In re Chateaugay Corp.
| Decision Date | 15 October 1992 |
| Docket Number | No. 92 Civ. 130 (SWK),(92 Civ. 0130 to 92 Civ. 0136).,92 Civ. 130 (SWK) |
| Citation | 146 BR 339 |
| Parties | In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors. |
| Court | U.S. District Court — Southern District of New York |
Wells, Wells, Marble & Hurst by J. Jerry Langford, Walter D. Willson, Kelly D. Simpkins, Jackson, Miss., for claimant, appellant Sarah M. Lancaster.
Paul William Beltz, P.C. by Kevin J. Sullivan, Buffalo, N.Y., for claimants, appellants Robert J. Seufert, Jr., Darryl MacNeil, Paul D. MacNeil and Timothy Willis.
Harvey, Pennington, Herting & Renneisen, Ltd. by William G. Adamson, Philadelphia, Pa., for claimant, appellant Robert V. Rodgers.
Offerman, Mahoney, Cassano, Pigott, Greco & Whalen by Eugene F. Pigott, Jr., Buffalo, N.Y., for claimant, appellant Joseph Dotterweich.
Sol H. Weiss and Alan Starker, Philadelphia, Pa., for claimant, appellant Donna Tozer.
Heller & Owen by Gregory James Owen, Encino, Cal., for claimant, appellant Arland Paul.
Kaye, Scholer, Fierman, Hays & Handler by Herbert Stephen Edelman, Steven E. Fox, New York City, Skadden, Arps, Slate, Meagher & Flom by Gary E. Crawford, Katherine A. Armstrong, Richard T. Bernardo, New York City, for debtors, appellees.
Appellants/Claimants1 appeal from a Memorandum Decision of the United States Bankruptcy Court for the Southern District of New York (Liflind, C.J.) (the "Bankruptcy Court"), dated March 6, 1990, and amended March 7, 1990, holding that the Bankruptcy Court had subject matter jurisdiction to make a threshold determination regarding the 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 which 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) ("Boyle"). See In re Chateaugay Corp., 111 B.R. 67 (Bankr.S.D.N.Y.1990) (the "Jurisdiction Opinion" or the "March 7, 1990 Opinion").
Appellants also appeal from an October 21, 1991 Memorandum Decision of the Bankruptcy Court granting Appellees'2 motion for summary judgment on the grounds that the government contractor defense shields the Appellees from liability for claims arising from allegedly defective vehicles sold to Appellants, see In re Chateaugay Corp., 132 B.R. 818 (Bankr. S.D.N.Y.1991) (the "October 21, 1991 Opinion"), and a final Order, dated November 13, 1991, "Granting Debtors' Motion for Summary Judgment on Objection to Allowance of Certain Claims . . . Involving Postal Dispatchers" (the "November 13, 1991 Order"). By Order of January 30, 1992, this Court consolidated the appeals relating to the above issues.
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.
On October 6, 1989, LTV, LTVAD and AM General on behalf of themselves and the other debtors and debtors-in-possession (collectively, the "Debtors" or "Appellees") filed with the Bankruptcy Court their objection (the "Objection") to 32 claims (the "Claims") which alleged, inter alia, that claimants and claimant's decedents (the "Claimants" or the "Appellants") sustained severe injuries and extensive damages as a result of accidents involving an AM General designed and manufactured motor vehicle known as the "Postal Dispatcher."4 Specifically, Debtors objected to Claims that alleged that AM General designed and sold a vehicle that had a lower resistance to rollover than typical passenger cars, a characteristic which they claim is a product defect known as "rollover propensity." Each of the Claims objected to was based upon the allegedly defective design of the Postal Dispatcher and a failure to warn of the risks associated with the allegedly defective design. The Claims sounded in breach of warranty, negligence, strict tort liability, or other state law theories of recovery.
The following is the substance of the Debtors' Objection to the Claims.5 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, 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 Government. The 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 requested 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.
In contrast, the Claimants, who were injured in the Postal Dispatcher accidents, argued to the Bankruptcy Court that it did not have jurisdiction to determine Debtors' Objection to allowance of certain Claims involving Postal Dispatchers. Second, the Claimants contended that even if such jurisdiction existed, the government contractor defense, as set forth in Boyle, did not bar the Claimants' Claims against the Debtors as the defense does not apply in a civilian context and the Government had not promulgated or approved reasonably precise specifications concerning certain features of the Postal Dispatchers.
As a preliminary matter, on March 7, 1990, the Bankruptcy Court held that it had subject matter jurisdiction to determine the threshold issues of whether or not: (1) the LTV and LTVAD assertions in the Objection that the Claims against them must be disallowed because they had no involvement whatsoever in the design, manufacture, or sale of Postal Dispatchers, are valid; and (2) LTV, LTVAD, and AM General are entitled to immunity from civil liability under the government contractor defense enunciated by the Supreme Court in Boyle, and, consequently, whether, as a matter of law, the Claims must be disallowed. The Bankruptcy Court also held, however, that it did not have jurisdiction to liquidate or estimate the Claims for purposes of distribution, if, as a threshold matter, it determined that the Claims were sustainable as a matter of law. See In re Chateaugay Corp., 111 B.R. at 67.
Having found that it had jurisdiction to determine these threshold issues, on October 21, 1991, the Bankruptcy Court granted Debtors' motion for summary judgment, holding that the government contractor defense shields the Debtors from liability for Claims arising from the allegedly defective vehicles sold to Claimants. See In re Chateaugay Corp., 132 B.R. at 827.6 On November 13, 1991, the Bankruptcy Court issued its final "Order Granting Debtors' Motion for Summary Judgment on Objection to Allowance of Certain Claims . . . Involving Postal Dispatchers." These appeals followed and were consolidated by the Court on January 30, 1992.7
The issues before this Court on appeal are as follows:
(1) Did the Bankruptcy Court have jurisdiction to consider Debtors'/Appellees' Objection to Allowance of Certain Claims Involving Postal Dispatchers and, on a motion for summary judgment, to enter an order disallowing such Claims as a matter of law?
(2) Does the government contractor defense, as set forth in Boyle, bar Claimants'/Appellants' Claims against the Debtors?
This Court's review of bankruptcy court orders is...
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