May 18 (Reuters) - A federal appeals court on Friday ruled
that Owens Corning Sales LLC could be liable for
allegedly-defective roof shingles, even though the company has
been through a bankruptcy reorganization.
In recent years, the U.S. Court of Appeals for the 3rd Circuit has expanded the types of claims that a company can shed
in bankruptcy. But the court took a step back on Friday,
reinstating product-liability claims against the
building-materials maker that came to light after it emerged
Owens Corning entered bankruptcy proceedings in 2000, in the
face of significant asbestos liability. The company published
notices in the New York Times, the Wall Street Journal, USA
Today and other media outlets, calling for any outstanding
claims to be filed. A bankruptcy court confirmed the company's
plan in September 2006, and extinguished all claims that arose
before the confirmation date.
Two customers, Patricia Wright and Kevin West, discovered
leaks in their Owens Corning roofs from split shingles in 2009
and sued the company for fraud, negligence, strict liability and
breach of warranty. At the time, it was clear their claims had
survived bankruptcy. A much-criticized ruling, Avellino v.
Frenville -- valid law in the 3rd Circuit at the time -- held
that claims arose when they surfaced. For Wright and West, the
claims arose when the alleged defects in the shingles emerged in
2009, years after the bankruptcy plan's confirmation date.
But in June 2010, the 3rd Circuit abandoned Frenville, and
adopted a new rule that favored debtors because it expanded the
universe of claims that could be eliminated in bankruptcy. The
case, In re Grossman's, stemmed from claims that a woman
allegedly contracted an asbestos-related disease while using
materials produced by Grossman's, a building products company,
to renovate her home. The court found that if the exposure
occurred before Grossman's had filed its bankruptcy petition,
then the claim qualified for discharge. As a result of the
change, a company was able to block many more potential lawsuits
with its reorganization plan. Under the new rule, Wright and
West's proposed class action was no longer possible.
But the 3rd Circuit limited the effect of that change on
Friday, finding the new rule does not apply retroactively. For
bankruptcy plans confirmed before Grossman's was decided on June
2, 2010, if the plaintiffs were not aware of their claims when
notice of the bankruptcy was published, they can still pursue
A three-judge panel of the 3rd Circuit acknowledged that it
had to balance the goal of giving a debtor a fresh start by
resolving all claims arising from its conduct before emerging
from bankruptcy, and the rights of individuals damaged by that
conduct who were unaware of the potential harm at the time of
Matt Schroder, a spokesman for Owens Corning, said the
company was considering whether to appeal further or to defend
its position before the Pennsylvania district court.
David Alexander Barnes, a lawyer for the plaintiffs, said
the case marks a significant contour in the way a claim is
defined for bankruptcy purposes, making fewer claims subject to
The case is Wright et al v. Owens Corning, U.S. Court of
Appeals for the 3rd Circuit, No. 11-2026.
For Wright et al: David Alexander Barnes of Obermayer,
Rebmann, Maxwell & Hippel.
For Owens Corning: Kara McCall of Sidley Austin.
(Reporting By Terry Baynes)
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