Court Opinion

ID: 70307
Source: CourtListenerOpinion
Date Created: 2010-04-26 06:58:49+00
Date Added: 2024-06-11T17:17:14.596098
License: Public Domain

United States Court of Appeals,

                              Eleventh Circuit.

                                  No. 94-4745.

                 David G. EPSTEIN, Plaintiff-Appellant,

                                        v.

 The OFFICIAL COMMITTEE OF UNSECURED CREDITORS, OF the ESTATE OF
PIPER AIRCRAFT CORPORATION, Piper Aircraft Corporation, Defendants-
Appellees,

                   Pilatus Aircraft Limited, Amicus.

                  In re PIPER AIRCRAFT, CORP., Debtor.

                                 July 26, 1995.

Appeal from the United States District Court for the Southern
District of Florida. (No. 94-8044-CIV-SMA), Sidney M. Aronovitz,
Judge.

Before DUBINA and BLACK, Circuit Judges, and MORGAN, Senior Circuit
Judge.

     BLACK, Circuit Judge:

     This   is    an    appeal    by   David   G.   Epstein,   as   the   Legal

Representative for the Piper future claimants (Future Claimants),

from the district court's order of June 6, 1994, affirming the

order of the bankruptcy court entered on December 6, 1993.                 The

sole issue on appeal is whether the class of Future Claimants, as

defined by the bankruptcy court, holds claims against the estate of

Piper Aircraft Corporation (Piper), within the meaning of § 101(5)

of the Bankruptcy Code.          After review of the relevant provisions,

policies and goals of the Bankruptcy Code and the applicable case

law, we hold that the Future Claimants do not have claims as

defined by § 101(5) and thus affirm the opinion of the district

court.

                 I. FACTUAL AND PROCEDURAL BACKGROUND
       The factual and procedural history of this appeal is fully set

forth in the bankruptcy court's Memorandum Opinion, see In re:

Piper Aircraft Corp., 162 B.R. 619 (Bankr.S.D.Fla.1994), and the

district court's Order Affirming Decision of the Bankruptcy Court,

see In re:          Piper Aircraft Corp.,          168 B.R. 434 (S.D.Fla.1994)

(Piper      II),    and   therefore      need    not    be   repeated    here    in    its

entirety.        For purposes of this appeal, the relevant facts are as

follows.

       Piper has been manufacturing and distributing general aviation

aircraft and spare parts throughout the United States and abroad

since 1937.         Approximately 50,000 to 60,000 Piper aircraft still

are operational in the United States.                   Although Piper has been a

named defendant in several lawsuits based on its manufacture,

design, sale, distribution and support of its aircraft and parts,

it    has    never    acknowledged       that     its   products   are    harmful       or

defective.1

       On July 1, 1991, Piper filed a voluntary petition under

Chapter 11 of Bankruptcy Code in the United States Bankruptcy Court

for    the       Southern     District     of     Florida.       Piper's        plan    of

reorganization contemplated finding a purchaser of substantially

all of its assets or obtaining investments from outside sources,

with       the     proceeds    of   such        transactions     serving        to     fund

distributions to creditors.              On April 8, 1993, Piper and Pilatus

Aircraft Limited signed a letter of intent pursuant to which

Pilatus would purchase Piper's assets.                       The letter of intent

       1
      Piper made a decision in 1987 to self-insure and therefore
does not have any product liability insurance covering events or
occurrences taking place after that year.
required Piper to seek the appointment of a legal representative to

represent     the     interests    of   future    claimants     by     arranging   a

set-aside of monies generated by the sale to pay off future product

liability claims.

       On May 19, 1993, the bankruptcy court appointed Appellant

Epstein as the legal representative for the Future Claimants.                   The

Court defined the class of Future Claimants to include:

       All persons, whether known or unknown, born or unborn, who
       may, after the date of confirmation of Piper's Chapter 11 plan
       of reorganization, assert a claim or claims for personal
       injury,   property    damages,   wrongful    death,   damages,
       contribution and/or indemnification, based in whole or in part
       upon events occurring or arising after the Confirmation Date,
       including claims based on the law of product liability,
       against Piper or its successor arising out of or relating to
       aircraft or parts manufactured and sold, designed, distributed
       or supported by Piper prior to the Confirmation Date.

See Order, May 19, 1993 (Mark, J.).              This Order expressly stated

that    the   court    was   making     no   finding   on    whether    the   Future

Claimants could hold claims against Piper under § 101(5) of the

Code.

       On July 12, 1993, Epstein filed a proof of claim on behalf of

the Future Claimants in the approximate amount of $100,000,000.

The claim was based on statistical assumptions regarding the number

of   persons    likely       to   suffer,    after     the   confirmation     of   a

reorganization plan, personal injury or property damage caused by

Piper's pre-confirmation manufacture, sale, design, distribution or

support of aircraft and spare parts.                 The Official Committee of

Unsecured Creditors (Official Committee), and later Piper, objected

to the claim on the ground that the Future Claimants do not hold §

101(5) claims against Piper. After a hearing on the objection, the

bankruptcy court agreed that the Future Claimants did not hold §
101(5)   claims,    and,   on    December    6,   1993,   entered    an     Order

Sustaining the Committee's Objection and Disallowing the Legal

Representative's Proof of Claim.            In a Memorandum Opinion dated

January 14, 1994, that court entered final findings of fact and

conclusions of law to support its December Order.               Epstein, as

Legal Representative, then appealed from the bankruptcy court's

order.   On June 6, 1994, the district court affirmed and accepted

the decision of the bankruptcy court. Epstein now appeals from the

district court's order, challenging in particular its use of the

prepetition relationship test to define the scope of a claim under

§ 101(5).

                                II. DISCUSSION

     The sole issue on appeal, whether any of the Future Claimants

hold claims against Piper as defined in § 101(5) of the Bankruptcy

Code, is one of first impression in this Circuit.            Interpretation

and application of the Bankruptcy Code is a question of law, to

which this Court will apply a de novo standard of review.                  In re:

James Cable Partners, L.P., 27 F.3d 534, 536 (11th Cir.1994).

A. Statute

     Under   the      Bankruptcy     Code,     only   parties       that    hold

preconfirmation claims have a legal right to participate in a

Chapter 11 bankruptcy case and share in payments pursuant to a

Chapter 11 plan.     11 U.S.C.A. §§ 101(10), 501, 502 (West 1993).             In

order to determine if the Future Claimants have such a right to

participate, we first must address the statutory definition of the

term "claim."      The Bankruptcy Code defines claim as:

          (A) right to payment, whether or not such right is
     reduced to judgment, liquidated, unliquidated, fixed,
      contingent, matured, unmatured, disputed, undisputed, legal,
      equitable, secured, or unsecured; or

           (B) right to an equitable remedy for breach of
      performance if such breach gives rise to a right to payment,
      whether or not such right to an equitable remedy is reduced to
      judgment, fixed, contingent, matured, unmatured, disputed,
      undisputed, secured, or unsecured.

11 U.S.C.A. § 101(5). The legislative history of the Code suggests

that Congress intended to define the term claim very broadly under

§ 101(5), so that "all legal obligations of the debtor, no matter

how remote or contingent, will be able to be dealt with in the

bankruptcy case."         H.R.Rep. No. 595, 95th Cong., 2d Sess. 309

(1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6266.             See In

re:   St. Laurent II,      991 F.2d 672, 678 (11th Cir.1993) (stating

that "[t]he legislative history of the Bankruptcy Code indicates

that "claim' was to be given the "broadest possible definition' ").

B. Case Law

          Since the enactment of § 101(5), courts have developed

several tests to determine whether certain parties hold claims

pursuant to that section:        the accrued state law claim test, 2 the

conduct     test,   and   the   prepetition   relationship   test.      The

      2
      The accrued state law claim theory states that there is no
claim for bankruptcy purposes until a claim has accrued under
state law. The most notable case adopting this approach is the
Third Circuit's decision in In re: M. Frenville Co., 744 F.2d
332 (3d Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 911, 83
L.Ed.2d 925 (1985). This test since has been rejected by a
majority of courts as imposing too narrow an interpretation on
the term claim. See e.g., Grady v. A.H. Robins Co., 839 F.2d
198, 201 (4th Cir.), cert. denied, 487 U.S. 1260, 109 S.Ct. 201,
101 L.Ed.2d 972 (1988); In re: Black, 70 B.R. 645 (Bankr.D.Utah
1986); Acevedo v. Van Dorn Plastic Machinery Co., 68 B.R. 495
(Bankr.E.D.N.Y.1986); In re: Edge, 60 B.R. 690
(Bankr.M.D.Tenn.1986); In re: Johns-Manville Corp., 57 B.R. 680
(Bankr.S.D.N.Y.1986); In re: Yanks, 49 B.R. 56
(Bankr.S.D.Fla.1985). We agree with these courts and decline to
employ the state law claim theory.
bankruptcy     court    and   district   court    adopted   the   prepetition

relationship test in determining that the Future Claimants did not

hold claims pursuant to § 101(5).

         Epstein primarily challenges the district court's application

of the prepetition relationship test.            He argues that the conduct

test, which some courts have adopted in mass tort cases, 3 is more
                                                                            4
consistent with the text, history, and policies of the Code.

Under the conduct test, a right to payment arises when the conduct

giving rise to the alleged liability occurred.              See A.H. Robins,

839 F.2d at 199;       Waterman, 141 B.R. at 556.     Epstein's position is

that any right to payment arising out of the prepetition conduct of

Piper, no matter how remote, should be deemed a claim and provided

for, pursuant to § 101(5), in this case.               He argues that the

relevant conduct giving rise to the alleged liability was Piper's

prepetition manufacture, design, sale and distribution of allegedly

defective aircraft.       Specifically, he contends that, because Piper

performed these acts prepetition, the potential victims, although

not yet identifiable, hold claims under § 101(5) of the Code.

     3
      See, e.g., A.H. Robins Co., 839 F.2d at 203 (Dalkon
Shield); In re: Waterman Steamship Corp., 141 B.R. 552, 556
(Bankr.S.D.N.Y.1992) (asbestos), vacated on other grounds, 157
B.R. 220 (Bankr.S.D.N.Y.1993); In re: Johns-Manville Corp., 36
B.R. 743, 750 (Bankr.S.D.N.Y.1984) (asbestos).
     4
      Epstein claims that the prepetition relationship test, by
requiring identifiability of claimants, eliminates the words
"contingent," "unmatured," "unliquidated," and "disputed" from
the statute. He further argues that requiring a prepetition
relationship is contrary to the Congressional objective that
bankruptcy permit a complete settlement of the affairs of the
debtor and a complete discharge and fresh start, as the claims of
those persons whose injuries become manifest after the petition
is filed could prove a drain on the reorganized debtor's assets
for years to come.
        The Official Committee and Piper dispute the breadth of the

definition of claim asserted by Epstein, arguing that the scope of

claim   cannot    extend     so   far    as   to   include       unidentified,        and

presently      unidentifiable,          individuals       with     no     discernible

prepetition relationship to Piper.             Recognizing, as Appellees do,

that the conduct test may define claim too broadly in certain

circumstances, several courts have recognized "claims" only for

those individuals with some type of prepetition relationship with

the debtor.       See In re:        Jensen,        995 F.2d 925, 929-31 (9th

Cir.1993);     In re:       Chateaugay Corp.,       944 F.2d 997, 1003-04 (2d

Cir.1991);       In   re:    Correct Mfg. Corp.,             167    B.R.       458,   459

(Bankr.S.D.Ohio 1994).            The prepetition relationship test, as

adopted by the bankruptcy court and district court, requires "some

prepetition relationship, such as contact, exposure, impact, or

privity, between the debtor's prepetition conduct and the claimant"

in order for the claimant to hold a § 101(5) claim.                     In re:    Piper,

162 B.R. at 627;      Piper II, 168 B.R. at 440.

        Upon examination of the various theories, we agree with

Appellees that the district court utilized the proper test in

deciding that the Future Claimants did not hold a claim under §

101(5). Epstein's interpretation of "claim" and application of the

conduct test would enable anyone to hold a claim against Piper by

virtue of their potential future exposure to any aircraft in the

existing fleet.       Even the conduct test cases, on which Epstein

relies, do not compel the result he seeks.                 In fact, the conduct

test cases recognize that focusing solely on prepetition conduct,

as   Epstein    espouses,      would     stretch    the    scope    of     §     101(5).
Accordingly, the courts applying the conduct test also presume some

prepetition relationship between the debtor's conduct and the

claimant.   See A.H. Robins, 839 F.2d at 203;   Waterman, 141 B.R. at

556.

       While acknowledging that the district court's test is more

consistent with the purposes of the Bankruptcy Code than is the

conduct test supported by Epstein, we find that the test as set

forth by the district court unnecessarily restricts the class of

claimants to those who could be identified prior to the filing of

the petition.      Those claimants having contact with the debtor's

product post-petition but prior to confirmation also could be

identified, during the course of the bankruptcy proceeding, as

potential victims, who might have claims arising out of debtor's

prepetition conduct.

       We therefore modify the test used by the district court and

adopt what we will call the "Piper test" in determining the scope

of the term claim under § 101(5):      an individual has a § 101(5)

claim against a debtor manufacturer if (i) events occurring before

confirmation create a relationship, such as contact, exposure,

impact, or privity, between the claimant and the debtor's product;

and (ii) the basis for liability is the debtor's prepetition

conduct in designing, manufacturing and selling the allegedly

defective or dangerous product.    The debtor's prepetition conduct

gives rise to a claim to be administered in a case only if there is

a   relationship    established   before   confirmation   between   an

identifiable claimant or group of claimants and that prepetition
conduct.5

         In the instant case, it is clear that the Future Claimants

fail the minimum requirements of the Piper test.             There is no

preconfirmation    exposure    to   a   specific   identifiable   defective

product or any other preconfirmation relationship between Piper and

the broadly defined class of Future Claimants.            As there is no

preconfirmation connection established between Piper and the Future

Claimants, the Future Claimants do not hold a § 101(5) claim

arising out of Piper's prepetition design, manufacture, sale, and

distribution of allegedly defective aircraft.

                              III. CONCLUSION

     For the foregoing reasons, we hold that the Future Claimants

do not meet the threshold requirements of the Piper test and, as a

result, do not hold claims as defined in § 101(5) of the Bankruptcy

Code.

     AFFIRMED.

     5
      This modified test was set forth by the bankruptcy court in
a related case, In re: Piper Aircraft Corp., 169 B.R. 766
(Bankr.S.D.Fla.1994). By changing the focal point of the
relationship from the petition date to the confirmation date, the
test now encompasses those with injuries occurring post-petition
but pre-confirmation, consistent with the policies underlying the
Bankruptcy Code.