Taking Future Claims Seriously: Future Claims and Successor Liability in Bankruptcy

Case Western Reserve Law Review, Vol. 49, No. 3, Spring 1999

Posted: 16 Aug 1999

See all articles by Frederick Tung

Frederick Tung

Boston University School of Law

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Abstract

Treatment of contingent tort liabilities when a business is sold presents a particular challenge for corporate and bankruptcy law. In this article, I focus on the precarious position of future tort claimants-those who may be harmed by a manufacturer's defective product after the manufacturer has sold its business and disappeared. By the time the future claimant's injury occurs, she may be left with no means of recovery. While the article focuses primarily on the bankruptcy sale context, a discussion of the nonbankruptcy context provides important background.

In the article, I make two claims. First, I address recent proposals suggesting that plan proponents should have flexibility to decide whether future claims should be included in a given bankruptcy proceeding. I argue that in the sale context, this flexibility is unacceptable. Future claims must always be included. Second, I argue that as long as future claims are included in a bankruptcy proceeding that sells the going concern, bankruptcy courts are and should be authorized to enjoin successor liability claims.

In addition, I address practical implications of my prescription for mandatory treatment of future claims in the bankruptcy sale context. Traditional approaches may be fairly expensive in transaction cost terms. I propose an alternative I call Commensurate Discounted Assumption ("CDA"), under which the acquirer assumes future claims liability, but at a discount based on actual bankruptcy returns to current claimants. My CDA approach may allow equitable bankruptcy treatment of future claims while avoiding estimation-, representation- and other transaction costs of the traditional approach.

Suggested Citation

Tung, Frederick, Taking Future Claims Seriously: Future Claims and Successor Liability in Bankruptcy. Case Western Reserve Law Review, Vol. 49, No. 3, Spring 1999. Available at SSRN: https://ssrn.com/abstract=168688

Frederick Tung (Contact Author)

Boston University School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

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