Third Circuit Phases Out Old Standard For Determining When Claims Ar...

By: Melanie Spergel

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

 

In an interesting twist, the Third Circuit in Wright v. Owens Corning[1] held that the Court’s change in its interpretation of what constitutes a claim meant that the notice given to parties who held claims under the revised interpretation but not under the one applicable at the time of notice meant that those claimants were deprived of due process and their claims were not dischargeable.[2] The debtor, Owens Corning, manufactured the allegedly defective roofing shingles that were installed on the two plaintiffs’ homes.[3]  The debtor twice published notice in several local and national newspapers in an attempt to reach unknown holders of claims against the estate.[4] The debtor’s confirmed chapter 11 reorganization plan (“the Plan”) purported to extinguish all claims that arose prior to the confirmation date, including claims held by parties who only received publication notice.[5] Several years later, the plaintiffs discovered cracks in their roofing shingles, which one plaintiff had installed pre-petition and the other had installed post-petition but pre-confirmation.[6] The plaintiffs sued the reorganized debtor, and claimed that the Plan could not have discharged their claims because the plaintiffs were not claim holders at the time notice of Plan confirmation was published.[7] As such, the plaintiffs claimed that they had not received constitutionally adequate notice.[8]  The Third Circuit agreed that the plaintiffs were deprived of due process but recognized that the deprivation was a result of the Third Circuit’s change in standards for when a claim arises.[9]