In re Johns-Manville Corp.

• Decision Date: 11 February 1986
• Docket Number: No. 82 B 11656-82 B 11676.,82 B 11656-82 B 11676.
• Citation: 57 BR 680
• Parties: In re JOHNS-MANVILLE CORPORATION, et al., Debtors. In re JOHNS-MANVILLE SALES CORPORATION, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

57 B.R. 680 (1986)

In re JOHNS-MANVILLE CORPORATION, et al., Debtors In re JOHNS-MANVILLE SALES CORPORATION, Debtor.

Nos. 82 B 11656-82 B 11676.

United States Bankruptcy Court, S.D. New York.

February 11, 1986.

Levin & Weintraub & Crames, New York City by Mitchel H. Perkiel, Edmund M. Emrich, for debtors.

Bailey & Williams, Dallas, Tex. by Joel Steed, for Carpenter Plastering Co.

Brill & Meisel, New York City by Peter A. Cross, for Joseph E. and Rita Kowalski.

Gilbert, Segall & Young, New York City by Elihu Inselbuch, for Committee of Asbestos-Related Litigants and/or Creditors.

DECISION AND ORDER DENYING RELIEF FROM AUTOMATIC STAY

BURTON R. LIFLAND, Bankruptcy Judge.

Carpenter Plastering Co. ("Carpenter") and Joseph E. and Rita Kowalski ("Kowalski"), the moving parties, have brought two separate but related automatic stay motions before this court. Their legal focus is a relatively recent and controversial decision of the Court of Appeals for the Third Circuit. See In re M. Frenville Co., Inc., 744 F.2d 332 (3d Cir.1984), cert. denied, ___ U.S. ___, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985). The Frenville decision raises anew significant issues concerning the scope of § 362 (the automatic stay provision) of the Bankruptcy Reform Act of 1978 ("Code") and related restraints.

Additionally, the moving parties are advancing positions regarding property damage claims which have become familiar to this court but remain unpersuasive in view of this reorganization's central concern for the plight of the personal injuries suffered by the asbestos victims. Carpenter and Kowalski argue that their grievances against the debtor are unrelated to the asbestos "plague," and that therefore they should be free to pursue non-Title 11 remedies. This egocentric view fails to take into account that virtually all aggrieved interests, asbestos non obstante, are presently precluded from gaining partisan advantage in any measure over the debtors' pool of assets.

THE MOVING PARTIES

Carpenter and Kowalski brought separate motions against Johns-Manville Sales Corp. ("J-M Sales"), one of the debtors in these proceedings, challenging the applicability of the automatic stay to their claims against J-M Sales. Carpenter, who is a third-party defendant in a Texas state court action, and Kowalski, who is a defendant in a California state court action, seek to proceed on claims in these state court actions against J-M Sales on indemnification or contribution theories. Both Carpenter and Kowalski contend that their causes of action against J-M Sales arose postpetition and fall outside the scope of the automatic stay. They further argue that even if this court finds the stay applicable, it should modify the stay to allow Carpenter and Kowalski to proceed with their actions, or at least to engage in limited discovery to determine whether J-M Sales is self-insured or has any available insurance coverage.

J-M Sales opposes both Carpenter and Kowalski's motions and argues that the operation of the automatic stay prohibits Carpenter and Kowalski from proceeding in their state court actions against J-M Sales. Alternatively, J-M Sales argues that this court should impose a stay under § 105 of the Code. The Committee of Asbestos-Related Litigants and/or Creditors ("Asbestos Committee"), which represents plaintiffs with asbestos-related injuries, opposes the relief sought by Kowalski and supports the position taken by J-M Sales. Both motions raise substantially similar issues, and are discussed together below.

FACTS

On August 26, 1982, Johns-Manville Corporation and a number of its affiliates, including J-M Sales (collectively, "Manville" or "the debtors"), filed petitions for reorganization under Chapter 11 of the Code. The debtors have continued to manage and operate their respective businesses as debtors in possession pursuant to §§ 1107 and 1108 of the Code. Carpenter and Kowalski seek to proceed with postpetition actions against J-M Sales stemming from damages incurred in the prepetition use of Flex Board and Rescon, building materials manufactured and sold by J-M Sales.

1. Carpenter's Claim Against J-M Sales.

Prior to the filing of Manville's petition, Carpenter purchased and used Flex Board panels manufactured and supplied by J-M Sales. On January 6, 1979, Carpenter, acting as a subcontractor, entered into an agreement with a general contractor, Charter Building, Inc. ("Charter"), to supply Charter with wall panels in the construction of the Texas Credit Union Building, a building owned and operated by Members Mutual Insurance Co. ("Members"). On May 30, 1979, Carpenter began manufacturing these panels, which contained Flex Board; on October 1, 1979, Carpenter completed mounting the panels on the Texas Credit Union Building.

Carpenter's claim against J-M Sales arose from damages associated with the use of the Flex Boards. In a June 1, 1982 letter to Manville, Carpenter's counsel advised that "severe problems have arisen in these panels on inter alia, the Texas Credit Union Building," and that Carpenter "has expended several thousands of dollars in repairing leaks to the Texas Credit Union Building." In this letter, Carpenter's counsel also stated:

as you of course realize, the owner Members will look to the general contractor Charter and the general contractor will look to Carpenter the sub-contractor on all three projects one of which was the Texas Credit Union Building for damages caused by the cracks in the panel which may include total replacement. Carpenter Plastering will of course look to Johns Manville for all damages connected with the replacement of these cracked panels on all three buildings as well as monies already expended and to be expended for repair work in preventing any more water from entering these buildings. (emphasis added).

Carpenter clearly evidenced its intent in June 1982 to hold J-M Sales responsible for any damages which it might suffer in connection with the wall panels. Lawsuits with other parties were obviously contemplated, and in an apparent effort to settle matters, Carpenter, Members, Charter and others entered into an Agreement Tolling Statute of Limitation ("Tolling Agreement") in 1982, and agreed not to file suits concerning construction of the Texas Credit Union Building until June 1, 1983. Any suits arising out of the problems associated with the Texas Credit Union Building were thus intentionally postponed. Manville responded to the Carpenter letter on June 15, 1982 and stated "we have directed our Fort Worth regional personnel to engage a consulting engineer to help analyze the problems on these projects." Manville also made reference to and acknowledged the "tolling agreement with respect to a statute of limitations in connection with at least one of these projects."

After the Tolling Agreement expired, Members commenced a state court action in Dallas County, Texas against Charter and others alleging that the panels were defective because they cracked and allowed water to enter the interior of the building causing extensive damage. See The Members Mutual Insurance Co. v. Charter Builders, Inc., Select Insurance Co., Inc., and Caudill Rowlett Scott, Inc., No. 83-11351-H (Dallas County, Texas 1983). Carpenter was not directly sued by Members, but was made a party to the litigation as a result of a third party action filed by Charter on October 28, 1983. Carpenter now seeks to file a third party action for indemnity or contribution against J-M Sales, and claims damages resulting from defective Flex Boards provided by J-M Sales.

2. Kowalski's Claim Against J-M Sales.

Kowalski is the general partner of a partnership which was formed in July, 1972 for the purpose of building and developing a condominium complex known as La Costa Fairways ("La Costa") in La Costa, California. Kowalski contracted with J-M Sales to supply the general contractor on this project with Rescon for the construction of La Costa. The project was completed prior to the filing of Manville's petition.

On November 18, 1983, the La Costa Fairways Homeowners Association ("Homeowners Association") commenced an action in a California state court against Kowalski and others alleging, inter alia, defects in the materials used in the construction of La Costa. See La Costa Fairways Homeowners Association v. Joseph E. Kowalski, Rita C. Kowalski et. al., No. 24191 (Super.Ct. of Calif., San Diego Co., 1983). In particular, the Homeowners Association alleged that the Rescon used in construction was not of merchantable quality, was defective and had caused damage. The Homeowners Association also stated in their Second Amended Complaint that:

from the commencement of the development and construction of the subject property and subject buildings by defendants and each of them, until on or about October, 1980, defendant, Kowalski, had been paying for and/or repairing balcony/roof deck leaks; the plaintiff and individual unit owners had reported balcony/roof deck leaks to defendant, Kowalski, and defendant, Kowalski, had, over the said period of time, at its cost and expense, been paying for and/or repairing the balcony/roof deck leaks by patching or otherwise attempting to stop said leaks.

Kowalski incurred damages associated with the Rescon prior to the filing of the petition, and was aware that future damages would continue to be incurred. On October 30, 1984, Kowalski filed a cross-complaint against J-M Sales for indemnification and other relief. Ten days later on November 9, 1984, Kowalski filed the first of three proofs of claim in these proceedings, seeking $500,000 in damages. The first claim, designated Claim No. 17334, is premised on the total damages Kowalski allegedly will suffer as a result of the Rescon used in the construction of La Costa for which it seeks indemnification from J-M Sales. The two other proofs of claim, designated Claim Nos. 24903 and 25431, were filed on March 20 and June 24, 1985, respectively, each in...