In re Johns-Manville Corp.

581 B.R. 38

IN RE: JOHNS–MANVILLE CORPORATION, et al., Debtors.

Case No. 82–11656 (CGM)

United States Bankruptcy Court, S.D. New York.

Signed January 24, 2018

Elihu Inselbuch, Caplin & Drysdale, Chartered, New York, NY, for Debtors.

MEMORANDUM DECISION FOLLOWING REMAND FROM THE DISTRICT COURT ON MARSH USA'S MOTION TO ENFORCE THE CONFIRMATION ORDER AND INJUNCTION

CECELIA G. MORRIS, CHIEF UNITED STATES BANKRUPTCY JUDGE

The instant dispute between Salvador Parra, Jr. ("Parra") and Marsh USA ("Marsh") regarding the effect of the channeling injunction issued in the Johns–Manville Corporation's ("Manville") chapter 11 bankruptcy case, is back before this Court on remand from the Southern District of New York ("District Court"). See Parra v. Marsh USA, Inc. (In re Johns–Manville Corp.) , 551 B.R. 104 (S.D.N.Y. 2016) (the "District Court Opinion"). The District Court's March 14, 2016 decision affirmed in part and reversed and remanded in part this Court's July 27, 2015 memorandum decision enjoining Parra's asbestos claims against Marsh. See In re Johns–Manville Corp. , 534 B.R. 553 (Bankr. S.D.N.Y. 2015), aff'd in part, and rev'd in part sub nom. Bogdan Law Firm v. Marsh USA, Inc. (In re Johns–Manville Corp.) , 551 B.R. 104 (S.D.N.Y. 2016). On remand, this Court is instructed to apply the due process principles articulated by the Second Circuit in Johns–Manville Corp. v. Chubb Indemnity Ins. Co. (In re Johns–Manville Corp.) , 600 F.3d 135, 153–55 (2d Cir. 2010) (" Chubb "), to the facts of this case. Parra , 551 B.R. at 123. As part of the due process analysis, this Court is encouraged to determine whether the future claims representative ("Future Claims Representative") appointed in the Manville case was actually charged with representing the future claimants' in personam claims against a settling insurer, and, if so, whether the quality of that representation satisfied due process concerns. Id. at 123–24. The District Court also gave this Court the option "consider whether a denial of due process would have resulted in prejudice." Id. at 124.

JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a "core proceeding" under 28 U.S.C. § 157(b)(2)(A), involving matters concerning the administration of the estate. Further, the Supreme Court has held in prior litigation arising out of this very case that this Court has "jurisdiction to interpret and enforce its own prior orders." Travelers Indem. Co. v. Bailey , 557 U.S. 137, 151, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009) (citing Local Loan Co. v. Hunt , 292 U.S. 234, 239, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) ).

BACKGROUND

At the hearing on June 1, 2017, the Court read into the record the procedural posture of the case and the relevant facts that color the instant dispute. For purposes of completeness, the background portion of the record already established at the June 1, 2017 hearing is repeated herein.

THE MANVILLE BANKRUPTCY

The instant dispute arises out of more than thirty years of litigation in the Johns–Manville Corporation's ("Manville") chapter 11 bankruptcy case. See In re Manville Forest Prods. Corp. , 31 B.R. 991, 992 (S.D.N.Y. 1983) ; In re Johns–Manville Corp. , 36 B.R. 727, 729 (Bankr. S.D.N.Y. 1984) ; In re Johns–Manville Corp. , 97 B.R. 174, 176 (Bankr. S.D.N.Y. 1989). Although Manville's reasons for filing are no secret, it bears repeating here.

Before filing for bankruptcy, Manville was the largest producer and provider of asbestos in the world. GAF Corp. v. Johns–Manville Corp. (In re Johns–Manville Corp.) , 26 B.R. 405, 407 (Bankr. S.D.N.Y 1983), aff'd sub nom. Johns–Manville Corp. v. Asbestos Litig. Grp. (In re Johns–Manville Corp.) , 40 B.R. 219 (S.D.N.Y. 1984) ; see also In re Johns–Manville Corp. , 2004 WL 1876046, at *2–3, 2004 Bankr. LEXIS 2519, at *7 (citations omitted). Manville's asbestos was used widely throughout many industries for decades in the United States. Manville Corp. v. Equity Sec. Holders Comm. (In re Johns–Manville Corp.) , 66 B.R. 517, 521 (Bankr. S.D.N.Y. 1986). The medical dangers associated with exposure to asbestos were not well known until latent asbestos injuries began to manifest across the country in the 1960s. In re Asbestos Prods. Liab. Litig. , 771 F.Supp. 415, 418 (J.P.M.L. 1991) (quoting Judicial Conf. of the U.S., Report of the Judicial Conference Ad Hoc Committee on Asbestos Litigation 1–3 (1991) ). "The health risks caused by asbestos were finally given broad acknowledgment on the legal front in 1973, when the United States Court of Appeals for the Fifth Circuit issued its landmark decision in Borel ." In re Johns–Manville Corp. , 552 B.R. 221, 226 (Bankr. S.D.N.Y. 2016) (citing Borel v. Fibreboard Paper Prod. Corp. , 493 F.2d 1076 (5th Cir. 1973) ). The Fifth Circuit's decision affirmed a jury verdict finding Manville strictly liable for the plaintiff's personal injuries resulting from asbestos exposure. Borel , 493 F.2d at 1086. After Borel , asbestos litigation ballooned. See Patrick M. Hanlon & Anne Smetak, Asbestos Changes , 62 N.Y.U. Ann. Surv. Am. L. 525, 526–27 (2007).

Over the years asbestos litigation began to change shape. By the 1980s, "asbestos producers coalesced into an industry-wide consortium, presenting a unified litigation front." In re Johns–Manville Corp. , 552 B.R. 221, 227 (Bankr. S.D.N.Y. 2016) (citing John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action , 95 Colum. L. Rev. 1343, 1364–66 (1995) ). "Counsel for asbestos plaintiffs were also operating on a narrow playing field. There were fewer than 50 firms representing asbestos plaintiffs, with most cases concentrated in the hands of a few." In re Johns–Manville Corp. , 552 B.R. 221, 227 (Bankr. S.D.N.Y. 2016) (citing Coffee, supra , at 1364–65, 1392 & nn.187–88 (citations omitted); Amchem Prods. v. Windsor , 521 U.S. 591, 599, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) ).

While litigation between the asbestos producers' consortium and the asbestos-plaintiffs' firms continued, Manville and its insurers fought over who should bear the costs of the asbestos litigation against Manville. See In re Johns–Manville Corp. , 552 B.R. 221, 227 (Bankr. S.D.N.Y. 2016) (citing In re Johns–Manville Corp. , 36 B.R. 743, 750 (Bankr. S.D.N.Y. 1984) ).

Manville filed for chapter 11 bankruptcy on August 26, 1982 due to the looming "spectre of proliferating, overburdening [asbestos] litigation to be commenced in the next 20–30 years, which litigation would be beyond [Manville's] ability to manage, control, and pay for ...." In re Johns–Manville Corp. , 36 B.R. 743, 745 (Bankr. S.D.N.Y. 1984), aff'd , 52 B.R. 940 (S.D.N.Y. 1985) ; see also In re Johns–Manville Corp. , 36 B.R. 727, 729 (Bankr. S.D.N.Y. 1984). "Manville's financial inability to resolve the impending asbestos claims was a result of ‘the insurance industry's general disavowal of liability to Manville on policies written for this very purpose.’ " Bogdan Law Firm v. Bevan & Assocs., LPA (In re Johns–Manville Corp.) , 2016 WL 4506702, at *1, 2016 Bankr. LEXIS 3145, at *3 (Bankr. S.D.N.Y. Aug. 26, 2016) (quoting In re Johns–Manville Corp. , 36 B.R. 727, at 729 ). In other words, it was not the asbestos lawsuits themselves but the "inability to look to at least $600 million in insurance coverage ..." that brought Manville to its knees. In re Johns–Manville Corp. , 36 B.R. 743, at 750 (citations omitted) (emphasis added).

Manville's insurance disputes were no small or private affair. Prior to bankruptcy, " ‘Manville and its insurers litigated over the scope and limits of liability coverage, and Travelers faced suits by third parties, such as Manville factory workers and vendors of Manville products, seeking compensation under the insurance policies,’ as well as suits from other insurers pursuing indemnity and contribution claims." Bogdan Law Firm v. Bevan & Assocs., LPA (In re Johns–Manville Corp.) , 2016 WL 4506702, at *2, 2016 Bankr. LEXIS 3145, at *3 (Bankr. S.D.N.Y. Aug. 26, 2016) (quoting Travelers Indem. Co. v. Bailey , 557 U.S. 137, 141, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009) ). "As early as 1983, this Court found that any direct action suit against an insurer of Manville would negatively impact Manville's bankruptcy estate by limiting the assets available for Manville to put in trust for future asbestos claimants." Bogdan Law Firm v. Bevan & Assocs., LPA (In re Johns–Manville Corp.) , 2016 WL 4506702, at *2, 2016 Bankr. LEXIS 3145, at *4 (Bankr. S.D.N.Y. Aug. 26, 2016) (citing Johns–Manville Corp. v. Asbestos Litig. Grp. (In re Johns–Manville Corp.) , 33 B.R. 254, 260, 263 (Bankr. S.D.N.Y. 1983) ).

This Court recognized that "any forced payment to an asbestos litigant by one of Manville's liability carriers would obviously decrease the pool and leave fewer assets remaining to be divided among other claims. This effect could seriously undermine the whole purported purpose of Manville's bankruptcy petition, to wit: reasonable compensation for all asbestos victims." In re Johns–Manville Corp. , 33 B.R. 254, 268 (Bankr. S.D.N.Y. 1983). "As such, the insurance policies were included as assets in Manville's bankruptcy estate." Bogdan Law Firm v. Bevan & Assocs., LPA (In re Johns–Manville Corp.) , 2016 WL 4506702, at *2, 2016 Bankr. LEXIS 3145, at *4–5 (Bankr. S.D.N.Y. Aug. 26, 2016).

This Court reasoned that "Manville's insurance policies constitute one of its largest and most significant assets and are absolutely necessary for the formulation of any reorganization plan." Johns–Manville Corp. v. Asbestos Litig. Grp. (In re Johns–Manville Corp.) , 33 B.R. 254, 260, 263 (Bankr. S.D.N.Y. 1983). In furtherance of this determination and to protect against the diminishment of Manville's primary assets, "this Court extended the automatic stay to cover all direct actions against Manville's insurers ...." Bogdan Law Firm v. Bevan & Assocs., LPA (In...