Frenville was the long-derided opinion where the Third Circuit had held that a claim was not discharged in bankruptcy if it had not arisen under state law before bankruptcy. In its Grossman’s opinion in 2010, the Third Circuit sat en banc, overruled Frenville, lined up with seven other circuits, and held an asbestos claim is presumptively discharged if exposure occurred before bankruptcy, even though injury was not manifest until years later.
Affirming Bankruptcy Judge Christopher S. Sontchi in a decision on Sept. 28, District Judge Richard G. Andrews in Delaware barred asbestos plaintiffs from reviving Frenville.
The dispute arose in the mammoth reorganization of Energy Future Holdings Corp., where the debtor’s predecessors allegedly exposed former power plant workers to asbestos. The bankruptcy judge set a bar date for the submission of all asbestos-related claims, including claims by anyone with unmanifested injuries.
Just before the bar date, an asbestos creditor sought permission under Bankruptcy Rule 7023 to file a class claim on behalf of creditors with unmanifested injuries. Bankruptcy Judge Sontchi denied the motion and was upheld by Judge Andrews, who intimated that the result might have been different if there were a class action pending before bankruptcy on behalf of workers with unmanifested injuries.
Judge Andrews said that allowing a class claim “would have the effect of reinstating the accrual test of Frenville.” Were there a class claim, he said that claimants could sue whenever their injuries manifest, “regardless of whether they received notice of the bar date.”
Judge Andrews did not interpret Grossman’s to mean that unmanifested asbestos claims are conclusively discharged. Rather, Grossman’s said that when a claim arises “cannot be divorced from the fundamental principles of due process.” The appeals court therefore remanded the Grossman’s case to decide whether discharging the debt “would comport with due process.”
Bankruptcy Judge Sontchi refused to permit a class claim in part because he decided that adjudicating claims individually in the future was superior to other available methods. He said that disallowing a class claim preserved rights under Grossman’s to allege that notice of the bar date did not meet due process standards.
Even if abuse of discretion were not the test, Judge Andrews held that Bankruptcy Judge Sontchi properly applied the superiority test in disallowing a class claim.
As is often the case, the decisions by Judges Andrews and Sontchi may be a reflection of the facts. The debtor said it spent $2.5 million giving targeted notice to former employees about their right to file claims for unmanifested injuries. Of the 32,700 asbestos claims that were filed, some 14,000 were for unmanifested injuries.
Arguably, therefore, Energy Future was not trying to discharge asbestos claims surreptitiously. In a case with less effective notice, a creditor could make a better case for a class claim.