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  • Writer's pictureKirk Hartley

Chrysler Opinion by 2d Circuit – Todd Brown Comments On the Sacrifice of Rights of Future Clai

Todd Brown is a former defense-side lawyer (Wilmer Hale and Jones Day) now teaching law in Buffalo after a stint at Temple. Mr. Brown has written pretty extensively and astutely on deep flaws in asbestos bankruptcies (see my post here regarding his prior law review on section 524(g)). Mr. Brown has been guest blogging and commented here on Pointoflaw on two aspects of the 2d Circuit’s Chrysler opinion. As it pertains to tort claimants, Mr Brown said the following:

” Second, the panel addressed the various arguments that the Chrysler assets could not be sold free and clear of successor liability for various personal injury type claims. Here, the panel adopted a fairly broad reading of the “interests” that can be cleansed in a Section 363 sale, reasoning that this interpretation is more consistent with the purpose of this section and the priority scheme of the Bankruptcy Code.

The panel refused to weigh in on the question of whether a Section 363 sale can cleanse future claims (such as those that might arise from asbestos exposure). This not only makes sense in the abstract; it is the right approach for future claimants. As we have seen in the 524(g) context (which requires setting aside funds to pay current and future asbestos claims, among other things), future claimants’ interests are often sacrificed by those currently asserting asbestos claims against bankruptcy estates. Now that courts have started taking a harder line against these schemes, it is easy to see how the 363 sale approach might be viewed as a possible end-run around 524(g)’s limitations on front-loading recoveries. Until the “free and clear” sale’s applicability to future claimants is clarified, however, such an end-run remains, at best, extremely risky for most asbestos defendants.” (emphasis added).

Todd certainly is correct that the the interests of future claimants have repeatedly been been sacrificed in the asbestos chapter 11 cases. To go further, recognize that future claimants are NOT just the personal injury claimants, and instead there are multiple types of future claimants against the debtor’s estate. Future claimants may be, for example, state agencies that want to recoup expenses from a debtor that caused personal injuries or created an environmental mess. Future claimants also include underlying case co-defendants which want to pursue cross-claims against former co-defendants now hiding behind chapter 11 injunctions The same applies to those insurers with subrogation and indemnity rights. against debtors.

Bankruptcy judges and plan proponents may in the future rue the day they did not 1) give due process notice to these groups of future claimants, and 2) did not cause appointment of a futures representative who actually intended to and actually did represent the interests of these other groups of “future claimants.”

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