Mass tort chapter 11 bankruptcy cases typically involve two groups of claimants: individuals who know they have been injured (i.e. present claimants) and individuals who do not know of their exposure or injury (future claimants). A chapter 11 debtor typically proposes a plan to either reorganize to keep its business alive and pay creditors over time or to liquidate its assets. But how does a debtor in a mass tort bankruptcy case treat the claims of future claimants, the identities and injuries of which are not yet known? To help preserve the rights of these unknown, future claimants, a debtor may establish a trust under the bankruptcy plan. A chapter 11 plan may provide for a “channeling injunction,” which limits future claimants’ ability to assert claims solely against this trust. A channeling injunction requires the appointment of a legal representative on behalf of the future claimants, commonly referred to as a future claimants’ representative (an “FCR”).
In an April 17, 2019, opinion, the Bankruptcy Court for the Northern District of Georgia answered two questions relating to the appointment of an FCR: (1) What is the proper procedure for the appointment of an FCR?; and (2) What is the proper standard for appointment of an FCR?
In the matter of In re The Fairbanks Company, 2019 WL 1752774, 18-41768-PWB, Judge Bonapfel first determined that the procedures for appointing an FCR permits nominations from any party in interest in the case and requires the Court to independently inquire into the proposed representative’s qualifications and ability to protect the rights of future claimants. The Court then concluded that the proper standard for consideration of an FCR is akin to that of a guardian ad litem, such that the individual must not only be disinterested and qualified, but also objective, independent, and loyally committed to protecting the interests of future claimants.
After an evidentiary hearing, the Bankruptcy Court appointed the debtor’s proposed nominee as the future claimants’ representative.
Michael B. Pugh
Thompson, O’Brien, Kemp & Nasuti, P.C.
40 Technology Parkway S., Suite 300
Peachtree Corners, GA 30092
(O) 770-925-0111 | (F) 770-925-8597
mpugh@tokn.com | www.tokn.com
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