Taking sides with the Third Circuit, the Eighth Circuit established a “reasonably ascertainable” test for deciding whether a creditor received constitutionally adequate notice by publication of a potential toxic tort claim.
Even though the debtor had been sued numerous times by similar creditors and the debtor’s property was a Superfund site, the appeals court concluded that the debtor had no obligation to give mailed (or actual) notice to all former workers at the plant.
Employed by a trucking company, a driver transported a chemical between 1990 and 1995 to a plant operated by predecessor corporations of the debtor. After several changes of name and ownership, the company confirmed a plan and received a chapter 11 discharge in 2010.
In 2012, the driver was diagnosed with a form of leukemia. After his death, his wife sued the reorganized debtor. The district court denied a motion for summary judgment by the debtor, who contended that the claim was barred by the discharge. After trial, a jury awarded $1.7 million to the driver’s widow.
The company appealed. In an opinion on January 26, the Eighth Circuit set aside the judgment, ruling that the wife’s claim was discharged because there was constitutionally adequate notice of the debtor’s bankruptcy and the bar date.
The wife and her deceased husband were not listed as creditors and did not receive actual notice by mail. The debtor, however, published notice several times in two national newspapers and in a local newspaper where the plant was located.
The district court ruled that the driver’s claim had arisen before bankruptcy, meaning that the claim ordinarily would have been discharged because the driver did not file a claim. The district court concluded that the claim was not discharged because the driver should have been given actual notice.
Writing for the Court of Appeals, Circuit Judge Duane Benton concluded that the district court had employed the incorrect standard for deciding the form of notice to which the creditor was entitled.
Judge Benton recited the general rule that a known creditor is entitled to actual notice by mail. For unknown creditors, notice by publication is constitutionally sufficient.
The district court believed that notice by publication was inadequate and that the claim was not discharged because the claim was “reasonably foreseeable.” The district court based its conclusion on several factors: (1) The debtor had been fined $2.5 million by the EPA for discharges of the chemical that caused the driver’s leukemia; (2) similar claims were 10% of the debtor’s yearly toxic tort litigation, and (3) the plant had been declared a Superfund site requiring remediation.
Following the Third Circuit’s decision in Chemetron Corp. v. Jones, 72 F.3d 341 (3d Cir. 1995), Judge Benton ruled that “reasonably ascertainable” was the standard, not “reasonably foreseeable.”
Judge Benton identified several factors calling for reversal of the judgment. First, the Bankruptcy Rules only require giving notice of the names used by the debtor within eight years of bankruptcy. The years 1990-95 were well beyond the eight-year window, and none of the names under which the company operated at that time were among the 90 companies listed on the notices. However, Judge Benton conceded that following the Bankruptcy Rules may not always result in constitutionally adequate notice.
Of more significance, the debtor employed an experienced bankruptcy consultant to identify potential creditors. The consultant identified one million potential creditors to receive actual notice. The driver was not among them, thus labeling him an unknown creditor.
Citing Tulsa Professional Collection Services Inc. v. Pope, 485 U.S. 478, 490 (1988), Judge Benton said that publication notice to unknown creditors “generally suffices” after a “reasonably diligent search.”
Next, Judge Benton concurred with the Third Circuit’s Chemetron decision holding that debtors “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 of debtors’ estates.”
Like the Third Circuit, Judge Benton therefore held that the line to cordon off unknown creditors depends on whether the claim is “reasonably ascertainable,” not “reasonably foreseeable.” Because the claim was not “reasonably ascertainable” given the extensive search undertaken by the debtor’s consultant, notice by publication was constitutionally adequate, and the claim was therefore discharged.