Opinion of Interest – In re United Refining Company: Destruction of Records and the Accrual of Tort Claims

In a January 2021 decision issued in the re-opened United Refining Company¹ bankruptcy case, Judge Lopez of the Southern District of Texas Bankruptcy Court addressed when a tort claim is deemed to arise for purposes of determining whether it was discharged.  In particular, the court had to determine whether an asbestos-related claim arose at the time of exposure (in other words, the time at which the damaging act occurred) or at the time when the harm is diagnosed (in other words, when the claim was discovered).  Complicating things for the court was a lack of records from the 1980s bankruptcy case at issue, which also led to uncertainty as to whether the claimant had notice of the bankruptcy.  That in turn could have led to the conclusion that his claim had not been discharged regardless of the court’s determination of when the claim accrued.  As discussed below, the Court concluded that the claim was a prepetition claim discharged under the plan, and that all creditors were bound by such plan absent a showing that there was no proper notice.

United Refining Company filed for bankruptcy in 1983, confirmed its plan of reorganization in 1988 and closed its bankruptcy case in 1990.  28 years later, in 2018, the estate of one of United Refining’s former employees filed a wrongful death suit alleging that the employee had been exposed to asbestos while working for United Refining in the 1960s, which led to his mesothelioma diagnosis in 2016 and, ultimately, his death in 2017.  The estate pursued litigation against United Refining for two years until, in July 2020, United Refining moved to re-open its bankruptcy case to determine that any liability to the employee had been discharged under its 1988 plan.  Complicating things was that no official records remained from United Refining’s bankruptcy case – no electronic records were maintained at the time, and the physical records that had previously been maintained at the National Archives and Records Administration were destroyed in the ordinary course.  The court found that “[n]o official docket (hard copy or electronic), no record of the entries in the docket, no affidavits of service, no disclosure statement, and no schedules of assets and liabilities” were available, and that the only available court documents were “a copy of the Plan, the Confirmation Order, and a few miscellaneous postconfirmation orders retained by United Refining.” ²

After describing several different tests that various circuit courts of appeal had applied over the years in determining when asbestos-related claims are deemed to arise,  the Bankruptcy Court in United Refining Company ultimately applied the Fifth Circuit’s “prepetition relationship” test, finding that because the employee and United Refining had an employer-employee relationship at the time the alleged asbestos exposure occurred, the claim was deemed to arise at the time of the conduct (i.e., prepetition).  The question then became whether that prepetition claim had been discharged by United Refining’s confirmed plan, an analysis made more difficult by the fact that it was “impossible to know” whether the employee had “received notice” about the case in 1983.  Finding, however, that all creditors are bound by the terms of a confirmed plan, and noting in particular that the Bankruptcy Code “imposes no requirement on chapter 11 debtors to maintain copies of the official court docket to back up the National Archives,” the Bankruptcy Court found that the employee’s claim was discharged.³ The confirmation order, in particular, was deemed “prima facie evidence that prepetition claims were discharged and that proper notice was provided to parties-in-interest.”⁴  Even presuming that the employee was an “unknown creditor” at the time of United Refining’s filing, “with no official record (hard copy or electronic) or evidence” from the estate of the employee “for the Court to rule differently,” the “findings in the Confirmation Order that notice to parties-in-interest was proper is uncontroverted and stands.”⁵

In the end then, United Refining Company stands for the principle that, in the Fifth Circuit at least, claims will be deemed to accrue prepetition when they arise between the debtor and a claimant in the context of an existing relationship even if the full extent of the claim is not known at that point.  It also appears that a confirmation order will be sufficient evidence that potential claimants had notice of the bankruptcy absent proof to the contrary.

¹ See In re United Ref. Co., No. 83-03935, 2021 WL 160433  (Bankr. S.D. Tex. Jan. 16, 2021).

² Id. at *1.

³ Id. at *6.

⁴ Id. at *7.

⁵ Id.