Restructuring

Contributed by Dana Hall
While many of the articles published in this blog discuss recent decisions that signify a sea change in the law of a particular jurisdiction, every so often this blog will discuss a decision because the decision, while not “earth-shattering” in its interpretation of the law, nonetheless discusses a topic that is particularly pertinent to most bankruptcy practitioners’ day-to-day practice. In one such case, the District Court for the Western District of Pennsylvania reminds us of the vital importance of publication notice to discharging claims that might otherwise crop up years after the consummation of a debtor’s plan of reorganization.
In Wright v. Owens Corning, the court considered the motion of reorganized Owens Corning to dismiss a joint complaint filed by two individuals who had purchased roofing tiles originally produced by Owens Corning, but distributed through a third-party contractor. One of the plaintiffs had purchased roofing tiles prior to the commencement of Owens Corning’s chapter 11 cases, and the other plaintiff had purchased tiles after the petition date but prior to confirmation of the Owens Corning’s plan. Fortunately for Owens Corning, it had published notice of the general bar date twice in the national and international editions of The New York Times and The Wall Street Journal, USA Today, approximately 250 regional or local newspapers in the areas where the Debtors had significant business operations, and approximately 35 trade publications. Additionally, Owens Corning had provided general publication notice of its chapter 11 cases, publication notice of the hearing to consider the disclosure statement, and notice of the entry of the confirmation order, the effective date, and the bar date for administrative expense requests in major national, international, and regional publications. In determining to grant Owens Corning’s motion to dismiss the complaint, the court concluded that, despite the debtor’s failure to provide the plaintiffs with actual notice of the general bar date and the chapter 11 plan (including the administrative expense bar date), such plaintiffs’ due process rights were protected by virtue of the debtor’s publication notice. With regard to one plaintiff’s postpetition, pre-confirmation claims, the court found that the various publication notices were sufficient to give notice to all unknown creditors and that such publication notices gave notice not only of the discharge of pre-petition claims, but of post-petition, pre-confirmation claims as well.
According to the seminal Supreme Court decision, Mullane v. Cent. Hanover Bank Trust Co., due process for “unknown” claimants can generally be satisfied by publication notice. A creditor is “known” if that creditor’s identity is “reasonably ascertainable” or can be identified through the debtor’s reasonable efforts. Although jurisdictions vary slightly on what degree of diligence a debtor must exercise in discovering who its creditors are, a debtor is not usually expected to exert efforts beyond a “careful examination of…the debtor’s books and records.” In Owens Corning, the court held that because the plaintiffs had provided no evidence that Owens Corning could have, through a reasonably diligent review of its books and records, discovered the plaintiffs’ identities, the plaintiffs were “unknown” to the debtor and, therefore, due process did not require that they receive actual notice. The court also stated that it would have been unreasonable to expect the debtor to have searched out all third-party contractors in order to determine the identities of its customers.
The Owens Corning court did not specifically deal with the issue of what type of publications might normally satisfy due process. Rather, the court succinctly stated that because the notice had been published in local, national, and international publications, it was sufficient. Despite Owens Corning’s publication of the bar date notice in an exceptionally broad range of publications, it should be noted that the sufficiency of publication notice in a case will generally depend on an evaluation of the circumstances in that particular case. Although courts have found publication notice to be sufficient where such notice was published in a much more limited spectrum of publications than that provided in Owens Corning, debtor’s counsel should always be sure to evaluate the breadth of a debtor’s operations and the likelihood of the provided notice to reach potential creditors in order to ensure that such notice is “reasonably calculated” to apprise interested parties of the debtor’s actions.
Although this decision is not particularly shocking in its outcome, it serves as a useful reminder of the continued efficacy of publication notice and the importance of providing such notice in order to discharge claims held by unknown creditors.