Epstein v. Official Committee of Unsecured Creditors of Estate of Piper Aircraft Corp.

• Citation: 58 F.3d 1573
• Decision Date: 26 July 1995
• Docket Number: No. 94-4745,94-4745
• Parties: , 33 Collier Bankr.Cas.2d 1751, 27 Bankr.Ct.Dec. 694, Bankr. L. Rep. P 76,574 David G. EPSTEIN, Plaintiff-Appellant, v. The OFFICIAL COMMITTEE OF UNSECURED CREDITORS, OF the ESTATE OF PIPER AIRCRAFT CORPORATION, Piper Aircraft Corporation, Defendants-Appellees, Pilatus Aircraft Limited, Amicus. In re PIPER AIRCRAFT, CORP., Debtor.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1573

58 F.3d 1573

64 USLW 2115, 33 Collier Bankr.Cas.2d 1751,

27 Bankr.Ct.Dec. 694, Bankr. L. Rep. P 76,574

David G. EPSTEIN, Plaintiff-Appellant, v. The OFFICIAL COMMITTEE OF UNSECURED CREDITORS, OF the ESTATE

OF PIPER AIRCRAFT CORPORATION, Piper Aircraft

Corporation, Defendants-Appellees,

Pilatus Aircraft Limited, Amicus.

In re PIPER AIRCRAFT, CORP., Debtor.

No. 94-4745.

United States Court of Appeals, Eleventh Circuit.

July 26, 1995.

David G. Epstein, James N. Gorsline, Paul K. Ferdinands, Atlanta, GA, Robert E. Venney, Shutts & Bowen, Miami, FL, for appellant.

David C. Pollack, Richard B. Simring, Paul Steven Singerman, Stroock & Stroock & Lavan, Miami, FL, for Piper.

Howard J. Berlin, Kluger, Peretez, Kaplan & Berlin, P.A., Miami, FL, for Committee.

Appeal from the United States District Court for the Southern District of Florida.

Before DUBINA and BLACK, Circuit Judges, and MORGAN, Senior Circuit Judge.

BLACK, Circuit Judge:

This is an appeal by David G. Epstein, as the Legal Representative for the Piper future claimants (Future Claimants), from the district court's order of June 6, 1994, affirming the order of the bankruptcy court entered on December 6, 1993. The sole issue on appeal is whether the class of Future Claimants, as defined by the bankruptcy court, holds claims against the estate of Piper Aircraft Corporation (Piper), within the meaning of Sec. 101(5) of the Bankruptcy Code. After review of the relevant provisions, policies and goals of the Bankruptcy Code and the applicable case law, we hold that the Future Claimants do not have claims as defined by Sec. 101(5) and thus affirm the opinion of the district court.

I. FACTUAL AND PROCEDURAL BACKGROUND

The factual and procedural history of this appeal is fully set forth in the bankruptcy court's Memorandum Opinion, see In re: Piper Aircraft Corp., 162 B.R. 619 (Bankr.S.D.Fla.1994), and the district court's Order Affirming Decision of the Bankruptcy Court, see In re: Piper Aircraft Corp., 168 B.R. 434 (S.D.Fla.1994) (Piper II), and therefore need not be repeated here in its entirety. For purposes of this appeal, the relevant facts are as follows.

Piper has been manufacturing and distributing general aviation aircraft and spare parts throughout the United States and abroad since 1937. Approximately 50,000 to 60,000 Piper aircraft still are operational in the United States. Although Piper has been a named defendant in several lawsuits based on its manufacture, design, sale, distribution and support of its aircraft and parts, it has never acknowledged that its products are harmful or defective. ¹

On July 1, 1991, Piper filed a voluntary petition under Chapter 11 of Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida. Piper's plan of reorganization contemplated finding a purchaser of substantially all of its assets or obtaining investments from outside sources, with the proceeds of such transactions serving to fund distributions to creditors. On April 8, 1993, Piper and Pilatus Aircraft Limited signed a letter of intent pursuant to which Pilatus would purchase Piper's assets. The letter of intent required Piper to seek the appointment of a legal representative to represent the interests of future claimants by arranging a set-aside of monies generated by the sale to pay off future product liability claims.

On May 19, 1993, the bankruptcy court appointed Appellant Epstein as the legal representative for the Future Claimants. The Court defined the class of Future Claimants to include:

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.

See Order, May 19, 1993 (Mark, J.). This Order expressly stated that the court was making no finding on whether the Future Claimants could hold claims against Piper under Sec. 101(5) of the Code.

On July 12, 1993, Epstein filed a proof of claim on behalf of the Future Claimants in the approximate amount of $100,000,000. The claim was based on statistical assumptions regarding the number of persons likely to suffer, after the confirmation of a reorganization plan, personal injury or property damage caused by Piper's pre-confirmation manufacture, sale, design, distribution or support of aircraft and spare parts. The Official Committee of Unsecured Creditors (Official Committee), and later Piper, objected to the claim on the ground that the Future Claimants do not hold Sec. 101(5) claims against Piper. After a hearing on the objection, the bankruptcy court agreed that the Future Claimants did not hold Sec. 101(5) claims, and, on December 6, 1993, entered an Order Sustaining the Committee's Objection and Disallowing the Legal Representative's Proof of Claim. In a Memorandum Opinion dated January 14, 1994, that court entered final findings of fact and conclusions of law to support its December Order. Epstein, as Legal Representative, then appealed from the bankruptcy court's order. On June 6 1994, the district court affirmed and accepted the decision of the bankruptcy court. Epstein now appeals from the district court's order, challenging in particular its use of the prepetition relationship test to define the scope of a claim under Sec. 101(5).

II. DISCUSSION

The sole issue on appeal, whether any of the Future Claimants hold claims against Piper as defined in Sec. 101(5) of the Bankruptcy Code, is one of first impression in this Circuit. Interpretation and application of the Bankruptcy Code is a question of law, to which this Court will apply a de novo standard of review. In re: James Cable Partners, L.P., 27 F.3d 534, 536 (11th Cir.1994).

A. Statute

Under the Bankruptcy Code, only parties that hold preconfirmation claims have a legal right to participate in a Chapter 11 bankruptcy case and share in payments pursuant to a Chapter 11 plan. 11 U.S.C.A. Secs. 101(10), 501, 502 (West 1993). In order to determine if the Future Claimants have such a right to participate, we first must address the statutory definition of the term "claim." The Bankruptcy Code defines claim as:

(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.

11 U.S.C.A. Sec. 101(5). The legislative history of the Code suggests that Congress intended to define the term claim very broadly under Sec. 101(5), so that "all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case." H.R.Rep. No. 595, 95th Cong., 2d Sess. 309 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6266. See In re: St. Laurent II, 991 F.2d 672, 678 (11th Cir.1993) (stating that "[t]he legislative history of the Bankruptcy Code indicates that 'claim' was to be given the 'broadest possible definition' ").

B. Case Law

Since the enactment of Sec. 101(5), courts have developed several tests to determine whether certain parties hold claims pursuant to that section: the accrued state law claim test, ² the conduct test, and the prepetition relationship test. The bankruptcy court and district court adopted the prepetition relationship test in determining that the Future Claimants did not hold claims pursuant to Sec. 101(5).

Epstein primarily challenges the district court's application of the prepetition relationship test. He argues that the conduct test, which some courts have adopted in mass tort cases, ³ is more consistent with the text, history, and policies of the Code. ⁴ Under the conduct test, a right to payment arises when the conduct giving rise to the alleged liability occurred. See A.H. Robins, 839 F.2d at 199; Waterman, 141 B.R. at 556. Epstein's position is that any right to payment arising out of the prepetition conduct of Piper, no matter how remote, should be deemed a claim and provided for, pursuant to Sec. 101(5), in this case. He argues that the relevant conduct giving rise to the alleged liability was Piper's prepetition manufacture, design, sale and distribution of allegedly defective aircraft. Specifically, he contends that, because Piper performed these acts prepetition, the potential victims, although not yet identifiable, hold claims under Sec. 101(5) of the Code.

The Official Committee and Piper dispute the breadth of the definition of claim asserted by Epstein, arguing that the scope of claim cannot extend so far as to include unidentified, and presently unidentifiable, individuals with no discernible prepetition relationship to Piper. Recognizing, as Appellees do, that the conduct test may define claim too broadly in certain circumstances, several courts have recognized "claims" only for those individuals with some type of prepetition relationship with the debtor. See In re: Jensen, 995 F.2d 925, 929-31 (9th Cir.1993); In re: Chateaugay Corp., 944 F.2d 997, 1003-04 (2d Cir.1991); In re: Correct Mfg. Corp., 167 B.R. 458, 459 (Bankr.S.D.Ohio 1994). The prepetition relationship test, as adopted by the bankruptcy court and district court, requires "some prepetition relationship, such as contact, exposure, impact, or privity, between the debtor's prepetition conduct and the claimant" in order for the...