In re Johns-Manville Corp.

• Decision Date: 23 January 1984
• Docket Number: Bankruptcy No. 82 B 11656 through 82 B 11676.
• Citation: 36 BR 743
• Parties: In re JOHNS-MANVILLE CORPORATION, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

36 B.R. 743 (1984)

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

Bankruptcy Nos. 82 B 11656 through 82 B 11676.

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

January 23, 1984.

Anderson, Russell, Kill & Olick, P.C. by Arthur S. Olick, New York City, for Keene Corp.

Davis, Polk & Wardwell by Stephen H. Case, Lowell Gordon Harriss, Miriam G. Cedarbaum, and Levin & Weintraub & Crames by Michael J. Crames, New York City, for Johns-Manville Corporation, et al., debtors.

Moses & Singer by Robert J. Rosenberg, Babette Tenzer, Michael S. Kushner, New York City, for the Committee of Asbestos-Related Litigants and/or Creditors.

Milbank, Tweed, Hadley & McCloy by John J. Jerome, New York City, for the Committee of Unsecured Creditors.

Hahn & Hessen by George A. Hahn, Angela G. Tese, New York City, for the Committee of Equity Security Holders.

Greene, O'Reilly, Agnew & Broillet by George M. Rosenberg, Charles B. O'Reilly, Aaron H. Simon, Franklin A. Bonin, Los Angeles, Cal., for plaintiff Peter John Robinson; Finkel, Goldstein & Berzow, New York City, of counsel.

Gilbert, Segall & Young by Elihu Inselbuch, New York City, for Daniel J. Burke.

DECISION AND ORDER ON KEENE'S MOTION TO APPOINT A LEGAL REPRESENTATIVE FOR FUTURE CLAIMANTS

BURTON R. LIFLAND, Bankruptcy Judge.

I. Introduction and Issue Presented

Keene Corp. has put before this Court a motion to appoint a legal representative for asbestos-exposed future claimants in the Manville reorganization case. It is abundantly clear that the Manville reorganization will have to be accountable to future asbestos claimants whose compelling interest must be safeguarded in order to leave a residue of assets sufficient to accommodate a meaningful resolution of the Manville asbestos-related health problem. The term "future asbestos claimants" is defined for these purposes to include all persons and entities who, on or before August 26, 1982, came into contact with asbestos or asbestos-containing products mined, fabricated, manufactured, supplied or sold by Manville and who have not yet filed claims against Manville for personal injuries or property damage. These claimants may be unaware of their entitlement to recourse against Manville due to the latency period of many years characterizing manifestation of all asbestos related diseases. See Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034, 1038 n. 3 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982). See also Irving J. Selikoff, Douglas H.K. Lee, Asbestos and Disease, Academic Press, Inc. (1978).

Exposure to asbestos dust may result in one of three diseases: asbestosis, a chronic disease of the lungs causing shortness of breath similar to emphysema; mesothelioma, a fatal cancer of the lining of the chest, abdomen or lung, and lung or other cancers. However, it is contended by Manville that it was not until recently that the full extent of the dangers due to asbestos exposure was clarified.¹ Thus, the enhanced safety programs which eventuated because of the new discoveries regarding the damages of asbestos were too late to have any effect on those who had previously been exposed. Accordingly, Manville expects a proliferation of claims in the next 30 years by those previously exposed who will manifest these diseases in this period.

An excursis into the various factors supporting this Court's conclusion that these future claimants possess at the very least a cognizable interest in this reorganization case follows. These factors include the applicability of Code Section 1109(b) regarding parties in interest and those insurance cases holding that a proper trigger for insurance coverage for claims liability is exposure to asbestos. Analysis also focuses on the statistical data relating to the proliferation of future asbestos claims submitted by Manville in support of its petition as well as facts known and agreed to by all parties which dictate a finding that these claimants are parties in interest entitled to representation in this case. This excursis will conclude by exploring the kinds of entities which may be utilized to represent future claimants in these proceedings.

II. Whether Or Not They Possess Cognizable Claims, Future Claimants Do Possess A Cognizable Interest In This Reorganization

A. Statistical Data Submitted by Manville Support A Finding Of Cognizable Interest On The Part Of Future Claimants

From the inception of this case, it has been obvious to all concerned that the very purpose of the initiation of these proceedings is to deal in some fashion with claimants exposed to the ravages of asbestos dust who have not as of the filing date manifested symptoms of asbestos disease. Indeed, but for this continually evolving albeit amorphous constituency, it is clear that an otherwise economically robust Manville would not have commenced these reorganization proceedings. See generally Note, Manville: Good Faith Reorganization or "Insulated" Bankruptcy, 12 Hofstra L.Rev. 121 (1983). It should also be noted that there are suggestions in the vast record before this Court that Manville is not as economically sound as reputed. See footnote 2 in Decision No. 1 on correlated Manville matters accompanying this opinion. It is the spectre of proliferating, overburdening litigation to be commenced in the next 20-30 years, which litigation would be beyond the company's ability to manage, control, and pay for, which has prompted this filing.

In the affidavit of Manville officer James Beasley accompanying the filing pursuant to Additional Local Rule XI-2, Manville sets forth its reasons for seeking relief under Chapter 11. According to this affidavit, it is in great measure the impact of the future claimants which necessitates the filing. Beasley states:

Manville Corporation\'s Board of Directors, and a special committee appointed by the Board to oversee the review of the consultant\'s report, have concluded that the potential future impact on J-M, Manville and various other of the Debtors which are named or potential defendants of pending and future asbestos cases could and probably will exceed Manville\'s ability to pay and finance the continuing operation of Manville\'s businesses.

Beasley Affidavit at 7.

This projection by Manville has reportedly been based on the study by Epidemiological Research Institute ("ERI"), a consulting firm specializing in biostatistical research commissioned by Manville in response to an increase in the number of asbestos cases. According to the Beasley Affidavit, this increase is evidenced by the fact that as of June 30, 1983, the number of asbestos cases had increased by approximately 1,700 cases over the December 31, 1981 level of 9,300 cases. The level of cases on December 30, 1980 had been only 5,087 and during the first half of 1982, an average of approximately 495 new plaintiffs per month commenced an average of approximately 425 cases per month against Manville. Beasley Affidavit at 5. The ERI study commissioned in response to these statistics estimated that "a reasonable control projection of the number of lawsuits seen from 1982 on is likely to be about 45,000, with a reasonably firm lower bound of 30,000 and a very definitive upper bound on the order of 120,000. Projections of Asbestos Related Diseases 1980-2009, Final Report, August 2, 1982, at 27. See also Decision No. 1's discussion of Compendium submitted by Manville in opposition to the Asbestos Committee's motion to dismiss regarding the content of all of the statistical studies and deliberations leading up to the filing.

Beasley also reports that as of the filing, Manville had been found liable for punitive damages in ten asbestos suits and that $616,000 was the average award in each case. Beasley Affidavit at 6. One such reported case where an award of punitive damages was affirmed is Moran v. Johns-Manville Sales Corp., 691 F.2d 811 (6th Cir. 1982).

The Beasley Affidavit concludes that based on an estimated cost of $40,000 per case, the total projected cost of the future suits could range anywhere between $2 billion and many times that amount over the next 20 years and potentially force the sale, liquidation or other disposition of Manville's assets and the dismemberment of its business. Beasley Affidavit at 7. Indications that the estimates of a lower bound of 30,000 cases costing $40,000 per case may have been too conservative can be found in a New York Times article regarding the increase in size of jury verdicts against the codefendants since the filing date. See New York Times, January 10, 1983, D-2, col. 1. See also footnote 2 in Decision No. 1 on correlated Manville matters regarding the conservatism built into the calculation of the $1.9 billion debt figure predicating the filing.

Accordingly, a resolution of the interests of future claimants is a central focus of these reorganization proceedings. Any plan emerging from this case which ignores these claimants would serve the interests of neither the debtor nor any of its other creditor constituencies in that the central short and long-term economic drain on the debtor would not have been eliminated. Manville might indeed be forced to file again and again if this eventuated. Each filing would leave attenuated assets available to deal with interests of emerging future claimants. Manville could also be forced into liquidation. The liquidation of this substantial corporation would be economically inefficient in not only leaving many asbestos claimants uncompensated, but also in eliminating needed jobs and the productivity emanating from an ongoing concern. It fosters the key aims of Chapter 11 to avoid liquidation at all reasonable costs.

As detailed in Decision No. 1 accompanying this opinion regarding the Asbestos Committee's Motion to Dismiss, the drafters of the Code specifically built into it the concept of "open access to the bankruptcy process." Report of the Commission on the Bankruptcy Laws of the...