Wright v. Owens Corning

• Decision Date: 18 May 2012
• Docket Number: No. 11–2026.,11–2026.
• Citation: 679 F.3d 101,56 Bankr.Ct.Dec. 134
• Parties: Patricia WRIGHT; Kevin West, on behalf of themselves and all others similarly situated, Appellants v. OWENS CORNING.
• Court: U.S. Court of Appeals — Third Circuit

679 F.3d 101

56 Bankr.Ct.Dec. 134

Patricia WRIGHT; Kevin West, on behalf of themselves and all others similarly situated, Appellants

v.OWENS CORNING.

No. 11–2026.

United States Court of Appeals, Third Circuit.

Argued Nov. 17, 2011.

Opinion Filed: May 18, 2012.

Jason T. Baker, Esquire, Michael A. McShane, Esquire, Audet & Partners, San Francisco, CA, David Alexander Barnes, Esquire, (Argued), Charles M. Golden, Esquire, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, PA, Robert J. Cynkar, Esquire, Cuneo, Gilbert & LaDuca, Alexandria, VA, James T. Davis, Esquire, Davis & Davis, Uniontown, PA, Clayton D. Halunen, Esquire, Shawn J. Wanta, Esquire, Halunen & Associates, Minneapolis, MN, Charles J. LaDuca, Esquire, Brendan S. Thompson, Esquire, Cuneo, Gilbert & LaDuca, Washington, DC, Arnold Levin, Esquire, Charles E. Schaffer, Esquire, Levin, Fishbein, Sedran & Berman, Philadelphia, PA, Robert K. Shelquist, Esquire, Lockridge Grindal Nauen, Minneapolis, MN, Counsel for Appellants.

Elizabeth M. Chiarello, Esquire, Michael W. Davis, Esquire, Colleen M. Kenney, Esquire, Kara L. McCall, Esquire, (Argued), Chicago, IL, Matthew T. Logue, Esquire, Arthur H. Stroyd, Jr., Esquire, Del Sole Cavanaugh Stroyd, Pittsburgh, PA, Counsel for Appellee.

Before: RENDELL, AMBRO, and NYGAARD, Circuit Judges.

OPINION OF THE COURT

AMBRO, Circuit Judge.

This appeal concerns the application of our recent decision in JELD–WEN, Inc. v. Van Brunt (In re Grossman's Inc.), 607 F.3d 114 (3d Cir.2010), establishing a new test for determining when a “claim” exists under the Bankruptcy Code, 11 U.S.C. § 101 et seq. Plaintiffs Patricia Wright and Kevin West (collectively, the “Plaintiffs”) filed a putative class action seeking damages related to defects in roofing shingles manufactured by Owens Corning.¹ The District Court granted Owens Coming's motion for summary judgment, determining that the Plaintiffs' claims were discharged under the confirmed reorganization plan (the “Plan”) of Owens Corning and certain of its subsidiaries (collectively, the “Debtors”). Specifically, the Court held that, based on Grossman's, the Plaintiffs held “claims” under the Code, and that the published notices of the Debtors' Chapter 11 bankruptcy cases afforded them procedural due process. We agree that the Plaintiffs held claims under the Code, but, under the circumstances before us, disagree that they were afforded procedural due process. Hence their claims were not discharged. We thus affirm in part and reverse in part the Court's judgment, and remand the case for further proceedings.

I. Background

The Plaintiffs' story presents the challenge of administering unknown future claims in bankruptcy. In late 1998 or early 1999, Wright hired a contractor, who installed shingles manufactured by Owens Corning on her roof. In 2005, West similarly hired a contractor, who likewise installed shingles manufactured by Owens Corning on his roof. They both discovered leaks in 2009, and determined that the shingles had cracked. Each sent warranty claims to Owens Corning. It rejected Wright's claim in part and West's claim in full. In November 2009, Wright filed a class action against Owens Corning alleging fraud, negligence, strict liability, and breach of warranty. West later was added as a named plaintiff.

Meanwhile, back in October 2000, the Debtors filed their Chapter 11 bankruptcy petitions. In November 2001, the Bankruptcy Court set a claims bar date of April 15, 2002. All claimants were required to file proofs of claim on or before that date. It also approved a bar date notice, which was published twice in The New York Times, The Wall Street Journal, and USA Today, among other publications. The notice directed claimants to file proofs of claim if they held claims ² that arose prior to the filing of the Debtors' bankruptcy cases. It specifically identified claims relating to “the sale, manufacture, distribution, installation and/or marketing of products by any of the Debtors, including without limitation ... roofing shingles....”

The Debtors' bankruptcy proceedings resulted in the filing of the Plan in June 2006. Soon after, the Bankruptcy Court approved notices of the confirmation hearing for the Plan, including a generic notice to most unknown claimants. ³ This notice was published in The New York Times, The Wall Street Journal, and USA Today, among other publications. It stated, in bold, that the Plan might affect the rights of holders of claims against the Debtors.

Two other notices of the Debtors' bankruptcy proceedings also were published. In June 2006, notice of the hearing to consider the disclosure statement was published in The New York Times, The Wall Street Journal, USA Today, and the Toledo Blade. In November 2006, notice of the Plan's date of confirmation, September 26, 2006 (the “Confirmation Date”), was published in the same four publications. The Plan provided for the discharge of all claims relating to the Debtors under the Bankruptcy Code that arose before the Confirmation Date.⁴ The order confirming the Plan (the “Confirmation Order”) likewise provided that all claims arising before the Confirmation Date were discharged.

When the Plaintiffs filed their class action, there was little dispute as to the effect of Owens Coming's bankruptcy on the Plaintiffs' claims against it. Based on our much-maligned decision in Avellino v. M. Frenville Co. (In re M. Frenville Co.), 744 F.2d 332 (3d Cir.1984), a “claim” under the Bankruptcy Code did not arise until a cause of action accrued under applicable non-bankruptcy law—that is, when a claimant possessed a right to payment. In this context, the Plaintiffs' cause of action did not accrue until the defects in the roofing shingles manifested in 2009, years after the Confirmation Date. ⁵ Thus, at the time they filed the class action, the Plaintiffs were correct to conclude that they did not hold “claims” under the Code based on the action. But subsequently we overruled Frenville with our en banc decision in Grossman's, in which we rejected Frenville's “accrual test,” and in its place established the rule that a “ ‘claim’ arises when an individual is exposed pre-petition to a product or other conduct giving rise to an injury, which underlies a ‘right to payment’ under the Bankruptcy Code.” 607 F.3d at 125.

Based on Grossman's, Owens Corning filed its motion for summary judgment, arguing that the Plaintiffs' claims were discharged under the Plan and Confirmation Order. Before the District Court, the Plaintiffs argued that Grossman's is limited to asbestos-related cases, it does not apply retroactively, and they were not afforded due process because the notices of the bankruptcy proceedings were insufficient. The Court rejected these arguments, holding that the Plaintiffs' claims were discharged under the Plan and Confirmation Order.

On appeal, the Plaintiffs advance two arguments. First, they argue that the District Court applied Grossman's too rigidly, creating the unworkable result that persons who did not anticipate future tort actions at the time of a bankruptcy proceeding nonetheless possess claims under the Bankruptcy Code that are discharged. The test set out in Grossman's, they assert, requires that the debtor and claimant anticipate a future tort action at the time of the bankruptcy proceedings for a claim to exist. Second, they claim that the District Court's due process analysis fell short because it based its ruling on our precedent holding that unknown claimants generally are entitled to notification by publication.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction under 28 U.S.C. § 1332(a) and (d)(2). We have jurisdiction to review the Court's final order under 28 U.S.C. § 1291. We review a district court's grant of summary judgment de novo. MBIA Ins. Corp. v. Royal Indem. Co., 426 F.3d 204, 209 (3d Cir.2005). Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Orsatti v. New Jersey State Police, 71 F.3d 480, 482 (3d Cir.1995) (quoting Fed.R.Civ.P. 56(c)). “All reasonable inferences from the record must be drawn in favor of the nonmoving party,” and we “may not weigh the evidence or assess credibility.” MBIA Ins., 426 F.3d at 209. For there to be a genuine issue of material fact, the non-moving party must produce evidence “such that a reasonable jury could return a verdict for” it. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

III. Grossman's and “Claims” under the Bankruptcy CodeA. Waiver

In addressing whether the Plaintiffs held claims under the Bankruptcy Code, we first confront the effect of their failure to advance to the District Court their argument on appeal regarding Grossman's. Before the District Court, the Plaintiffs contended only that Grossman's is limited to asbestos-related claims and should not apply retroactively. They advance neither argument to us. We generally follow “a well established principle that it is inappropriate for an appellate court to consider a contention raised on appeal that was not initially presented to the district court.” Lloyd v. HOVENSA, 369 F.3d 263, 272–73 (3d Cir.2004). Yet this principle “is one of discretion rather than jurisdiction,” Selected Risks Ins. Co. v. Bruno, 718 F.2d 67, 69 (3d Cir.1983), and we may consider an argument raised for the first time on appeal in “exceptional circumstances,” such as the when the “public interest ... so warrants.” Barefoot Architect, Inc. v. Bunge, 632 F.3d 822, 834–35 (3d Cir.2011) (quoting Rogers v. Larson, 563 F.2d 617, 620 n. 4 (3d Cir.1977)); see also Tri–M Grp., LLC v. Sharp, 638 F.3d 406, 416 (3d Cir.2011) (noting that “ ‘the matter of what questions may be taken up and resolved for the first time...