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When Does Content of a Debtor's Bar Date Notice Satisfy Due Process?
One of the most important, if not the most important Chapter 11 benefit for a reorganized debtor is the discharge of claims under Section 1141 of the Bankruptcy Code. The discharge provides the debtor with the proverbial fresh start free of legacy liabilities which caused the financial distress in the first place. In cases involving retailers, single asset real estate and other non-manufacturing debtors, the class of claims impacted by the discharge provisions is relatively straight forward and easy to identify. However, situations where a debtor places a product into the stream of commerce, which over time causes harm to those exposed, gives rise to questions such as when and whether a claim arises, and further how do you get proper notice to those persons so that a claims bar date will be binding? It is the latter issue that was recently addressed by the U.S. Court of Appeals for the Third Circuit, which examined whether the content of a debtor's bar date notice satisfied due process, so as to discharge unknown litigation creditors' claims against the company after confirmation of the debtor's Chapter 11 plan of reorganization. See, Sweeney v. Alcon Laboratories, Case No. 20-2066 (3d. Cir. April 20, 2021).
Sweeny Background
Unlike most cases concerning due process in connection with a bar date notice, this case focused on the content of the notice, rather than the manner of service. In finding the content of the debtor's notice to be adequate, the Third Circuit focused on the debtor's books and records and whether they contained information that could have put the debtor on notice of the existence of claims like those brought by the plaintiff-appellants. Seeing that the books and records contained no such information, the court rejected the plaintiff-appellants' argument that the debtor's bar date notice was defective for not having specified that certain types of personal injury claims were subject to the bar date. In rendering its decision, the court resisted the appellant's argument that would have greatly increased the burden placed on debtors in formulating their bar date notices.
The case arose from a personal injury lawsuit filed by John Sweeney and his wife against Eastman Kodak Co. (among other defendants). Sweeney was injured in 1975 while playing football. During the course of his medical treatment, he was injected with Pantopaque (a medical imaging dye) in his spinal canal. Kodak manufactured iophendylate, a chemical component of the dye. Notwithstanding the medical community's concerns about how such dyes can lead to a debilitating condition called adhesive arachnoiditis, and despite the FDA's request that manufacturers of such dye place warnings to that effect on their labels, the label on Pantopaque in 1975 contained no such warning. By 2009, Sweeney began to experience symptoms such as lower extremity weakness and difficulty walking. He began medical testing that year and by August 2014 he was diagnosed with arachnoiditis. Sweeney discovered through his own research that his condition may have been caused by Pantopaque and in 2015, when he was diagnosed with end-stage adhesive arachnoiditis, his neurosurgeon confirmed this was likely the case.
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