Class 3
Bankruptcy, Spring, 2009
Claims
Randal C. Picker
Leffmann Professor of Commercial Law
The Law School
The University of Chicago
773.702.0864/r-picker@uchicago.edu
Copyright © 2005-09 Randal C. Picker. All Rights
Claims Questions

Two Key Questions
Does
a claim exist?
When does it arise?
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Why Do We Care?

As to existence
Determines
how bankruptcy affects claim
Ability to participate in distribution of debtor’s
assets (O’Connor concurrence in Kovacs)
 Status as claim determines dischargeability
(Ohio’s position in Kovacs)

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Why Do We Care?

As to timing
Important
distinction between prepetition
and postpetition claims
Prepetition claims dealt with as ordinary
claims
 Postpetition claims can enjoy administrative
expense status under BC 503, with superior
right to payment

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Starting Points

Hypo: Dry Cleaner Bankruptcy
Bank
lends cleaner $1000 in cash
I give cleaner a $1000 suit for cleaning
Cleaner blows cash on lottery tickets
Cleaner files for bankruptcy with suit in
hand and $100 in cash
How should we divide the assets between
Bank and me?
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101(5): Definition of Claim

Claim means  (A)
right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or
unsecured; or
 (B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to
payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed,
secured, or unsecured
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Kovacs

Facts
1976:
Ohio sues Kovacs
1979: Suit settles
Injunction barring further pollution
 Order to remove particular wastes from the
site
 Order to pay $75,000 to compensate Ohio
for harm to wildlife

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Kovacs
Kovacs
does nothing, Ohio appoints
receiver who takes over property
Kovacs files a personal Ch 11 case, later
converted to Ch 7
Receiver remained in possession but
considering “terminating” receivership
Ch 7 trustee did not take possession of site
but didn’t abandon it under 554
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Sec. 542

Turnover of property to the estate
 (a)
Except as provided in subsection (c) or (d) of
this section, an entity, other than a custodian, in
possession, custody, or control, during the case, of
property that the trustee may use, sell, or lease
under section 363 of this title, or that the debtor
may exempt under section 522 of this title, shall
deliver to the trustee, and account for, such
property or the value of such property, unless such
property is of inconsequential value or benefit to
the estate.
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Sec. 554

Abandonment of property of the estate
(a)
After notice and a hearing, the trustee
may abandon any property of the estate
that is burdensome to the estate or that is of
inconsequential value and benefit to the
estate.
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The Status of the Three
Orders

Three Orders
1.
Negative injunction: don’t pollute again
2. Affirmative injunction: clean site
3. $75,000 payment obligation
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Role of State Law

Butner (US, 1979)
“Congress
has generally left the
determination of property rights in the
assets of a bankrupt’s estate to state law.”

What does this mean here?
Can
Ohio determine when claim arises?
Can Ohio limit dischargeability?
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Three Approaches to
Claims

Accrued State Law Claim Approach
Associated
with the Frenville case in the
Third Circuit
No claim in bankruptcy until claim has
accrued under state law
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Three Approaches to
Claims

The Conduct Test
Right
to payment arises for 101(5) when
conduct giving rise to liability occurs

Prepetition Relationship Test
Conduct
test plus further limit
Claimant must have some prepetition
relationship to debtor
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Definition of Future
Claimants

Definition

All persons, whether known or unknown, born or unborn, who
may, after the date of confirmation of Piper’s Chapter 11 plan
of reorganization, assert a claim or claims for personal injury,
property damages, wrongful death, damages, contribution
and/or indemnification, based in whole or in part upon events
occurring or arising after the Confirmation Date, including
claims based on the law of product liability, against Piper or its
successor arising out of or relating to aircraft or parts
manufactured and sold, designed, distributed or supported by
Piper prior to the Confirmation Date.
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The Piper Test

An individual has a § 101(5) claim against a
debtor manufacturer if
 (i)
events occurring before confirmation create a
relationship, such as contact, exposure, impact, or
privity, between the claimant and the debtor’s
product; and
 (ii) the basis for liability is the debtor’s prepetition
conduct in designing, manufacturing and selling
the allegedly defective or dangerous product.
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The Piper Test

The debtor’s prepetition conduct gives rise
to a claim to be administered in a case only
if there is a relationship established before
confirmation between an identifiable
claimant or group of claimants and that
prepetition conduct
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