcy should be under an
obligation to give actual notice of the proceedings to known
purchasers and users of its products, even if they have made no
claim. They may not have done so because the injury had not yet
manifested itself or they otherwise were unaware of the risks of
such injury. Absent such requirement, if the harmful effects of
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the product did not manifest themselves for some period of time,
consumers could be barred from relief for their injuries.
A rule whereby individuals whose claims are reasonably
foreseeable are deemed "known" creditors if their identity and
location is reasonably ascertainable would go a long way toward
addressing these interests. Under such a rule, the following two
steps would be required as a prerequisite to mandating actual
notice to the tort claimants. First, the claims must be
reasonably foreseeable. If they are reasonably foreseeable, then
actual notice must be given to those claimants who are reasonably
ascertainable. If there is a class or category of foreseeable
claimants whose identity and/or location cannot be reasonably
ascertained, then they are not "known creditors" entitled to
actual notice (although they should receive substituted notice
through reasonable means most likely to reach them). Such a
result strikes the proper balance between the various purposes of
bankruptcy law, which is concerned not merely with affording a
fresh start to those who warrant it, but also with protecting the
interests of creditors and claimants who may be adversely
affected by the bankruptcy proceeding.
This result is clearly supported by the case law. The
Mullane court was careful to limit its holding to the facts of
that case, noting that "certain notice" was unnecessary for
"beneficiaries whose interests are either conjectural or future .
. . in view of the character of the proceedings and the nature of
the interests here involved." Mullane v. Central Hanover Bank &
Trust Co., 339 U.S. 306, 317 (1950) (emphasis added).
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Furthermore, a claimant's interests are not "conjectural or
future" simply because a lawsuit has not been filed yet. These
interests exist from the time of the tortious act, not just from
the time the claimant seeks to vindicate them in court.4
II.
Under this rule, I would find that it was not
reasonably foreseeable that plaintiffs would file claims against
Chemetron. As the district court noted in its opinion,
throughout the early 1980s both the Nuclear Regulatory Commission
and the Environmental Protection Agency time and again reassured
both Chemetron and local residents that the radiations from the
Bert Avenue site presented no serious safety or health risk to
the surrounding neighborhood. Chemetron Corp. v. Jones, et al.,
No. 93-1582, typescript at 11 (W.D. Penn. June 11, 1994).
Therefore, "[i]f Chemetron gave any thought to the subject, it
4
The majority cites Trump Taj Mahal Assocs. v. O'Hara (In re
Trump Taj Mahal Assocs.), 1993 WL 534494 (D.N.J. Dec. 13, 1993),
for the proposition that "those creditors who hold only
conceivable, conjectural, or speculative claims" are unknown.
See Majority Opinion, typescript at 9. Trump Taj Mahal is a
memorandum opinion by a district court, not reported in the
relevant Reporter. As a district court opinion, it is not binding
upon us. As an unreported memorandum opinion, it has no
precedential value.
The Supreme Court, in Tulsa Professional Collection
Serv., Inc. v. Pope, 485 U.S. 478 (1988) held that "it is
reasonable to dispense with actual notice to those with mere
'conjectural' claims." Id. at 490 (emphasis added). The Random
House College Dictionary describes "conjectural" as "of the
nature of or involving conjecture; problematical." Insofar as
"problematical" suggests that the event is more likely than not
not to occur, a claim that is "reasonably foreseeable" is not
"problematical."
23
was reasonable to assume that claims would not be filed because
of the assurances of these agencies that the Bert Avenue Site
posed no health risk to the neighborhood." Id. Therefore,
"there was no reason for Chemetron to assume in 1988 that there
would be claims from residents for ailments caused by exposure to
the contamination from the Sites. At most, any future claim was
speculative." Id. at 12. Under the facts of this case, I
entirely agree with the district court's conclusion that
"Appellees were not foreseeable claimants and, accordingly, were
unknown creditors." Id. Since the claims were not foreseeable
there is no reason to address whether the claimants were
reasonably ascertainable.
III.
For the reasons stated above, I concur with the
majority's judgment, though not with its reasoning in this one
respect.
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