In re: ENERGY FUTURE HOLDINGS CORP, AKA TXU Corp., AKA Texas Utilities, et al., Debtors SHIRLEY FENICLE, individually and as successor-in-interest to the Estate of George Fenicle; DAVID WILLIAM FAHY; JOHN H. JONES; DAVID HEINZMANN; *HAROLD BISSELL; *KURT CARLSON; *ROBERT ALBINI, individually and as successor-in-interest to the Estate of Gino Albini; DENIS BERGSCHNEIDER, Appellants
No. 19-1430
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
February 18, 2020
PRECEDENTIAL. On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-18-cv-00381). District Judge: Honorable Richard
(Opinion filed: February 18, 2020)
Daniel K. Hogan
Hogan McDaniel
1311 Delaware Avenue
Suite 1
Wilmington, DE 19806
Steven Kazan
Kazan McClain Satterley & Greenwood
55 Harrison Street
Suite 400
Oakland, CA 94607
Leslie M. Kelleher [ARGUED]
Jeanna R. Koski
Caplin & Drysdale
One Thomas Circle, N.W.
Suite 1100
Washington, DC 20005
Counsel for Appellants
Matthew C. Brown
Thomas E. Lauria
Joseph A. Pack
White & Case
200 South Biscayne Boulevard
Suite 4900
Miami, FL 33131
J. Christopher Shore [ARGUED]
White & Case
1221 Avenue of the Americas
New York, NY 10020
Jeffrey M. Schlerf
Fox Rothschild
919 North Market Street
Suite 300
Wilmington, DE 19801
Counsel for Appellee Reorganized EFH Debtors
Daniel J. DeFranceschi
Jason M. Madron
Richards Layton & Finger
920 North King Street
One Rodney Square
Wilmington, DE 19801
Mark E. McKane [ARGUED]
Kirkland & Ellis
555 California Street
Suite 2700
San Francisco, CA 94104
Counsel for Appellee EFH Plan Administrator Board
Jennifer Bennett
Public Justice
475 14th Street
Suite 610
Oakland, CA 94607
Michael J. Quirk
Motley Rice
40 West Evergreen Avenue
Suite 104
Philadelphia, PA 19118
Counsel for Amicus Curiae Public Justice
OPINION OF THE COURT
KRAUSE, Circuit Judge.
We must determine whether and under what circumstances a bankruptcy debtor’s Chapter 11 plan of reorganization may discharge the claims of latent asbestos claimants. The Bankruptcy Court determined that the discharge of such claims is permissible so long as the claimants receive an opportunity to reinstate their claims after the debtor’s reorganization that comports with due process. We agree and therefore will affirm.
I. Facts
This case, while complex on its surface, is in fact quite simple when understood in historical and legal context. We thus set out that context before turning to a discussion of the underlying facts and procedural history.
A. Asbestos Litigation in Bankruptcy
The great tragedy of this country’s history of asbestos exposure and related disease is by now well documented. The asbestos crisis entails “a tale of danger known in the 1930s, exposure inflicted upon millions of Americans in the 1940s and 1950s, injuries that began to take their toll in the 1960s, and a flood of lawsuits beginning in the 1970s.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 598 (1997) (citation omitted). Those lawsuits have proved particularly difficult for our courts to manage because asbestos exposure gives rise to “a latency period that may last as long as 40 years for some asbestos related diseases.” Id. (citation omitted). That latency period bifurcates most classes of asbestos plaintiffs between those who have already contracted asbestos-related disease (“manifested claimants”) and those who have been exposed and are merely at risk (“latent claimants”), see id. at 610–11; many of the latter may not even realize the fact of their exposure, id. at 611. Such “legions so unselfconscious and amorphous” pose problems for which our civil procedure rules were not designed. Id. at 628.
The poor fit between our civil procedure rules and asbestos litigation has been mirrored by an equally poor fit between our bankruptcy law and asbestos litigation. The mismatch occurs because the long latency period for asbestos related disease is incompatible with the “public policy of affording finality to bankruptcy judgments.” In re Cont’l Airlines, 91 F.3d 553, 560 (3d Cir. 1996) (en banc). In the normal course of a bankruptcy proceeding, the court sets a deadline—known as a “bar date”—before which proofs of claim against the debtor’s estate must be filed; all of these claims receive treatment under the proposed plan of reorganization and, upon confirmation of the plan, all claims for which proofs of claim are not filed are discharged by the bankruptcy. But while this “procedural design works relatively well in the typical Chapter 11 corporate restructuring of the debtor’s current assets and liabilities,” it is poorly outfitted to “address the claims of not only current creditors but also currently unknowable future creditors” like latent asbestos claimants. S. Todd Brown, How Long Is Forever This Time? The Broken Promise of Bankruptcy Trusts, 61 Buff. L. Rev. 537, 541–42 (2013). That is because
This dilemma was first confronted in the landmark case of In re Johns-Manville Corp., 68 B.R. 618 (Bankr. S.D.N.Y. 1986). There, the court announced an “innovative and unique” solution to the problem of asbestos-driven bankruptcy. Id. at 621. The court’s innovation was to abstain from addressing all of the debtor’s asbestos liability at once; instead, it provided for the creation and funding of a trust by the debtor to address individual asbestos claims against the debtor as those claims manifested. Id. at 621–22. To ensure that the claims were directed toward the trust, the court imposed an injunction that “effectively channel[ed] all asbestos related claims and obligations away from the reorganized entity and target[ed] [them] towards the . . . [t]rusts.” Id. at 624. The injunction thereby ensured that latent claimants were “treated identically” to symptomatic claimants. Kane v. Johns-Manville Corp., 843 F.2d 636, 640 (2d Cir. 1988).
The Johns-Manville court’s innovation proved so successful that Congress decided to codify it. As we later explained, “The Manville Trust was the basis for Congress’ effort to deal with the problem of asbestos claims on a national basis, which it did by enacting
But
Our struggle with asbestos-driven bankruptcy and due process left off—until today—with Grossman’s. In that case, we convened en banc to consider whether a person whose “underlying asbestos exposure occurred pre-petition but [whose] injury manifested itself post-petition” had a “claim” for bankruptcy purposes. 607 F.3d at 117. We held that such a person did have a claim—i.e., that bankruptcy claims accrue at the time of exposure—overruling our much-maligned rule that bankruptcy claims accrued at the time of an injury. Id. at 125. But as this holding dictated that asbestos claims—even those that are latent at the
Against that backdrop, we turn to the facts of this case, where latent claims were discharged in bankruptcy without the creation of a
B. EFH’s Bankruptcy
Appellee Energy Future Holdings Corporation (“EFH”) was a holding company for various energy properties. Among EFH’s many subsidiaries were four that we will call, collectively, the “Asbestos Debtors”—long-defunct entities only in existence because of ongoing asbestos liability. One of the Asbestos Debtors, EECI, was the successor corporation of a firm involved in power-plant construction for several decades in the mid- to late twentieth century. That industry was reliant on asbestos at the time, so EECI’s predecessor exposed its employees to slow-acting but life-threatening carcinogens. As a result, in the years leading up to this case, EFH was paying asbestos-related claims on behalf of the Asbestos Debtors—principally, it seems, EECI—at a rate of $1 million to $4 million per year.
Separately, EFH became debt-distressed as the price of natural gas, upon which it relied for revenue, fell due to the advent of fracking. That led EFH, along with each of its subsidiaries including the Asbestos Debtors, to file a voluntary Chapter 11 bankruptcy reorganization petition. The resulting proceedings were so consequential and complex that the diligent and experienced Bankruptcy Court judge handling them considered them “the privilege of [his] professional career.” JA 1661. Over the course of those proceedings, EFH was ultimately split into two entities: One side, with which we are not concerned here, emerged from bankruptcy as a separate going concern, while the other—what remained of EFH—sought a buyer.
The crown jewel of EFH’s remaining holdings was a firm called Oncor, the largest electricity transmission and distribution company in Texas. Oncor was the locus of attraction for EFH’s suitors, among whom were Berkshire Hathaway and NextEra, Inc. But EFH could not sell Oncor alone without triggering massive tax liability and converting the deal into a net loss for the potential buyer. EFH and potential buyers thus agreed that, to ensure profitability, the sale of Oncor would need to be structured as a merger. And a merger meant that the buyer would need to take on not only Oncor but also EFH’s other properties, including the Asbestos Debtors.
Understandably, then, EFH’s potential buyers sought to ascertain their potential asbestos liability. An expert report commissioned by EFH determined that the remaining liability was between $36 million and $54 million. With these figures in mind, EFH’s first tentative buyer, NextEra, suggested creating a
Sempra, unlike NextEra, did not propose creating a
C. The Asbestos Challengers
Although nearly all of EFH’s creditors were satisfied by its proposed plan of reorganization, one group of creditors was not: latent asbestos claimants. The latent claimants argued that setting a bar date for latent claims and discharging any claims not filed with the court would violate their due process rights under Grossman’s. But the Bankruptcy Court disagreed and denied their “[motion] in opposition to the imposition of a claims bar date affecting present and future asbestos personal injury claimants.” JA 280 (capitalization altered). Instead, consistent with
To notify potential asbestos claimants of the bar date, EFH agreed to formulate, fund, and implement a notice plan that cost over $2 million and that led nearly 10,000 latent claimants to file proofs of claim before that date.
Although they did not attempt an interlocutory appeal of the order setting the bar date, latent claimants continued to attack the bar date in the subsequent proceedings leading up to the confirmation of the plan. In rejecting each of these challenges on the merits, the Bankruptcy Court had ample occasion to elucidate its understanding of the due process issues. Specifically, the court explained that latent claimants whose claims were discharged by the bar date with insufficient notice were entitled under the bankruptcy rules to post confirmation process:
It is entirely possible that an unmanifested claimant may bring a claim after the bar date, argue the Debtors’ notice scheme was unconstitutional, as applied
to her, and be correct in that argument. She would have her claim reinstated and the Debtors would then be free to dispute its validity and/or her damages. But that is a retrospective determination, an unconstitutional, as applied, determination.
JA 871. In short, on the clear condition that a path to relief consistent with due process would remain available to latent claimants, the Bankruptcy Court confirmed the plan, formally “consummat[ing]” the EFH-Sempra merger, JA 49, and the Confirmation Order formally discharged all claims against the reorganized EFH that were not filed before the bar date.1
Notwithstanding the extension available under
Confirmation Order’s discharge of their claims on due process grounds. The District Court dismissed the appeal without reaching its merits, reasoning that it was barred by
II. Discussion
Although presented as a single claim, Appellants’ due process challenge, on inspection, presents two distinct and alternative arguments: first, that Appellants were entitled to partake of the pre-discharge claims process by having all latent claims deemed timely filed and by recovering through a
latent claimant.3 But before we can engage the merits of either argument, we must contend with the three threshold objections raised by EFH: (a) that Appellants’ due process claim is not ripe; (b) that it was not timely appealed; and (c) that, as the District Court concluded, it was statutorily moot under
A. Ripeness
We begin with the “threshold issue” of ripeness.4 In re Johnson-Allen, 871 F.2d 421, 423 (3d Cir. 1989). EFH contends that this appeal is unripe because Appellants have not yet sought relief under the post-confirmation process outlined
by the Bankruptcy Court. We disagree that this fact renders the appeal unripe.
A case is ripe when it is fit for judicial decision and further withholding of our consideration would cause the parties hardship. In re Rickel Home Ctrs., Inc., 209 F.3d 291, 307 (3d Cir. 2000). To determine whether this standard is met, we ask whether the parties are “sufficiently adversarial,” the appellants “genuinely aggrieved,” and the issues appropriately “crystallized.” Jie Fang v. Dir. U.S. ICE, 935 F.3d 172, 186 (3d Cir. 2019) (citation omitted). Applying these factors, we conclude that the due process arguments raised by Appellants are plainly ripe for our review.
The first two factors are easily resolved: There is no question that the parties are “sufficiently adversarial” where they have litigated aggressively throughout the five-year bankruptcy proceeding, and continue to take conflicting positions with respect to the issues involved in this appeal; nor is there any doubt that Appellants, who are each affected by asbestos-caused mesothelioma—a fast-acting and invariably fatal form of cancer—are “genuinely aggrieved.”
That leaves the question whether the arguments raised by Appellants are appropriately “crystallized,” i.e., whether “the facts of the case [have been] sufficiently developed to provide the court with enough information on which to decide the matter conclusively.” Jie Fang, 935 F.3d at 186 (quoting Peachlum v. City of York, 333 F.3d 429, 433–34 (3d Cir. 2003)). As to both issues, the answer is “yes.” The first issue presented by Appellants—whether Appellants were entitled to pre-confirmation process—turns simply on our analysis of whether the lack of notice to or inadequate representation of latent claimants before the discharge violated due process. No facts are left to be developed on this issue because the discharge has already been consummated, furnishing us with “enough information” to “decide the matter conclusively.”
The second issue—whether, assuming some post confirmation process could comport with due process, the particular process provided here is on its face sufficient—is also accompanied by “enough information” to be “crystallized” for our review. The Bankruptcy Court described a post-confirmation process by which Appellants would be able to seek reinstatement of their claims upon a showing that they were individually deprived of due process, and the description it provided supplies “enough information” to determine whether that process, at least as a facial matter, would conform with due process. EFH complains that Appellants have not yet sought to avail themselves of that post confirmation process, but while that objection might have traction for an as-applied challenge, such additional steps are not necessary for a facial challenge, unless the challenger’s actual “need for [process] is speculative,” Artway v. Att’y Gen., 81 F.3d 1235, 1252 (3d Cir. 1996), or where a new statute is to be applied in a way we
Neither scenario is presented here. Appellants, already affected by mesothelioma, have an immediate “need for” whatever process is available to vindicate their claims for damages, and we can sufficiently apprehend how the post confirmation process here—i.e., motions for reinstatement under
B. Timeliness
EFH next asserts that the appeal constitutes an improper collateral attack on the order rejecting the latent claimants’ objections and holding untimely filers to the bar date. Per EFH, that order could have been appealed but was not; therefore, EFH tells us, we should hold that any appeal of that aspect of the Confirmation Order is barred.
Our analysis of this issue is guided by the Court’s recent decision in Ritzen Group, Inc. v. Jackson Masonry, LLC, No. 18-938, 2020 WL 201023 (U.S. Jan. 14, 2020).5 In Ritzen, the Court unanimously held that because “the adjudication of a motion for relief from [an] automatic stay forms a discrete procedural unit within the embracive bankruptcy case,” it constituted “a final, appealable order when the bankruptcy court unreservedly grants or denies relief.” Id. at *2. That holding abrogated out-of-Circuit precedent to the contrary, see In re Frontier Properties, Inc., 979 F.2d 1358, 1364 (9th Cir. 1992) (“[W]here an issue is determined in an interlocutory order and later incorporated into a final order, the determination of the original issue is appealable upon an appeal of the final order.”), and confirmed the premise of EFH’s argument: that the failure to appeal a bankruptcy court’s final, appealable order renders a later appeal of the issue embedded in a subsequent order untimely. See Ritzen, 2020 WL 201023, at *7. The question, then, is whether the order denying latent
claimants’ motion in opposition to the bar date constituted a final, appealable order for purposes of Ritzen.6
It does not. A final order in bankruptcy, Ritzen instructs, is one that “disposes of a procedural unit anterior to, and separate from, claim-resolution proceedings.” Id. at *5. As the Supreme Court described it, such a separate procedural unit, like the stay-relief proceedings at issue in Ritzen, generally “initiates a discrete procedural sequence, including notice and a hearing”; requires application of a “statutory standard”; and does “not occur as part of the adversary claims adjudication process.” Id.
While EFH’s motion to establish a bar date initiated a procedural sequence, including notice and hearing, it does not satisfy the remaining elements of the Ritzen finality standard. There was no “statutory standard” to govern the question of whether the bar date should apply to latent claimants—instead, the Bankruptcy Court relied on general principles of due process. And the bar date dispute was not anterior to and separate from, but instead
C. Statutory Mootness
The third and last procedural bar invoked by EFH (and the one accepted by the District Court) is also the most difficult to resolve. EFH contends that this appeal is barred by
1. Is there a due process exception to § 363(m) ?
Appellants’ first argument—that there is a due process exception to
The case law, however, is equally devoid of support for a due process exception. The two cases upon which Appellants rely for their proposed exception are Hansberry v. Lee, 311 U.S. 32 (1940), and INS v. St. Cyr, 533 U.S. 289 (2001). Neither can bear that weight. Hansberry held that a plaintiff was deprived of due process when he was bound by a class action to which he was not a party, 311 U.S. at 42–46; St. Cyr held that a jurisdictional statute should be construed narrowly to avoid raising serious questions regarding its constitutionality under the Suspension Clause, see 533 U.S. at 313–14. No doubt, both dealt with due process challenges to statutes barring appeal, but the gravamen of those challenges was that the plaintiffs would never have an opportunity to present their underlying merits claims to any federal court if the statutory bar applied to their cases.
Appellants’ position is quite different. They had the opportunity to present their merits claims in the Bankruptcy Court and lost. They could have sought to stay the sale to preempt any objections regarding
Of course, there are exceptions to every rule—including procedural ones. Thus, we might excuse
reason to excuse their failure to do so.7 We therefore decline to recognize Appellants’ proposed “due process exception” to
2. Was the Confirmation Order an “authorization . . . of a sale“?
Appellants next assert that the Confirmation Order they are appealing was not “an authorization . . . of a sale” under
Appellants’ first argument is that there can be only one discrete order that qualifies as an authorization of a sale within the meaning of
In Cinicola v. Scharffenberger, 248 F.3d 110, 122 (3d Cir. 2001), we considered an appeal by physicians who challenged the assignment of their contracts during a healthcare corporation’s bankruptcy proceedings. See id. at 115. The physicians had been under contract with subsidiaries of the bankrupt corporation, and the corporation’s bankruptcy trustee sought approval of a settlement agreement that both “involved the sale of assets” and “provided for the assignment of the physicians’ employment contracts.” Id. at 116. The Bankruptcy Court entered an order approving the sale but deferred decision on the assignment of the physicians’ contracts. Id. at 117. Subsequently, it entered a second order authorizing the contract assignment. Id. When the physicians appealed that second order without seeking a stay, the trustee argued, as EFH does here, that the appeal was barred by
While the physicians argued that the second order “represented an independent act,” we disagreed. Id. at 126. We concluded that it was “clear the Bankruptcy Court intended its Second Order to operate in conjunction with its First Order,” id. at 125–26, and that the second order was therefore “inextricably intertwined with [the] sale of assets,” id. at 126.
Here, we have little trouble concluding that the Confirmation Order and the Merger Order were likewise “inextricably intertwined.” The merger agreement expressly provided that closing would take place only after entry of the Confirmation Order, and the Confirmation Order by its terms “authorized and directed” EFH and Sempra to “consummate” the merger, JA 49, and recognized Sempra as a good-faith
Appellants next contend that
3. Would the requested relief “affect the validity of [the] sale“?
We turn to the final requirement to trigger
We typically refer to
Our task, then, after ascertaining that the appeal is from an authorization of a sale, that the purchase was made in good faith, and that the sale was not stayed, is to “see whether a remedy can be fashioned that will not affect the validity of the sale.” Krebs Chrysler-Plymouth, 141 F.3d at 498–99. To be sure, demonstrating the availability of such relief “is a high bar.” Pursuit Capital, 874 F.3d at 139. The ultimate question is whether the grant of relief would, in effect, “claw back the sale,” ICL Holding, 802 F.3d at 554, so a challenger seeking to avert
With these principles in mind, we turn to Appellants’ two due process arguments, each of which would entail a different type of relief and thus must be analyzed separately.
Appellants’ first argument is that they are entitled to the same treatment as creditors who timely filed proofs of claim, such that their claims must be held to have been “not discharged” and “retained against the debtors,” Tr. 70, and EFH must establish the equivalent of a
We take a different view, however, of Appellants’ second argument, that
D. Due Process
To show that this aspect of the Confirmation Order is facially unconstitutional, Appellants must establish both a deprivation of an “individual interest that is encompassed within the Fourteenth Amendment’s protection of life, liberty, or property” and the absence of procedures that “provide due process of law.” Hill v. Borough of Kutztown, 455 F.3d 225, 234 (3d Cir. 2006) (internal quotation marks and citation omitted). But as we explain below, while Appellants’ due process claim undoubtedly satisfies the first component, it falls short on the second because the combination of notice and hearing available to them is constitutionally adequate.
At the first step, Appellants have demonstrated a deprivation of a protected interest. We have recognized as a protected property interest the ability to pursue an asbestos claim. See Grossman’s, 607 F.3d at 127. Because Appellants challenge the post-confirmation process as depriving them of their ability to pursue their asbestos claims, they have asserted a cognizable property interest within the protection of the Due Process Clause.
We must then ask, in connection with this protected interest, “what process the State provided, and whether it was constitutionally adequate.” Revell v. Port Auth. of N.Y. & N.J., 598 F.3d 128, 138 (3d Cir. 2010) (citation omitted). This inquiry is more searching: It “examine[s] the procedural safeguards built into the statutory or administrative procedure of effecting the deprivation, and any remedies for erroneous deprivations provided by statute.” Id. (alteration in original) (citation omitted). Although the appropriate safeguards are “dictated by the particular circumstance,” Rogal v. Am. Broad. Cos., 74 F.3d 40, 44 (3d Cir. 1996) (citation omitted), the standard safeguards are some form of “notice and a hearing,” Wilson v. MVM, Inc., 475 F.3d 166, 178 (3d Cir. 2007). Here, the combination of both the pre-confirmation notice provided and the post-confirmation hearing available are adequate.
As for pre-confirmation notice, Appellants do not dispute that they received publication notice prior to the bar date. EFH launched a multimillion-dollar notice plan to contact latent claimants and notify them of the impending bar date and the accompanying need to file a proof of claim. All latent claimants who timely filed proofs of claim—and there were nearly 10,000 such claimants—were assured of retaining their ability to pursue their claims and, contrary to Appellants’ argument that actual notice to all potential claimants was required, claimants who were unknown at the time of the discharge—such as Appellants—were entitled only to publication notice of a property deprivation, Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 317–18 (1950). We are also unpersuaded that EFH was not “desirous of actually informing”
As for the post-confirmation hearing available to latent claimants, again due process is satisfied. The Bankruptcy Court retains jurisdiction over the parties to consider whether it unconstitutionally discharged individual claims, see In re W.R. Grace & Co., 900 F.3d 126, 138–39 (3d Cir. 2018), and as EFH agrees, the Bankruptcy Court must accept late-filed proofs of claim under
First, all latent claimants will have the opportunity to show that reinstatement of their claims would pose no “danger of prejudice” to the debtors here. As we have explained, the prospect of a post-confirmation procedure allowing for reinstatement was baked into the merger agreement, and
Second, latent claimants will have the opportunity to demonstrate a “reason for the delay” by showing that they would otherwise be deprived of due process under Grossman’s. As we made clear in that case, a latent claim cannot be constitutionally discharged if the claimant received inadequate “notice of the claims bar date“—a concern that “arise[s] starkly in the situation presented by persons with asbestos injuries that are not manifested until years or even decades after exposure,” Grossman’s, 607 F.3d at 126, because “persons in the exposure-only category . . . may not even know of their exposure,” may not “realize the extent of the harm they may incur,” or “[e]ven if they fully appreciate the significance of [notice they did receive], . . . without current afflictions[,] may not have the information or foresight needed to decide, intelligently, whether [to file a claim],” Amchem, 521 U.S. at 628. For that reason, we identified in Grossman’s factors bearing on the “adequacy of the notice of the claims bar date,” 607 F.3d at 127, including—with particular relevance for the
Finally, while the “length of the delay” between the bar date and latent claimants’
In sum, our excursion through the
Appellants also object that the procedural barriers to obtaining
It is true, as Appellants point out, that they must “carry the burden of proof” under
In all, then,
* * *
Though we decline to upset the approach taken here, we share the Bankruptcy Court’s “regret” that “the debtors asked for [a bar date] in the first place,” both because the bar date might “adversely affect . . . [claimants] who have manifested injury . . . or will manifest injury based on prepetition exposure who have not filed proofs of claim” and because it “led to a lot of litigation and a lot of expense and a $2 million noticing program.” JA 1631. Indeed, this case serves as a cautionary tale for debtors attempting to circumvent
III. Conclusion
For the foregoing reasons, we will affirm.