Wedgeworth v. Fibreboard Corp.
| Decision Date | 24 May 1983 |
| Docket Number | 82-4386,82-3687,Nos. 82-3612,JOHNS-MANVILLE,s. 82-3612 |
| Citation | 706 F.2d 541,10 B.C.D. 1272 |
| Parties | 8 Collier Bankr.Cas.2d 1119, 9 Collier Bankr.Cas.2d 725, 10 Bankr.Ct.Dec. 1272, Bankr. L. Rep. P 69,278 Ned WEDGEWORTH, Jr., et al., Plaintiffs-Appellants, v. FIBREBOARD CORPORATION, et al., Defendants-Appellees. Pearl FONTENOT, Plaintiff-Appellee, v. FIBREBOARD CORPORATION, et al., Defendants-Appellants. Ernest DAVIS, Sr., Plaintiff-Petitioner, v.PRODUCTS, et al., Defendants-Respondents. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Frank X. Neuner, Jr. and Kathleen M. Overcash, Lafayette, La., for keene corp.
Felix R. Weill, Baton Rouge, La., for Nicolet, Inc.
James B. Irwin, John P. Hammond, New Orleans, La., for Raybestos-Manhattan.
John A. Bivins, Lafayette, La., for Standard Asbestos.
Donald Ensenat and David Bienvenu, New Orleans, La., for Am. Petrofina.
Horace C. Lane, Baton Rouge, La., and James S. Thompson and Stephen Bullock, New Orleans, La., for Pittsburg-Corning.
Robert N. Ryan and Wm. L. Brockman, New Orleans, La., John G. Tucker, Beaumont, Tex., for GAF Corp.
Thomas M. Bergstedt, Lake Charles, La., for Armstrong Cork and Armstrong World.
David A. Hurlburt, Lafayette, La., for Celotex Corp.
George R. Covert and Charles H. Braud, Jr., Baton Rouge, La., for Wedgeworth, et al.
Stephen W. Hanks, Houston, Tex., for Fontenot.
George A. Weller, Beaumont, Tex., for Fibreboard.
Edward O. Taulbee, IV, Lafayette, La., for Combustion Engineering.
M.H. Gertler, New Orleans, La., for Davis.
W.L. Brockman, P.A. Bienvenu and Robert N. Ryan, New Orleans, La., for Johns-Manville.
Appeal from the United States District Court for the Middle District of Louisiana.
Appeals from the United States District Court for the Western District of Louisiana.
On Petition for Writ of Certiorari to the United States District Court for the Eastern District of Louisiana.
Before GARZA, POLITZ and JOHNSON, Circuit Judges.
These consolidated appeals concern the effect of stays granted to Johns-Manville Corporation (Johns-Manville) and UNR Industries, Inc. (Unarco), pending disposition of their proceedings in bankruptcy, upon their co-defendants in suits alleging liability for asbestosis caused by defendants' products. We hold that: (1) the automatic stay of all litigation against Johns-Manville and Unarco does not mandate that claims against their co-defendants be likewise stayed, (2) the co-defendants are not entitled to a discretionary stay pending resolution of the bankruptcy claims, and (3) the district court in the Wedgeworth case improperly denied leave to amend to allow direct action against the liability insurers of Johns-Manville and Unarco.
The plaintiffs in these three actions, like the plaintiffs in thousands of similar suits filed across the nation, allege that the inhalation of asbestos fibers from defendants' products caused asbestosis, a pneumoconiosis or progressive lung disease. Defendants manufactured asbestos-related products and products containing asbestos fibers. A large number of these suits have been pending for years. Extensive discovery has been accomplished. Some suits have been concluded. A developing tactic has been to use in subsequent trials evidence developed in earlier litigation.
Against this ground swell of litigation, threatening to engulf all in its path, on July 29, 1982, Unarco filed an application for reorganization under Chapter 11 of the Bankruptcy Code in the bankruptcy court in the Northern District of Illinois. Less than a month later, on August 26, 1982, Johns-Manville petitioned for a Chapter 11 reorganization in bankruptcy court in the Southern District of New York. 1 All legal proceedings, in whatever jurisdiction and forum, were automatically stayed against Unarco and Johns-Manville in accordance with 11 U.S.C. Sec. 362(a). 2
In the cases before us the co-defendants asked that the pending litigation against them be stayed until the bankruptcy proceedings initiated by Johns-Manville and Unarco are concluded.
On September 14, 1982, the district court in Fontenot v. Fibreboard Corp., Nos. 82-4386 and 82-9270 (W.D.La., Hunter, J.), denied the motion of the remaining 14 co-defendants for an indefinite stay.
On September 28, 1982, the district court in Wedgeworth v. Fibreboard Corp., Nos. 82-3612 and 82-9295 (M.D.La., Polozola, J.), took the opposite tack, granting a stay of the entire litigation, including the claims against the co-defendants. The court also denied plaintiffs leave to amend to assert a direct cause of action against the liability insurers of Johns-Manville and Unarco.
On October 12, 1982, the district court in Davis v. Johns-Manville Products, No. 82-3687 (E.D.La., Arceneaux, J.), granted a stay as to all parties in nearly 200 claims, although Johns-Manville had been released as a party defendant eight months before.
Appeals were filed in the first two cases; the third comes before us by writ. The matters were ordered consolidated under our appellate and supervisory jurisdiction. Today we attempt to provide at least a measure of uniformity in an area where little exists. Indeed, one district judge characterized the nationwide situation as one of "unbelievable confusion."
Plaintiffs maintain that a stay of proceedings against the co-defendants is not mandated by 11 U.S.C. Sec. 362(a), which merely provides for the automatic stay of any judicial "proceeding against the debtor," Sec. 362(a)(1). Although judicial interpretation is checkered as to the extent of this statutorily required stay, resolution of the question presented requires a walk down a path as yet unblazed by this court. At trail's end we conclude that Sec. 362 does not operate as an automatic stay of claims against the co-defendants of Johns-Manville and Unarco.
We begin our inquiry by examining the plain language of the statute. That language clearly focuses on the insolvent party. There are repeated references to the debtor. The stay envisioned is "applicable to all entities," Sec. 362(a), but only in the sense that it stays all entities proceeding against the debtor. To read the "all entities" language as protecting co-debtors would be inconsistent with the specifically defined scope of the stay "against the debtor," Sec. 362(a)(1). Continuing, we note that the remaining clauses of Sec. 362(a) carefully list the kinds of proceedings stayed, in each instance explicitly or implicitly referring to "the debtor."
This literal interpretation of Sec. 362(a) is bolstered by language which is notably absent from its provisions. By way of comparison, Chapter 13 specifically authorizes the stay of actions against co-debtors. 11 U.S.C. Sec. 1301(a) (). No such shield is provided Chapter 11 co-debtors by Sec. 362(a).
Further, the legislative history of Sec. 362 supports this distinction between debtors and co-debtors. The automatic stay was intended to protect the debtor's assets and give it a "breathing spell." See S.Rep. No. 989, 95th Cong., 2d Sess., 54-55, reprinted in [1978] U.S.Code Cong. & Admin.News 5787, 5840-41. The provision concomitantly protects creditors by preventing a race for the debtor's assets. See H.R.Rep. No. 595, 95th Cong., 2d Sess., 340, reprinted in [1978] U.S.Code Cong. & Admin.News 5787, 6297. Neither purpose is advanced by application of the stay rule to co-defendants.
Finally, the bankruptcy court considering the Johns-Manville reorganization has refused to interpret its stay to include co-defendants, In re Johns-Manville Corp., 26 B.R. 405 (Bkrtcy.S.D.N.Y.1983), as has the bankruptcy court considering Unarco's reorganization, In re UNR Industries, Inc., 23 B.R. 144 (Bkrtcy.N.D.Ill.1982) (citing Royal Truck & Trailer v. Armadora Maritima Salvadoreana, 10 B.R. 488 (D.C.N.D.Ill.1981)). See also Austin v. Unarco Industries, Inc., 705 F.2d 1 (1st Cir.1983); Pitts v. Unarco Industries, Inc., 698 F.2d 313 (7th Cir.1983); Kindle v. Fibreboard Corp., No. TY-79-35-CA (E.D.Tex. Aug. 12, 1982), writ of mandamus denied sub nom. In re Raybestos-Manhattan, Inc., No. 82-2339 (5th Cir. Aug. 20, 1982); In re Related Asbestos Cases, 23 B.R. 523 (D.C.N.D.Cal.1982). We join those courts concluding that the protections of Sec. 362 neither apply to co-defendants nor preclude severance. 3
In two of the cases at bar the district court granted stays relying on the general discretionary power of district courts to stay proceedings in the interest of justice and in control of their dockets. Although we recognize the court's broad discretion in this area, such control is not unbounded. Proper use of this authority "calls for the exercise of judgment, which must weigh competing interests and maintain an even balance." Landis v. North American Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 165-66, 81 L.Ed. 153 (1936).
The party seeking a stay bears the burden of justifying a delay tagged to another legal proceeding:
[T]he suppliant for a stay must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to some one else. Only in rare circumstances will a litigant in one cause be compelled to stand aside while a litigant in another settles the rule of law that will define the rights of both.
Id. at 255, 57 S.Ct. at 166. Further, before granting a stay pending the resolution of another case, the court must carefully consider the time reasonably expected for resolution of the "other case," in light of the principle that "stay orders will be reversed when they are found to be immoderate or of an indefinite duration." McKnight v. Blanchard, 667 F.2d 477, 479 (5th Cir.1982). Accord, CTI-Container Leasing Corp. v. Uiterwyk...
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