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Castleman v. Liquidating Trustee

August 28, 2007

HAROLD A. CASTLEMAN, ET AL., APPELLANTS,
v.
LIQUIDATING TRUSTEE, APPELLEE.



MEMORANDUM-DECISION AND ORDER

Appellants appeal the August 3, 2006 Memorandum Decision, Findings of Fact, Conclusions of Law and Order of the Honorable Stephen D. Gerling, Chief United States Bankruptcy Judge that: (1) denied Appellants' request to file late proofs of claim in Agway's bankruptcy proceeding; and (2) determined that Appellants are bound by the Bankruptcy Court's Order Confirming Debtors' Second Amended Joint Plan of Liquidation under Chapter 11 of the Bankruptcy Code.

I. FACTS

a. Background

On October 1, 2002, Agway and its affiliated debtors filed voluntary petitions under Chapter 11 of Bankruptcy Code. In January 2003, the Debtors requested that the Bankruptcy Court issue an order establishing April 30, 2003 as the final date for filing proofs of claim against the debtors (the "bar date") and sought Bankruptcy Court approval of the proposed proof of claim form and the proposed notices and publication procedures. Among other things, the Debtors sought approval to publish notice in the national editions of the New York Times and Wall Street Journal, and to also publish in the Syracuse Post-Standard on one business day at least twenty-five (25) days before the bar date. By Order dated March 6, 2003, the Bankruptcy Court granted Debtors' motion. In accordance with the March 6, 2003 Order, Agway published the notices on March 21, 2003.

On April 28, 2004, the Debtors' Second Amended Joint Plan of Liquidation (the "Plan") was confirmed by the Bankruptcy Court (the "Confirmation Order"). The Confirmation Order appointed Appellee as the Liquidating Trustee ("LT") of Debtors' Liquidating Trust that was established to liquidate and distribute Debtors' assets and claims.

Appellants are persons who claim to have been injured by virtue of exposure to asbestos while working at the Texas City Refining plant ("Texas City plant") in Texas City, Texas. The Texas City plant was owned by Texas City Refining, Inc. Citing Agway's ownership of a 66% equity interest in Texas City Refining, Appellants claim that "Agway effectively owned and operated the Texas City Plant through one of its subsidiaries - Texas City Refinery, Inc." Appellant's Mem. of Law (Dkt. No. 8) at 11.

On February 14, 2005, some of the Appellants filed a personal injury action against Agway in Texas state court seeking to recover for injuries caused by exposure to asbestos at the Texas City plant. That action named Agway as successor to Texas City Refining, Inc. Upon learning of the personal injury action, on June 8, 2005, the LT moved to hold Appellants in contempt for violating the Bankruptcy Court's orders precluding any further claims against the Debtors. On June 13, 2005, Appellants filed a motion to allow late filed proofs of claim and sought an order clarifying that the Confirmation Order did not discharge the claims of certain persons claiming personal injury as a result of exposure to asbestos.

On August 3, 2006, the Bankruptcy Court denied the Liquidating Trustee's motion for contempt. The Bankruptcy Court also denied Appellants' motion to file late proofs of claim or to clarify that their claims were not discharged. It is this Order that is the subject of the instant appeal.*fn1

b. The Bankruptcy Court's August 3, 2006 Order

The Bankruptcy Court first analyzed whether Appellant's claims arose pre or post-petition. The Bankruptcy Court noted the difficulties presented in a situation where alleged exposure to asbestos clearly occurred pre-petition, but any manifestation of injury or diagnosis of asbestos-related injury may not have occurred until post-petition. After canvassing the law on this issue and noting the various different tests used by courts across the country, the Bankruptcy Court adopted the "conduct test" and concluded that a claim arises pre-petition when the acts constituting the tort occurred pre-petition even if the manifestation of injury occurred post-petition.

Having concluded that Appellants' claims arose pre-petition, the Bankruptcy Court next had to determine whether Appellants were afforded due process of law through the publication of the bar date. Stated otherwise, the Bankruptcy Court had to decide whether Appellants received adequate notice of their opportunity to file claims with the Bankruptcy Court before being precluded from doing so.

In ruling on this issue, the Bankruptcy Court distinguished between known creditors (defined as those actually known to, and those whose identities can be readily ascertained by, the trustee) and unknown creditors (defined as those whose interests are either conjectural or future, or, although they could be discovered upon investigation, do not in the due course of business come to the knowledge of the debtor). The Court noted that due process entitled known creditors to actual notice, but that debtors can provide constructive notice to unknown creditors.

In concluding that Appellants were unknown creditors, the Bankruptcy Court stated that:

While the Asbestos Claimants assert that there has been asbestos litigation concerning the Texas City Plant since1987, there is no evidence that such litigation had been commenced against Agway during the fifteen years before Agway filed its chapter 11 petition on October 1, 2002. Indeed, the Beaumont Claimants did not commence their litigation against Agway until approximately two years after the Bar Date and a year after confirmation of the Debtors' Plan and appointment of the LT.

Not only have there been no allegations that any of the Asbestos Claimants had sued Agway pre-petition, there also have been no allegations that the Asbestos Claimants were employees of Agway at any time, as had been the case in Waterman SS Corp. Agway apparently did not have a business relationship with the Asbestos Claimants, and its only interest in the Texas City Plant, where the Asbestos Claimants assert they were exposed, was limited to a 66% equity interest in Texas City Refining, which in turn owned the Texas City Plant. Agway allegedly divested itself of its interest in Texas City Refining in 1987 or 1988. A thorough review of Agway's books and records is unlikely to have uncovered any indicia to suggest the existence of such claims. It has not been asserted that the Debtor possessed any specific information that reasonably suggested that it was liable for asbestos claims of individuals who previously worked at the Texas City Plant and their identity. Based on the facts presented and the review of the cases cited above, the Court finds that the identities of the Asbestos Claimants were not reasonably ascertainable by Agway. The Court ...


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