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Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.
The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

Future Claims: Mass Torts
Problem ReferencedProposed Solutions
Commercial Law League of AmericaCommercial Law League of America (CLLA)

The Commerical Law League of America believes that the following mass torts issues should be considered by the NBRC: 1) Is the bankruptcy system the appropriate forum in which to process mass tort obligations (CLLA believes that this issue should receive "high priority") 2) Should future claimants be dealt with in bankruptcy reorganizations and liquidations (CLLA believes that this issue should receive "high priority") 3) Should tort victims' claims be given priority over other unsecured claims, secured claims, or administrative claims (CLLA believes that this issue is a "non-priority") 4) Should punitive damages receive a lower priority repayment than compensatory tort claims and contract-based claims (CLLA believes that this issue is a "non-priority") 5) Should the Bankruptcy Code specifically authorize "ride-through" for the claims of future tort victims that are not dealt with in a bankruptcy proceeding (CLLA believes that this issue should receive "high priority") 6) The CLLA states that additional issues that should be considered by the NBRC are: effect of § 1123 (priority issue), channeling injunctions to bring in insurance proceeds (moderate priority), multi-district litigation (priority), aggressive creditors who force liquidation (priority), and preservation of going-concerns (priority).No additional details are provided.
Robert M. Zinman, on behalf of the Bankruptcy InstituteAmerican Bankruptcy Institute ("ABI")Numerous position papers, memoranda and research material

The bankruptcy system is the most appropriate forum to process mass tort obligations.Code should be amended to provide a comprehensive definition of "claim" so that both present and future tort claims are bound with certainty in the reorganization process, and not left to be dealt with afterward. Tort claims should not be given priority over admiistrative or other unsecured claims, and punitive damages should not be given priority over compensatory tort claims and contract-based claims. Future claims should not be able to "ride through" a bankruptcy proceeding, but instead must be "conclusively dealt with by the reorganization process."
Malcolm M. Gaynor & Rick BendixAttorneys

Authors respond to a Memorandum from a Future Claims Working Group under the direction of Professor Elizabeth Warren. Authors respond to the following issues: 1) Defining Future Claims; 2) Protecting the Interests of Future Claimants; 3) Discharge; 4) Successor Liability; and , the Plan Negotiation Process.1) Allow Future Liabilities to be claims in bankruptcy, but impose limitiations to preserve interests of other creditors. 2) Require the court to order the appointment of a representative for each class of future claimants, taking the resultant delays into account when considering the exclusive period. The representative should have power to file claims ( but not excluding the filing of individual claims) and vote on behalf of future claimants who have not filed individual claims, but concept of "present value" must be introduced into voting process. Exculpation of personal liability for good faith acts is absolutely essential. Danger that future claims will dominate voting and hinder process. Formal judicial estimation is not always absolutely necessary. Express statutory authority for channeling injunctions would be desirable, but must be broad enough. Rule 7001 should be amended to clearly authorize a channeling injunction without an adversary proceeding. 3) If channeling injunction works, the question of whether the claims have been discharged becomes irrelevant. "Perhaps, considering alternative,... future claims which are not reasonably capable of estimation should be discharged." 4) The suggested injunction appears to be desirable, but why limit it to cases in which future claims are capable of reasonable estimation Fianlly, the authors do not understand why Sections 1129(a)(11) & (b)(1) need amendment.
Francis M. AllegraDeputy Associate Attorney General, U.S. Department of Justice

Author is concerned that, as it is presently constructed, the proposal on mass tort claims will also encompass governmental police and regulatory claims. Author explains how the latter are quite different from the former, and the need to clearly distinquish between the two, so that bankruptcy courts do not become havens for lawbreakers to evade responsibility for violations of the law that are not within the fair contemplation of the Government at the time of the debtor's bankruptcy case. Similarly, those engaged in dangerous activities that threaten public health and safety should not be tempted to acquire a competitive advantage by using financial reorganization to evade liabillity for unknown police and regulatory claims that may arise in the future.The Commission should adopt a police and regulatory exception to the future claims proposal. In the absence of such a provision, author urges that no future claims proposal be recommended to the Congress.
Lois J. SchifferAssistant Attorney General, U.S. Department of Justice, Environment and Natural Resources Division

Author writes in support of letter from Deputy Associate Attorney General Francis Allegra. "The scope of the public health and sagety problem that would be created by discharging future environmental liabilities that are not within the Government's contemplation is potentially enormous....Applying a future claims proposal to governmental environmental claims may thus have the effect of wiping out huge environmental responsibilities of polluters who will be able to walk away from the consequences of thheir acts without making any contribution towards the cleanup of their pollution.""We...strongly urge the Commission to adopt a governmental police and regulatory exception to any future claims proposal that it adopts."
Paul D. CarringtonProfessor, Duke University School of Law

Author, Jeff O'Connell, and Roger Cramton reviewed the proposed amendments to the bankruptcy provisions dealing with mass torts. "The device of corporate reorganization is very much to be preferred to the extended use of Rule 23, even supposing that the latter is legitimate. We are most uneasy about the extent of protection from tort liability afforded the representatives of future claimants. The temptation to settle those cases will be very, very strong, and we thing [sic] that a realistic threat of tort liability is needed to keep the parties, and even the court, honest in brushing off numerous claims by people who are not before the court."No specific solutions proposed, see discussion of problem.
Ralph Brubaker Assistant Professor of Law, Emory University
524 11 "The future claims proposal would amend section 524 to authorize "channeling injunctions."...the term 'channeling injunction' has become a loaded one and has been used to justify all manner of third-party liability releases, well beyond the legitimate reach of equitable channeling powers. In light of this practice, my fear is that an open-ended Congressional authorization of 'channeling injunctions' could be seen as authorizing the broadest and most abusive nonconsensual non-debtor releases. Such an auathorization is also unnecessary. Appropriate channeling powers already exist incident to a bankkruptcy court's in rem jurisdiction over property of the debtor's estate, via section 105 injunctions in aid of that jurisdiction." "With respect to insurance proceeds, to the extent that insurance proceeds are property of the estate, the channeling power certainly exists without any statutory amendment, by virtue of general federal court injunctive powers ..." "The one area where a statutory amendment seems to be in order is to make explicit the bankruptcy court's power to enjoin subsequent successor liability suits that violate a prior bankruptcy court order authorizing a 'free and clear' sale of particular assets....Express statutory authorization would make clear that such an injunction is one 'arising under' the Bankruptcy Code and, therefore, within the core jursidiction of a bankruptcy judge." "I oppose an open-ended authorization of 'channeling' injunctions as unnecessary and inviting deleterious consequences." "I support express congressional authorization of injunctions prohibiting successor liability suits that violate a prior bankruptcy sale order."
Robert S. PeckDirector of Legal Affairs and Policy Research, Association of Trial Lawyers of America

Author takes exception to the definition of "mass future claim" in the proposal on the treatment of mass future claims. "We begin our analysis by noting that there is a significant danger tht the proposal's new definition of 'mass future claim' would embrace liabilities that are not yet ripe for adjudicaiton, creating the anomalous situation where the potential claimant is foreclosed from seeking judicial relief while the potential defendant is not." " Because the definition of 'mass future claims' would permit the adjudication of the rights of injured plaintiffs without thehir participation and before they were equipped to protect their own interests, it fails to comport with minimum constitutional guarantees." The assumption that appropriate counsel could be appointed for each category of potential claimant is not valid. "Finally, the breadth of claims that could be captured in such a bankruptcy proceedings surely intrudes on the Seventh Amendment right to trial by jury.""To protect the rights of future claimants as fully as the Constitution requires, we urge that any prpoposal that is transmitted to the Congress incorporate a meaningful right to trial by jury, that individual trot plaintiffs be entitled to counsel of choice...and that these rights by waivable only by a knowing and informed choice of the individual. Determinations of such claims through alternatives such as bankruptcy proceedings should be limited to those instances where a genuine danger exists that claims against the defendant so far exceed resources available to the defendant that a substantial number of tort victims will be deprived of a source of compensation under traditional tort proceedings, and only where such tort victims are accorded the same rights with regard to the defendant as any other secured creditor. Even so, we suggest taht the right sof future claimants who do ot know of their injuries and cannot meaningfully participate in the determination of rights may not be susceptible to discharge through bankruptcy."
Thomas A. SmithProfessor of Law, University of San DiegoLetter to Professor Smith from Stephen K. Dexter, Law Clerk to Judge Spector, dated July 31, 1997; Copy of Order In re: Dow Corning Corporation, Debtor.

Author sends copy of article he wrote which was cited by Judge Arthur J. Spector in the Dow Corning case. "In the enclosed article, I argue that the problem of fair distribution between present and future claimants that has proven so intractable in mass tort bankruptcies can be solved by using a relatively simple market mechanism.""My approach to the fair distribution problem amounts to a kind of securitization of the cliams that tort claimants have against the debtor in mass tort bankruptcy."
Mary A. BedikianAttorney; Regional Vice President, American Arbitration Association

Author is forwarding the AAA's comments on the Mass Torts and Mass Future Claims concerning the expanded use of alternative dispute resolution in cases handled by the bankruptcy courts.N/A
Robert S. PeckDirector of Legal Affairs and Policy Research, Association of Trial Lawyers of America (ATLA)

Author again raises concerns that the Mass Future Claims Proposal "was developed with too much emphasis on the types of liabilities that can threaten the viability of an enterprise and too little solicitude for the constitutional rights of injured persons.""I reiterate our recommendation that the proposal incorporate a meaningful right to trial by jury, that individual tort plaintiffs be entitled to counsel of choice whose loyalty is undivided by any conflict of interest, and that these rights be waivable only by a knowing and informed choice of the individual."
Stephen K. DexterLaw Clerk to the Hon. Arthur J. SpectorSubmission, "Treatement of Future Claims and Asset Distribution Models in Mass Tort Bankruptcies."

Author is law clerk to Judge Spector, who is handling the Dow Corning case, and he has focussed almost exclusively on mass tort bankruptcy issues. He is forwarding a submission of his dealing with the issue of how to fairly distribute the assets of a debtor if liability is assessed. The ideas he discusses are primarily those of Professor Thomas A. Smith of the University of San Diego School of Law.Author proposes the use of the Captial Market Approach to distribution, which he discusses and explains.
Richard Haeussler
Unclear, this is an E-Mail with no address or identification of author

Author discusses "tentative notions" which the Working Group was leaning toward, and gives his comments on them.


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