Chemetron Corp. v. Jones

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

12-18-1995

Chemetron Corp. v. Jones
Precedential or Non-Precedential:

Docket 94-3371

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1
 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 94-3371

CHEMETRON CORPORATION

v.

PHYLLIS JASKEY JONES; PAMELA JO SWANSINGER;
SANDRA JASKEY HUJARSKI; PATRICIA HUJARSKI;
TERESA HUJARSKI ROSS; JANICE JASKEY BUTVIN;
FRANK BUTVIN; ROBERT BUTVIN; BRIAN BUTVIN;
SUSAN BUTVIN; WALTER ANIELSKI; ARLENE VANS;
YVONNE VANS BEKOSCKE; ANTHONY VANS; GREGORY
VANS; CAROL SCHULTZ; MARY SHAFFER; BRITTANY
CULL; STEPHANIE SCHAFFER,

Appellants.

On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 93-cv-01582)

Argued February 3, 1995

Before: SCIRICA, ROTH and SAROKIN, Circuit Judges

(Opinion Filed December 18, 1995)

William Mitchell, Esq. (Argued)
Deborah J. Papushak, Esq.
Armstrong, Mitchell & Damiani
1725 The Midland Building
101 Prospect Avenue, West
Cleveland, Ohio 44115-1091
Attorneys for Appellants

2
Dennis G. Terez Esq. (Argued)
Squire, Sanders & Dempsey
4900 Society Center
127 Public Square
Cleveland, Ohio 44114-1304

George L. Cass, Esq.
Buchanan, Ingersoll, Professional Corporation
5800 USX Tower
600 Grant Street
Pittsburgh, PA 15219-2887
Attorneys for Appellee

OPINION OF THE COURT

ROTH, Circuit Judge:

In this appeal, we consider whether a group of former

residents and occasional visitors to a neighborhood containing a

toxic site were "known" creditors entitled to actual written
notice of the debtor's bankruptcy filing and bar claims date. We

hold that the members of this group were not known creditors and

that therefore publication notice satisfied the requirements of

due process. However, we also conclude that the district court

failed to adequately consider whether the group's late filing was

due to "excusable neglect" and that the district court improperly

reached the issue of whether their claims had been discharged.

Accordingly, we will affirm the district court's finding that

3
notice was sufficient but reverse its findings on excusable

neglect and discharge.

I.

Beginning in 1965, appellee Chemetron Corporation

("Chemetron") owned and operated a manufacturing facility on

Harvard Avenue in Cuyahoga Heights, Ohio, as well as a nearby

landfill on Bert Avenue in Newburgh Heights, Ohio. From 1965 to

1972, Chemetron manufactured an antimony oxide catalyst at the

Harvard Avenue facility in a process that utilized depleted

uranium. After catalyst production ceased in 1972, a portion of

the Harvard Avenue facility was demolished. In 1975, Chemetron

placed a quantity of rubble from the Harvard Avenue demolition in

the Bert Avenue landfill. Later in 1975, Chemetron sold both

sites to McGean Chemical Company. McGean Chemical Co.

subsequently merged with Rohco, Inc., to become McGean-Rohco,

Inc., the current owner of both sites.

Beginning in 1980, potential problems at the sites

received significant attention from major newspapers in the

Cleveland area. On July 8, 1980, the Cleveland Press reported on

radiation levels at a site "near Harvard Avenue" in Newburgh

Heights. On July 9, 1980, the Cleveland Plain Dealer published a
similar article. Related articles appeared in The Plain Dealer

on September 5 and September 12. On September 23, 1990, The

Plain Dealer ran a front-page article on "Cuyahoga County's only

known radioactive dump." App. at 289-95. The September 23

article quoted Phyllis Jones, the lead plaintiff in this case,

discussing problems at the sites. Id. at 295.

3
 Between 1980 and 1988, Chemetron was involved in

periodic clean-up efforts at both sites at the

direction of Nuclear Regulatory Commission. The efficacy of

these efforts remains dubious.

On February 20, 1988, Chemetron and other debtors filed

a joint petition for reorganization under Chapter 11 of the

Bankruptcy Code in the Bankruptcy Court for the Western District

of Pennsylvania. Following Bankruptcy Rule 3003(c)(3), the

bankruptcy court issued a bar date order, fixing the bar claims

date at May 31, 1988. Stated simply, under bankruptcy law, the

bar claims date is the last day on which existing claims can be

filed against the debtor. See discussion Part III, infra.

The bar date order required that actual notice be

provided to all persons known to have claims against the debtors.

The order required notice to all other claimants by publication

in the national editions of the New York Times and Wall Street

Journal. It is undisputed that the debtors complied with the

order and, in addition, voluntarily published notice in seven

other newspapers in areas where they were doing business at the

time of the filing. On July 12, 1990, the bankruptcy court

confirmed Chemetron's reorganization plan.

On March 2, 1992, almost four years after the bar

claims date, twelve years after the first newspaper articles

detailing problems at the sites, and two years after her comments

in The Plain Dealer's front page article, Phyllis Jones and
fourteen other individuals brought suit against Chemetron, McGean

Chemical Co., and McGean-Rohco, Inc., in the Court of Common

4
Pleas of Cuyahoga County, Ohio. The suit was later amended to

name a total of twenty-one plaintiffs. The gravamen of the

complaint alleged injury from exposure to toxic chemicals as a

result of time spent in the Bert Avenue area.

Plaintiffs' ties to the Bert Avenue area centered

around visits to or occupancy of two houses in the vicinity. Only

two members of the group actually occupied the properties during

the period from 1965-1975 when Chemetron owned the sites. The

other members of the group visited the properties periodically,

ranging from "several times per week," App. at 8, to "weekly,"

App. at 14, to "monthly," App. at 16, to "occasional" visits,

App. at 9. The record indicates that the visits stopped in 1985,

three years prior to Chemetron's bankruptcy petition. None of

the plaintiffs currently resides near either site. Sixteen of

the plaintiffs still reside in Ohio. Five of the plaintiffs live

in Texas.

In the state court action, Chemetron moved to dismiss

the suit, arguing that any such claim had been discharged in

bankruptcy. The plaintiffs responded by seeking permission from

the bankruptcy court to file late claims. By separate motion,

plaintiffs sought a declaration from the bankruptcy court that

their claims had not been discharged by the reorganization plan.

This second motion was converted to an adversary proceeding.

On August 2, 1993, the bankruptcy court granted the

motion to file late claims, finding that plaintiffs were known

creditors entitled to actual notice of the bankruptcy proceeding

and bar claims date. The bankruptcy court also, sua sponte,

5
permitted the plaintiffs to proceed against Chemetron in the Ohio

lawsuit and dismissed without prejudice the adversary proceeding.

Chemetron appealed to the district court, which

reversed the grant of the motion to file late claims. The

district court held that plaintiffs were not known creditors and

that publication notice was sufficient. The district court then

concluded, without explanation, that plaintiffs' "claims were

dischargeable and were discharged." Chemetron v. Jones (In re

Allegheny Int'l), 170 B.R. 83, 90 (W.D. Pa. 1994). This appeal

followed.

II.

Jurisdiction in this appeal is proper pursuant to 28

U.S.C. § 158(d). We review the bankruptcy court's findings of

fact for clear error, the same standard of review used by the

district court. See Universal Minerals, Inc. v. C.A. Hughes &

Co., 669 F.2d 98, 101-02 (3d Cir. 1981). When reviewing mixed

questions of law and fact, we exercise plenary review over the

bankruptcy court's choice, interpretation, and application of the

underlying rule of law. See Mellon Bank, N.A. v. Metro
Communications, Inc., 945 F.2d 635, 642 (3d Cir. 1991), cert.

denied, 503 U.S. 937 (1992).

III.

The central issue before us is whether plaintiffs were

"known" or "unknown" claimants at the time of the bankruptcy

court's order. If claimants were "known" creditors, then due

process entitled them to actual notice of the bankruptcy

proceedings. Absent such notice, their suit may proceed. If

6
claimants were "unknown" creditors, however, then notice by

publication was sufficient to satisfy the requirements of due

process and their claims are barred, absent some other basis for

relief. We hold that the claimants in the instant case were

"unknown" creditors.

Our inquiry is guided by one of the principal purposes

of bankruptcy law, to secure within a limited period the prompt

and effectual administration and settlement of the debtor's

estate. Katchen v. Landy, 382 U.S. 323, 328 (1966). To this

end, Bankruptcy Rule 3003(c) requires that claimants against an

estate in bankruptcy under Chapter 11 file timely proofs of claim

in order to participate in a reorganization. Under Rule

3003(c)(3), these proofs of claim must be filed prior to a bar

date established by the bankruptcy court. After the passage of

the bar claims date, a claimant cannot participate in the

reorganization unless she establishes sufficient grounds for the

failure to file a proof of claim. See In re Best Products Co.,

140 B.R. 353, 357 (Bankr. S.D.N.Y. 1992). Except for narrow

statutory exceptions not relevant here, confirmation of the

debtor's reorganization plan discharges all prior claims against

the debtor. 11 U.S.C. § 1141; Charter Crude Oil Co. v. Petroleos
Mexicanos (In re Charter Co.), 125 B.R. 650, 654 (M.D. Fla.

1991).

Inadequate notice is a defect which precludes discharge

of a claim in bankruptcy. Due process requires notice that is

"reasonably calculated to reach all interested parties,

reasonably conveys all the required information, and permits a

7
reasonable time for a response." Greyhound Lines, Inc. v. Rogers

(In re Eagle Bus Mfg., Inc.), 62 F.3d 730, 735 (5th Cir. 1995)

(citation omitted). For notice purposes, bankruptcy law divides

claimants into two types, "known" and "unknown." In re Charter

Co., 125 B.R. 650, 654 (M.D. Fla. 1991). Known creditors must be

provided with actual written notice of a debtor's bankruptcy

filing and bar claims date. City of New York v. New York, N. H.

& H. R. Co., 344 U.S. 293, 296 (1953). For unknown claimants,

notification by publication will generally suffice. See In re

Argonaut Fin. Serv., Inc., 164 B.R. 107, 112 (N.D. Cal. 1994); In

re Thomas McKinnon Sec., Inc., 130 B.R. 717, 719-20 (Bankr.

S.D.N.Y. 1991).

As characterized by the Supreme Court, a "known"

creditor is one whose identity is either known or "reasonably

ascertainable by the debtor." Tulsa Professional Collection

Serv., Inc. v. Pope, 485 U.S. 478, 490 (1988). An "unknown"

creditor is one whose "interests are either conjectural or future

or, although they could be discovered upon investigation, do not

in due course of business come to knowledge [of the debtor]."

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 317
(1950).1

1
Although Mullane involved the notice due beneficiaries
on judicial settlement of accounts by the trustee of a common
trust fund, subsequent courts have interpreted the case to set
the standard for notice required under the Due Process Clause in
Chapter 11 bar date cases. See In re Pettibone Corp., 162 B.R.
791, 806 (Bankr. N.D. Ill. 1994); In re R.H. Macy & Co., 161 B.R.
355, 359 (Bankr. S.D.N.Y. 1993).

8
 A creditor's identity is "reasonably ascertainable" if

that creditor can be identified through "reasonably diligent

efforts." Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798

n.4 (1983). Reasonable diligence does not require "impracticable

and extended searches . . . in the name of due process." Mullane,

339 U.S. at 317. A debtor does not have a "duty to search out

each conceivable or possible creditor and urge that person or

entity to make a claim against it." In re Charter Co., 125 B.R.

650, 654 (M.D. Fla. 1991).

Precedent demonstrates that what is required is not a

vast, open-ended investigation. See Mullane, 339 U.S. at 317

("Nor do we consider it unreasonable for the State to dispense

with more certain notice to those beneficiaries whose interests

are either conjectural or future or, although they could be

discovered upon investigation, do not in due course of business

come to knowledge of the common trustee."); see also Trump Taj

Mahal Assocs. v. O'Hara (In re Trump Taj Mahal Assocs.), 1993

U.S. Dist. LEXIS 17827 at *9 (D.N.J. Dec. 13, 1993) (explaining

that "those creditors who hold only conceivable, conjectural or

speculative claims" are unknown). The requisite search instead

focuses on the debtor's own books and records. Efforts beyond a

careful examination of these documents are generally not

required.2 Only those claimants who are identifiable through a

2
Although some courts have held, regardless of the
circumstances, that the "reasonably ascertainable" standard
requires only an examination of the debtor's books and records,
without an analysis of the specific facts of each case, see
e.g., In Re Best Products Co., l40 B.R. 353, 358 (Bankr. S.D.N.Y.
l992); In re Texaco, Inc., l82 B.R. 937, 955 (Bankr. S.D.N.Y.

9
diligent search are "reasonably ascertainable" and hence "known"

creditors.

In the instant case, the bankruptcy court failed to

apply the "reasonably ascertainable" standard. It instead

crafted a "reasonably foreseeable" test from dictum in In re

Brooks Fashion Stores, Inc., 124 B.R. 436 (Bankr. S.D.N.Y. 1991).

In applying this test, the bankruptcy court found that "Chemetron

knew or should have known that it was reasonably foreseeable that

it could suffer claims from individuals living near the Bert

Avenue Dump. . . ." It therefore found that claimants were known

creditors.

We hold that in substituting a broad "reasonably

foreseeable" test for the "reasonably ascertainable" standard,

the bankruptcy court applied an incorrect rule of law. This

constitutes clear error. The bankruptcy court's expansive test

departed from established rules of law and produced a result in

conflict with other decisions. See In re New York Trap Rock

Corp., 153 B.R. 642, 646 (Bankr. S.D.N.Y. 1993) (holding

government agency that failed to file claim for environmental

cleanup to be an "unknown creditor" even where debtor had entered

real estate contract with another agency of same governmental

l995), we do not construe it so narrowly. Situations may arise
when creditors are "reasonably ascertainable," although not
identifiable through the debtor's books and records. See, e.g.,
Tulsa Professional Collection Serv., Inc. v. Pope, 485 U.S. at
49l (hospital's claim against deceased patient's estate possibly
reasonably ascertainable). We need not address this possibility
precisely, because, as we discuss, plantiffs' claims in this case
are so speculative that the identities of the plaintiffs could
not be ascertained with "reasonably diligent efforts."
Mennonite, 462 U.S. at 798, n.4.

10
entity); see also In re Trans World Airlines, Inc., 182 B.R. 102,

106 (D. Del. 1995) (holding claim unknown where plaintiffs had

not filed suit until one year after bar claims date); In re

Texaco Inc., 182 B.R. 937, 954-55 (Bankr. S.D.N.Y. 1995) (holding

claim unknown where owners of adjacent land filed environmental

action after bar claims date); In re Hunt, 146 B.R. 178, 182

(Bankr. N.D. Tex. 1992) (holding claims unknown where plaintiffs

filed state court suit and counterclaim after bar claims date).

Even if we were writing on a blank slate, we would reject the

bankruptcy court's expansive standard. Put simply, such a test

would place an impossible burden on debtors.

A review of the facts in the case at bar reveals why

the bankruptcy court's standard should not be followed. None of

the claimants involved currently resides near either site. The

claimants instead are scattered across Ohio and as far away as

Texas. We are hard-pressed to conceive of any way the debtor

could identify, locate, and provide actual notice to these

claimants.

It has been suggested that Chemetron could have

conducted a title search on all properties surrounding the sites

to determine all persons who might have lived in the area during

the twenty years between Chemetron's operation of the sites and

the Chapter 11 proceeding. We decline to chart a jurisprudential

course through a Scylla of causational difficulties and a

Charybdis of practical concerns.

The causational difficulties are manifold and apparent.

Under the bankruptcy court's rule, the debtor would have to

11
notify all reasonably foreseeable claimants, a determination that

would rise and fall on potentially attenuated and certainly

ambiguous causal nexi. At the most basic level, it remains

unclear in the instant case what geographic area might be

affected and hence how great an expanse the debtor's title search

need cover. There is no indication whether a sufficient search

would address properties one mile from the sites or one hundred

miles away. The geographic area would presumably be affected by

the potential for contaminant migration by air, water, or other

carrier, further expanding the necessary notification area. Nor

is the temporal dimension any more defined. With lingering

contaminants and slow rates of decay, there would be no reason to

limit future debtors to searching only for those exposed during

their periods of ownership. And while we might be urged to bring

these determinations under Mullane's "reasonably calculated under

the circumstances" umbrella, 339 U.S. at 314, we hesitate to

thrust the judiciary into a domain where decisions turn on rarely

pellucid and often disputed scientific studies, requiring

different varieties of technical expertise from case to case. In

light of these problems of causation, the bankruptcy court's rule

is unworkable.

We also anticipate grave practical difficulties with

the bankruptcy court's broad notice requirement. Even if

Chemetron had been required to search all potentially relevant

title documents, its efforts would have come to no avail in this

case. The vast majority of the claimants involved here were not

property owners, but guests. No title search could reveal the

12
identity of claimants who merely visited houses in the vicinity

of the sites at some point in the distant past, and we decline to

impose any Orwellian monitoring requirements on Chemetron and

similarly situated corporations. Moreover, as demonstrated by

the claimants here, debtors also face the problem of identifying

all individuals whose parents might have lived in or visited

houses in the vicinity of the site. And the problems of

ascertaining, let alone notifying, all such persons implicate yet

again all the difficulties of causation previously discussed.

Such an investigation, which would be required by the

bankruptcy court's finding that claimants are known creditors,

clearly contradicts both the caselaw cited above and common

sense. Creditors cannot be required to provide actual notice to

anyone who potentially could have been affected by their actions;

such a requirement would completely vitiate the important goal of

prompt and effectual administration and settlement of debtors'

estates. We reject the "reasonably foreseeable" test and follow

the "reasonably ascertainable" standard.

In reaching this result, we are not unsympathetic to

the alleged injury suffered by the claimants in this case. We

stress that our holding addresses the burden placed on the

bankruptcy debtor to provide actual notice to potential

claimants, not the merits of a timely and properly filed tort

suit. Where a debtor has sought the protection of bankruptcy

law, however, procedural protections such as the bar claims date

apply. These provisions cannot be circumvented by forcing

debtors to anticipate speculative suits based on lengthy chains

13
of causation. Accordingly, the bankruptcy court erred in finding

that the claimants in this case were "known" creditors, and the

district court's decision reversing the bankruptcy court on this

finding will therefore be affirmed.

IV.

Having held that claimants were "unknown" creditors, we

have little difficulty holding that the notice which Chemetron

published in the New York Times and the Wall Street Journal was

sufficient. It is well established that, in providing notice to

unknown creditors, constructive notice of the bar claims date by

publication satisfies the requirements of due process. New York,

344 U.S. at 296. Such notice must be "reasonably calculated,

under the circumstances, to apprise interested parties of the

pendency of the action and afford them an opportunity to present

their objections." Mullane, 339 U.S. at 314. We find that

Chemetron's notice met this standard.

Claimants argue that, given Chemetron's ongoing

difficulties in cleaning up the Cleveland area sites as well as

Chemetron's knowledge of the hazardous materials deposited there,

Chemetron should have published notice in a Cleveland area paper.

This argument fails.

"It is impracticable . . . to expect a debtor to

publish notice in every newspaper a possible unknown creditor may

read." Best Products, 140 B.R. at 358. Publication in national

newspapers is regularly deemed sufficient notice to unknown

creditors, especially where supplemented, as here, with notice in

papers of general circulation in locations where the debtor is

14
conducting business. See, e.g., Brown v. Seaman Furniture Co.,

171 B.R. 26 (E.D. Pa. 1994) (holding publication in local and

national editions of the New York Times sufficient notice to

claimant in Pennsylvania); In re Chicago, Milwaukee, St. Paul &

Pacific R.R. Co., 112 B.R. 920 (N.D. Ill. 1990) (holding

publication notice in the Wall Street Journal adequate under

bankruptcy law); Wright v. Placid Oil Co., 107 B.R. 104 (N.D.

Tex. 1989) (holding publication in The Wall Street Journal

sufficient notice to unknown creditor injured in Louisiana).

Furthermore, claimants' argument is undermined by the fact that

none of the claimants resided near the Cleveland sites at the

time of the publication notice. Even publication in a Cleveland

newspaper would not have reached the claimants currently residing

in Texas or any other potential claimants who had moved away from

Cleveland.

Because Chemetron's publication notice was reasonably

designed to reach all interested parties, the district court's

finding that the notice was sufficient to apprise unknown parties

of the claims bar date is affirmed.

V.

Although we find little merit in claimants' notice

arguments, we believe their claim of "excusable neglect" received

inadequate consideration. Bankruptcy Rule 9006(b)(1) empowers a

bankruptcy court to permit a creditor to file a late claim if the

movant's failure to comply with an earlier deadline "was the

result of excusable neglect." See Pioneer Inv. Serv. Co. v.
Brunswick Assocs. Ltd. Partnership, ___ U.S. ___, ___, 113 S. Ct.

15
1489, 1491-92 (1993). In the instant case, because claimants are

unknown creditors and Chemetron's publication notice was

sufficient, claimants must show that their failure to file in a

timely manner was due to "excusable neglect;" otherwise, their

claims arising pre-petition will be barred. See Best Products,

140 B.R. at 359.

The determination whether a party's neglect of a bar

date is "excusable" is essentially an equitable one, in which

courts are to take into account all relevant circumstances

surrounding a party's failure to file. See Pioneer, 113 S. Ct.

at 1498. The considerations to be weighed include:

the danger of prejudice to the debtor, the length of
the delay and its potential impact on judicial
proceedings, the reason for the delay, including
whether it was within the reasonable control of the
movant, and whether the movant acted in good faith.

Id.3
The bankruptcy court, in considering whether claimants

should be permitted to file a late claim under the totality of

the circumstances, wrote:

3
As the district court properly noted, it is unsettled
whether "excusable neglect remains a viable defense for filing a
late proof of claim when the claimant is entitled to only
publication notice." Chemetron, 170 B.R. at 89 (citing Trump Taj
Mahal Assocs. v. O'Hara (In re Trump Taj Mahal Assocs.), 1993
U.S. Dist. LEXIS 17827 at *18 n.7 (D.N.J. Dec. 13, 1993)).
Under Bankruptcy Rule 9006(b), which allows the
bankruptcy court to permit a late filing in cases of "excusable
neglect," no differentiation is made between known and unknown
creditors. Accordingly, claimants are not foreclosed from
pursuing an "excusable neglect" defense in the instant matter.

16
 This court's understanding of In re Remington Rand is
that acting promptly and diligently is but one factor
when a court is considering the totality of the
circumstances. The court finds that [claimants], while
not acting very promptly or diligently, were not so
sluggish as to outweigh the fact that Chemetron did not
provide reasonably calculated notice to alert
[claimants] of the bankruptcy proceedings and the
claims Bar Date. Therefore, the totality of the
circumstances dictate that [claimants] are entitled to
file a late claim.

Jones v. Chemetron Corp. (In re Allegheny Int'l, Inc.), Ch. 11

Case No. 88-00448 JLC, Adv. No. 92-2418, slip op. at 11 (Bankr.

W.D. Pa. July 24, 1993). This analysis failed to adequately

consider the totality of the circumstances presented. Not only

was the bankruptcy court incorrect in its assumption that

claimants were known creditors entitled to actual notice, but the

court failed to make additional relevant factual findings,

including the danger of prejudice to the debtor, the length of

the delay and its potential impact on judicial proceedings, the

reason for the delay, and whether the movant acted in good faith.

On appeal, the district court undertook its own review

of the record to determine whether the totality of the

circumstances supported claimants' filing of late claims. The

district court wrote:

We agree with the Bankruptcy Court that [claimants] did
not act promptly or diligently. Their motion to file a
late claim occurred more than four years after the bar
date, two years after the Plan of Reorganization had
been confirmed and twelve years after media and
neighborhood attention first focused on the hazardous
substances at the Bert Avenue Site. That [claimants]
were allegedly unaware of their claims does not
constitute excusable neglect. To permit [claimants] to
file a late claim would prejudice Chemetron by denying
a "fresh start" to which it is entitled. We conclude

17
 that the totality of the circumstances weighs heavily
against late filing of [claimants'] claims.

Chemetron, 170 B.R. at 89-90 (citations omitted).
Although the totality of the circumstances analysis

conducted by the district court was more appropriate than that

conducted by the bankruptcy court, the district court's analysis

also fell short of that required under Pioneer. The district

court failed to undertake a comprehensive analysis of how the

claimants' late filing would prejudice Chemetron, and also failed

to consider the role that Chemetron might have played in

contributing to the delay. Accordingly, we remand this issue to

the bankruptcy court, with directions that the bankruptcy court

undertake a more comprehensive and thorough determination of

whether the totality of the circumstances support claimants'

defense of "excusable neglect."

VI.

Finally, we disagree with the district court's

treatment of the discharge issue. In the final paragraph of its

memorandum and order, the district court concluded that the

instant claims "were dischargeable and were discharged."

Chemetron, 170 B.R. at 90. The bankruptcy court, however, had

declined to reach the issue of discharge, deciding instead to

dismiss claimants' adversary proceeding without prejudice. In

fact, the district court itself noted that "[t]he Bankruptcy

Court reserved ruling on the issue whether Appellants' claims are

discharged in light of the permission to file the late claims."

18
Id. at 86. We hold that the district court improperly reached

the issue of discharge.

Chemetron contends that the issue of discharge was

properly before the district court because Chemetron, in its

notice of appeal to the district court, expressly appealed from

the memorandum opinion and final order of the bankruptcy court in

both the Chapter 11 proceeding and "the related Adversary

Proceeding." This reference to the adversary proceeding,

however, was not sufficient to create jurisdiction in the

district court. Because the bankruptcy court reserved ruling on

the issue of discharge, the bankruptcy court's dismissal without

prejudice was not a final appealable order under 28 U.S.C.

§158(d) and therefore was not properly before the district court.

Accordingly, we will vacate the district court's ruling on

discharge and remand this issue to the bankruptcy court.

VII.

For these reasons, we will affirm the district court's

rulings that claimants were known creditors and that Chemetron's

publication notice was sufficient. We will vacate and remand to

the bankruptcy court the district court's judgment that claimants

failed to demonstrate excusable neglect. We will also vacate and

remand to the bankruptcy court the district court's ruling on

discharge.

19
Chemetron v. Jones

No. 94-3371

SAROKIN, Circuit Judge, concurring in the judgment.

I concur with the majority's judgment to affirm. I

write separately, however, because I disagree with the majority's

analysis regarding the definition of a "known" creditor entitled

to actual notice under the law. The majority rejects the

"reasonably foreseeable" test in favor of the "reasonably

ascertainable" test. I believe that both are applicable.

I.

The "reasonably foreseeable" test determines which

persons are entitled to receive notice. The "reasonably

ascertainable" test determines the type of notice these persons

are entitled to receive. All reasonably foreseeable claimants

are entitled to receive some form of notice. Those who are

reasonably ascertainable are entitled to actual notice. Those

who are not are entitled to constructive notice -- usually some
form of publication reasonably calculated to reach them.

The bankruptcy court adopted the following standard to

evaluate who qualifies as a known creditor in a bankruptcy

proceeding:
[I]f at the time of the filing it is
reasonably foreseeable to a debtor, who is or
should be aware of the potential consequences
of its actions, that a party that is
foreseeable will most likely file a claim

20
 against the debtor, that party is a "known"
creditor of the debtor. Furthermore, the
fact that a debtor does not know the name and
address of a creditor does not prevent that
creditor from being "known."

In re Allegheny International, Inc., No. 88-00448, typescript at
5-6 (Bankr. W.D. Pa. July 14, 1993). The court's standard would

entitle a party whose claim was "reasonably foreseeable" to

actual notice irrespective of whether or not that party's name

and address was readily ascertainable. That result is not only

illogical; it is contrary to Supreme Court jurisprudence. Tulsa

Professional Collection Serv., Inc. v. Pope, 485 U.S. 478, 490

(1988).

I do not believe, however, that in restoring the

"ascertainable" test to its proper place, as the majority does,

we need go so far as to discard the "reasonably foreseeable"

standard entirely. These tests are not mutually exclusive, or

even at odds. They address separate issues. The "reasonably

foreseeable" test has to do with whether the debtor knew or

should have known that a claim would be brought; the "reasonably

ascertainable" test has to do with the debtor's ability to learn

the identity and location of the potential claimant or claimants.

The manufacturer of a product which it knows to be

defective and who filed for bankruptcy should be under an

obligation to give actual notice of the proceedings to known

purchasers and users of its products, even if they have made no

claim. They may not have done so because the injury had not yet

manifested itself or they otherwise were unaware of the risks of

such injury. Absent such requirement, if the harmful effects of

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the product did not manifest themselves for some period of time,

consumers could be barred from relief for their injuries.

A rule whereby individuals whose claims are reasonably

foreseeable are deemed "known" creditors if their identity and

location is reasonably ascertainable would go a long way toward

addressing these interests. Under such a rule, the following two

steps would be required as a prerequisite to mandating actual

notice to the tort claimants. First, the claims must be

reasonably foreseeable. If they are reasonably foreseeable, then

actual notice must be given to those claimants who are reasonably

ascertainable. If there is a class or category of foreseeable

claimants whose identity and/or location cannot be reasonably

ascertained, then they are not "known creditors" entitled to

actual notice (although they should receive substituted notice

through reasonable means most likely to reach them). Such a

result strikes the proper balance between the various purposes of

bankruptcy law, which is concerned not merely with affording a

fresh start to those who warrant it, but also with protecting the

interests of creditors and claimants who may be adversely

affected by the bankruptcy proceeding.

This result is clearly supported by the case law. The

Mullane court was careful to limit its holding to the facts of

that case, noting that "certain notice" was unnecessary for

"beneficiaries whose interests are either conjectural or future .

. . in view of the character of the proceedings and the nature of
the interests here involved." Mullane v. Central Hanover Bank &

Trust Co., 339 U.S. 306, 317 (1950) (emphasis added).

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Furthermore, a claimant's interests are not "conjectural or

future" simply because a lawsuit has not been filed yet. These

interests exist from the time of the tortious act, not just from

the time the claimant seeks to vindicate them in court.4

II.

Under this rule, I would find that it was not

reasonably foreseeable that plaintiffs would file claims against

Chemetron. As the district court noted in its opinion,

throughout the early 1980s both the Nuclear Regulatory Commission

and the Environmental Protection Agency time and again reassured

both Chemetron and local residents that the radiations from the

Bert Avenue site presented no serious safety or health risk to

the surrounding neighborhood. Chemetron Corp. v. Jones, et al.,

No. 93-1582, typescript at 11 (W.D. Penn. June 11, 1994).

Therefore, "[i]f Chemetron gave any thought to the subject, it

4
The majority cites Trump Taj Mahal Assocs. v. O'Hara (In re
Trump Taj Mahal Assocs.), 1993 WL 534494 (D.N.J. Dec. 13, 1993),
for the proposition that "those creditors who hold only
conceivable, conjectural, or speculative claims" are unknown.
See Majority Opinion, typescript at 9. Trump Taj Mahal is a
memorandum opinion by a district court, not reported in the
relevant Reporter. As a district court opinion, it is not binding
upon us. As an unreported memorandum opinion, it has no
precedential value.
The Supreme Court, in Tulsa Professional Collection
Serv., Inc. v. Pope, 485 U.S. 478 (1988) held that "it is
reasonable to dispense with actual notice to those with mere
'conjectural' claims." Id. at 490 (emphasis added). The Random
House College Dictionary describes "conjectural" as "of the
nature of or involving conjecture; problematical." Insofar as
"problematical" suggests that the event is more likely than not
not to occur, a claim that is "reasonably foreseeable" is not
"problematical."

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was reasonable to assume that claims would not be filed because

of the assurances of these agencies that the Bert Avenue Site

posed no health risk to the neighborhood." Id. Therefore,

"there was no reason for Chemetron to assume in 1988 that there

would be claims from residents for ailments caused by exposure to

the contamination from the Sites. At most, any future claim was

speculative." Id. at 12. Under the facts of this case, I

entirely agree with the district court's conclusion that

"Appellees were not foreseeable claimants and, accordingly, were

unknown creditors." Id. Since the claims were not foreseeable

there is no reason to address whether the claimants were

reasonably ascertainable.

III.

For the reasons stated above, I concur with the

majority's judgment, though not with its reasoning in this one

respect.

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