In re AH Robins Co., Inc.

• Decision Date: 25 August 1986
• Docket Number: Bankruptcy No. 85-01307-R.
• Citation: 63 BR 986
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re A.H. ROBINS COMPANY, INCORPORATED, Debtor.

63 B.R. 986 (1986)

In re A.H. ROBINS COMPANY, INCORPORATED, Debtor.

Bankruptcy No. 85-01307-R.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

August 25, 1986.

Leonard M. Rosen, Lawrence P. King, Harold S. Novikoff and Amy R. Wolf, Wachtell, Lipton, Rosen & Katz, New York City, and M. Caldwell Butler, Woods, Rogers & Hazlegrove, Roanoke, Va., James F. Douthat, and John Jessey, for Official Unsecured Creditors Committee.

Murray Drabkin, Cadwalader, Wickersham & Taft, Washington, D.C., Mark Ellenberg, George B. Little, Lawrence B. Cann, III, Little, Parsley & Cluverius, Richmond, Va., for Committee of Representatives of Dalkon Shield Claimants.

Richard M. Wexwell, Fairfax, Va., Bradley Post, Douglas Bragg, Robert Mancahster, Neal Rossman and Judith Rentschler, for Certain MDL 211 Claimants.

Robert M. Miller and James N. Nolan, Bishop, Liberman & Cook, New York City, for Share Holders Committee.

Stanley K. Joynes, III, Rilee, Cantor, Arkema & Edmonds, Richmond, Va., for Future Tort Claimants.

William R. Cogar, Mays, Valentine, Davenport & Moore, Richmond, Va., Michael L. Cook and Dennis J. Drebsky, Skadden, Arps, Slate, Meagher & Flom, New York City, Penn Ayers Butler, Murphy, Weir & Butler, San Francisco, Cal., for A.H. Robins.

William C. White, Alexandria, Va., U.S. Trustee.

S. David Schiller, Asst. U.S. Atty., Richmond, Va., for U.S.

Robert M. Miller, David A. Strumwasser, James M. Nolan, Bishop, Liberman & Cook, New York City, Ross C. Reeves, Willcox & Savage, P.C., Norfolk, Va., for Official Committee of Equity Sec. Holders.

W. Scott Street, Williams, Mullen & Christian, Richmond, Va., for Aetna Cas. and Sur. Co.

Stephen H. Fredkin and Stan L. Linker, Salinas, Cal., and Samuel M. Walker, Jr., Coates & Comess, Richmond, Va., for Rebecca Grady.

MEMORANDUM

ROBERT R. MERHIGE, Jr., District Judge.

This matter comes before the Court on motion of Rebecca Grady ("Grady") for a declaration by the Court that her claim against A.H. Robins Company, Incorporated (the "Debtor," the "Company," "Robins"), is a post-petition claim which is to be paid as an administrative expense of this proceeding. Grady filed suit against Robins in the United States District Court for the Northern District of California¹ for injuries she allegedly suffered from as a result of her wearing the Dalkon Shield intrauterine device ("Dalkon Shield," "IUD"). She contends that to proceed with the prosecution of her complaint would not offend the automatic stay provisions of 11 U.S.C. § 362(a)(1).

The issue has been thoroughly briefed and argued by all interested parties² and is ripe for disposition.

1. Factual Background

a. Robins

Robins, a sizeable world-wide "pharmaceutical" company, was the manufacturer, distributor, and seller of the Dalkon Shield from approximately 1970 to 1976. The Dalkon Shield has been the source of an incredible amount of litigation over the years; women have filed numerous lawsuits against the Company alleging that the Dalkon Shield caused them to suffer from injuries as serious as ectopic pregnancy, uterine embedment or perforation, and pelvic inflammatory disease. The spiraling debt which Robins faced, from the settlement of cases as well as legal fees and costs arising out of the lawsuits, became, so Robins contends, insurmountable. By August 21, 1985, the Company decided that its only option, if it were to remain a viable entity, was to file a voluntary petition for relief pursuant to Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").

b. Grady

For purposes of addressing the instant issue, the Court accepts as accurate Grady's recitation of the facts supporting her claim against the Company. Those facts reveal the following:

Grady had been inserted with a Dalkon Shield, but thought it had fallen out some years before her admission to a hospital in California.³ Approximately four days prior to the Company's filing Chapter 11, Grady began experiencing abdominal pain, fever and chills, but she did not go to a hospital for treatment until August 21, 1985, the date Robins filed its petition for relief.⁴ Her doctors did not discover the presence of the Dalkon Shield until August 28, 1985, seven (7) days after the Company filed its petition for relief.⁵ Once the Dalkon Shield was discovered, the doctors operated, and it was removed.⁶

2. Merits

Grady argues that her claim arose post-petition; hence, it is her contention that the automatic stay does not prohibit her from proceeding with her lawsuit against the Company.⁷ Grady's position is that her claim, for federal bankruptcy purposes, arose at the same time her cause of action accrued for state law purposes. Since it is Grady's position that California law applies to her suit, she argues that because her cause of action did not arise until the time she knew or should have known the cause of her injury, she has a post-petition claim. The Court disagrees.

a. The Applicability of the Automatic Stay, 11 U.S.C. § 362(a)(1).

The issues arising from the pending motion involve the interplay of two separate, yet crucially interwoven provisions of the Bankruptcy Code, 11 U.S.C. § 362(a)(1), and 11 U.S.C. § 101(4)(A). Section 362 covers the automatic stay and section 101(4)(A) defines the scope of a "claim"

Section 362(a)(1) provides in pertinent part:

Except as otherwise provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78 eee(a)(3)), operates as a stay, applicable to all entities of —

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or 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.

11 U.S.C. § 362(a)(1)(emphasis added).

The automatic stay is a self-executing provision of the Bankruptcy Code and begins to operate nationwide, without notice, once the debtor files its petition for relief. See In re Johns-Manville Corp., 57 B.R. 680, 686 (Bankr.S.D.N.Y.1986). It is "one of the fundamental debtor protections provided by the bankruptcy laws," In re Johns-Manville Corp., supra, 57 B.R. at 685, citing H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977), reprinted in U.S.Code Cong. & Ad.News 5787, 5963, 6296; S.Rep. No. 989, 95th Cong., 2d Sess. 54, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5840, "particularly for debtors in reorganization proceedings under Chapter 11." Matter of Baldwin-United Corp., 48 B.R. 901, 902 (Bankr.S.D.Ohio 1985). It is, as the United States Court of Appeals for the Second Circuit explained, "designed to prevent a chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts." Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 55 (2d Cir.1976). See also In re Frigitemp Corp., 8 B.R. 284, 289 (Bankr.S.D.N.Y.1981) (holding that "the federal policy underlying the stay is the protection of the debtor's estate from the chaos and the wasteful depletion resulting from multifold, uncoordinated and possibly conflicting litigation.") What the automatic stay provides is "the essential breathing room for a Chapter 11 debtor to restructure its affairs with its creditors and reorganize into a viable entity. Its importance increases exponentially in cases the magnitude of these Chapter 11s." Matter of Baldwin, supra, 48 B.R. at 902.

The parties do not contest the operation of the automatic stay in this proceeding, though all agree that its power is not omnipotent.⁸ Section 362(a)(1) authorizes the stay to extend to either a cause of action which could have been commenced pre-petition or to a claim which arose pre-petition. Thus, the court's determination of whether Grady could have proceeded with her lawsuit before the petition was filed or whether she had a claim against the Debtor which arose pre-petition will be the finding which renders the automatic stay either applicable or inapplicable to Grady's lawsuit.

Assuming California law were applicable to Grady's claim, she could not have filed her case pre-petition. California law provides that "actions based on progressively developing or continuing wrongs where the nature, extent, or permanence of the harm are difficult to discover, do not accrue until the injured party knows or should have known of the cause of injury." Warrington v. Charles Pfizer & Co., 274 Cal. App.2d 564, 567, 80 Cal.Rptr. 130 (1969). Assuming that Grady did not become aware of the cause of her injury until her operation on August 28, 1985, the Court could not find, at this stage of the proceeding,⁹ that Grady's suit could have been filed pre-petition. Thus, the critical issue in this motion becomes whether Grady has a claim which arose pre-petition; if she did, the automatic stay would apply.

b. Does Grady Have a Claim Which is Applicable to the Automatic Stay?

"Claim" is broadly defined in the Bankruptcy Code, and provides for a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 101(4)(A).

This broad definition of claim is an intentional departure from the "provability" and "allowability" concepts promulgated under the old Bankruptcy Act.¹⁰ The old Act required that a debt be "provable" in order for it to be dischargeable, and thus, if a debt were remote, i.e. it could not be estimated or liquidated, it could not be discharged by the debtor's estate. What all too frequently resulted was a debtor, fresh out of a reorganization proceeding, who was precluded from successfully reorganizing because there were too many non-"p...