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Abstract

In 1982, three asbestos product manufacturers filed voluntary petitions for business reorganization under Chapter 11 of the United States Bankruptcy Code. The common reason for each of these filings was that tort liabilities threatened the financial survival of the corporation. Never, in the history of United States bankruptcy law, had any business sought bankruptcy relief for such a reason. By 1985, two more firms, another asbestos product manufacturer and a pharmaceutical company, filed Chapter 11 petitions for the same reason. The torts of these "debtors" in bankruptcy are similar; they extend from the manufacture and wide-spread marketing of products that cause insidious human diseases. These diseases do not manifest themselves when individuals are initially exposed to such products. Rather, they develop over varying periods of time. Thus, firms continue producing the "toxic products" without incurring significant tort liabilities until the first exposures develop into human disease. After that, tort liabilities accumulate rapidly and continue into the future even if production of the product is discontinued. The novel use of Chapter 11 by corporations beset with massive, future tort liabilities raises the question of whether bankruptcy courts have the legal power or statutory means to effectuate bankruptcy remedies for these tortfeasors. The issue of whether or not these so-called "toxic tort" liabilities should be affected by reorganization plans of corporate tortfeasors engenders legal and policy debates which pit the fundamental policies of United States bankruptcy law against those of the common law tort system. This debate is brought into sharp focus when a bankruptcy court endeavors to decide how or whether a debtor's future liabilities to unknown toxic tort victims can be resolved in Chapter 11 cases. This Comment focuses on the public policy and legal issues that challenge the use of the bankruptcy forum for the resolution of a corporation's toxic tort liabilities. Although the discussion centers on issues that have been raised in the bankruptcy proceedings of asbestos product manufacturers, it is relevant to any reorganization involving a tortfeasor whose purpose in petitioning for bankruptcy relief is to dispose of massive tort liabilities including those of "putative plaintiffs" who have not accrued or filed tort claims at the time the tortfeasor files its petition for relief. Part II explores the treatment of future tort liabilities in the pending Chapter 11 cases of certain asbestos product manufacturers and points out the unresolved issues that challenge the ultimate resolution of these liabilities in the bankruptcy context. Part III analyzes the social and economic policy conflicts between the tort law regime and the bankruptcy system that are engendered by the use of Chapter 11 for the resolution of toxic tort liabilities. Part IV discusses legal obstacles to the resolution of unknown future tort liabilities of a debtor in Chapter 11 cases. These obstacles range from basic problems of statutory construction to questions concerning a federal bankruptcy court's power to preempt state statutes of limitations for the purpose of identifying tort claimants. Finally, Part V weighs the equity powers of a bankruptcy court against the social and legal issues, analyzed in earlier sections, to consider whether a full resolution of a debtor's toxic tort liabilities in Chapter 11 warrants departures from established legal precedents.

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