706 F.2d 541 (5th Cir. 1983), 82-3612, Wedgeworth v. Fibreboard Corp.

Docket Nº:82-3612, 82-4386, 82-3687.
Citation:706 F.2d 541
Party Name:Bankr.Cas.2d 725, 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. JOHNS-MANVILLE PRODUCTS, et al., Defendants-Respondents.
Case Date:May 24, 1983
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 541

706 F.2d 541 (5th Cir. 1983)

Bankr.Cas.2d 725,

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.

JOHNS-MANVILLE PRODUCTS, et al., Defendants-Respondents.

Nos. 82-3612, 82-4386, 82-3687.

United States Court of Appeals, Fifth Circuit

May 24, 1983

Opinion on Denial of Rehearing and Rehearing En Banc Sept. 12, 1983.

Page 542

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.

POLITZ, Circuit Judge:

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

Page 543

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.

Background Facts

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.

Page 544

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."

Automatic Stay

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...

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