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June 6, 2010

3rd Circuit Overrules Frenville

In re Grossman’s,  --- F.3d --- (3rd Cir. June, 2010)

Issue:   Should the 3rd Circuit overrule In re Frenville re when a claim arises?  If so, when does a claim arise?  
   
Holding:    Yes.    A claim arises when a person is exposed to the product or conduct which “gives rise to an injury.” 

In Banc ruling.  Note:  the 3rd Circuit is Pennsylvania, New Jersey and Delaware.   

“In 1977, Appellee Mary Van Brunt, who was remodeling her home, purchased products that allegedly contained asbestos.”  Grossman’s filed chapter 11 in 1997.  “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.”  She died in 2008.  The bankruptcy court ruled that the claim was postpetition and therefore not discharged because it arose after the plan was confirmed.   The basis for the ruling was In re Frenville, 744 F.2d 332 (3d Cir. 1984).  The district court affirmed.

The 3rd Circuit reversed and specifically overruled Frenville.  “According to Frenville, the claims arose for bankruptcy purposes when the underlying state law cause of action accrued.  The New York tort cause of action accrued in 2006 when Ms. Van Brunt manifested symptoms of mesothelioma.  The claims were therefore post-petition under Frenville.”  “The question remains, however, whether we should continue to follow Frenville and its accrual test.”  “Frenville has proved a remarkably unpopular decision and no other Circuit Court of Appeals has followed it.’  At least one bankruptcy court has stated that Frenville ‘may be fairly characterized as one of the most criticized and least followed precedents decided under the current Bankruptcy Code.’”  “We are persuaded that the widespread criticism of Frenville’s accrual test is justified, as it imposes too narrow an interpretation of a ‘claim’ under the Bankruptcy Code.  Accordingly, the Frenville accrual test should be and now is overruled.”

The opinion then goes on to state the rule which will now replace Frenville in the 3rd Circuit at least. 

“Irrespective of the title used, there seems to be something approaching a consensus among the courts that a prerequisite for recognizing a ‘claim’ is that the claimant’s exposure to a product giving rise to the ‘claim’ occurred pre-petition, even though the injury manifested after the reorganization.  We agree and hold that a ‘claim’ arises when an individual is exposed prepetition to a product or other conduct giving rise to an injury, which underlies a ‘right to payment’ under the Bankruptcy Code. See 11 U.S.C. § 101(5).  Applied to the Van Brunts, it means that their claims arose sometime in 1977, the date Mary Van Brunt alleged that Grossman’s product exposed her to asbestos.”

The 3rd Circuit remanded for further findings re whether Van Brundt received adequate notice of the bankruptcy proceeding, the bar date etc and therefore whether the discharge injunction applied to her or whether the plan otherwise adequately provided for the claim which would require her to make a claim under the plan. 

June 6, 2010 in Other Circuit Briefs | Permalink

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