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Bankruptcy Court Grants Debtors’ Motion to Set a Bar Date for Unmanifested Claims Overruling an Objection by PI Law Firms

By Charlene D. Davis

On January 12, 2015, Judge Christopher Sontchi of the United States Bankruptcy Court for the District of Delaware (the “Court”) entered and ordered an opinion granting a motion by the Debtors in Energy Future Holdings Corp., et al. to set a bar date for claims (the “Bar Date Motion”) of unknown persons that had yet to manifest signs of illness from exposure to asbestos (the “Unmanifested Claims”).  The Bar Date Motion drew an objection from certain asbestos personal injury law firms (the “PI Law Firms”) on two grounds:  First, the PI Law Firms argued that because asbestos related injuries may not be diagnosed for up to 50 years after exposure, publication notice does not satisfy the requirements of due process for claimants that are so unknown as to be unknown even to themselves;  Second, they maintained that asbestos liabilities are better (and indeed must be) addressed through the creation of an asbestos personal injury trust.  The Court overruled the objection and granted the Bar Date Motion concluding that the PI Law Firms did not have standing to challenge the motion for a bar date and determining that a bar date should be established for all claims, including Unmanifested Claims.

By way of background, the Debtors filed a voluntary Chapter 11 petition on April 29, 2014 (the “Petition Date”).  In their schedules, the Debtors list 392 asbestos related cases against them.  The Debtors maintain that litigation and settlement expenses related to the asbestos claims are not material.  On July 23, 2014, they filed a motion seeking a bar date for all prepetition claims. The PI Law Firms objected to the motion to the extent that it would apply to holders of Unmanifested Claims.  Following an August 13, 2014 hearing, the Court approved the motion as it related to non-asbestos claims and continued it as to the asbestos claims.  On October 28, 2014, the Court heard arguments on the motion, solely as it related to Unmanifested Claims and took the matter under advisement.

In the opinion, the Court concluded that the PI Firms did not satisfy the Third Circuit standard to qualify as a party-in-interest with respect to the motion, since they neither represented any holders of Unmanifested Claims nor had a legally protected interest independent of their potential future clients.  Nonetheless, the Court exercised independent review of the arguments given the due process concerns implicated.  The review included a summary of  bar date notice requirements for known and unknown claimants in the Third Circuit coupled with an analysis of  evolving case law addressing whether due process can be satisfied by publication notice of the bar date to unknown creditors.  The Court concluded that the weight of developing authority holds that publication notice to unknown creditors may be sufficient to satisfy due process and allow for the discharge of Unmanifested Claims. See e.g. White v. Jacobs (In re New Century TRS Holdings, Inc.) Civ. No. 13-1719, 2014 WL 4100749 (D. Del. Aug. 19, 2014).  The Court considered this authority, as well as the procedural posture of the case and its interpretation of the Bankruptcy Rule 3003 (as requiring a court to set a bar date) and section 524(g) (as simply permitting a court to establish a channeling injunction), in granting the Bar Date Motion.  Despite the ruling, pursuant to an agreement of the parties, the Court delayed entry of an order setting the bar date and specifying notice thereof until the conclusion of further proceedings before the Court.

A copy of the opinion can be found here.

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