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Frenville Overruled Claims Arise Upon Exposure in the Third Circuit

By: Corinne E. Donohue
St. John's Law Student
American Bankruptcy Institute Law Review Staff

In Jeld-Wen, Inc. v. Van Brunt (In re Grossman’s Inc.),[1] the Third Circuit applied a new test for determining when a “claim” arises under the Bankruptcy Code.[2] Specifically, the Third Circuit held that a “claim” arises when an individual is exposed to a product or conduct that causes injury, and not when the injury is manifested.[3] Grossman’s involved asbestos-related tort claims.[4] The Third Circuit held that even though claimants’ injury did not manifest itself until after bankruptcy, the claim arose pre-petition when claimant was exposed to asbestos.[5] In Grossman’s the Third Circuit reconsidered and overruled its previous “accrual” test in Avellino & Bienes v. M. Frenville Co. (In re M. Frenville Co.).[6]

Under the Frenville test, a “claim” arose upon accrual of the underlying state law cause of action.[7] In Grossman’s, the Third Circuit decided that the Frenville approach was too restrictive[8] and did “not account for the fact that a ‘claim’ can exist under the Code before a right to payment exists under state law.”[9] In reinterpreting when a “claim” arises in Grossman’s, the Third Circuit considered the possible impact on dischargeability of the claim[10] by looking at section 1141(d)(1)(A) of the Code.[11] Under this provision, confirmation of a reorganization plan “discharges the debtor from any debt that arose before the date of such confirmation . . . . ” [12] Thus, under the Third Circuit’s new test, “a prerequisite for recognizing a ‘claim’ is that the claimant’s exposure to a product giving rise to the ‘claim’ occurs pre-petition, even though the injury manifests after the reorganization.”[13] This pre-petition exposure to a product causing injury gives rise to a “claim.”[14] The Third Circuit also expressed concerns that discharging a claim that has not yet manifested itself would violate due process.[15] Therefore, the Third Circuit remanded the proceeding to address those concerns.[16] 

Other circuits have adopted their own tests, which are similar to the Third Circuit’s new test.[17] For instance, the Fourth Circuit employs a conduct test wherein a “claim” arises upon performance of conduct giving rise to liability.[18] In contrast, the Eleventh Circuit espouses a pre-petition relationship test wherein a “claim” arises due to a debtor’s tortious conduct pre-petition.[19] 

Thus, the practical implications from Grossman’s will likely involve decisions from the Third Circuit that are now similar to those that have been coming from the other circuits.[20] Further, since the Third Circuit overruled its past precedent, it remains to be seen exactly what will constitute a “claim” under the Grossman’s analysis.[21] Since Grossman’s was remanded for a determination on the due process question,[22] the standard of what constitutes sufficient due process remains to be set. Once the due process determination has been made, a more accurate depiction of the test in the Third Circuit can be realized.

 


[1] 607 F.3d 114 (3d Cir. 2010).

[2] Id. at 125.

[3] Id. See 11 U.S.C. § 101(5) (2006).                                                                                                                                                                                

[4] 607 F.3d at 117.

[5] Id. at 125.

[6] Id. at 121.

[7] Id. at 120.

[8] Id. at 121.

[9] Id.

[10] Id. at 122.

[11] 11 U.S.C. § 1141(d)(1)(A) (2006).

[12] Id.

[13] In re Grossman’s, 607 F.3d at 125.

[14] Id.

[15] See id. at 126.

[16] Id. at 125.

[17] See id. at 122–23.

[18] See, e.g., Grady v. A.H. Robins Co., 839 F.2d 198, 199 (4th Cir. 1988).

[19] See, e.g., Epstein v. Official Comm. of Unsecured Creditors, of the Estate of Piper Aircraft Corp. (In re Piper Aircraft, Corp.), 58 F.3d 1573, 1576 (11th Cir. 1995).

[20] See In re Grossman’s, 607 F.3d at 122.

[21] See id. at 125.

[22] Id. at 127–28.