Herring v. Texaco, Inc.

Citation: 132 P.3d 1102Docket: 55055-1-I

Court: Court of Appeals of Washington; April 17, 2006; Washington; State Appellate Court

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In the case of Edwin Herring v. Texaco, Inc., the Washington Court of Appeals addressed whether Todd Shipyards Corporation (Todd) provided adequate notice of its bankruptcy to potential creditors, specifically members of the Asbestos Workers Union Local No. 7. The court ruled that Todd had a duty to notify Local 7 of its bankruptcy because it was aware that members could suffer asbestos-related diseases and file tort claims. Todd's failure to provide actual notice led to the reversal of the trial court's summary judgment, which had discharged Herring's claims based on the bankruptcy. The background included Roger Herring's history of asbestos exposure while working intermittently at Todd, his subsequent cancer diagnosis, and the filing of his lawsuit against Todd. The court emphasized the importance of due process in bankruptcy proceedings, referencing the Supreme Court case Mullane v. Central Hanover Bank, which established that notice must be reasonably calculated to inform interested parties about the action and allow them to present objections. The ruling highlighted that a debtor must perform a diligent search of its records to identify known creditors but may face circumstances where additional efforts are warranted to ensure adequate notice.

All known creditors must receive direct notice of bankruptcy proceedings, while unknown creditors, whose identities cannot be reasonably determined, may be notified through publication. The determination of whether a creditor is known or unknown hinges on the debtor's ability to ascertain the creditor's identity and claim. The central issue is whether Herring’s union, Local 7, qualifies as a known or unknown creditor. If known, Local 7 should have received actual notice; if unknown, notice by publication suffices, which would validate the trial court's decision to bar Herring's claim against Todd.

Herring argues that Todd should have been able to identify Local 7 and its members through reasonable diligence, as members worked at Todd for various subcontractors. He asserts that had Todd notified Local 7, the union would have passed on the information to him. Herring suggests it is reasonable to conclude that if Todd had requested the names and addresses of union members from Local 7 or its members, the union would have complied, thus enabling Todd to ascertain Herring’s identity and claim.

To support his position, Herring submitted affidavits from Local 7’s business agents from 1987-89, stating they were unaware of Todd's bankruptcy. One agent noted that had the union been informed, it would have notified its members through publication or meetings. Additionally, Herring referenced a declaration by Todd’s in-house counsel from a separate Texas lawsuit, which asserted that Todd made diligent efforts to notify potential creditors, including unions representing its employees. However, in this current case, the counsel clarified that only unions representing Todd's employees were notified, excluding Local 7, which represented subcontractor employees.

The pivotal question is whether Todd had a legal obligation to notify Local 7 of the bankruptcy to ensure Herring received due process regarding his asbestos-related claims. The matter at hand is whether Todd fulfilled its duty to provide actual notice to creditors whose identities and claims could have been reasonably identified through diligent efforts.

Todd's records did not reveal Herring's name and address; however, Todd notified all entities listed on its accounts receivable and payable registers, including subcontractors and unions representing its employees. Despite these notifications, Todd's actions were deemed insufficient for reasonable diligence due to its awareness of numerous asbestos-related claims during bankruptcy. Todd's choice to notify other unions representing its employees undermined its claim that it was not required to notify Herring's union, Local 7, which also represented asbestos workers employed at Todd's job sites.

The key legal standard for reasonable notice, as outlined in Mullane, requires that a debtor must possess specific information indicating both the potential claims against them and the relevant entities. Todd had sufficient information about the asbestos-related claims and the representation of Local 7, necessitating actual notice to that union.

In contrast, the case of In re Chicago, Rock Island, Pacific Railroad Co. involved an employee who was not given personal notice of a bar date because the railroad lacked information suggesting the individual’s specific claims, classifying him as an unknown creditor entitled only to publication notice. This differs from Todd's situation, as Todd had identifiable entities, like Local 7, that warranted notification due to their members' exposure to asbestos on its job sites.

In the case of Trump Taj Mahal Associates v. Alibraham, the court ruled that a casino customer injured in a slip and fall incident, who submitted an incident report, was considered an unknown creditor and not entitled to actual notice of the casino's bankruptcy. The court, referencing the Rock Island case, noted that the customer was one of many potential claimants, with only a few likely to pursue legal action. The claim was deemed speculative due to the lack of specific information indicating that the customer would file a claim. 

In contrast, the Chemetron Corp. v. Jones case involved known claimants—former residents and visitors of a contaminated site—where the court found that the debtor should have anticipated claims. However, on appeal, the Third Circuit rejected the trial court's "reasonably foreseeable" test, asserting that claimants must be reasonably ascertainable without imposing undue burdens on the debtor, such as conducting extensive title searches. The court emphasized that requiring actual notice to anyone who might potentially be affected would undermine the efficiency of bankruptcy proceedings.

In the current case, the court determined that there were no similar concerns as those in Rock Island, Trump, or Chemetron. It clarified that notifying an asbestos workers' union does not involve complex scientific or practical issues, and that the focus should be on the information available to the debtor regarding the ascertainability of potential claims.

In Fogel v. Zell, the Seventh Circuit ruled that the City of Denver was entitled to actual notice of the bankruptcy of the manufacturer’s successor, despite the time elapsed since the pipes were purchased and the lack of prior notification of a claim. The court emphasized that Denver's identity as a significant purchaser of defective pipes was ascertainable from the debtor’s records, especially given the existence of other multimillion-dollar claims. 

Similarly, Todd was aware of numerous asbestos claims linked to its operations and the union representing affected workers at the time of its bankruptcy. The court argued that there was no reason the trustee would not have been aware of these claims and the associated union. In Solow Building Co. v. ATC Associates, the court found that ATC should have recognized its potential liability due to existing legal threats from Solow regarding asbestos abatement issues.

Applying this reasoning, the court concluded that Todd had sufficient information indicating possible liability to members of Local 7 for asbestos-related claims. Therefore, notifying the union was deemed a reasonable measure to inform interested parties about the pending actions and allow them to present objections. 

The court highlighted several circumstances, such as the likelihood of claims from workers in similar conditions and the ease of notifying the union, which justified requiring Todd to communicate with Local 7. The decision did not hinge on disputed scientific data regarding claim foreseeability nor did it mandate actual notice to every potentially affected individual. Instead, it established that Todd had specific information that indicated both its potential liability and the relevant entity. This requirement aimed to balance creditor interests with the efficient administration of the debtor's estate, leading to the reversal of the trial court's decision.

In a bankruptcy case, a potential creditor is entitled to actual notice of the debtor's bankruptcy only if the creditor's claim is reasonably ascertainable to the debtor through diligent efforts. For a claim to be deemed reasonably ascertainable, the debtor must possess specific information indicating both the claim and the creditor. Todd Shipyards Corporation did not have such information regarding Roger Herring's asbestos-related claims at the time of its bankruptcy filing, categorizing Herring as an unknown creditor, thus making publication notice sufficient.

The majority's analysis is flawed in two ways: it incorrectly focuses on the status of the Asbestos Workers Union Local No. 7 (AWU Local No. 7) instead of Herring as the claimant, and it misapplies a previously rejected "reasonably foreseeable" test rather than the correct "reasonably ascertainable" standard. Todd's records did not reveal Herring's identity, and Todd complied with the bankruptcy court's order by notifying all relevant entities, including those involved in its accounts and unions representing employees. 

Todd's actions are deemed sufficient for reasonable diligence, and requiring notice to a non-creditor like the union, based on speculative identification of unknown creditors, contradicts established case law. The determination of whether a claim is reasonably ascertainable hinges on the information available to the debtor at the time of bankruptcy, not hypothetical scenarios regarding third parties. This approach ensures a balance between the interests of potential creditors and the efficient administration of bankruptcy estates.

The majority's application of the reasonably ascertainable test is flawed, as it incorrectly equates it with the rejected "reasonably foreseeable" standard from Chemetron. While Todd was aware that members of the Asbestos Workers Union Local No. 7 might have claims against it, it lacked specific information about Herring's identity or his asbestos exposure. Consequently, Todd did not have the necessary information to suggest potential liability to Herring, classifying him as an unknown creditor. Thus, notice by publication was adequate. The dissent emphasizes that the trial court should not have resolved factual issues regarding the adequacy of notice at the summary judgment stage. Additionally, it reiterates that for creditors deemed not reasonably ascertainable, publication notice is sufficient, aligning with established case law. The dissent urges that the trial court on remand should determine the persuasive value of conflicting declarations by Todd.

The document references multiple legal cases and citations, focusing on the obligations of debtors in bankruptcy to notify creditors. It highlights the similarity between letters demanding cessation of illegal asbestos procedures and those deemed insufficient for notice in the Trump case, as both threatened future legal action without resulting lawsuits at the time of bankruptcy filing. The text emphasizes that the AWU Local No. 7 union was not a known creditor of Todd Shipyards because it represented subcontractor employees rather than Todd’s own employees, lacking any contracts or collective bargaining agreements that could establish claims against Todd. Todd Shipyards made diligent efforts to notify potential creditors, including unions representing its employees, but did not have a requirement to notify Herring’s union, as they were not considered known creditors. The case law cited, including Chemetron and Crystal Oil, supports the position regarding notification obligations in bankruptcy proceedings.