Tara Adyanthaya

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In In re Piper Aircraft Corp., the Eleventh Circuit Court of Appeals determined when future claimants hold claims within the meaning of section 101(5) of the United States Bankruptcy Code (the "Bankruptcy Code"). Piper Aircraft Corporation filed for bankruptcy and attempted to reorganize under Chapter 11 of the Bankruptcy Code. Because many Piper aircraft were operational at the time of the filing, it was after confirmation of the reorganization plan, but arising out of or relating to products manufactured, sold, designed, or distributed by Piper prior to confirmation. The bankruptcy court appointed a Legal Representative to protect the interests of these future claimants in the Piper case. The Legal Representative filed a proof of claim on behalf of the future claimants in an amount exceeding one-hundred million dollars. The Official Committee of Unsecured Creditors and Piper objected to the claim on grounds that the future claimants did not hold claims within the meaning of section 101(5) of the Bankruptcy Code. The bankruptcy court held that future claimants did not hold claims because there was no prepetition exposure to specific identifiable defective products and because there was no prepetition relationship between the debtor and the broadly defined class of future claimants. The Legal Representative appealed. The district court affirmed, holding that future claimants did not have claims absent some prepetition exposure to a defective product. The Legal Representative appealed to the Eleventh Circuit. The Eleventh Circuit affirmed the district court's holding but formulated a new test to determine when future claimants hold claims. The court held that a claim is established only when (1) there is a preconfirmation relationship between an identifiable claimant and the debtor, and (2) the basis for the liability arises out of the debtor's prepetition conduct.