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The Delaware Bankruptcy Insider is a premier blog designed to bring its readers a comprehensive analysis of the latest Delaware corporate bankruptcy news and rulings. Brought to you by Ashby & Geddes, P.A.
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Third Circuit Extends and Applies Broad Definition of “Claim” Beyond Common Law Tort Actions
In re Ruitenberg, 745 F.3d 647 (3d Cir. 2014)
The Honorable Thomas L. Ambro penned this short Opinion, extending the holding of JELD-WEN, Inc. v. Van Brunt (In re Grossman’s), 607 F.3d 114 (3d Cir. 2010), outside the context of tort-related claims. In Grossman’s, the Third Circuit revisited the question of how to determine the existence of a claim. It abandoned the earlier and narrower “accrual test” set out in In re Frenville, 744 F.2d 332 (3d Cir. 1984), which focused on when a right to payment arose as determined by governing state law, for a broader test focused on when an individual is exposed to conduct or a product giving rise to an injury. The Grossman’s test recognizes that both Congress and the Supreme Court gave a “claim” the broadest possible definition under the Bankruptcy Code, i.e., 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[.]” 11 U.S.C. § 101(5)(A).
In Ruitenberg, the Court was presented with the question of whether a spouse’s interest in an equitable share of marital property pending her divorce from her husband-debtor constituted a pre-petition “claim” against her husband’s bankruptcy estate. Because the divorce proceeding between the parties was pending as of the petition date, the spouse argued that she held a pre-petition contingent claim against the debtor-spouse’s estate. The chapter 7 trustee of the husband’s estate (“Orr”) countered that the claim should be considered post-petition because no final decree had been issued in the divorce proceedings as of the petition date. In other words, Orr asserted that the Court should eschew the application of Grossman’s broad test in favor of the old accrual test, arguing that the Grossman’s only applies to tort-related claims.
The Third Circuit disagreed with Orr, applying the Grossman’s test to conclude that “a non-debtor spouse has an allowable pre-petition claim against the debtor’s bankruptcy estate for equitable distribution of marital property when the parties are in divorce proceedings before the bankruptcy petition is filed.” In so holding, the Court acknowledged that, while the Grossman’s test was formulated to address claims stemming from common law tort actions, “the underlying rationale of [Grossman’s] and the language of § 101(5) favor a broader rejection of the Frenville accrual test.” Accordingly, the pertinent question is no longer when a claim accrues but rather when it exists, and such existence is not altered if an individual’s right to payment is contingent, unliquidated, disputed, or unmatured.