In re Piper Aircraft Corp.
| Citation | 162 BR 619 |
| Decision Date | 14 January 1994 |
| Docket Number | Bankruptcy No. 91-31884-BKC-RAM. |
| Parties | In re PIPER AIRCRAFT CORPORATION, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida |
Paul S. Singerman, Stroock, Stroock & Lavan, Miami, FL, for debtor.
Howard Berlin, Kluger, Peretz & Berlin, P.A., Miami, FL, for Official Unsecured Creditors' Committee.
Paul K. Ferdinands, King & Spalding, Atlanta, GA, for David G. Epstein, Legal Representative.
Francis L. Carter, Coll, Davidson, Carter, Smith, Salter & Barkett, P.A., Miami, FL, for amicus 541474 — Alberta, Ltd.
Oscar R. Cantu, Weil, Gotshal & Manges, Miami, FL, for Pilatus Aircraft, Ltd.
Piper Aircraft Corporation has been designing, manufacturing and selling general aviation aircraft and associated spare parts since 1937. Approximately 50,000 to 60,000 aircraft are still operational in the United States. Piper is attempting to reorganize under Chapter 11 of the Bankruptcy Code. Following confirmation of a plan, some of these planes will crash. People will be killed or injured. Others will suffer property damage. Some of the crashes may be caused in whole or in part by design or construction defects in the planes or in their parts. The Court must determine whether these presently unknown persons who will suffer personal injury or property damage in the future have "claims" in this bankruptcy case.
The specific issue before the Court is framed by an objection by the Official Committee of Unsecured Creditors to the claim filed by a court-appointed legal representative on behalf of this broad class of potential future claimants. The Court concludes that these future claimants do not have "claims" as defined by § 101(5) of the Bankruptcy Code.
Piper Aircraft Corporation ("Piper" or "Debtor") manufactures and distributes general aviation aircraft and spare parts throughout the United States and abroad. It began its manufacturing activities in 1937 and since that time has produced approximately 135,000 aircraft, of which approximately 50,000 to 60,000 are still operational in the United States. Over the years, Piper has been a defendant in several lawsuits based on its manufacture, design, sale, distribution and support of aircraft and parts. Although it has never acknowledged that its products are harmful or defective, Piper has suffered from the economic drain of escalating litigation costs in connection with defending these product liability claims. In large part because of this financial burden, on July 1, 1991, Piper filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code.
With 50,000 to 60,000 Piper aircraft still in operation, accidents involving these aircraft undoubtedly will occur. Thus, additional though presently unidentifiable individuals will have similar product liability, property damage, or other claims as a result of incidents occurring after confirmation of the Debtor's Chapter 11 plan of reorganization, but arising out of or relating to aircraft or parts manufactured, sold, designed, or distributed by the Debtor prior to confirmation.
The Debtor's anticipated plan of reorganization contemplates finding a purchaser of substantially all of the Debtor's assets or obtaining investments from outside sources with the proceeds of such transactions serving to fund distributions to creditors. On April 8, 1993, the Debtor and Pilatus Aircraft Limited ("Pilatus") signed a letter of intent ("Letter of Intent") pursuant to which the Debtor agreed to sell to Pilatus, and Pilatus agreed to purchase from the Debtor, substantially all of the Debtor's assets. The Letter of Intent required the Debtor to seek the appointment of a legal representative (the "Legal Representative") for future claimants to represent their interests in arranging a set-aside of monies generated by the sale to pay off future product liability claims. On May 19, 1993, the Court entered an order authorizing the appointment of David G. Epstein as Legal Representative of the "Future Claimants."1 However, the Court specifically excluded from the appointment order any finding on whether the Future Claimants hold claims against the Debtor under § 101(5) of the Bankruptcy Code.
On July 12, 1993, the Legal Representative filed a proof of claim on behalf of the Future Claimants (the "Claim"). In the Claim, the Legal Representative asserts that the Debtor is indebted to the Future Claimants in the approximate amount of $100,000,000. The Claim purports to be based on statistical assumptions regarding the number of people who are likely to suffer personal injury or property damage after the confirmation of a reorganization plan, which is caused by Debtor's pre-confirmation manufacture, sale, design, distribution or support of aircraft and spare parts.
In conjunction with the Claim, the Legal Representative filed a motion requesting estimation of the Claim for voting purposes.2 At the July 26, 1993 preliminary hearing on this motion, the Debtor, the Official Committee of Unsecured Creditors (the "Committee") and the Legal Representative urged the Court to determine whether the Future Claimants hold "claims" as defined in § 101(5) of the Bankruptcy Code before conducting an evidentiary hearing on the estimation motion. The Court agreed and set a briefing and hearing schedule, with the issue to be framed by a formal objection to the Claim. In turn, on July 28, 1993, the Committee filed an Objection to the Legal Representative's Claim.
The Legal Representative and Committee submitted memoranda on the objection, as did three potential purchasers of Piper's assets: Pilatus; 2I, Inc.; and Alberta, Limited. A hearing on the Objection to Claim was held on September 2, 1993. At the hearing, the Debtor joined the Committee in objecting to the Claim.3 Various issues arose at the hearing, including whether or not the claims could be estimated and provided for in a plan and whether or not the claims, if they existed, were dischargeable. These issues are relevant to but distinct from the narrow and only issue the Court decides here: whether the Future Claimants hold "claims" as defined in § 101(5) of the Bankruptcy Code.
On September 10, 1993, the Court announced its ruling that the Future Claimants do not hold claims within the meaning of § 101(5). Detailed findings and conclusions pursuant to Fed.R.Bankr.P. 7052 were stated on the record. The Court advised that its written order disallowing the Claim, together with a Memorandum Opinion, would be entered subsequently.
Concerned that further delay in entering its Order on the Claim could impact the Legal Representative's efforts to seek prompt appellate review of its decision, on December 6, 1993 the Court entered its Order Sustaining the Committee's Objection to Claim and Disallowing Legal Representative's Proof of Claim. The December 6th Order also denied the Legal Representative's September 16, 1993 Motion for Reconsideration.4
This Memorandum Opinion supersedes the findings and conclusions entered on the record on September 10, 1993 and constitutes the findings and conclusions of the Court supporting its December 6, 1993 Order disallowing the Claim.
The Bankruptcy Code defines claim as follows:
11 U.S.C. § 101(5). When Congress promulgated § 101(5), it intended to define "claim" more broadly than the term was defined under prior bankruptcy law.
Under the former Bankruptcy Act of 1898, a corporation could reorganize under Chapter X or Chapter XI.5 Chapter XI defined claim very narrowly. Under Chapter XI, a claim had to be both "proved" and "allowed." Contingent obligations were theoretically "provable" under § 63 of the Bankruptcy Act. However, a contingent or unliquidated claim would not be "allowed" under § 57(d) of the Bankruptcy Act unless the claim could be estimated or liquidated. If the court believed a claim was not susceptible to liquidation or estimation, or that such liquidation or estimation would unduly delay the administration of the bankrupt's estate, the claim would be disallowed, and in turn be deemed unprovable under § 63(d) of the Act. Disallowed or unprovable claims were not subject to discharge.
As a result of this narrow definition, Chapter XI of the Bankruptcy Act prevented a debtor from treating under its plan certain contingent claims that were not "provable," including contingent tort claims. Thus, the Act allowed such claims to be asserted against the reorganized debtor and caused two potential results which contravened established bankruptcy policy: first, it allowed similarly situated creditors to be treated differently; and second, it often led to the failure of the reorganization process. See generally, In re Pettibone Corp., 90 B.R. 918, 923-24 (Bankr.N.D.Ill.1988); In re Edge, 60 B.R. 690, 694 (Bankr.M.D.Tenn.1986); In re Johns-Manville Corp., 57 B.R. 680, 686-87 (Bankr.S.D.N.Y.1986) for a discussion of the Bankruptcy Act's claim provisions and their effect.
In enacting the current Bankruptcy Code, Congress intentionally eliminated the "provability" requirement to broaden the range of claims that could be dealt with in bankruptcy and thereby avoid the inequities occurring under the Bankruptcy Act. The legislative history of § 101(5) reflects the intent of Congre...
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