Toxic Torts and Chapter 11 Reorganization:The Problem of Future Claims

Recently, the toxic tort phenomenon has emerged as a vital concern to manufacturers, employers, and consumers as Agent Orange,\u27 DES, Dalkon Shield, and asbestos victims have litigated toxic tort claims. Toxic torts are unique because any number of victims may be exposed to a toxic substance from which they may contract a disease as far as twenty years in the future. Toxic tort claims typically involve large sums of money and an inestimable number of plaintiffs. The potential for tremendous, financially crippling, liability for these injuries has prompted some asbestos companies to file for reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978. A keystone of the American bankruptcy system is the discharge of debt. Tort claimants qualify as creditors under the Bankruptcy Act, and tort claims, therefore, are subject to discharge. Unlike commercial creditors, however, who voluntarily undertake risks when extending credit, the tort victim does not voluntarily submit to creditor status. The tort victim whose claim a court has discharged in bankruptcy, nonetheless, will receive no compensation. Under a reorganization, however, the bankrupt may continue to operate so that it can pay certain creditors.\u27 If tort victims can participate in the Chapter 11 reorganization process,the reorganization plan may afford them some compensation... The purpose of this Recent Development is to analyze these decisions and propose a solution that will benefit debtors and creditors, including future claimants. Part II discusses three issues: (1)the definitions of creditor and party in interest ; (2) the scope of a bankruptcy court\u27s equitable powers; and (3) due process requirements. Part II also considers the analogy between representation in class action suits and representation in reorganization proceedings. Part III examines three recent decisions that address the question of whether to appoint a representative for future claimants in a reorganization proceeding. Part IV analyzes these decisions in light of the policies underlying the Bankruptcy Code, tort law, and due process requirements. Part IV also considers the potential precedential ramifications of these rulings. Part V stresses the need for uniformity in bankruptcy law and contends that appointing representatives for future toxic tort claimants in bankruptcy reorganization proceedings and binding the future claim-ants to the reorganization plan strikes the best balance among the competing concerns in this modern dilemma