In Re Dow Corning Corp.
OPINION ON COURT’S AUTHORITY TO DECIDE DOW CORNING CORPORATION’S MOTION FOR SUMMARY JUDGMENT ON ITS OMNIBUS DISEASE OBJECTION TO BREAST IMPLANT CLAIMS
Introduction
Since enactment of the 1984 amendments to the Bankruptcy Code and to title 28, there has been a general assumption that “bankruptcy courts do not have jurisdiction to decide personal injury tort claims.”
In re Thomas,
Yet on April 7,1997, pursuant to
The question of whether the claimants’ experts should be permitted to testify is one that a trial judge must decide as a matter of law.
Daubert v. Merrell Dow Pharmaceuticals,
The motion requests a determination that there is insufficient “scientific evidence or expert opinion testimony admissible under the standards set in Daubert ... and its progeny, for the claimants to support a finding, by a court or jury, that it is more likely than not that silicone-gel breast implants ... are ... capable of causing ... disease.” Debtor’s Motion for Summary Judgment at 1. A ruling in the Debtor’s favor would result in the disallowance of the tens of thousands of pending disease claims. Denial of the motion would mean that the disease claims would survive to be resolved through further proceedings or settlement. The merits of the Debtor’s motion are not considered in this Opinion. Instead, the issue addressed is whether a bankruptcy court has the authority to grant a dispositive motion which would disallow a claim for personal injuries or wrongful death.
At first blush — several subsequent ones as well — we were extremely dubious. After all, the applicable sections of the Judicial Code seem plainly to prohibit bankruptcy judges from deciding the validity of personal injury and wrongful death claims. These provisions read as follows:
(2) Core proceedings include, but are not limited to—
(B) allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under chapter 11, 12or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11;
(5) The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in which the claim arose, as determined by the district court in which the bankruptcy case is pending.
The Debtor’s argument is that “threshold” issues not addressing the merits of a creditor’s claim are qualitatively different; that a bankruptcy court can decide such issues without violating the statutory prohibition in
The Official Committee of Tort Claimants and two groups of personal injury claimants,
1
took the contrary position. They filed objections asserting that the bankruptcy court is prohibited by
Before the Bankruptcy Amendments and Federal Judgeship Act of 1984 changed the status quo in this area, there was no issue. Bankruptcy courts, and only bankruptcy courts, had the task of allowing and disallowing claims made against bankruptcy estates administered in those courts. No differentiation existed in the types of claims adjudicated. Nor was this a recent innovation; it was also the law under the Bankruptcy Act,
Judicial Interpretations of
Only a handful of cases have discussed the issue of whether a bankruptcy court may dispose of a personal injury claim as a matter of law. Even fewer have decided the issue.
The first ease to address the question extensively was
In re UNR Indus., Inc.,
The court discussed the “Mature of UNR’s motion” in detail.
Id.
at 148. It explained that if the matter constituted a core proceeding, it should have been addressed to the bankruptcy court.
Id.
at 148 n. 2. The court decided that it was
not
a core proceeding, and was therefore, properly ad
A decision representative of the contrary view on this issue is
In re Chateaugay Corp.,
The court rejected the claimants’ argument, reasoning that the process of “allowance or disallowance of claims” is distinct from the process of “liquidation of claims.”
Id.
at 75. It noted that its interpretation led to “judicial economy.”
Id.
The court drew support for its holding from
[A] finding that the claim is subject to disallowance as a matter of law is not tantamount to a determination on the merits of the personal injury tort or wrongful death claim. On the other hand, a threshold finding that the claim is sustainable as a matter of law leaves it open for trial elsewhere for “liquidation or estimation” for purposes of distribution.
Id.
at 76-77.
See also In re Aquaslide ‘N’ Dive Corp.,
In affirming
Chateaugay,
the district court expressed “reservations about holding that the Bankruptcy Court ... has subject matter jurisdiction to disallow ... personal injury tort ... [c]laims.”
Chateaugay,
The Debtor argues that adjudicating defenses, such as a statute of limitations or immunity, to personal injury claims is a permissible exercise of bankruptcy core jurisdiction. 3 Thus, it asks us to follow the path suggested in cases like Chateaugay, and to reject contrary authority such as UNR and Schepps Food Stores.
One might be skeptical of, the Debtor’s attempt to liken its
Daubert
argument to the legal challenges asserted by the debtors in
Chateaugay
and
Aquaslide.
But in each of those cases, the court granted summary judgment for reasons relating to the claimants’ lack of proof. In
Aquaslide,
the court affirmed the bankruptcy court’s entry of, what was in effect, a summary judgment for the debtor because “there was no issue of fact regarding whether Aquaslide manufactured the slide in question.”
Bankruptcy Court Jurisdiction to Adjudicate Claims Generally
The subject-matter jurisdiction of district courts over civil proceedings in bankruptcy is set forth in
The extent of a bankruptcy court’s jurisdiction is delineated in
“An objection to a claim is a contested matter within the meaning of Bankruptcy Rule 9014.” 4
Collier on Bankruptcy
¶ 502.02[3][b] (15th ed. rev.1997).
See also Aquaslide,
For purposes of
With respect to the second prong, there is generally no dispute that claims-allowance is a “core proceeding.”
Bankruptcy Court Jurisdiction Over Tort Claims
As mentioned, the allowance or disallowance of claims against the estate is included in the laundry list of “[e]ore proceedings.”
The two lines of relevant cases have each reached stark and contrasting results. And each line of cases purported to apply the “plain” language of the statute.
Compare Schepps Food Stores,
After such analysis, we conclude that a bankruptcy court may enter a final order on a motion for summary judgment disallowing a personal injury claim without running afoul of the “but not the liquidation” clause of
Marathon’s Lack of Relevance
Another distraction which should be dispatched before we commence what we believe is the relevant inquiry is the notion that
Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,
Let us recall what the
Marathon
case was about. The debtor-in-possession, Northern Pipeline Co., sued Marathon Pipe Line Co. “for alleged breaches of contract and warranty, as well as for alleged misrepresentations, coercion, and duress.”
Here, as in
Pettibone Corp.,
the debtor is objecting to a creditor’s claim to share in the assets
in custodia legis
the bankruptcy court.
Marathon
did not address and, therefore, did not say that only Article III judges could resolve claims against a bankrupt estate. Accordingly, it ought to be clear that
The 1984 amendments were enacted to resolve a number of “problems” aside from the jurisdictional crisis created by
Marathon
some two years earlier. Recall: Consumer creditors lobbied to tighten the screws on consumer debtors. Result: The' Consumer Credit Amendments, which included a potpourri of minor and not-so-minor impositions on consumer debtors. Recall: labor unions lobbied to overturn the Supreme Court’s then recent decision in
NLRB v. Bildisco & Bildisco,
Is there a constitutional dimension to these latter provisions? No. Would it be constitutional for a bankruptcy court to “hear” and “determine,” that is, try a personal injury claim and ultimately deny it without a jury? Of course; that is the way it was done in the past. There is no rational way one could constitutionally distinguish the trial of a contract claim from the trial of a tort claim in a bankruptcy court.
See White Motor Corp. v. Citibank, N.A.,
This is not to say that Congress could not provide that certain types of claims, or even all claims, in bankruptcy cases must be resolved somewhere other than in a bankruptcy court. Our point is that Congress need not do so to overcome some imagined constitutional objection. Instead, the real issue is what did Congress do in
The Meanings of Allowance and Disallowance
The proper focus is on the words of the statute in question. If “allowance or disal-lowance” means something different than “liquidation,” then what exactly is the difference? And if they are not different, then why did Congress use two different'phrases in the very same sentence to mean the very same thing?
Although the Bankruptcy Code does not define “allowance,” it does set forth the process for the allowance of claims in
As
The Meaning of Liquidation
Like the term “allowance,” “liquidation” is not defined in the Bankruptcy Code. The only case interpreting
Since liquidation is not defined by the Bankruptcy Code, the next step is to determine if its meaning can be derived from established bankruptcy law. The terms “liquidation” and “unliquidated” are used in
Reference to a “liquidated claim” is found in several provisions of the Bankruptcy Code.
See, e.g.,
What follows now is a lengthy discussion of the term “liquidated” in the context of § 109(e) of the Bankruptcy Code — a statute that one would think would have absolutely no relevance to this dispute, or for that matter, to this chapter 11 case. However, as was suggested at a recent hearing, sometimes in a case as large as this one, it is easier to get a handle on an issue by hypothesizing the proposed rule of decision in a simpler, smaller case. If the principle is
Section 109(e) provides that, to be eligible for chapter 13 relief, the total “liquidated” debts owed by a debtor must be less than the statutorily provided limit. There is unanimous agreement that “a claim is liquidated if its amount is readily ascertainable.”
Comprehensive Accounting Corp. v. Pearson (In re Pearson),
The only cases that hold that a debt is unliquidated if there is a bona fide dispute as to the underlying liability of the debtor are
In re Lambert,
With the exception of
Lambert
and
Hust-waite,
the cases in the minority camp involved situations where the amount of the disputed debt was not readily ascertainable.
9
The overwhelming majority of cases have assigned a narrower meaning to liquidated debt. These cases hold that a liquidated debt is one that “has been made certain as to amount due by agreement of the parties or by operation of law” and that “the concept of a liquidated debt relates to the amount of liability, not the existence of liability.”
U.S. v. Verdunn,
The Sixth Circuit has not taken a position on this issue. In
Pearson,
the court had to decide whether, the debtor’s total unsecured, liquidated debts came within the chapter 13 eligibility requirements of § 109(e). The court explicated both the majority and minority viewpoints, but did not adopt either position.
For a number of reasons,
Lambert
is unpersuasive. One of the most significant is that
Lambert
was premised on the assumption that the terms “claim” and “debt” have different • meanings within the Bankruptcy Code. But Congressional intent was to the contrary; “The terms ‘debt’ and ‘claim’ are coextensive: a creditor has a ‘claim’ against the debtor; the debtor owes a ‘debt’ to the creditor.” S.Rep. No. 989, 95th Cong., 2d Sess. 23,
reprinted in
1978 U.S.C.C.A.N. 5787, 5809; H.R.Rep. No. 595, 95th Cong., 2d Sess. 310,
reprinted in
1978 U.S.C.C.A.N. 5963, 6267.' Any lingering dispute over the matter was put to rest when the Supreme Court held that the terms “claim” and “debt” have the same meaning within the context of bankruptcy.
Pennsylvania Dept. of Public Welfare v. Davenport,
Second,
Lambert’s
assertion that the terms “noncontingent,” “liquidated” and “disputed” (undisputed?) have the same meaning within the context of § 109(e),
Third, Lambert’s conclusion that the omission of “disputed” and “undisputed” from § 109(e) is of no import is plainly wrong. Section 109(e) is written in a manner designed to limit the types of debt that can be applied toward calculating a debtor’s eligibility for chapter 13. For instance, a debt may or may not be contingent. However, for purposes of § 109(e), the debt must be non-contingent for certain legal events to occur. Similarly, although it is possible for a debt to be either liquidated or unliquidated, it must be liquidated if it is going to be factored into the § 109(e) eligibility determination. Congress thus demonstrated that it can limit the type of debt to be considered in determining the chapter 13 debt limit. Had Congress intended to require further limitations, it could have stated that the debt must also be “undisputed.”
But Congress did not do this. Instead, Congress omitted both “disputed” and “undisputed” from § 109(e). While not all omissions from a statute are deliberate or meaningful, if the terms of a statute “have discrete technical meaning ... the maxim
expressio unius est exclusio alterius
may apply.”
Muskin, Inc. v. Strippit, Inc. (In re Little Lake Indus., Inc.),
Fourth, if the definition of “liquidated debt” were to be read so broadly as to subsume debts absolute in amount but questionable as to validity, the term “undisputed” would become meaningless within the context of
The law of accord and satisfaction generally defines a “liquidated claim” as “one which can be determined with- exactness from the agreement between the parties, or by arithmetical process, or by the application of definite rules of law.” 1 Am Jur 2d, Accord and Satisfaction § 7. Conversely, in that area of the law, “the term ‘unliquidated’ describes a claim about whose amount there exists a good faith dispute.” Id. “Generally speaking, a claim is liquidated within the meaning of the setoff statutes where its amount has been determined or is capable of ascertainment by calculation or computation in connection with established market values or when the amount due has been fixed by law or agreed on by the parties.” 20 Am Jur 2d, Counterclaim. Recoupment, etc.. § 22. With respect to the law of damages, “[a] claim for damages arising out of a personal injury is unliquidat-ed in the sense that the defendant cannot know, prior to judgment, the precise amount he is going to be required to pay.” 22 Am Jur 2d, Damages § 667.
Based on the above analysis, the Court rejects Lambert. The accepted definition of a “liquidated debt” is one that is readily ascertainable as to value. An “undisputed debt” is one that is certain as to its legal validity. We adhere to these distinctions, and hold that a claim is liquidated when its value is capable of ready ascertainment, irrespective of whether the validity of the claim is in dispute.
Return to
■ The Court earlier held that claims-allowance involves determining both the validity and the value of a claim. No one has explained why Congress would use both “allowance” and “liquidation” in the same sentence unless it intended that they have different meanings. The Court therefore concludes that the terms “allowance or disallowance” and “liquidation” are not equivalent.
But neither are they completely separate and distinct, as Standard Insulations and Chateaugay maintained. Instead, “allowance” subsumes “liquidation,” since the latter involves fixing the amount of k claim, but does not involve the determination of its validity. Hence, those aspects of the elaimsallowance process of personal injury and wrongful death claims that are not part of the liquidation process are core proceedings that a bankruptcy court has the authority to hear and determine. 14
Section 1411(a) provides that bankruptcy does “not affect any right to trial by jury that an individual has under applicable non-bankruptcy law with regard to a personal injury or wrongful death tort claim.”
Although the value of a personal injury claim can be mutually agreed upon through settlement, a judicial determination of such claim’s value can only occur through trial. The sole intent of the exclusionary clause is to protect a personal injury claimant’s right to trial if that right is shown to exist. Like
Some courts have expressed concern over the fact that the disallowance of a claim at the pretrial phrase for procedural reasons also has the effect of preventing the holder of
This reasoning is unpersuasive. To begin with, a personal injury claim listed in the schedules as disputed, belonging to a creditor with proper notice of the case who fails to file a proof of claim, will be disallowed. This is the case even though disallowance will have the actual effect of preventing that creditor from sharing in the distribution of the estate. The result is the same if the bankruptcy court disallows a claim for any number of procedural reasons, such as tardiness or lack of a signature.
In our view, such concerns demonstrate a basic misunderstanding of the interplay between different judicial processes. What these courts observed is the ripple effect that one judicial proceeding often has on a subsequent one. In a criminal case, for example, the granting of a motion to suppress may force the government to drop the charges against the defendant, enabling the defendant to go free. Though the effect is the same, the granting of a motion to suppress is not the same process through which a jury renders a verdict of not guilty. In a civil proceeding, a court may grant summary judgment for the defendant, which will serve as a final adjudication on the merits of the claim. The end result is no different than if a jury had found against the plaintiff at trial. But a summary judgment hearing and a trial are not the same process.
The basis for the Debtor’s Summary Judgment Motion which requests the Court to disallow all breast implant disease claims is that such claimants are not entitled to trials because they cannot present sufficient admissible evidence in support of their claims. “Summary judgment is a determination by the court concerning a ease or an aspect of a case made prior to trial that obviates the need for trial of the matter. If a court grants summary judgment as to an entire case, it eliminates the need for trial entirely.” 11 Moore’s Federal Practice, § 56.02 (Matthew Bender 3d ed. 1997). Consequently, a summary judgment motion has only one effect from a procedural standpoint: it gives rise to a pre-trial hearing to determine the legal sufficiency of the evidence, which is not a trial and does not “liquidate” the claim. In fact, if a claim is disallowed on summary judgment, there is no longer a claim in existence to “liquidate.”
Therefore this Court holds the Debtor’s motion for summary judgment is a core proceeding which this Court may legally hear and determine. 16
Notes
. Other objections were lodged by the Official Committee of Physician Creditors, and by Blue Cross(es) and Blue Shield(s) of Alabama, Michigan and Minnesota and Blue Shield of California. The Official Committee of Unsecured Creditors argued that the motion was premature.
. However, under the Bankruptcy Act, there was a curious notion that only a "provable” claim could be allowed.
See generally, 1 Collier on Bankruptcy,
¶ 1.11; 3
Collier on Bankruptcy
¶ 63.09 (14th ed.1986). A tort claim which had not been reduced to judgment was said to be the quintessential example of a claim which was not provable.
Id.
at ¶ 63.25. Therefore such a claim was not allowed and, as a consequence, not discharged by the bankruptcy.
. The Debtor’s summary judgment motion does not address defenses to disease claims. Instead, it asserts that the claimants are unable to prove a necessary element of their causes of action. If disallowing claims for technical bankruptcy reasons such as failure to sign the document is at one pole, then deciding the merits of a claim, as the Debtor requests, is at the other, while deciding nonbankruptcy defenses independent of the cause of action is in the middle.
. While we ultimately agree with the results in,
Chateaugay
and
Standard Insulations,
we do not adopt all of their reasoning. For instance,
Cha-teaugay's
contention that the exclusionary, clause does not even apply to the "allowance or disal-lowance of claims” portion of
To conclude otherwise would be absurd for another reason.
Nor are we impressed by the judicial economy arguments. Congress is not required to write laws which foster efficiency. Indeed, even interpreted in the way
Chateaugay
and
Standard In-sulations
directs,
. There is a third way in which a claim can be allowed.
. However, the court in Standard Insulations perhaps muddied the water a bit with its next statement — “Liquidation involves weighing evidence of liability and damages to determine with certainty a monetary sum sufficient to compensate a claimant for injuries.” Id. at 954. Did the court mean to suggest that the liquidation of a claim also involves a determination of the debtor’s liability on that claim or simply that when determining the value of a claim a court should consider all pertinent evidence?
A review of
Loya,
the sole case upon which
Standard Insulations
relied for its definition of liquidation, suggests that it is the latter possibility that is more likely correct. In
Loya,
the court stated that “whether a debt is liquidated ... depend[s) ... on ... whether it is capable of ready computation.... [Wlhether a debt is liquidated does not depénd on whether it is disputed. Thus a disputed debt which is capable of ready determination is liquidated.”
. We use the terms “claim” and "debt” interchangeably throughout this opinion because, as will be discussed, infra p. 357, the two terms have the same meaning in bankruptcy.
. Hustwaite is not good precedent because it overlooked binding contrary authority in the Ninth Circuit. Wenberg v. FDIC (In re Wenberg), 902 F.2d 768 (9th Cir.1990).
.
See, e.g. In re Monaco,
In
United States v. May,
Continuing, the court noted that "the bankruptcy court found it impossible to determine the [debtor’s] liability with any precision or accuracy.” Id. Although the court agreed with the IRS that "not every dispute by a debtor will cause the claim to become unliquidated,” id. at 996-97, it held that this was just such a case because the IRS's “disputed debt was not certain as to amount or liability." Id. at 997. We believe, based on everything else in the opinion, that the "or liability” ending was no more than a slip of the pen, not entitled to weight on the question before us.
.
See also In re Sloan,
No. 93,-15074, 1994 WL
88612,
at *1
(9th Cir.
Mar.16, 1994) ("The mere fact that [the debtor] disputes the [creditor’s] claim does not render it unliquidated. Rather, 'the question whether a debt is liquidated turns on whether it is subject to ready determination and precision in computation of the amount due.’ ”) (citations omitted);
In re Quintana,
.
Albano
contains a thorough discussion and comparison of these terms. Among its most salient points is that the terms have been used by Congress since the Bankruptcy Act of 1898. The court traced the development of one provision of the 1898 Act — the section on involuntary bankruptcies — through its various amendments into the Bankruptcy Code and the 1984 amendments. It noted that in 1938, the provision read that an involuntary petition could be filed against a person by three or more creditors who have provable claims
“fixed as to liability
and
liquidated
as to amount.”
. The absurdity of a contrary conclusion becomes even more glaring when one surveys the use of these terms throughout the Bankruptcy Code. Like § 109(e),
. Although Black’s Law Dictionary also defined an unliquidated claim or demand as "[a] claim which has not been finally determined either as to liability or amount of damages.” Black’s Law Dictionary 1537 (6th ed. 1990), this definition cannot be relied upon for the following reasons. First, this definition directly contradicts Black's Law Dictionary’s definitions of "liquidated claim,” "liquidated debt” and "unliquidated debt” Second, unlike the definitions that it contradicts, this broad definition of "unliquidated claim” is not supported with cites to any sources. Third, Black’s Law Dictionary provides two additional definitions of "unliquidated claim,”, both of which adhere to the more logical narrow definition and both of which are supported: .“[u]nder the law of accord and satisfaction, a claim or debt will be regarded as unliquidated if it is in dispute as to the proper amount;” and ”[f]or purposes of rule that prejudgment interest is allowed if a claim is liquidated but not if a claim is unliquidated, claim is 'unliquidated’ when the amount of the damages cannot be computed except on conflicting evidence, inferences and interpretations.” Id.
. It may seem curious that Congress would make the kind of distinction described above. Why, after all, should extensive protection be afforded to the quantification of a tort creditor’s
. In
In re Schepps Food Stores, Inc.,
. In our prior opinion we acknowledged that "the liquidation or estimation of a personal injury or wrongful death claim for purposes of allowance and distribution is not a core proceeding.”
Dow Corning,