607 F.3d 114 (3rd Cir. 2010), 09-1563, In re Grossman's Inc.

Docket Nº:09-1563.
Citation:607 F.3d 114
Opinion Judge:SLOVITER, Circuit Judge.
Party Name:In re GROSSMAN'S INC., et al., Debtors. v. Gordon Van Brunt, Individually and in his capacity as Personal Representative of the Estate of Mary Van Brunt[*]. Jeld-Wen, Inc., f/k/a Grossman's Inc., Appellant
Attorney:Christopher M. Alston, Foster Pepper PLLC, Seattle, WA, Frederick B. Rosner, Messana Rosner & Stern LLP, Wilmington, DE, Attorneys for Appellant. Sander L. Esserman, David J. Parsons, Cliff I. Taylor, Stutzman, Bromberg, Esserman & Plifka, P.C., Dallas, TX, Daniel K. Hogan, Wilmington, DE, Attorn...
Judge Panel:Before: SLOVITER, ROTH, and TASHIMA,[*] Circuit Judges. Before: McKEE, Chief Judge, SLOVITER, SCIRICA, BARRY, AMBRO, FUENTES, SMITH, FISHER, CHAGARES, JORDAN, HARDIMAN, GREENAWAY, VANASKIE and ROTH, Circuit Judges.
Case Date:June 02, 2010
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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607 F.3d 114 (3rd Cir. 2010)

In re GROSSMAN'S INC., et al., Debtors.

Jeld-Wen, Inc., f/k/a Grossman's Inc., Appellant

v.

Gordon Van Brunt, Individually and in his capacity as Personal Representative of the Estate of Mary Van Brunt [*] .

No. 09-1563.

United States Court of Appeals, Third Circuit

June 2, 2010

Submitted Under Third Circuit LAR 34.1(a) Feb. 10, 2010.

Resubmitted En Banc April 27, 2010.

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[Copyrighted Material Omitted]

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Christopher M. Alston, Foster Pepper PLLC, Seattle, WA, Frederick B. Rosner, Messana Rosner & Stern LLP, Wilmington, DE, Attorneys for Appellant.

Sander L. Esserman, David J. Parsons, Cliff I. Taylor, Stutzman, Bromberg, Esserman & Plifka, P.C., Dallas, TX, Daniel K. Hogan, Wilmington, DE, Attorneys for Appellee.

Before: SLOVITER, ROTH, and TASHIMA,[*] Circuit Judges.

Before: McKEE, Chief Judge, SLOVITER, SCIRICA, BARRY, AMBRO, FUENTES, SMITH, FISHER, CHAGARES, JORDAN, HARDIMAN, GREENAWAY, VANASKIE and ROTH, Circuit Judges.

OPINION

SLOVITER, Circuit Judge.

This Court's Internal Operating Procedure provides:

It is the tradition of this court that the holding of a panel in a precedential opinion is binding on subsequent panels. Thus, no subsequent panel overrules the holding in a precedential opinion of a previous panel. Court en banc consideration is required to do so.

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Third Circuit I.O.P. 9.1. We adhere strictly to that tradition. It is only on a rare occasion that we overrule a prior precedential opinion. We assemble en banc to consider whether this is such an occasion.

In the appeal before us, the Bankruptcy Court, affirmed by the District Court, followed our precedent in Avellino & Bienes v. M. Frenville Co. (Matter of M. Frenville Co.), 744 F.2d 332 (3d Cir.1984) (" Frenville " ), to hold that a plan of reorganization did not discharge asbestos-related tort claims filed by Mary Van Brunt and her husband Gordon (the " Van Brunts" ) against Grossman's Inc. The underlying asbestos exposure occurred pre-petition but the injury manifested itself post-petition. The Appellant, JELD-WEN, Inc., successor to defendant Grossman's Inc. and its affiliates (hereafter " Grossman's" ), asks us to overrule the holding of Frenville.

I.

Background

In 1977, Appellee Mary Van Brunt, who was remodeling her home, purchased products that allegedly contained asbestos. She purchased those products in upstate New York from Grossman's, a home improvement and lumber retailer. In April 1997, Grossman's filed petitions under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101 et seq.

The following are among the undisputed facts set forth in the Bankruptcy Court's Findings of Fact: " [a]t the time of the [bankruptcy], Grossman's had actual knowledge that it had previously sold asbestos containing products such as gypsum board and joint compound" ; " Grossman's knew of the adverse health risks associated with exposure to asbestos" ; it " was aware that asbestos manufacturers had been or were being sued by asbestos personal-injury claimants" ; it " was aware that producers of both gypsum board and joint compound were being sued for asbestos-related injuries" ; and it " was not aware of any product liability lawsuits based upon alleged exposure to asbestos-containing products that had been filed against [it]...." App. at 20-21.

Grossman's proceeded to provide notice by publication of the deadline for filing proofs of claim. There was no suggestion in the publication notice that Grossman's might have future asbestos liability. Grossman's Chapter 11 Plan of Reorganization purported to discharge all claims that arose before the Plan's effective date. The Bankruptcy Court confirmed the Plan of Reorganization in December 1997.

Ms. Van Brunt did not file a proof of claim before confirmation of the Plan of Reorganization because, at the time, she was unaware of any " claim" as she manifested no symptoms related to asbestos exposure. It was only in 2006, almost ten years later, that Ms. Van Brunt began to manifest symptoms of mesothelioma, a cancer linked to asbestos exposure. She was diagnosed with the disease in March 2007.

Shortly after her diagnosis, the Van Brunts filed an action for tort and breach of warranty in a New York state court against JELD-WEN, the successor-in-interest to Grossman's,1 and fifty-seven other companies who allegedly manufactured the products that Ms. Van Brunt purchased from Grossman's in 1977. Ms. Van Brunt conceded that she did not know the manufacturer of any of the products that

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she acquired from Grossman's for her remodeling projects in 1977. After the Van Brunts filed their suit, JELD-WEN moved to reopen the Chapter 11 case, seeking a determination that their claims were discharged by the Plan. Ms. Van Brunt died in 2008 while the case was pending. Gordon Van Brunt has been substituted in her stead as the representative of her estate.

The Bankruptcy Court concluded that the 1997 Plan of Reorganization did not discharge the Van Brunts' asbestos-related claims because they arose after the effective date of the Plan.2 Jeld-Wen, Inc. v. Van Brunt (In re Grossman's, Inc.), 389 B.R. 384, 388 (Bankr.D.Del.2008) (" In re Grossman's I " ). In so holding, the Bankruptcy Court relied on our decisions in Frenville and its progeny. Id. at 388-90 (citing Frenville, 744 F.2d at 337; Schweitzer v. Consol. Rail Corp., 758 F.2d 936 (3d Cir.1985)). Frenville held that a " claim," as that term is defined by the Bankruptcy Code, arises when the underlying state law cause of action accrues. 744 F.2d at 337 (citing 11 U.S.C. § 101(4)(1982)). The applicable New York law provides that a cause of action for asbestos-related injury does not accrue until the injury manifests itself. In re Grossman's I, 389 B.R. at 388 (citations omitted). The Bankruptcy Court therefore reasoned that the Van Brunts had no " claim" subject to discharge in 1997 because Ms. Van Brunt did not manifest symptoms of mesothelioma-and thus the New York cause of action did not accrue-until 2006. Id. The Bankruptcy Court entered judgment for the Van Brunts and against JELD-WEN, effectively allowing the Van Brunts to proceed with their claims in the New York state court.3 Id. at 390.

The District Court affirmed the Bankruptcy Court's decision in every respect but one. See JELD-WEN v. Van Brunt (In re Grossman's, Inc.), 400 B.R. 429, 433 (D.Del.2009) (" In re Grossman's II " ). The District Court reversed the Bankruptcy Court's conclusion that the breach of warranty claim arose post-petition, reasoning that the claim accrued under New York law at the time of delivery of the product and was discharged in the Grossman's bankruptcy. Id. at 432. The Van Brunts have not appealed that determination. Instead, JELD-WEN appeals the District Court's affirmance of the Bankruptcy Court's holding that the Van Brunts' tort claims were not " claims" under 11 U.S.C. § 101(5).

II.

Statement of Jurisdiction and Standard of Review

The Bankruptcy Court had jurisdiction under 28 U.S.C. § 157, and the District Court had jurisdiction under

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28 U.S.C. §§ 158 and 1334. We have jurisdiction under 28 U.S.C. §§ 158(d)(1) and 1291. We exercise plenary review over the District Court's appellate review of the Bankruptcy Court's decision.4 Schubert v. Lucent Techs. Inc. (In re Winstar Commc'ns, Inc.), 554 F.3d 382, 389 n. 3 (3d Cir.2009) (citation omitted). We review the Bankruptcy Court's findings for clear error, and apply plenary review to its conclusions of law. In re Handel, 570 F.3d 140, 141 (3d Cir.2009).

III.

Discussion

A. The Frenville Accrual Test

In 1980, M. Frenville Co. was the subject of an involuntary petition for bankruptcy filed in New Jersey under Chapter 7 of the Bankruptcy Reform Act of 1978, 11 U.S.C. §§ 701 et seq. (the " Code" ). See Frenville, 744 F.2d at 333. Thereafter, involuntary petitions under Chapter 7 of the Code were filed against two principals of the company.5 Id.

Later that year, four banks filed a lawsuit in a New York state court against the company's former accountants, Avellino & Bienes (" A & B" ), alleging that A & B negligently and recklessly prepared the company's pre-petition financial statements and seeking damages for their alleged losses exceeding five million dollars. Id. at 333-34. A & B filed a complaint in the bankruptcy court in New Jersey seeking relief from the automatic stay in order to implead Frenville as a third-party defendant in order to obtain indemnification or contribution under New York law. Id. at 333-34. The bankruptcy court, affirmed by the district court, held that the automatic stay barred A & B's action. Id. at 334. A & B appealed.

We reversed, holding that because the automatic stay applied only to claims that arose pre-petition, under New York law A & B did not have a right to payment for its claim for indemnification or contribution from Frenville until after the banks filed their suit against A & B. Id. at 337. It followed that A & B's claim against Frenville arose post-petition even though the conduct upon which A & B's liability was predicated (negligent preparation of Frenville's financial statements) occurred pre-petition. Id. at 336-37. It followed that the automatic stay was inapplicable. We emphasized that the " crucial issue" was when the " right to payment" arose as determined by reference to the New York law that governed the indemnification claim. Id. at 336.

This court subsequently summarized Frenville as holding that " the existence of a valid claim depends on: (1) whether the claimant possessed a right to payment; and (2) when that right arose" as determined by reference to the relevant non-bankruptcy law. Kilbarr Corp. v. Gen. Servs. Admin., Office of Supply & Servs. (In re Remington Rand Corp.), 836 F.2d 825, 830 (3d Cir.1988) (citing Frenville, 744 F.2d at 336). The Frenville test for determining when a claim arises has been referred to as...

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