1. Class 3 Bankruptcy, Spring, 2009 Claims
11/20/2018
Class 3 Bankruptcy, Spring, Claims
Randal C. Picker
Leffmann Professor of Commercial Law
The Law School
The University of Chicago
Copyright © Randal C. Picker. All Rights Reserved.

2. 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
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3. 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 © Randal C. Picker

4. 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
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5. 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
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6. 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
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7. 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
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8. 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
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9. 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
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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 © Randal C. Picker

15. 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
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16. 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
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17. 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 © Randal C. Picker