Important teachings can sometimes be buried in a footnote in a nonprecedential opinion.
In an April 20 opinion, the Third Circuit listed the allegations that must be made before a court will find that notice by publication denied due process to creditors who didn’t know they had claims before a company confirmed a chapter 11 plan.
In 1975, a teenager sustained a sports injury. Diagnosis required radiographic imaging with a product providing contrast. Later, it was known that the product used for contrast caused what the Third Circuit described as “a severely debilitating condition.”
Starting in 2009, the claimant began having symptoms of the ailment caused by the contrasting agent. The company that produced the agent filed a chapter 11 petition in 2012 and confirmed a plan in 2013 in a court in the Second Circuit. For unknown creditors, the debtor published bar date and confirmation notices in the nationwide editions of several newspapers.
By confirmation, the claimant had not received a diagnosis and didn’t know the cause of his ailment.
In late 2015, a physician confirmed that the claimant’s debilitating condition had been caused by the contrasting agent. By then, he was bedridden.
The claimant filed a personal injury suit against the debtor in 2016 in federal district court in New Jersey. The debtor filed a motion to dismiss. The district court dismissed the suit, ruling that the claim had been discharged in chapter 11.
The claimant appealed to the Third Circuit, which affirmed in a nonprecedential opinion by Circuit Judge Joseph A. Greenaway, Jr. The appeals court said that the provision of due process in notice by publication was the “dispositive issue.”
The claimant conceded that the manner of notice by publication was constitutionally sufficient. However, the claimant argued that the content of notice was deficient because it did not alert potential creditors about the imaging agent’s propensity to cause injury.
Judge Greenaway listed missing allegations that might have allowed the complaint to avoid dismissal.
If the debtor’s books and records had indicated that the debtor knew the product caused disease, Judge Greenaway said it “may be” that due process would require disclosing the nature of the claims in the published notices.
In a footnote, Judge Greenaway said that the debtor’s knowledge of the dangerous product “might also warrant” the creation of a trust “and/or the appointment of a future claims representative.” He did not address the issue because the claimant had “forfeited any argument.”
Similarly, Judge Greenaway said that the complaint did not allege that the debtor had actual or constructive knowledge about the ability of the product to cause disease. The complaint also did not allege that the debtor’s books and records at the time of bankruptcy reflected lawsuits that had been brought based on the product.
In the absence of those allegations, Judge Greenaway said, “we must conclude that the notice provided here was constitutionally sufficient. To hold otherwise would dramatically expand the burdens borne by debtors.”
Observations
The opinion has two important teachings, one about pleading and the other about chapter 11 plans.
If a debtor made products causing disease that might not be manifest until years later, dicta in the opinion suggests that a plan should have a trust for future claimants, else there could be a constitutional defect making the chapter 11 discharge inapplicable to creditors who were unknown at confirmation.
With regard to pleading, a claimant should allege that the books and records would show the debtor to have been aware of the disease-causing propensity of a product.
Important teachings can sometimes be buried in a footnote in a nonprecedential opinion.
In an April 20 opinion, the Third Circuit listed the allegations that must be made before a court will find that notice by publication denied due process to creditors who didn’t know they had claims before a company confirmed a chapter 11 plan.
In 1975, a teenager sustained a sports injury. Diagnosis required radiographic imaging with a product providing contrast. Later, it was known that the product used for contrast caused what the Third Circuit described as “a severely debilitating condition.”
Starting in 2009, the claimant began having symptoms of the ailment caused by the contrasting agent. The company that produced the agent filed a chapter 11 petition in 2012 and confirmed a plan in 2013 in a court in the Second Circuit. For unknown creditors, the debtor published bar date and confirmation notices in the nationwide editions of several newspapers.
By confirmation, the claimant had not received a diagnosis and didn’t know the cause of his ailment.
In late 2015, a physician confirmed that the claimant’s debilitating condition had been caused by the contrasting agent. By then, he was bedridden.
The claimant filed a personal injury suit against the debtor in 2016 in federal district court in New Jersey. The debtor filed a motion to dismiss. The district court dismissed the suit, ruling that the claim had been discharged in chapter 11.
The claimant appealed to the Third Circuit, which affirmed in a nonprecedential opinion by Circuit Judge Joseph A. Greenaway, Jr. The appeals court said that the provision of due process in notice by publication was the “dispositive issue.”
The claimant conceded that the manner of notice by publication was constitutionally sufficient. However, the claimant argued that the content of notice was deficient because it did not alert potential creditors about the imaging agent’s propensity to cause injury.
Judge Greenaway listed missing allegations that might have allowed the complaint to avoid dismissal.