Wright v. Owens Corning -Debtors Remain In The 'Shadow Of Frenville '

In 1984, the Third Circuit was the first court of appeals to examine the Bankruptcy Code's new definition of "claim" in Avellino & Bienes v. M. Frenville Co. (In re M. Frenville Co.), 744 F.2d 332 (3d Cir. 1984). Focusing on the "right to payment" language in that definition, the court decided that a claim arises when a claimant's right to payment accrues under applicable nonbankruptcy law. This "accrual" test was widely criticized by other circuit courts as contradicting the broad definition of "claim" envisioned by Congress and the Bankruptcy Code.

In June 2010, responding to the nearly unanimous criticism of its opinion in Frenville, the Third Circuit decided JELD-WEN, Inc. v. Van Brunt (In re Grossman's Inc.), 607 F.3d 114 (3d Cir. 2010), and specifically overruled Frenville (as well as the 26 intervening years of precedent). In its en banc decision, the court adopted the "exposure" test, a version of the "conduct" test used by other courts. However, Grossman's was fairly narrowly decided and failed to provide much guidance outside the asbestos context. Additionally, the court stressed that regardless of the applicable definition of "claim," due-process considerations remained an important part of the determination of whether a claim had been discharged, and consequently it remanded the due-process analysis to the bankruptcy court.

Earlier this year, the Third Circuit addressed the effect of Grossman's in Wright v. Owens Corning, 679 F.3d 101 (3d Cir. 2012), in an effort to clarify the impact its modified approach to the "claim" definition should have on the dischargeability of claims in a bankruptcy case that was filed before Grossman's was decided. In Owens Corning, the court held that, although Grossman's applies retroactively, due-process considerations mandated that the claims of certain unknown claimants not be discharged. The due-process determination hinged upon the definition of "claim" in effect at the time of the bankruptcy case, thereby resuscitating Frenville's rule in certain circumstances and adding another layer of complexity to the analysis of discharged claims.

BACKGROUND

In October 2000, Owens Corning and certain of its affiliates filed for chapter 11 protection in Delaware. In November 2001, the bankruptcy court set a claims bar date of April 15, 2002, requiring all claimants to file proofs of claim on or before that date. The court also approved a bar date notice, which was published in The New York Times, The Wall...