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Rachel Flores et al v. Kmart Corporation

January 25, 2012

RACHEL FLORES ET AL., PLAINTIFFS AND APPELLANTS,
v.
KMART CORPORATION, DEFENDANT AND RESPONDENT.



APPEAL from an order of the Superior Court of Los Angeles County, Richard E. Rico, Judge. Reversed. (Los Angeles County Super. Ct. No. BC404010)

The opinion of the court was delivered by: Turner, P. J.

CERTIFIED FOR PUBLICATION

I. INTRODUCTION

Under federal bankruptcy law, the discharge of liability for an unliquidated, contingent or unmatured claim can bar a suit to collect a debt. (11 U.S.C. §§ 101(2), 524(a), 1141(d)(1)(A).*fn1 ) In this case, Martin Flores, according to the first amended complaint, was exposed to asbestos in 1989 while performing construction work in a store operated by defendant, Kmart Corporation. On January 22, 2002, defendant and 37 affiliates filed chapter 11 bankruptcy petitions. (In re Kmart Corp. (Bkrtcy. N.D.Ill. 2002) 286 B.R. 345, 346.) On April 22, 2003, the bankruptcy court made findings of fact and conclusions of law and entered an order confirming defendant's first amended joint reorganization plan (the reorganization plan). (In re Kmart Corp. (Bkrtcy. N.D.Ill. 2003) 293 B.R. 905, 907.) The April 22, 2003 order discharged all known and unknown claims against defendant. In support of its demurrer, defendant sought judicial notice of parts of the April 22, 2003 reorganization plan. There is no evidence Mr. Flores or his family had any notice of the 2002 and 2003 bankruptcy proceedings. On some unspecified date, Mr. Flores sustained malignant mesothelioma. The first amended complaint does not allege when Mr. Flores became aware he was ill. There is no evidence Mr. Flores' identity or illness was reasonably ascertainable by defendant prior to the April 22, 2003 approval of the reorganization plan. On June 19, 2008, Mr. Flores died of malignant mesothelioma. Plaintiffs filed a wrongful death action on December 17, 2008. Plaintiffs are Mr. Flores's wife, Rachel Flores, and their two children, Adrian and Christian.

Defendant contends the April 22, 2003 order approving the reorganization plan and discharge order bars Mr. Flores' family from recovering damages resulting from his alleged asbestos exposure. The parties posit two controlling issues. First, defendant argues that the unliquidated, contingent or unmatured damage claims were discharged by the April 22, 2003 approval of the reorganization plan and discharge order. Second, plaintiffs argue the discharge order violates their Fourteenth Amendment due process rights as there is no evidence they received notice of the potential approval of the reorganization plan. We need not resolve the first issue--whether a discharge occurred on April 22, 2003. But we do resolve the due process issue. Based on the limited record provided by defendant, we conclude that, consistent with Fourteenth Amendment due process principles, the April 22, 2003 approval of the reorganization plan cannot discharge plaintiffs' claims. Thus, the trial court's demurrer dismissal, which is premised on the conclusion the reorganization plan is enforceable against plaintiffs, must be reversed.

We emphasize the narrow nature of our ruling. We merely hold defendant has failed to demonstrate, at the demurrer stage, that the April 22, 2003 approval of the reorganization plan bars all of the first amended complaint's claims. And we reach our decision based on the limited record of bankruptcy proceedings provided by defendant.

II. PROCEDURAL HISTORY

A. The First Amended Complaint

In reviewing an order after a demurrer is sustained without leave to amend, all well-pleaded factual allegations must be assumed as true. (Naegele v. R. J. Reynolds Tobacco Co. (2002) 28 Cal.4th 856, 864-865; Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 946.) Plaintiffs filed a wrongful death action on December 17, 2008. Ms. Flores is the guardian ad litem for the two children. Plaintiffs filed their first amended complaint on April 27, 2010. The first amended complaint alleges: Mr. Flores was exposed to asbestos and asbestos related products while working from 1989 through 2007; he was exposed to asbestos while performing construction work at defendant's Riverside store from 1989 to 1990; the exposure caused him to die on June 19, 2008, from malignant mesothelioma. The first amended complaint contains 19 causes of action against various named parties for negligence and products and premises liability. The causes of action against defendant are: negligence (eighth); negligent hiring (ninth); consortium loss (tenth); wrongful death (eighteenth); and negligent hiring (nineteenth). The first amended complaint contains no allegations concerning defendant's bankruptcy litigation.

B. The Demurrer

1. Overview

Defendant demurred to the first amended complaint on the grounds any claims against it were discharged by the April 22, 2003 approval of the reorganization plan and entry of the discharge order. Defendant requested judicial notice of portions of the bankruptcy court's April 23, 2003 reorganization plan. We summarize the pertinent portion of the April 23, 2003 findings of fact and conclusions of law and reorganization plan.

2. Notice findings

As will be noted, at issue here is the sufficiency of the proof of notice to plaintiffs of the contemplated confirmation of the reorganization plan and discharge order. The bankruptcy court made two findings relevant to the notice issue. In the reorganization plan, the bankruptcy court found that notice of the confirmation hearing was provided by publication, "The Debtors published the Confirmation Hearing Notice in The Wall Street Journal (National Edition), The New York Times (National Edition) and USA Today (National Edition) on March 7, 2003. . . ." Additionally, in the reorganization plan, the bankruptcy court found in connection with known claimants: "Due, adequate and sufficient notice of the Disclosure Statement and Plan and of the Confirmation Hearing, along with all the deadlines for voting on or filing objections to the Plan, has been given to all known holders of Claims in accordance with the procedures set forth in the Solicitation Procedures Order. The Disclosure Statement, Original Plan, Ballots, Solicitation Procedures Order, Confirmation Hearing Notice, Unimpaired Creditors Notice, Notice of Nonvoting Status, the Unsecured Creditors' Committee's solicitation statement with respect to the Original Plan, and the Financial Institution's Committee's solicitation statement with respect to the Original Plan were transmitted and served in substantial compliance with the Solicitation Procedures Order and the Bankruptcy Rules, and such transmittal and service were adequate and sufficient. Adequate and sufficient notice of the Confirmation Hearing and the other bar dates and hearings described in the Solicitation Procedures Order was given in compliance with the Bankruptcy Rules and the Solicitation Procedures Order, and no other or further notice is or shall be required."

3. Injunctive provisions

Paragraph 12 provides, "Except as otherwise specifically provided in the Plan and except as may be necessary to enforce or remedy a breach of Plan, the Debtors, and all Persons who have held, hold or may hold Claims or Interests and any successors, assigns or representatives of the foregoing shall be precluded and permanently enjoined on and after the Effective Date from: (a) commencing or continuing in any manner any Claim, action or other proceeding of any kind with respect to any Claim, Interest or any other right or Claim against the Reorganized Debtors, which they possessed or may possess prior to the Effective Date, (b) the enforcement, attachment, collection or recovery by any manner or means of any judgment, award, ...


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