In re Chateaugay Corp.
| Decision Date | 07 March 1990 |
| Docket Number | Bankruptcy No. 86 B 11270 (BRL) Through 86 B 11334 (BRL) 86 B 11402 (BRL) and 86 B 11464 (BRL). |
| Citation | 111 BR 67 |
| Parties | In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Levin & Weintraub & Crames, New York City by Herbert S. Edelman, Steven E. Fox, Craig I. Lustig, Skadden, Arps, Slate, Meagher & Flom, New York City by Bert L. Wolff, Gary E. Crawford, for debtors.
Kramer, Levin, Nessen, Kamin & Frankel, New York City by Paula A. Schmeck, for LTV Bank Group.
Morgan, Lewis & Bockius, New York City by Charles B. Manuel, Jr., Christine McInerney, for Postal Dispatcher Claimants.
Offermann, Mahoney, Cassano, Pigott, Greco, Palmer & Whalen, Buffalo, N.Y. by Camille P. Wicher, for claimant Joseph Dotterweich.
Paul William Beltz, P.C., Buffalo, N.Y. by Kevin J. Sullivan, for claimants Seufert, Willis and MacNeil.
Harvey, Pennington, Herting & Renneisen, Philadelphia, Pa. by Katherine Mezzanotte, for claimant Robert Rodgers.
Wells, Wells, Marble & Hurst, Jackson, Miss. by J. Jerry Langford, Charles P. Quarterman, for claimant Sarah Lancaster.
Anapol, Schwartz, Weiss & Schwartz, P.C., Philadelphia, Pa. by Sol H. Weiss, Alan Starker, for claimant Donna Tozer, Admx.
George M. Riecan & Associates, Inc., P.S., Tacoma, Wash. by George M. Riecan, for claimants Angeline.
Michael R. Panter & Associates, Chicago, Ill. by Michael R. Panter, for claimants Carol.
Cathey & Strain, Cornelia, Ga. by Dennis T. Cathey, for claimant Dollar.
Heller & Owen, Encino, Cal. by Stephen H. Heller for claimants Paul.
Grissom, Crow, Richards & Featherston, Inc., Houston, Tex. by Carl Crow, for claimants Pierre.
Law Offices of Dan G. Ryan, Concord, Cal. by Dan G. Ryan, for claimants Amaral Concord Gateway I.
Bankruptcy courts are often called upon to allow or disallow claims in the context of motions to expunge claims based upon, inter alia: an applicable bar date in the bankruptcy proceeding; an applicable statute of limitations; res judicata; payment; release; discharge in bankruptcy; or some other basis which tends, if established, to negate the existence of a claim against a debtor. However, in light of the 1984 Amendments to the Bankruptcy Code, the question as to whether a bankruptcy court has jurisdiction to make this threshold determination with respect to a claim to recover for a personal injury tort or wrongful death, appears to be an issue of first impression. Specifically, the narrow issue to be addressed herein is whether this Court has subject matter jurisdiction to make a threshold determination for allowance or disallowance of (1) personal injury tort or wrongful death claims which may have been asserted against an inappropriate (wrong) defendant or debtor and (2) personal injury tort or wrongful death claims because they may be barred, as a matter of law, by the government contractor defense established in Boyle v. United Technologies Corp., 487 U.S. 500, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988).
On September 19, 1983 (the "Acquisition Date"), pursuant to a stock purchase agreement dated July 24, 1983, Nakoma Corporation, an indirect subsidiary of LTV Corporation ("LTV"), acquired all of the capital stock of AM General Corporation ("AM General"), a wholly owned subsidiary of American Motors Corporation ("AMC"). On September 21, 1983, Nakoma Corporation transferred the stock of AM General to LTV Aerospace and Defense Company ("LTVAD"). Since September 21, 1983, AM General has been a wholly owned subsidiary of LTVAD.
On July 17, 1986 (the "Filing Date") and thereafter, LTV, LTVAD, AM General and their affiliates each filed a petition for reorganization under chapter 11 of the Bankruptcy Code (the "Code"), and have continued in the management and possession of their businesses and assets as debtors-in-possession pursuant to §§ 1107 and 1108 of the Code. No trustee or examiner has been appointed herein.
On October 6, 1989, LTV, LTVAD and AM General on behalf of themselves and the other debtors and debtors-in-possession (collectively, the "Debtors") filed their objection (the "Objection") to 32 claims (the "Claims") which allege, inter alia, that the damages to the claimant or the claimant's decedent (the "Claimants") resulted from an occurrence involving an AM General designed and manufactured motor vehicle known as the "Postal Dispatcher".1 Each of the Claims is based upon the allegedly defective design of the Postal Dispatcher and failure to warn of risks associated with the allegedly defective design. The Claims sound in breach of warranty (i.e., contract law), negligence, strict tort liability, or other state law theories of recovery. Although the merits of the Debtors' Objection are not currently before this Court, in order to fully understand the jurisdictional question at issue, it is important to summarize the substance of the Objection.
Debtors assert that AM General designed, manufactured and sold over 100,000 of these vehicles to the United States Post Office and its successor, the United States Postal Service (collectively, the "Post Office") to be employed as mail delivery vehicles, pursuant to contracts with the United States government. The Debtors further allege that AM General did not sell any Postal Dispatchers to any of the Claimants referred to herein. It is also alleged that LTV and LTVAD did not design, manufacture, or sell the Postal Dispatchers, and are not proper parties against whom claims involving the Postal Dispatchers can be asserted. Moreover, the Debtors state that LTV never held any ownership interest in AM General, and that LTVAD did not acquire any ownership interest prior to the production of some units of the last model of the Postal Dispatchers manufactured by AM General. Debtors assert that LTVAD as owner of the stock of AM General was not involved in the design, manufacture, or sale of any Postal Dispatchers. Finally, the Debtors argue that as a result of recent case law recognizing the "government contractor defense," including the decision of the Supreme Court in Boyle v. United Technologies Corp., 487 U.S. 500, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988), a government contractor cannot be held liable for defective design or failure to provide warnings, when the product was manufactured in accordance with reasonably precise specifications approved by the government2. Debtors assert that the Post Office and the United States Government approved reasonably precise specifications with regard to the Postal Dispatchers, which conformed to those specifications. The Debtors also contend that the manufacturers of the Postal Dispatchers did not know of any risks in the use of the vehicle that were not known to the Post Office and the United States Government.
Based on the aforementioned assertions, the Debtors request that with respect to LTV and LTVAD, the Claims be disallowed entirely, and with respect to all of the Debtors (including AM General), the Claims be disallowed to the extent they allege that the Postal Dispatcher was defectively designed or that Debtors are liable for failure to warn of the risks associated with the design. The Debtors state that if this Court rules in their favor and declares that bankruptcy courts do have jurisdiction to make a threshold determination to allow or disallow personal injury or wrongful death claims, the Debtors would be prepared to file a Motion for Summary Judgment on their Objection to Claims.
In contrast, the Claimants assert that, although they would need further discovery on the issue, the government contractor defense is not applicable under these circumstances. Moreover, they also assert that with discovery as to the particulars of LTV's and LTVAD's acquisition of AM General, LTV and/or LTVAD could be held liable as a successor to AM General.
Whether this Court has subject matter jurisdiction to make a threshold determination as to whether or not there exists a legal theory or bases to sustain a claim sounding in personal injury tort or wrongful death, as opposed to "liquidating" or "estimating" that claim for the purpose of distribution in a case under title 11.
With the passage of a new Bankruptcy Code in 1978, Congress vested the United States district courts with original and exclusive jurisdiction of all cases commenced under title 11. 28 U.S.C. § 1471(a) (repealed, 1984). The district courts also had original but not exclusive jurisdiction over all civil proceedings arising under title 11 or arising in or related to cases pending, under title 11. 28 U.S.C. § 1471(b) (repealed, 1984). Section 1471(c) (repealed, 1984) conferred upon the bankruptcy courts within the district where the title 11 case was pending all of the jurisdiction granted to the district court under 28 U.S.C. § 1471(a).
The scope of the jurisdiction accorded the bankruptcy courts under the newly enacted Code met with constitutional challenges in Northern Pipeline Construction Co. v. Marathon Pipeline Co. ("Marathon"), 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In Marathon, the Supreme Court held that the jurisdiction conferred upon the bankruptcy courts by Congress under 28 U.S.C. § 1471(c) was too broad and, therefore, unconstitutional. Id. at 87, 102 S.Ct. at 2880. In response to the Supreme Court's ruling, Congress enacted the 1984 Amendments to the Code (the "1984 Amendments") which, pursuant to 28 U.S.C. § 1334, jurisdiction of all bankruptcy-related cases and proceedings is now vested originally in the district courts. The district courts are, in turn, authorized under 28 U.S.C. § 157(a) to refer to bankruptcy judges "any or all cases under title 11 or arising in or related to a case under title 11. . ....
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