Remembrance of Claims Past: The Due Process Owed to Unknown and Unknowable Future Claims in Light of Williams v. Placid Oil Co. (In re Placid Oil Co.)

Abstract

For more than two decades, whenever a debtor potentially subject to “mass tort” suits predicated on such latent injuries has filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code, courts have struggled with how to classify such causes of action as Code “claims” under § 101 and how to ensure the notice guaranteed by the Due Process Clause of the Constitution’s Fifth Amendment is effectively afforded to these actions’ holders. In an area of bankruptcy law still influenced by its two earliest cases — In re Johns-Manville Corp. (“Manville”) and In re A. H. Robins Co. (“A.H. Robins”) — debate has centered on three disparate issues: whether such rights to payment, invariably unknown in “number, extent, and specifics,” can even constitute “claim[s]” under § 101(5)(A); whether, if so, these prerogatives, their viability as causes of action dependent on a latent harm’s uncertain post-confirmation manifestation, can attain this Code status prior to the confirmation of a Chapter 11 debtor’s plan of reorganization, as § 1141(d)(A) necessitates for their discharge; and whether due process can be satisfied when notice by publication alone is offered to such an unknowing and unknown class of claims (“future claims”). To this day, with no binding precedent or obvious statutory direction, the tension between the Code’s seeming breadth and due process’ practical minimums persists unabated.

Into this debate the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”) again wandered in Williams v. Placid Oil Co. (In re Placid Oil Co.) (“Placid Oil”). Earlier, the bankruptcy court had found the creditors of a previously discharged debtor, Placid Oil Company (“Placid”), to have always been future claimants with unknown pre-petition “claims” who had received constitutionally adequate notice by publication. Over a forceful dissent, the Fifth Circuit agreed. For procedural reasons, it only questioned, but did not disturb, the bankruptcy court’s former conclusion.

This article provides an overview of Placid Oil. It begins with a synopsis of the applicable law and then summarizes the case’s factual background and the legal reasoning in each of the three opinions in Placid Oil (individually, “Placid Opinion,” and collectively, “Placid Opinions”). As its third part shows, in contesting the meaning of “claim” and the parameters of due process, each Placid decision resorts to means statutorily infirm or constitutionally objectionable. Repeatedly, often obscurely, slips in logic plague critical suppositions. The article’s final part briefly touches upon the uncertain import of § 524(g). For all the eloquence and analysis in the Placid Opinions, as their own weaknesses amply attest, much still remains unresolved that only the Court can clarify or Congress can fix.

Note: Posted with permission from Norton Bankruptcy Law Adviser, Feb. 2015 issue. Copyright © 2015 Thomson Reuters/West. For more information about this publication, please visit www.legalsolutions.thomsonreuters.com.

Keywords: bankruptcy, Bankruptcy code, 525, Due Process, Placid Oil, Fifth Amendment, A.H. Robins, Manville, unknown claims, future claims, future claimants

JEL Classification: K00