Class 3 Bankruptcy, Spring, 2009 Claims 11/20/2018 Class 3 Bankruptcy, Spring, 2009 Claims Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu Copyright © 2005-09 Randal C. Picker. All Rights Reserved.

Copyright © 2005-09 Randal C. Picker 11/20/2018 Claims Questions Two Key Questions Does a claim exist? When does it arise? November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Why Do We Care? As to existence Determines how bankruptcy affects claim Ability to participate in distribution of debtor’s assets (O’Connor concurrence in Kovacs) Status as claim determines dischargeability (Ohio’s position in Kovacs) November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Why Do We Care? As to timing Important distinction between prepetition and postpetition claims Prepetition claims dealt with as ordinary claims Postpetition claims can enjoy administrative expense status under BC 503, with superior right to payment November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Starting Points Hypo: Dry Cleaner Bankruptcy Bank lends cleaner $1000 in cash I give cleaner a $1000 suit for cleaning Cleaner blows cash on lottery tickets Cleaner files for bankruptcy with suit in hand and $100 in cash How should we divide the assets between Bank and me? November 20, 2018 Copyright © 2005-09 Randal C. Picker

101(5): Definition of Claim 11/20/2018 101(5): Definition of Claim Claim means - (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 November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Kovacs Facts 1976: Ohio sues Kovacs 1979: Suit settles Injunction barring further pollution Order to remove particular wastes from the site Order to pay $75,000 to compensate Ohio for harm to wildlife November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Kovacs Kovacs does nothing, Ohio appoints receiver who takes over property Kovacs files a personal Ch 11 case, later converted to Ch 7 Receiver remained in possession but considering “terminating” receivership Ch 7 trustee did not take possession of site but didn’t abandon it under 554 November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Sec. 542 Turnover of property to the estate (a) Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate. November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Sec. 554 Abandonment of property of the estate (a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. November 20, 2018 Copyright © 2005-09 Randal C. Picker

The Status of the Three Orders 11/20/2018 The Status of the Three Orders Three Orders 1. Negative injunction: don’t pollute again 2. Affirmative injunction: clean site 3. $75,000 payment obligation November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 Role of State Law Butner (US, 1979) “Congress has generally left the determination of property rights in the assets of a bankrupt’s estate to state law.” What does this mean here? Can Ohio determine when claim arises? Can Ohio limit dischargeability? November 20, 2018 Copyright © 2005-09 Randal C. Picker

Three Approaches to Claims 11/20/2018 Three Approaches to Claims Accrued State Law Claim Approach Associated with the Frenville case in the Third Circuit No claim in bankruptcy until claim has accrued under state law November 20, 2018 Copyright © 2005-09 Randal C. Picker

Three Approaches to Claims 11/20/2018 Three Approaches to Claims The Conduct Test Right to payment arises for 101(5) when conduct giving rise to liability occurs Prepetition Relationship Test Conduct test plus further limit Claimant must have some prepetition relationship to debtor November 20, 2018 Copyright © 2005-09 Randal C. Picker

Definition of Future Claimants 11/20/2018 Definition of Future Claimants Definition 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. November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 The Piper Test An individual has a § 101(5) claim against a debtor manufacturer if (i) events occurring before confirmation create a relationship, such as contact, exposure, impact, or privity, between the claimant and the debtor’s product; and (ii) the basis for liability is the debtor’s prepetition conduct in designing, manufacturing and selling the allegedly defective or dangerous product. November 20, 2018 Copyright © 2005-09 Randal C. Picker

Copyright © 2005-09 Randal C. Picker 11/20/2018 The Piper Test The debtor’s prepetition conduct gives rise to a claim to be administered in a case only if there is a relationship established before confirmation between an identifiable claimant or group of claimants and that prepetition conduct November 20, 2018 Copyright © 2005-09 Randal C. Picker