Court Records Destroyed, a Finding of Proper Notice Presumes Notice by Publication

When the records of a long-completed chapter 11 reorganization have been destroyed, the finding of proper notice in the confirmation order is sufficient to prove that unknown claims were discharged, even though the plan had no trust for “future claimants.”

A refinery operator confirmed a chapter 11 plan in 1988. The court docket and all of the records from the case had been destroyed by the government in the ordinary course. The only surviving documents were the plan and the confirmation order retained by the reorganized debtor.

The creditor had worked for the debtor in the 1960s and was diagnosed with mesothelioma in 2016. He died the next year. His estate sued the debtor for wrongful death.

Litigation proceeded for two years in Pennsylvania state court before the debtor reopened the bankruptcy case in Houston and sought a declaration that the claim had been discharged. Bankruptcy Judge Christopher M. Lopez ruled for the debtor in an opinion on January 16.

The confirmation order declared that the debtor had provided proper notice, that the assets revested in the debtor free and clear of claims, and that unsecured claims were discharged, with payments from a trust.

Judge Lopez first analyzed whether the decedent’s estate had a claim, given that the claim was unknown at the time of bankruptcy. The creditor argued there was no “claim” under the “accrual” and “fair contemplation” tests.

The Fifth Circuit had not adopted those tests, Judge Lopez said, “because they do not strictly follow the Bankruptcy Code’s definition of a claim.” He said that the Fifth Circuit had embraced the “prepetition relationship test” in 2003. He observed that courts have “generally” relied on that test in ruling that “claimants held a bankruptcy claim even when the injury manifested postpetition.”

Having decided there was a claim, Judge Lopez turned to the question of whether the claim had been discharged. In that respect, the decedent’s estate argued that the former worker was a future, unknown creditor.

If the worker had been an unknown creditor, Judge Lopez said that the requirements of due process would have been satisfied with notice by publication. But there was no evidence of notice by publication, making it impossible to know whether the worker had received notice.

Judge Lopez gave “full weight to the findings of fact in the Confirmation Order because it is the only evidence of what occurred during the cases.” In his view, the confirmation order was “prima facie evidence that prepetition claims were discharged and that proper notice was provided to parties-in-interest. Even presuming that [the worker] is an unknown creditor, with no official record (hard copy or electronic) or evidence from [the worker] himself for the Court to rule differently, [the bankruptcy judge’s] findings in the Confirmation Order that notice to parties-in-interest was proper is uncontroverted and stands.”

Finally, the decedent’s estate contended that the lack of a trust for future claimants meant that future claimants were not contemplated by the plan. The lack of a trust for future claimants “does not mean [that the debtor] did not consider future environmental claims,” Judge Lopez said.

Judge Lopez ended by weighing the debtor’s fresh start against “constitutional due process considerations.” The findings in the confirmation order about notice were “uncontroverted,” he said, and satisfied the debtor’s burden about “providing notice.” He therefore ruled that the claim had been discharged and enjoined prosecution of the claim in Pennsylvania state court.