Eleventh Circuit Rules That Coal Act Payment Obligations Arising In 2016 Were Discharged By 1995 Chapter 11 Plan

• Published date: 30 September 2022
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy
• Law Firm: Jones Day
• Author: Mr Mark Douglas and Daniel Merrett

Whether claims have been discharged in bankruptcy is a frequently litigated issue. This is particularly so in chapter 11 cases involving mass tort claims that may have technically "arisen" when the debtor manufactured or sold products before filing for bankruptcy, but where claimants may not become aware of their injuries until long after confirmation of a chapter 11 plan discharging pre-bankruptcy claims. The scope of a bankruptcy discharge also arises in chapter 11 cases where a debtor's payment obligation under a pre-bankruptcy or a pre-plan confirmation contract is not triggered until after confirmation of a chapter 11 plan.

The U.S. Court of Appeals for the Eleventh Circuit recently examined this question in U.S. Pipe & Foundry Co. v. Holland (In re U.S. Pipe & Foundry Co.), 32 F.4th 1324 (11th Cir. 2022). A divided panel of the Eleventh Circuit ruled that certain debtors' alleged obligation to pay retiree health benefits mandated by the Coal Industry Retiree Health Benefit Act of 1992, 26 U.S.C. ' 9701 et seq. (the "Coal Act"), were discharged in 1995 upon the confirmation of a chapter 11 plan, even though the payment obligation was not triggered until 2016. According to the majority, the payment obligation was a "claim" in 1995 and was therefore discharged upon confirmation of the debtors' plan.

Discharge of Claims in Bankruptcy

By design, the Bankruptcy Code is intended to deal with as many of a debtor's pre-bankruptcy obligations as possible in keeping with its core principles of affording the debtor with a "fresh start" and promoting equality of distribution among similarly situated creditors. This mandate is facilitated in part by the Bankruptcy Code's broad definition of "claim" to include nearly every conceivable pre-bankruptcy debt or obligation.

A non-liquidating corporate debtor generally will be discharged from every "claim" that existed as of the bankruptcy petition date (and some that arose during the bankruptcy case) upon the confirmation of its chapter 11 plan of reorganization (or the completion of payments under the plan, in the case of a small business reorganization). See 11 U.S.C. ' 1141, 1192. In particular, section 1141(d)(1) of the Bankruptcy Code provides that, with certain exceptions, the confirmation of a chapter 11 plan "discharges the debtor from any debt that arose before the date of such confirmation," and certain debts that are deemed to have arisen prepetition (e.g., prepetition lease and financial contract rejection claims), whether or not a proof of claim has been filed or deemed filed with respect to such debt, such claim has been "allowed," or the claimant has accepted the chapter 11 plan.

Section 101(12) defines "debt" as a "liability on a claim."

Section 101(5) defines "claim" as a:

(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.

The term "claim" is therefore "coextensive" with the term "debt" (see Pennsylvania Department of Public Welfare v. Davenport, 495 U.S. 552, 558 (1990)), and "[b]y fashioning a single definition of 'claim' in the Code, Congress intended to adopt the broadest available definition of that term." See Collier on Bankruptcy ' 101.05 (16th ed. 2022) (citing In re Udell, 18 F.3d 403 (7th Cir. 1994)).

A "claim" may also include "a cause of action or a right to payment that has not yet accrued or become cognizable." Id. (citing and discussing cases). Even so, the Bankruptcy Code's broad definition of "claim" is not limitless. For example, someone injured in the future due to a chapter 11 debtor's prepetition conduct does not have a prepetition "claim" unless the person had a prepetition relationship with...