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Can A Publication Notice Satisfy Due Process For “An Entire Class Of Claimants That Are So Unknown As To Be Unknown Even To Themselves”?

In re Energy Future Holdings Corp., No. 14-10979 (CSS), 2015 WL 77416 (Bankr. D. Del. Jan. 7, 2015)

In the chapter 11 proceedings of Energy Future Holdings Corp. and its affiliated debtors (the “Debtors”) pending before the Delaware Bankruptcy Court, the Court was asked to establish a bar date for “claims of unknown persons that have yet to manifest any sign of illness from exposure to asbestos” (the “Unmanifested Claims” or the “Unmanifested Claimants”) so that the Debtors and parties participating in the ongoing marketing process of the Debtors could understand the extent and nature of outstanding liabilities and, ultimately, seek to bar any claims not properly and timely filed.  Under established case law, claims of creditors unknown to a debtor may be discharged but only if such creditors’ due process rights are satisfied and they are given adequate, constructive notice by publication of the claims bar date.  See, e.g.Chemetron Corp. vJones, 72 F.3d 341, 350 (3d Cir. 1995).  However, by definition, the Unmanifested Claimants are not only unknown to the Debtors but also to the claimants themselves.  Accordingly, before setting a bar date, the Court was tasked with determining whether notice by publication to the Unmanifested Claimants could ever be adequate to satisfy due process so as to allow the future discharge of such claims if determined legally appropriate.

To reach its conclusion, the Court canvassed the scant yet developing case law to learn how other courts have responded to this question.  Only one case, In re Waterman S.S. Corp., 200 B.R. 770, 777 (Bankr. S.D.N.Y. 1996), has held that publication notice is insufficient for unknown future claimants similarly situated to the Unmanifested Claimants—a position similar to the one taken by the dissenting opinion of the Fifth Circuit Court of Appeals in In re Placid Oil Co., 753 F.3d 151, 164 (5th Cir. 2014).  There, while the majority held that unknown future claimants could receive adequate notice by a general publication notice (i.e., one that does not specifically mention the possibility of an asbestos claim), the dissent disagreed, highlighting that unknown future claimants are unable to recognize that their rights will be jeopardized by the bankruptcy.  The remaining case law explored by Judge Sontchi, however, provides that due process may be satisfied to unknown future claimants through publication notice so long as such notice is reasonably calculated, under the circumstances, to apprise the claimants of the pendency of the action and provide them with the opportunity to present their claims.  Accordingly, Judge Sontchi decided to fix a bar date for the Unmanifested Claims, noting that “publication notice may be sufficient to satisfy due process and…allow for the discharge of the Unmanifested Claims.”  The Court, however, did not opine on the proper content or scope of the Debtors’ future publication notice and, as such, the adjudication of what is “adequate notice” to the Unmanifested Claimants has been left to a later date.

For our readers interested in this developing area of the law, click here to see our recent post addressing the Delaware District Court’s In re New Century TRS Holdings, Inc. opinion, which under the circumstances of that case rejected the adequacy of the debtors’ publication notice for unknown creditors.