class 3 bankruptcy, spring, 2009 claims randal c. picker leffmann professor of commercial law the...

Class 3Bankruptcy, Spring, 2009

ClaimsRandal C. PickerLeffmann Professor of Commercial Law

The Law School

The University of Chicago

773.702.0864/[email protected] © 2005-09 Randal C. Picker. All Rights Reserved.

April 18, 2023 Copyright © 2005-09 Randal C. Picker 2

Claims Questions

Two Key Questions Does a claim exist? When does it arise?


Why Do We Care?

As to existence Determines how bankruptcy affects claim

Ability to participate in distribution of debtor’s assets (O’Connor concurrence in Kovacs)

Status as claim determines dischargeability (Ohio’s position in Kovacs)


Why Do We Care?

As to timing Important distinction between prepetition

and postpetition claims Prepetition claims dealt with as ordinary

claims Postpetition claims can enjoy administrative

expense status under BC 503, with superior right to payment


Starting Points

Hypo: Dry Cleaner Bankruptcy Bank lends cleaner $1000 in cash I give cleaner a $1000 suit for cleaning Cleaner blows cash on lottery tickets Cleaner files for bankruptcy with suit in

hand and $100 in cash How should we divide the assets between

Bank and me?


101(5): Definition of Claim Claim means -

(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


Kovacs

Facts 1976: Ohio sues Kovacs 1979: Suit settles

Injunction barring further pollution Order to remove particular wastes from the

site Order to pay $75,000 to compensate Ohio

for harm to wildlife


Kovacs

Kovacs does nothing, Ohio appoints receiver who takes over property

Kovacs files a personal Ch 11 case, later converted to Ch 7

Receiver remained in possession but considering “terminating” receivership

Ch 7 trustee did not take possession of site but didn’t abandon it under 554


Sec. 542 Turnover of property to the estate

(a) Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.


Sec. 554

Abandonment of property of the estate (a) After notice and a hearing, the trustee

may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.


The Status of the Three Orders

Three Orders 1. Negative injunction: don’t pollute again 2. Affirmative injunction: clean site 3. $75,000 payment obligation


Role of State Law

Butner (US, 1979) “Congress has generally left the

determination of property rights in the assets of a bankrupt’s estate to state law.”

What does this mean here? Can Ohio determine when claim arises? Can Ohio limit dischargeability?


Three Approaches to Claims

Accrued State Law Claim Approach Associated with the Frenville case in the

Third Circuit No claim in bankruptcy until claim has

accrued under state law


Three Approaches to Claims

The Conduct Test Right to payment arises for 101(5) when

conduct giving rise to liability occurs Prepetition Relationship Test

Conduct test plus further limit Claimant must have some prepetition

relationship to debtor


Definition of Future Claimants

Definition 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.


The Piper Test

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 Piper Test

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

class 3 bankruptcy, spring, 2009 claims randal c. picker leffmann professor of commercial law the...

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