Bogdan v. Bevan & Assocs., Lpa, Inc. (In re Johns-Manville Corp.)

• Decision Date: 26 August 2016
• Docket Number: Case No. 82-11656 (CGM),Adversary No. 15-01023 (CGM)
• Citation: Bogdan v. Bevan & Assocs., LPA, Inc. (In re Johns-Manville Corp.), Adversary No. 15-01023 (CGM), Case No. 82-11656 (CGM) (Bankr. S.D.N.Y. Aug 26, 2016)
• Court: U.S. Bankruptcy Court — Southern District of New York
• Parties: In re: Johns-Manville Corporation, et al., Debtors. Eric Bogdan and the Bogdan Law Firm, Plaintiffs, v. Bevan & Associates, LPA, Inc., et al. Defendants.

In re: Johns-Manville Corporation, et al., Debtors.

Eric Bogdan and the Bogdan Law Firm, Plaintiffs, v. Bevan & Associates, LPA, Inc., et al. Defendants.

Case No. 82-11656 (CGM)

Adversary No. 15-01023 (CGM)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

August 26, 2016

NOT FOR PUBLICATION

Chapter 11

MEMORANDUM DECISION

APPEARANCES:

DuffyAmedeo, LLP

275 Seventh Avenue, 7^th Floor

New York, NY 10001

Counsel for Plaintiffs

By: Todd E. Duffy

Douglas A. Amedeo

Otterbourg P.C.

230 Park Avenue

New York, NY 10169

Counsel for Defendants

By: Melanie L. Cyganowski

Richard G. Haddad

Stuart J. Wells

CECELIA G. MORRIS CHIEF UNITED STATES BANKRUPTCY JUDGE

Plaintiffs Eric Bogdan and the Bogdan Law Firm ("Plaintiffs" or "Bogdan") filed this adversary proceeding against the law firms of Bevan & Associates, LPA, Inc. ("Bevan"), the Law Offices of Bruce Carter ("Carter"), and the Madeksho Law Firm, PLLC ("Madeksho") (collectively "Defendants"), to determine the proper allocation of an attorney fee award. Compl. ¶¶ 28-48, Feb. 3, 2015, ECF No. 1.¹ The attorneys' fees were established as part of a settlement agreement, so-ordered by this Court, in the Johns-Manville Corporation ("Manville") bankruptcy case. See In re Johns-Manville Corp., 2004 Bankr. LEXIS 2519, at *113 (Bankr. S.D.N.Y Aug. 17, 2004), aff'd in part, vacated in part, 340 B.R. 49 (S.D.N.Y. 2006), vacated sub nom. Johns-Manville Corp. v. Chubb Indem. Ins. Co. (In re Johns-Manville Corp.), 517 F.3d 52 (2d Cir. 2008), rev'd and remanded sub nom. Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009).² This Court held a bench trial on the proper method of allocation and the appropriate amount of fees to be distributed among Plaintiffs and Defendants. This Court now finds that the $20 million in attorneys' fees are to be allocated pursuant to the terms of the so-ordered settlement agreement, in equal, one quarter parts of $5 million to Bogdan, Bevan, Carter, and Madeksho.

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.

BACKGROUND

The genesis of this dispute is inextricably linked to the Manville bankruptcy and the continued attempts by asbestos plaintiffs to circumvent the channeling injunction created by Manville's confirmed chapter 11 plan of reorganization ("Plan"). Manville filed for bankruptcy on August 26, 1982 primarily due to "the mammoth problem of uncontrolled proliferation of asbestos health suits brought against it because of its substantial use for many years of products containing asbestos . . . ." In re Johns-Manville Corp., 36 B.R. 727, 729 (Bankr. S.D.N.Y. 1984). Manville filed for bankruptcy to deal with so-called "future asbestos claimants," or "claimants exposed to the ravages of asbestos dust who ha[d] not as of the filing date manifested symptoms of asbestos disease." 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). 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." In re Johns-Manville Corp., 36 B.R. 727, at 729. Manville's "inability to look to at least $600 million in insurance coverage [wa]s a major factor in its decision to seek Chapter 11 relief." In re Johns-Manville Corp., 36 B.R. 743, at 750 (citations omitted).

Prior to filing for 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. Travelers Indem. Co. v. Bailey, 557 U.S. 137, 141 (2009). On September 15, 1983, during the early stages of Manville's bankruptcy, this Court extended the automatic stay to cover all direct actions against Manville's insurers as well as Manville's officers, directors and employees. 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 determined 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." Id. This Court based its reasoning on the fact that "Manville's bankruptcy is primarily the result of the massive number of tort actions filed against it," and Manville was, at the time, "being sued in tort for actions that may be covered under these policies, and which the insurers may be called upon to defend, such insurance policies obviously have value to the Manville estate." Id. As such, "[t]he insurance assets are clearly fundamental to any resolution of these tort actions in the context of a plan." Id.

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. Id. In a direct action suit against Manville's insurers, any forced payout to an asbestos claimant would come out of the limited insurance coverage Manville had purchased. Id. This Court concluded that "[t]his effect could seriously undermine the whole purported purpose of Manville's bankruptcy petition, to wit: reasonable compensation for all asbestos victims." Id. at 268. As such, the insurance policies were included as assets in Manville's bankruptcy estate.

Over the next several years,

the insurers agreed to settle with Manville for approximately $770 million. The settlements provided that, in exchange for cash payments, the insurers would be relieved of all obligations related to the disputed policies and the insurers would be protected from claims based on such obligations by injunctive orders of the Bankruptcy Court. The insurers [we]re entitled to terminate the settlements if the injunctive orders are not issued or if they [we]re set aside on appeal.

Macarthur Co. v. Johns-Manville Corp., 837 F.2d 89, 90 (2d Cir. 1988). The insurance settlement so-ordered by this Court ("Insurance Settlement Order") provided for the channelingof all asbestos claims against the settling insurers "based upon, arising out of, or related to any or all of the Policies" to the Manville Trust; the release of the settling insurers from any further obligations "based upon, arising out of or related to the Policies . . . and all Policy Claims"; and a "permanent injunction, specifically prohibiting all future claims for bad faith or insurer misconduct," and enjoining all persons from "commencing and/or continuing any suit, arbitration or other proceeding of any type or nature for Policy Claims against any or all members of the Settling Insurer Group . . . ." In re Johns-Manville Corp., 2004 Bankr. LEXIS 2519, at *42-43 (Bankr. S.D.N.Y. Aug. 17, 2004) (citations omitted). The language was intended to be very broad, as "Policy Claims" was defined to include any and all claims, known and as of yet unknown, "which have been, or could have been, or might be, asserted . . . against any or all members of the Settling Insurer Group based upon, arising out of or relating to any or all of the Policies." Id. (citations omitted).

The Insurance Settlement Order was incorporated in Manville's Plan which was confirmed by order entered on December 22, 1986 ("Confirmation Order"), and all asbestos-related claims against the settling insurers were enjoined. See id.; see also In re Johns-Manville Corp., 68 B.R. 618, 624 (Bankr. S.D.N.Y. 1986), aff'd 78 B.R. 407 (S.D.N.Y 1987), aff'd sub nom. MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89 (2d Cir. 1988). Amongst others, the settling insurers included the Travelers Indemnity Company, Travelers Casualty and Surety Company, and other affiliates ("Travelers"). In re Johns-Manville Corp., 2004 Bankr. LEXIS 2519, at *1, 42-43.

The proceeds from Manville's settlement with its insurers became the cornerstone of the Manville reorganization, providing the much-needed funding for the Manville Personal Injury Settlement Trust (the Manville "Trust") that was established for the benefit of future asbestosclaimants. See In re Johns-Manville Corp., 97 B.R. 174, 177 (Bankr. S.D.N.Y. 1989); In re Johns-Manville Corp., 68 B.R. at 621-22. The Manville Plan and Confirmation Order incorporated a channeling injunction, which was created to preserve the rights and interests of all "future asbestos claimants," defined as persons "who had been exposed to Manville's asbestos prior to the August 1982 petition date but had not yet shown any signs of disease at that time," by channeling their claims to the Manville Trust. Kane v. Johns-Manville Corp., 843 F.2d 636, 639 (2d Cir. 1988). The Second Circuit upheld both this Court's jurisdiction over the insurance policies as property of the estate and this Court's authority to issue the injunction to include settling insurers "pursuant to its power to dispose of a debtor's property free and clear of third-party interests and to channel such interests to the proceeds of the disposition." MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 90 (2d Cir. 1988).³

Despite the existence of the Insurance Settlement Order and the channeling injunction, asbestos plaintiffs continued to file state court actions against Travelers. In re Johns-Manville Corp., 2004 Bankr. LEXIS 2519, at *48 (Bankr. S.D.N.Y. Aug. 17, 2004). These post-confirmation "direct action"⁴ lawsuits against Travelers asserted so-called "novel" legal theoriesin an attempt to hold the insurer directly liable for its own alleged misconduct. Id. at *48-60. The direct actions fell into two...