The Bankruptcy Court Reaffirms that Frenville is the Law in the Third Circuit: Bankruptcy Court Must Examine State Law to Determine When a Claim or Interest Arises
JELD-WEN, Inc. v. Brunt (In re Grossman’s, Inc.), Nos. 97-00695, Adv. No. 07-51602 (Bankr. D. Del. June 9, 2008) (Judge Peter J. Walsh)
The Bankruptcy Court confirmed Grossman’s chapter 11 plan for reorganization in December 1997 in which all claims against Grossman’s were discharged. Approximately ten years later, Mary and Gordon Van Brunt sued JELD-WEN, as successor in interest to Grossman’s, for injuries allegedly caused by materials sold by Grossman’s that contained asbestos. JELD-WEN contended that these state court claims were discharged by the confirmed plan and commenced an adversary proceeding against the Van Brunts seeking (i) a permanent injunction enjoining defendants’ prosecution of claims against JELD-WEN; (ii) a determination that these claims were discharged; and (iii) an award of damages.
Grossman’s was a retailer of home improvement and building products. Grossman’s filed for protection under chapter 11 of the Bankruptcy Code in April 1997. The deadline for filing proofs of claim was August 4, 1997. At the time of this chapter 11 case, Grossman’s was unaware of any potential products liability lawsuits. However, Grossman’s was apparently aware that it sold products containing asbestos and was aware of the health risks associated with asbestos. Mary Van Brunt allegedly purchased home improvement products containing asbestos from Grossman’s in 1977. The Van Brunts did not file a proof of claim in the bankruptcy case. Thirty years after purchasing the products, Mary Van Brunt was diagnosed with mesothelioma. She did not exhibit symptoms of the disease until late 2006. As a result of the diagnosis, the Van Brunts filed a products liability suit in New York State Court against JELD-WEN. JELD-WEN subsequently commenced this adversary proceeding in the Bankruptcy Court for the District of Delaware.
JELD-WEN contended that the Van Brunts’ state court claims were barred by the Confirmation Order entered in the Grossman’s bankruptcy case. The Confirmation Order contained an injunction provision that barred claims arising before the effective date. The Bankruptcy Court concluded that the threshold question in this case was whether the Van Brunts’ claim arose before or after the Plan’s effective date.
The Bankruptcy Court utilized the holding of In re Frenville Co., Inc., 744 F.2d 332 (3d Cir. 1984), to determine that a bankruptcy court must examine state law to determine when a claim or interest arises. The Van Brunts’ filed their products liability claim in New York state court and no party disputed that New York state law governed these claims. Under New York law, asbestos injury claims do not arise until the injury manifests itself. Thus, the Van Brunts’ claims did not arise until after the plan’s effective date.
However, JELD-WEN contended that the majority of courts have concluded that a claim arises when the acts giving rise to the claim were performed. The cases cited by JELD-WEN for this proposition were located outside the Third Circuit. Additionally, JELD-WEN argued that Frenville was one of the “most criticized and least followed precedence” decided under the Bankruptcy Code and suggested that the Bankruptcy Court ignore it. The Bankruptcy Court refused to ignore Frenville and noted that another Third Circuit case, Jones v. Chemetron Corp., 212 F.3d 199, 206 (3d Cir. 2000), reaffirmed Frenville as the law of this circuit, despite contrary authority in other circuits.
The Bankruptcy Court further observed that the Third Circuit decided the question of when an asbestos claim arises in Schweitzer v. Consol. Rail Corp., 758 F.2d 936 (3d Cir. 1985). The Third Circuit held in the Schweitzer case that a claim for asbestos related injuries does not arise until the injuries manifest themselves. In doing so, the court reasoned that an injury that has not manifested itself would have damages insufficient to sustain a cause of action under tort law. Further, requiring a person who has no idea that he would be harmed by a product produced or sold by the debtor to file a claim in a debtor’s bankruptcy case would be absurd. Thus, the Third Circuit concluded that a claim for an asbestos-related injury does not arise until the injuries manifest themselves.
The Bankruptcy Court relied on this precedent and held that the Van Brunts’ claims did not arise until Mary Van Brunt began to exhibit symptoms of her injuries. As a result, the Confirmation Order did not bar the Van Brunts’ state court claims against JELD-WEN.
