In re Johns-Manville Corp.

• Decision Date: 23 January 1984
• Docket Number: Bankruptcy No. 82 B 11656 through 82 B 11676.
• Citation: 36 BR 727
• Parties: In re JOHNS-MANVILLE CORPORATION, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

36 B.R. 727 (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.

Moses & Singer by Robert J. Rosenberg, Bertram Harnett, Richard W. Brewster, Peter J. Gurfein, New York City, for the Committee of Asbestos Related Litigants and/or Creditors.

Silverman & Harnes by Sidney B. Silverman, Martin H. Olesh, New York City, for M.J. Whitman & Co., Inc.

Hannoch, Weisman, Stern, Besser, Berkowitz & Kinney, P.A. by Anthony J. Marchetta, Dean A. Gaver, Gary F. Werner, Newark, N.J., for GAF Corp.

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

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

Weil, Gotshal & Manges by Ira M. Millstein, Harvey R. Miller, Ellen R. Werther, New York City, for Owens-Illinois, Inc.

Covington & Burling by William H. Allen, Philip R. Stansbury, Oscar M. Garibaldi, Washington, D.C., and Alexander, Ash, Schwartz & Cohen, P.C. by Marshall M. Kolba, New York City, for Armstrong World Industries, Inc., et al.

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

Wolf, Popper, Wolf & Jones, New York City, David Berger, P.A., Philadelphia, Pa., Daniel A. Speights, Hampton, S.C., for the Creditors Committee of Asbestos-Related Property Damage School Claimants.

DECISION AND ORDER ON MOTIONS TO DISMISS MANVILLE'S CHAPTER 11 PETITION

BURTON R. LIFLAND, Bankruptcy Judge.

I. Background and Issues Presented

Whether an industrial enterprise in the United States is highly successful is often gauged by its "membership" in what has come to be known as the "Fortune 500". Having attained this measure of financial achievement, Johns-Manville Corp. and its affiliated companies (collectively referred to as "Manville") were deemed a paradigm of success in corporate America by the financial community. Thus, Manville's filing for protection under Chapter 11 of Title 11 of the United States Code ("the Code or the Bankruptcy Code") on August 26, 1982 ("the filing date") was greeted with great surprise and consternation on the part of some of its creditors and other corporations that were being sued along with Manville for injuries caused by asbestos exposure. As discussed at length herein, Manville submits that the sole factor necessitating its filing is the mammoth problem of uncontrolled proliferation of asbestos health suits brought against it because of its substantial use for many years of products containing asbestos which injured those who came into contact with the dust of this lethal substance. According to Manville, this current problem of approximately 16,000 lawsuits pending as of the filing date is compounded by the crushing economic burden to be suffered by Manville over the next 20-30 years by the filing of an even more staggering number of suits by those who had been exposed but who will not manifest the asbestos-related diseases until some time during this future period ("the future asbestos claimants"). Indeed, approximately 6,000 asbestos health claims are estimated to have arisen in only the first 16 months since the filing date. This burden is further compounded by the insurance industry's general disavowal of liability to Manville on policies written for this very purpose. Indeed, the issue of coverage has been pending for years before a state court in California ("the California Coordinated Litigation"). See discussion of trigger to insurance coverage in Correlated Decision No. 2 ("Decision No. 2") issued synchronously.

It is the propriety of the filing by Manville which is the subject of the instant decision. Four separate motions to dismiss the petition pursuant to Section 1112(b) of the Code have been lodged before this Court by: (1) The Committee of Asbestos-Related Litigants and/or Creditors ("the Asbestos Committee"); (2) M.J. Whitman & Co. ("Whitman"); (3) GAF Corporation; and (4) Armstrong World Industries, Inc., Acands, Inc., Brinco Mining, Ltd., Cummings Insulation Co., Inc., Delaware Insulation Co., Eagle-Picher Industries, Inc., Fibreboard Corp., Keene Corp., The McCormick Asbestos Co., Metalclad Insulation Corp., North Bros. Co., Owens-Illinois, Inc., Pacor, Inc., Pittsburgh Corning Corp., Rock Wool Manufacturing Co., Shook & Fletcher Insulation Co., and W.R. Grace & Co. ("the Co-defendants"). In addition, Keene Corporation has filed a motion for the Appointment of a Legal Representative for Manville's Future Asbestos Claimants which is the subject of Decision No. 2.¹ Oral argument on all of these motions was heard on January 5, 1984.

Manville has opposed all four dismissal motions and has been joined in opposition to them by the Unofficial Committee of School Creditors and the Equity Holders Committee. The Unsecured Creditors Committee has filed a brief "in response" to the motions which advocates denial of the motions.

The Asbestos Committee, which is comprised with one exception of attorneys for asbestos victims, initially moved to dismiss this case on November 8, 1982 citing Manville's alleged lack of good faith in filing this petition. However, the Asbestos Committee did not press its motion before the Court until now, more than one year later. In the interim, while engaging in plan formulation negotiations, it has vigorously pursued discovery in order to bolster its factual contention that Manville knowingly perpetrated a fraud on this Court and on all its creditors and equity holders in exaggerating the profundity of its economic distress in 1981 so as to enable it to file for reorganization in 1982. Thus, the Asbestos Committee submitted in November 1983 a multitude of volumes of materials consisting of 55 days of depositions of Manville officers in alleged support of the inference that in 1981 a small Manville group "concocted" evidence to meet the requirements for filing a Chapter 11 petition. The Asbestos Committee alleges that this group manufactured evidence of crushing economic distress so as to demonstrate falsely that pursuant to required principles of accounting (Financial Accounting Standards Board No. 5 ("FASB-5")), Manville had to book a reserve of at least $1.9 billion for asbestos health liability, and thus had no alternative but to seek Chapter 11 protection. The booking of such a reserve would, in turn, have triggered the acceleration of approximately $450 million of outstanding debt, possibly resulting in a forced liquidation of key business segments. Thus, the multitudinous submissions by the Asbestos Committee are aimed at showing their challenge to the motive, methods and data used by Manville's accounting consultants, its management and its Litigation Advisory Group ("LAG") in determining whether relief under Chapter 11 should be sought.

Mindful that there is no insolvency requirement for Chapter 11 debtor status, the issue presented for determination by this Court is whether these allegations of error by the Asbestos Committee, even egregious error, in over-calculation of Manville's financial problems are relevant to establish the kind of bad faith in the sense of an abuse of this Court's jurisdiction which will vitiate the filing of a Chapter 11 petition. This opinion will thus elucidate whether the tomes of material submitted by the Asbestos Committee defeat the essential fact that as of August 26, 1982 Manville is a real company with real debt, real creditors and a compelling need to reorganize in order to meet these obligations.

The Whitman motion dated November 1, 1982, the GAF motion dated September 29, 1983 and the most recently filed Co-defendants' motion dated December 14, 1983 all advance purely legal arguments and require no factual determination by this Court. They are based on the theory that because the claims of future asbestos victims are not cognizable or dischargeable in bankruptcy, the raison d'etre for the filing is vitiated and thus the petition should be dismissed. However, this Court must bear in mind in determining the issues raised by these movants that even if the claims of future claimants are ultimately found not dischargeable, that finding does not necessarily preclude this Court from dealing with the interests of these "parties in interest" under Code Section 1109(b), especially since blinding the reorganization process to their residual interests would doom this reorganization case to ineffectiveness. If future claimants are properly represented as parties in interest, the means for the emergence of a proper plan which fairly provides for the survival and just treatment of their interests post-petition will be better assured. See Decision No. 2 on Correlated Manville Matters.

As background information, it should be noted that throughout the course of the past 16 months, all parties, including the movants herein, have participated to a substantial extent in negotiations aimed at formulating a consensual plan treating all interests justly and fairly. Indeed, it is interesting to note that some of the very co-defendants which now seek to dismiss the petition, notably Owens-Illinois and Keene Corp., have previously expressed on the record before this Court their fervent desire to engraft themselves onto any plan providing for a claims-handling facility with which to deal with asbestos claimants. They have related to the Court their arduous efforts at formulating a sharing arrangement whereby all co-defendants, including Manville, may apportion their relative liabilities to the victims as a first step toward full participation in and contribution to any claims-handling Manville reorganization plan to be funded by an industry "super fund".

In addition, Keene Corp., also one of the co-defendants...