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The Bankruptcy StrategistFeaturesBankruptcyLitigation

When Does Content of a Debtor's Bar Date Notice Satisfy Due Process?

By Francis J. Lawall and Kenneth A. Listwak
June 01, 2021

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.

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