Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
Debtor Ben Nye Co. Inc., a manufacturer and distributer of theatrical makeup, filed for subchapter V bankruptcy in March 2024. Its proposed bar date order and subchapter V plan were each confirmed by the United States Bankruptcy Court for the Central District of California shortly thereafter. The instant appeal followed, as each conformation was appealed by a group of five personal injury law firms and eight asbestos personal injury plaintiffs with lawsuits pending against Ben Nye (collectively known as, “The Group”).
Soon after filing for bankruptcy, Ben Nye moved to set special notice procedures and a special bar date for filing “known and unknown asbestos personal injury claims.” Ben Nye asked the bankruptcy court to set a bar date for filing all asbestos proofs of claim regardless of whether the parties allegedly exposed to Ben Nye products had manifested any asbestos-related illnesses. Ben Nye also proposed language stating that a claimant shall be “forever barred” from asserting a claim against Ben Nye, or submitting a proof of claim, and shall be ineligible to receive compensation, if a proof of claim is not filed by the bar date.
In response to Ben Nye’s bar date motion, The Group argued that future or latest asbestos personal injury litigants did not hold “claims” within the meaning of the bankruptcy code and thus, absent a claim, those persons were not subject to the bankruptcy claims process or any bar date. The Group further argued that broadly imposing the notice procedures and a claims bar date violated the due process rights of future litigants as it was “unreasonable” to expect future litigants to “make an informed decision” about whether they had a claim against Ben Nye for injuries that have not manifested. In reply, Ben Nye asserted, e.g., that The Group lacked standing to represent the interests of future litigants and should not be permitted to object to the bar -date motion on their behalf.
The bankruptcy court ultimately overruled The Group’s objections, noting there was “no possibility” of Ben Nye creating a practicable §524(g) trust as part of a reorganization plan due to Ben Nye’s small size, its lack of insurance, and the absence of a single finding of asbestos in any of its products. The court thus granted Ben Nye’s bar date motion, specifying that the bar date applied to any person or entity asserting an asbestos claim against Ben Nye based on the alleged exposure to Ben Nye’s products.
After the bar date passed and proof of claims were filed, Ben Nye submitted a proposed subchapter V plan detailing its prior annual earnings, projected future earnings, and plans to pay different classes of creditors. Here too, The Group objected, arguing that it was legally impermissible for the plan to limit personal injury claimants to the bankruptcy claims process. Despite the objections, the bankruptcy court confirmed Ben Nye’s plan.
The Group eventually appealed the court’s determinations regarding the bar date order and subchapter V plans.
As an initial matter, the Appellate Court noted that the bulk of The Groups’ arguments were outside the scope of the appeal as the purpose of the claims bar date is to establish and give notice to creditors of the deadline to file claims, not to adjudicate who actually holds a claim. Thus, the Appellate Court need not determine which asbestos litigants hold “claims” within the meaning of the bankruptcy code.
Next, the Appellate Court determined that Ben Nye’s subchapter V plan, and majority of the bar date order, passed muster under the bankruptcy law. However, the paragraph of the bar date order with injunctive language enjoining every asbestos litigant from pursuant Ben Nye if the litigant failed to timely file a proof of claim was in error.
Per the Appellate Court, “there is no authority” permitting the grant of an injunction within an order establishing a claims bar date as part of a contested matter. “[B]ar date orders cannot and should not affect the rights of creditors (if any) outside of bankruptcy; they only preclude non-filing creditors from participating in the bankruptcy-and only the extent of voting and distribution.” Here, the court determined that Ben Nye impermissibly attempted to discharge all asbestos claims via the bar date order. For these reasons, the Appellate Court struck the injunction-specific language of the bar date order as unenforceable. The remaining portions of the bar date order were affirmed, along with the entirety of the subchapter V plan.
Read the full decision here.
