Opinion
Bankruptcy Case No. 04-37154-elp11.
January 10, 2005
MEMORANDUM RE APPOINTMENT OF FUTURE CLAIMS REPRESENTATIVE
At the November 19, 2004 hearing, I approved the appointment of a future claims representative ("FCR") to represent the interests of certain unknown individuals holding claims against debtor who will fail to formally assert those claims by the bar date. The pertinent claims result from "Tortious Misconduct by any priest, representative, agent, volunteer, or employee of the Debtor which occurred prior to the Petition Date." Debtor's Amended Motion for an Order (1) Fixing a Bar Date for Filing Proofs of Claim, and (2) Approving a Proof of Claim Form, Bar Date Notices, Actual Notice Procedure, and Mailing and Media Notice Program, 9:12-14. There is no dispute that the FCR should represent the interest of individuals who are currently minors and whose parent or legal guardian does not file a timely claim (hereinafter "minors") and those with repressed memory who have no knowledge of the wrongful conduct resulting in their claim against debtor.
Debtor defines the phrase "Tortious Misconduct" to mean the following:
any claim, demand, suit, cause of action, proceeding, or any other rights or asserted right to payment against the Debtor, based upon or in any manner arising from or related to any tortious act or acts, including, but not limited to, personal injury, wrongful death, assault, battery, negligence, intentional infliction of emotional distress, defamation, conversion, child abuse as defined in ORS 419B. 005 (1) (a)) [sic], or any sexual misconduct with a person which is alleged to be inappropriate or nonconsensual, including, without limitation, any of the offenses defined in ORS Chapter 163. . . .
Debtor's Amended Motion for an Order (1) Fixing a Bar Date for Filing Proofs of Claim, and (2) Approving a Proof of Claim Form, Bar Date Notices, Actual Notice Procedure, and Mailing and Media Notice Program, 8:11-18.
Debtor has reserved the right to challenge the validity of the repressed memory theory.
Debtor's position is that the scope of the FCR's authority should be limited to minor and repressed memory claimants. The Tort Claimants Committee ("the TCC") advocated for a broader scope of representation. At the November 19 hearing, I sustained the TCC's objection and ruled that, in addition to minors and those with repressed memory, the FCR would represent the interests of those persons who know they were subjected to sexual contact as children but who have "not discovered the [resulting] injury or the causal connection between the injury and the child abuse, nor in the exercise of reasonable care should have discovered the injury or the causal connection between the injury and the child abuse[.]" This language comes from an Oregon statute, ORS 12.117 (1), which would be pertinent to all the possible Tortious Misconduct for which debtor may be liable, because of the geographic location of debtor's operations. ORS 12.117(1) states as follows:
For ease of reference, I will hereafter refer to these individuals as "future claimants."
Notwithstanding ORS 12.110, 12.115 or 12.160, an action based on conduct that constitutes child abuse or conduct knowingly allowing, permitting or encouraging child abuse accruing while the person who is entitled to bring the action is under 18 years of age shall be commenced not more than six years after that person attains 18 years of age, or if the injured person has not discovered the injury or the causal connection between the injury and the child abuse, nor in the exercise of reasonable care should have discovered the injury or the causal connection between the injury and the child abuse, not more than three years from the date the injured person discovers or in the exercise of reasonable care should have discovered the injury or the causal connection between the child abuse and the injury, whichever period is longer.
(Emphasis added).
The purpose of this memorandum is to explain the basis for my decision and to point out that the scope of the FCR's representation is more limited than some of the lawyers' arguments would suggest. A. All Alleged Victims of Prepetition Sexual Abuse Have Claims Within the Meaning of the Bankruptcy Code
As an initial matter, I acknowledge, and all parties appear to agree, that the alleged victims of prepetition sexual abuse by priests or other representatives of debtor are "creditors" holding "claims" against debtor as those terms are defined under the Bankruptcy Code.
A creditor includes an "entity that has a claim against the debtor that arose at the time of or before the" petition date. § 101 (10). "While state law determines the existence of a claim based on a cause of action, federal law determines when the claim arises for bankruptcy purposes." In re Hassanally, 208 B.R. 46, 50 (9th Cir. BAP 1997). The Bankruptcy Code defines a claim to be a
Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101- 1330.
(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 or 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[.]
§ 101(5). Congress adopted the expansive definition of claim set forth above
to ensure that "all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case." H.R. Rep. No. 595, 95th Cong., 2d Sess. 1, 309 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6266 (emphasis added)[.]
In re Jensen, 995 F.2d 925, 929 (9th Cir. 1993). Indeed, the breadth of the definition of claim is essential to achieve the Bankruptcy Code's goal of providing debtors with a fresh start.Id. at 930.
In Jensen, the Ninth Circuit applied a "fair contemplation test" to determine when an environmental claim arose. The fair contemplation test has been described as equivalent to the test set forth in In re Piper Aircraft Corp., 58 F.3d 1573 (11th Cir. 1995), see Hassanally, 208 B.R. at 52, which requires some prepetition or preconfirmation relationship, such as "contact, exposure, impact, or privity" between the debtor and the claimant. Piper, 58 F.3d at 1577. Under this test, "[t]he 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." Id. There is no dispute that this requirement is met in this case. Therefore, all the future claimants to be represented by the FCR, including the minors and those with repressed memory, hold claims against debtor within the meaning of § 101(5). B. Scope of the FCR's Representation
The fair contemplation and Piper tests are considered compromises between the "conduct" test, under which a claim arises at the time the conduct occurs, and the "accrued state law test," which provides that "a claim does not arise in bankruptcy until an action has accrued under relevant substantive nonbankruptcy law." In re Hassanally, 208 B.R. 46, 51 (9th Cir. BAP 1997).
As I stated at the hearing, the fact that the future claimants have claims does not answer the question of whether there should be a FCR or of the appropriate scope of the FCR's authority. The debtor sought the appointment of a FCR, because it had unknown creditors who might be unaware that they had claims. Memorandum in Support of Debtor's Amended Motion for an Order (1) Fixing a Bar Date for Filing Proofs of Claim, and (2) Approving a proof of Claim Form, Bar Date Notices, Actual Notice procedure, and Mailing and Media Notice program, 18:11-13. Debtor recognized that, absent the appointment of a FCR, it was questionable whether it could accomplish through this bankruptcy a global resolution and discharge of the abuse claims. The narrow scope of representation proposed by debtor for the FCR is inconsistent with the approach taken in other bankruptcy cases, and with debtor's stated purpose in invoking the relief afforded under chapter 11.
In October of this year, the United States Bankruptcy Court for the District of Arizona entered an order approving the appointment of an Unknown Claims Representative ("the UCR") in the chapter 11 case of the Catholic Diocese of Tucson ("the Tucson case"). The UCR in the Tucson case has wide-ranging duties, including the authority to file a proof of claim on behalf of the class he represents, which class is comprised of "those persons who are of adult age whose claims currently exist but who do not realize and who will not realize, prior to the April 15, 2005 deadline for filing claims, that they have claims against the estate[.]" Case No. 4-04-bk-04721-JMM, Order Appointing an "Unknown Claims" Representative and a Guardian Ad Litem, 1:12-14. The scope of representation approved by the court in the Tucson case is even broader than that which I approved. In this case, the FCR will represent only those individuals who, "in the exercise of reasonable care," have failed to discover that they have been injured by debtor's conduct or the causal connection between debtor's conduct and their injury. ORS 12.117 (1). There is no such limitation imposed in the Tucson case.
At the November 19 hearing, counsel for ACE Property Casualty Insurance Company implied that the Tucson court made some kind of error in drafting the terms of the order specifying the scope of the UCR's authority. Transcript of November 19, 2004 Hearing, 120:14 — 121:15. According to counsel, the court in the Tucson case meant to limit the UCR's scope of representation to repressed memory claimants. Counsel provided no evidence of any such error, and the written terms of the order entered in the Tucson case are unambiguous. In addition, the order appointing the UCR in the Tucson case was entered in October of 2004, and no clarification or correction appears in the docket.
The approach taken in the Tucson case, and in this case, is consistent with that taken in the "mass tort" asbestos bankruptcy cases. The seminal asbestos bankruptcy case is that of the Johns-Manville Corporation. In that case, the court, citing § 105 (a) and § 1109 (b), approved the appointment of a future claims representative to represent all persons who, on or before a certain date,
Section 105(a) states that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." The court in theManville case noted that the power to appoint a representative "for parties in interest whose identities are yet unknown . . . is inherent in every court." In re Johns-Manville Corp., 36 B.R. 743, 757 (Bankr. S.D.N.Y. 1984), aff'd, 52 B.R. 940 (S.D.N.Y. 1985).
Section 1109 (b) states that "[a] party in interest . . . may raise and may appear and be heard on any issue in a case under this chapter."
came into contact with asbestos or asbestos-containing products mined, fabricated, manufactured, supplied or sold by Manville and who have not yet filed claims against Manville for personal injuries or property damage. These claimants may be unaware of their entitlement to recourse against Manville due to the latency period of many years characterizing manifestation of all asbestos related diseases.
In re Johns-Manville Corp., 36 B.R. 743, 745 (Bankr. S.D.N.Y. 1984), aff'd, 52 B.R. 940 (S.D.N.Y. 1985). Other bankruptcy courts followed suit, appointing representatives for those who, whether knowingly or not, had already been exposed to asbestos, but for whom injury had not yet manifested itself. See, e.q., In re Forty-Eight Insulations, Inc., 58 B.R. 476 (Bankr. N.D. Ill. 1986); In re UNR Indus., Inc., 46 B.R. 671 (Bankr. N.D. Ill. 1985). In In re Amatex Corp., 755 F.2d 1034 (3d Cir. 1985), the Third Circuit affirmed the bankruptcy court's appointment of a representative for future claimants who had been exposed to asbestos but who had not yet manifested an injury.
The courts in many of the early asbestos cases declined to decide whether the future claimants had bankruptcy claims against the debtors, holding that the future claimants were entitled to representation even if they did not have claims against the debtor. As I discuss above, there is no dispute in this case that the pertinent unknown claimants are creditors holding claims against debtor as those terms are defined in the Ninth Circuit. This is an additional factor weighing in favor of the appointment of a FCR with a broad scope of responsibility.
The possibility of a long latency period before which injury becomes manifest is an important factual similarity between this case and the asbestos cases. The Oxford English Dictionary Online (2002) defines "manifest" as follows: "Clearly revealed to the eye, mind, or judgment; open to view or comprehension; obvious." The evidence in this case is that, when childhood sexual abuse causes an injury, the injury may not be manifest for many years.
Not everyone who is subjected to childhood sexual abuse will be damaged in a legal sense. As pointed out by debtor's expert witness, "some people are quite resilient and do not become psychologically disabled or traumatized by episodes of sexual abuse." Declaration of Kevin McGovern, Ph.D., 2:22-23.
Debtor cites In re Dow Corning Corp., 211 B.R. 545 (Bankr. E.D. Mich. 1997), in support of its position that a future claims representative is not necessary to represent the interests of those potential claimants who know they have been subjected to abuse, but have not yet manifested an injury. The Dow Corning chapter 11 case arose out of a flood of lawsuits connected to the debtor's involvement with silicone breast implants. The court in that case explained that it had not appointed a future claims representative, because "[a]ll who have received a breast implant are cognizable of this fact." Id. at 598 n. 55. However, the court also explained that a future claims representative was unnecessary, because
[i]t has been the consistent view of the official committee representing all tort claimants that "any person who has received a silicone-gel breast implant . . . has already suffered an injury and is therefore a present, as opposed to a future claimant. . . ." Order Dismissing Motion of Alan B. Morrison for Appointment as the Legal Representative of Future Breast Implant Claimants, Oct. 10, 1995.
Id.
This case is distinguishable from the Dow case for at least two reasons. First, the very nature of the tortious conduct alleged in this case can result in cognitive and psychological injuries, making the injured person incapable of recognizing that he or she has been injured or of identifying the causal connection between the abuse and the injury. Declaration of Jon R. Conte, Ph.D., 8; 9; 13-14. The potential injuries resulting from exposure to silicone breast implants are not of this type. Second, in this case, unlike the Dow case, the TCC does not take the position that all those exposed to childhood sexual abuse have been damaged in a legal sense, or purport to represent the interests of such persons. The Dow court did not disapprove of the approach taken in the asbestos cases. In fact, the court in Dow acknowledged that "[f]uture tort claims problems come in all shapes and sizes[,]" and cautioned against an oversimplified approach to such problems. Dow, 211 B.R. at 598 n. 55.
In a chapter 11 case involving future claims, a court must "balance the competing interests of the debtor's fresh start with the creditor's right to compensation. Largely, the issue of adequate notice to inform and bind the future claimant and notions of fundamental fairness determine the outcome."Hassanally, 208 B.R. at 53 n. 9. As I discuss above, the appointment of a FCR is appropriate, given that the tortious conduct at issue in this case does not consistently produce injury, and that when injury does result, it can take many years for it to become manifest. In addition, childhood sexual abuse can result in cognitive and psychological injuries making the injured person incapable of currently recognizing that he or she has been injured or of identifying the causal connection between the abuse and the injury.
ORS 12.117 (1) recognizes the unique nature of the potential damages caused by childhood sexual abuse by providing an unusually extended period to assert claims based on such conduct. Oregon case law acknowledges that decades may pass between the childhood abuse and the date the victim either manifests the injury or reasonably should have known of the casual connection between the abuse and the injury. See, e.g., P.H. v. F.C., 873 P.2d 465 (Or.Ct.App. 1994).
While counsel for ACE is correct that the bankruptcy claims bar dates operate regardless of state statutes of limitation, that does not address the question of whether a FCR is appropriate. When there is a class of claimants that is incapable of asserting a claim, either because of a long latency period between the wrongful conduct and the manifestation of damages, or because the nature of the wrongful conduct is such that it disables the claimant from being reasonably able to recognize the injury, it is appropriate for the court to appoint a FCR to protect the interests of the class.
It is important to point out that the FCR does not represent all alleged childhood abuse victims who do not assert claims. The representation is much more limited. The only claimants represented are (1) minors; (2) those with repressed memory; and (3) those persons who know they were subjected to sexual contact as children but who have "not discovered the [resulting] injury or the causal connection between the injury and the child abuse, nor in the exercise of reasonable care should have discovered the injury or the causal connection between the injury and the child abuse[.]" ORS 12.117(1). Counsel for debtor and the insurance companies argue that, by including the third category, the court effectively excuses from filing individual childhood abuse victim claimants "who know that the conduct took place, people who do have the memory of that conduct, but . . . are ashamed, embarrassed, reluctant, [or] don't want to come forward. . . ." Transcript of November 19, 2004 Hearing, 118:5-10. This is incorrect.
I am not authorizing the FCR to represent claimants who decline to assert their own claims because of embarrassment, shame or a desire not to come forward. It is only those child abuse claimants who are minors, have repressed memory, or who have not discovered, "nor in the exercise of reasonable care should have discovered" their injury or that the abuse caused the injury. ORS 12.117(1). The limited scope of the third category, qualified by the objective requirement of the exercise of reasonable care, prevents the wholesale vitiation of the claims bar date that counsel for the insurance companies and debtor assert may happen.
C. Conclusion
Debtor's representatives and counsel have stated on numerous occasions in this court, that debtor's purpose in filing a chapter 11 petition was to resolve, fairly, finally and in a global fashion, the sexual abuse claims asserted against it. For example, debtor's Director of Business Affairs stated as follows in connection with the November 19 hearing:
One of the principal reasons for seeking relief under chapter 11 was to enable the Debtor to use the chapter 11 process to address in a comprehensive manner all tort claims asserted against it in one forum, determine the extent of the Debtor's liability with respect thereto, and address such claims and all other claims against the Debtor in a fair and equitable manner.
Declaration of Paulette Furness in Support of Debtor's Motion for an Order (1) Fixing a Bar Date for Filing Tort Proofs of Claim, and (2) Approving a Tort Proof of Claim Form, Bar Date Notices, Actual Notice Procedure, and Media Notice Program, 3:5-9. The appointment of a FCR to represent the interests of those persons who know they were subjected to abuse but who have not discovered the resulting injury or the causal connection between the injury and the abuse will effectuate debtor's stated goals and will assure equitable treatment of future as well as present claimants.
In addition, the TCC's position is that the limited scope of the FCR's representation and notice procedure proposed by debtor would not satisfy the requirements of due process. While I am not convinced that the extensive Victim Outreach Plan proposed by the TCC would be necessary to satisfy the requirements of due process, the appointment of a FCR will address the TCC's concerns, to the extent they have merit.