Lynch v. Johns-Manville Sales Corp.

• Decision Date: 01 July 1983
• Docket Number: 83-3122,Nos. 83-3118,83-3125,83-3123,JOHNS-MANVILLE,83-3120,83-3121,83-3126 and 83-3127,83-3124,83-3119,s. 83-3118
• Parties: 8 Collier Bankr.Cas.2d 1301, 10 Bankr.Ct.Dec. 1282, Bankr. L. Rep. P 69,317 Lincoln LYNCH, et al., Plaintiffs-Appellees, v.SALES CORPORATION, et al., Defendants, Raymark Industries, Inc., et al., Defendants-Appellants (83-3118, 83-3120, 83-3121, 83-3122, 83-3123, 83-3124, 83-3125, 83-3126), Armstrong World Industries, Defendant-Appellant (83-3119), National Gypsum Company, Defendant-Appellant (83-3127).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1194

710 F.2d 1194

8 Collier Bankr.Cas.2d 1301, 10 Bankr.Ct.Dec. 1282,

Bankr. L. Rep. P 69,317

Lincoln LYNCH, et al., Plaintiffs-Appellees, v. JOHNS-MANVILLE SALES CORPORATION, et al., Defendants Raymark Industries, Inc., et al., Defendants-Appellants (83-3118, 83-3120, 83-3121, 83-3122, 83-3123 83-3124, 83-3125, 83-3126) Armstrong World Industries, Defendant-Appellant (83-3119) National Gypsum Company, Defendant-Appellant (83-3127).

Nos. 83-3118, 83-3119, 83-3120, 83-3121, 83-3122, 83-3123,

83-3124, 83-3125, 83-3126 and 83-3127.

United States Court of Appeals, Sixth Circuit.

Argued May 24, 1983.

Decided July 1, 1983.

Frederick J. McGavran, Frost & Jacobs, Cincinnati, Ohio, for defendants in No. 3118.

Jack McGowan, Baden, Jones, Scheper & Crehan Co., L.P.A., Hamilton, Ohio, for defendant-appellant in No. 3119.

John P. Harrington, Cincinnati, Ohio, for plaintiffs-appellees in No. 83-3118 and 83-3119.

Neil F. Freund, Young & Alexander Co., L.P.A., Dayton, Ohio, for Keene Bldge. in Nos. 3118, 3120, 3123, 3124 and 3125.

John H. Burtch (argued), Baker & Hostetler, Columbus, Ohio, for GAF Corp. in Nos. 3118, 3120, 3121, 3122, 3124 and 3125.

Michael D. Eagen, Bloom & Greene Co., L.P.A., Cincinnati, Ohio, for Celotex Corp. in Nos. 3118, 3120, 3121, 3122, 3123, 3124 and 3125.

Thomas M. Green (argued), Dayton, Ohio, for defendants-appellants in all cases.

Antonio D. Pyle, Joan P. Feldman, Pittsburgh, Pa., Melvin I. Friedman, Kreindler & Kreindler, New York City, for plaintiffs-appellees in Nos. 3120, 3121, 3123 and 3126.

Richard D. Heiser, Strauss, Troy & Ruehlmann, Co., L.P.A., Cincinnati, Ohio, for defendant-appellant in No. 83-3127.

Thomas W. Henderson, Baskin & Sears, Pittsburgh, Pa., Fredric Tilton, Cincinnati, Ohio, for plaintiffs-appellees in Nos. 3120, 3121, 3122, 3123, 3124, 3125 and 3126.

Thomas H. Terry, III (argued), Robert E. Sweeney Co., L.P.A., Cleveland, Ohio, for plaintiffs-appellees in all cases.

Before ENGEL and KRUPANSKY, Circuit Judges, and BROWN, Senior Circuit Judge.

KRUPANSKY, Circuit Judge.

These consolidated appeals join inquiry into the legal impact upon pending asbestos actions of petitions for reorganization which have been filed pursuant to Chapter 11 of the Bankruptcy Code, 11 U.S.C Sec. 1101 et seq. (Code), by Unarco Industries, Inc. (Unarco) ¹ and Johns-Manville Sales Corporation (J-M), ² both of which are defendants in thousands of asbestos cases pending in the state and federal forums throughout the nation. As Chapter 11 petitioners, all proceedings against Unarco and J-M were automatically stayed by the mandate imposed by 11 U.S.C. Sec. 362. The bankruptcy court presiding over J-M's petition has refused to broaden the automatic stay of proceedings afforded the debtor under Sec. 362 to the co-defendants of J-M in asbestos actions pending throughout the country. It has also refused to permit the suits against J-M to proceed to judgment. See: In re Johns-Manville Corporation, et al., 26 B.R. 420, adversary proceeding No. 82-6221A, Decision No. 1 (Bkrtcy.S.D.N.Y.1983). Similarly, the bankruptcy court presiding over Unarco's petition has refused to lift the stay against Unarco. See: In re UNR Industries, Inc., 23 B.R. 144 (Bkrtcy.N.D.Ill.1982). The removal of Unarco and J-M as defendants in thousands of pending asbestos actions has generated concern by co-defendants who characterize themselves as "minor" defendants.

The two Chapter 11 debtors, Unarco and J-M, were party defendants in Lynch v. Johns-Manville Sales Corporation, et al., 23 B.R. 750, pending before Judge Spiegel, United States District Court for the Southern District of Ohio. Two solvent defendants in Lynch, Raymark Industries and Keene Corporation, moved the court for a stay of the proceedings pending against them under 11 U.S.C. Sec. 362, Rule 19, Fed.R.Civ.P., and the court's inherent powers. The motions were denied by memorandum opinion and order dated October 5, 1982. The order was subsequently adopted by reference in denial of similar motions by other solvent co-defendants of Unarco and/or J-M in other asbestos actions pending before Judge Spiegel. Bender v. Johns-Manville Sales Corp., et al., No. C-1-81-900; Burke v. Johns-Manville Sales Corp., et al., No. C-1-81-289; Carle v. Johns-Manville Sales Corp., et al., No. C-1-82-214; Chaddock v. Johns-Manville Sales Corp., et al., No. C-1-82-501; Goad v. Johns-Manville Sales Corp., et al., No. C-1-82-127; Phillips v. Johns-Manville Sales Corp., et al., No. C-1-82-299; and Milford v. Dana Corp., No. C-1-82-362. The foregoing orders denying motions to stay these asbestos proceedings were certified by the district court for immediate appeal pursuant to 28 U.S.C. Sec. 1292(b) and this Court granted applications for permission to appeal. Lincoln Lynch, et al. v. Johns-Manville Sales Corp., et al., 701 F.2d 42 (6th Cir.1983).

Confronting the initial inquiry of whether the automatic stay provision, 11 U.S.C. Sec. 362(a), may be invoked by the solvent co-defendants of Unarco and J-M to stay proceedings against them, it is noted that said provision facially stays proceedings "against the debtor" and fails to intimate, even tangentially, that the stay could be interpreted as including any defendant other than the debtor:

Sec. 362. Automatic stay

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title operates as a stay, applicable to all entities, of--

(1) the commencement or continuation, including the issuance or employment or process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

It is universally acknowledged that an automatic stay of proceeding accorded by Sec. 362 may not be invoked by entities such as sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the Chapter 11 debtor. See: In re Fintel, 10 B.R. 50 (Bkrtcy.Or.1981) (surety); Matter of Earth Lite, Inc., 9 B.R. 440 (Bkrtcy.Fla.1981) (guarantor); In re The Van Shop, Inc., 8 B.R. 73 (Bkrtcy.N.D.Ohio 1980) (co-obligor); In re Aboussie Brothers Construction Co., 8 B.R. 302 (E.D.Mo.1981) (individual partners of bankrupt partnership); GMAC v. Yates Motor Co., 159 Ga.App. 215, 283 S.E.2d 74 (1981) (joint tortfeasors); In re Smith, 14 B.R. 956 (Bkrtcy.D.C.Conn.1981) (guarantor on student loan); In re The Bank Center, Ltd., 15 B.R. 64 (Bkrtcy.W.D.Pa.1981) (partners of bankrupt partnership); In re Larmar Estates, Inc., 5 B.R. 328 (Bkrtcy.E.D.N.Y.1980) (guarantors of loan); In re Cloud Nine, 3 B.R. 202 (Bkrtcy.D.N.Mex.1980) (co-debtors); In re Trammel Road Townshouses, Ltd., 5 B.C.C. 314 (N.D.Ga.1977); Globe Construction Co. v. Oklahoma City Housing, 571 F.2d 1140 (10th Cir.1978). Contra: In re White Motor Credit Corp., 11 B.R. 294 (Bkrtcy.N.D.Ohio 1981) (dictum), rev. on other grounds, 23 B.R. 276 (N.D.Ohio 1982).

The legislative history of Sec. 362 discloses a congressional intent to stay proceedings against the debtor, and no other, to preserve the status quo of the estate in an effort to ultimately effect and implement, to the extent possible, a successful and equitable reorganization or liquidation. ³ The Notes of the Committee on the Judiciary identify the debtor as the intended primary congressional beneficiary of the stay:

The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

See: S.Rep. No. 95-989, 95th Cong., 2d Sess. 54-55 (1978) reprinted in U.S.Code Cong. & Admin.News, 1978, pp. 5787, 5840-5841. The stay of proceedings was intended to promote an orderly reorganization or liquidation of the debtor's estate thereby benefiting, secondarily, creditors of the estate:

The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor's assets prevents that.

H.R.Rep. No. 95-595, 95th Cong., 2d Sess. 340 (1978), reprinted at U.S.Code Cong. & Admin.News, 1978, p. 6297. Nothing in the legislative history counsels that the automatic stay should be invoked in a manner which would advance the interests of some third party, such as the debtor's co-defendants, rather than the debtor or its creditors. This Court concurs with the district court's conclusion that "it would distort congressional purpose to hold that a third party solvent co-defendant should be shielded against his creditors by a device intended for the protection of the insolvent debtor" and creditors thereof. See also: In re Related Asbestos Cases, 23 B.R. 523, 527 (N.D.Cal.1982); In re UNR Industries, Inc., 23 B.R. 144 (Bkrtcy.N.D.Ill.1982); Ashworth v. Johns-Manville, et al., Nos. C78-470, C81-1545, C77-4088, C79-167 (N.D.Ohio Mar. 21, 1983) at 4.

It is a fundamental rule of statutory construction that inclusion in one part of a congressional scheme of that which is excluded in another part reflects a congressional intent that the exclusion was not inadvertent. See: Equal Employment Opportunity Commission v. Kimberly Clark Corp., 511 F.2d 1352, 1362 (6th Cir.), cert. denied, 423 U.S. 994, 96 S.Ct. 420, 46 L.Ed.2d 368 (1975). In particular, this Court has acknowledged the Bankruptcy Act as a detailed and calculated statutory...