Certification of Class for Unmanifested Asbestos Claims in Bankruptcy Court Denied

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Debtors filed voluntary petitions for relief in the United States Bankruptcy Court; certain debtors’ subsidiaries have potential liability related to former employees’ alleged exposure to asbestos in power plants owned or operated by debtors’ predecessors. The bankruptcy court issued an order setting a bar date for all asbestos claimants, establishing requirements for proofs of claim for manifested and unmanifested asbestos claimants, and notice procedures. Appellants filed a motion seeking to have the court, among other things, certify a class of persons holding unmanifested asbestos claims. The court denied the motion and this appeal followed. The district court found that the bankruptcy court did not abuse its discretion in ruling that the class would not be superior to other methods of adjudication.

Appellants argued that the bankruptcy court committed legal error by using the wrong comparator, claiming that the correct comparison for the superiority analysis was not the notice and bar date procedure set up by the court, but rather individual litigation by future claimants as they manifest, beginning with proceedings in the bankruptcy court to determine whether the claims were discharged. However, this was the comparator the court used; the court’s discussion expressly considered individual litigation as compared to the proposed class proof of claims.

The superiority consideration required a court to compare the proposed class to other available methods for fairly and efficiently adjudicating the controversy. Here, the bankruptcy court considered both efficiency and fairness, particularly with its elaborate notice procedure. “Appellants attempt to rebut this and to support their efficiency argument by arguing that, in the coming decades, ‘the Courts could conceivably be flooded with thousands’ of suits filed by currently unmanifested claimants … Appellants provide no support for this claim, however, and an unsubstantiated claim about the potential number of future lawsuits cannot serve as the basis for finding abuse of discretion on the efficiency prong.”

Regarding fairness, appellants argued that the alternative to the proposed class would involve unfair and insurmountable burdens to individual claimants. However the bankruptcy court found that the notice procedure was successful, and following appellants’ procedure would amount to an end-run around the bar date, because the whole point of the bar date goes away because everyone would be covered. Certifying the proposed class would have the effect of allowing class members to bring suit whenever they chose, which was precisely opposite of Third Circuit law.

Read the full decision here.