In a recent decision involving the adequacy of publication as a means of notice to creditors, the United States Bankruptcy Court for the Southern District of New York reaffirmed the importance of a thorough bar date noticing program in mass tort cases involving the possibility of a large number of unknown claimants. In In re Chemtura, LLC, the Bankruptcy Court rejected the post-confirmation due process arguments of personal injury benzene tort claimants who received notice of the bankruptcy and bar date by publication and were pursuing litigation in violation of the discharge order approved by the Plan and Confirmation Order.
Background
On March 18, 2009, Chemtura Corporation, a specialty chemical company with an operating history of more than 100 years, filed for bankruptcy (along with certain related entities) due to overleveraged debt. At the time of the filing, Chemtura was party to over 2,200 civil tort suits in state and federal courts. The vast majority of those actions were asbestos related. Only three of the actions involved benzene-related claims.
In the summer of 2009, Chemtura sought bankruptcy court approval of a bar date notice program that called for direct mailings of general and site-specific notices to known creditors as well as publication notice in the New York Times, USA Today and 112 local newspapers across the country. The site-specific notices identified the names and addresses of specific facilities or sites associated with potential environmental contamination or chemical exposure, and the potential contamination or chemicals used at or near such locations. The notices were intended to provide notice to persons who had been exposed to benzene and other chemicals allegedly produced or disposed of by the Debtors to the extent the geographical locations were known to be associated with potential or alleged exposure.
On November 3, 2010, the Bankruptcy Court entered an order confirming Chemtura’s Chapter 11 plan, including discharge and injunction provisions “nearly identical” to the language of sections 1141(d) and 524 of the Bankruptcy Code. The discharge provision included all “Claims, Interests and Causes of Action of any nature whatsoever…whether known or unknown” against the Debtors. The injunction provision further prohibited all entities who have held, hold or may hold Claims that have been discharged from, among other things, “…commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims….”
After the Plan was consummated and went effective, Chemtura’s Chapter 11 cases were closed on April 23, 2014. Thereafter, between 2015 and early 2016, five lawsuits were filed by individuals asserting toxic tort personal injury claims against Chemtura allegedly caused by their exposure to benzene used in parts-washing solvents allegedly manufactured or sold by Chemtura’s predecessor in interest, Witco Corporation to, and used by, Safety-Kleen Systems, Inc.
Upon a motion on behalf of the Debtors, the Bankruptcy Court reopened the case for the limited purposes of enforcing the Chapter 11 discharge and injunction. The benzene claimants asserted that the Bar Date Notice did not satisfy due process requirements because Chemtura did not provide site-specific notices to the benzene claimants.
Adequacy of Notice
In determining that the tort claims were barred by the discharge and injunction, the Bankruptcy Court recognized the general rule that “a debtor’s plan of reorganization, once confirmed, binds the debtor and all creditors, whether or not a creditor has accepted the plan,” but noted that the discharge and injunction “will bar prosecution of the Benzene Lawsuits only if…the Benzene Claimants received adequate notice of the Bar Date.”
The Bankruptcy Court first analyzed whether the benzene claimants were “known” or “unknown” creditors. A “known” claimant is one whose identity is either known or “reasonably ascertainable by the debtor” and, thus, entitled to actual notice. In contrast, the Bankruptcy Court acknowledged that it is well-settled that publication notice of the claims bar date is adequate constructive notice, and all that is required with respect to unknown creditors – i.e., creditors whose interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to the knowledge of the debtor.
The Bankruptcy Court reasoned that while the Debtors were aware of certain benzene related cases prior to the commencement of the bankruptcy case, none of the actions or claims that had been filed related to benzene products used by or sold to Safety-Kleen and, therefore, the Debtors had no reason to be aware of these potential actions. The Bankruptcy Court found that it would have been “plainly unreasonable” to have required the Debtors to communicate with every one of their (and their predecessors’) current and former customers to determine where those customers subsequently distributed such products, so as to ascertain the identities of potential creditors who were never in direct contact with Chemtura or its affiliates or predecessors. This was especially true given the Debtors’ 100 year history, and the fact that Chemtura (and its affiliates and predecessors) had sold over 3000 products containing different chemical substances and, as of the Petition Date, had more than 45,000 customers. Plainly, it would have been impractical or impossible to trace every product to its end consumers so as to provide specific notice to those end users.
Ultimately, the Bankruptcy Court found that the benzene claimants received adequate notice of the Bar Date and were bound by and subject to the discharge and injunction. Specifically, the Bankruptcy Court held that “[t]he Bar Date notice contained more than adequate information and language that placed parties on notice of the opportunity to assert claims (and even potential claims) against the Debtors (including the Debtors’ predecessors) by the Bar Date, and was disseminated to different geographical regions of the country intended to maximize the reach of unknown creditors, such as the Benzene Claimants.”
Implications
Although the decision is unpublished, the Bankruptcy Court’s rationale underscores the need for debtors to cast a wide net when designing a bar date notice program in mass tort and other cases involving potential unknown claimants and highlights the importance of the bar date notice in providing a fresh start to a debtor. The elements of effective noticing will vary from case to case, but it is useful to understand what is or can be readily identified – such as particular product claims and specific locations. That being said, information that is entirely unknown (such as the long path that a product might take to an unknown end user) will not necessarily preclude application of the discharge and injunction in a Chapter 11 plan. Armed with that knowledge, debtors may develop a thorough plan to provide notice to potential tort claimants. In doing so, debtors may effectively ensure the widest possible application of the critical discharge and injunction provisions in Chapter 11 plans.
