In re Johns-Manville Corp.
| Decision Date | 27 January 1983 |
| Docket Number | 82 B 11676.,Bankruptcy No. 82 B 11656 |
| Citation | 26 BR 919 |
| Parties | In re JOHNS-MANVILLE CORPORATION, et al. Debtors. JOHNS-MANVILLE SALES CORPORATION, et al. Movants, v. Catherine DOAN, Robert E. Sweeney and Robert E. Sweeney Co., L.P.A., Respondents. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Cornelius Blackshear, Acting U.S. Trustee, S.D.N.Y., New York City.
Robert E. Sweeney, Robert E. Sweeney Co., L.P.A., Cleveland, Ohio, pro se and for respondent, Catherine Doan, Robert E. Sweeney and Robert E. Sweeney Co., L.P.A.
Davis, Polk & Wardwell, New York City, for Johns-Manville Sales Corp., et al.; Miriam G. Cedarbaum, New York City, of counsel.
Levin & Weintraub & Crames, New York City, for Johns-Manville Sales Corp., et al.; Barry Seidel, New York City, of counsel.
Moses & Singer, New York City, for the Committee of Asbestos-Related Litigants and/or Creditors; Robert J. Rosenberg, New York City, of counsel.
A bench ruling finding the respondents in contempt was orally delivered by this Court on January 24, 1983 and "So Ordered" on the record so that the parties, if inclined, could seek prompt appellate review. The following constitutes this Court's written memorialization of that ruling:
Manville seeks an order decreeing that by virtue of respondents' continuation of a judicial proceeding against Manville that was commenced before Manville's filing in Chapter 11, Catherine Doan and her attorney, Mr. Robert E. Sweeney and the law firm of Robert E. Sweeney Co., L.P.A., are in continuing violation of the Section 362 automatic stay and of this Court's restraining order entered August 26, 1982 and in civil contempt of this Court. In addition, Manville urges this Court to permanently restrain and enjoin these parties from taking any action in support of their motion filed January 14, 1983 to advance the cause of action against Manville in the case of Doan v. Johns-Manville Sales Corp., et al, Case No. 80-008534 currently pending in the Court of Common Pleas in Cuyahoga County, Ohio. Manville further requests that respondents be directed to withdraw said motion. Judge McMonagle of the Ohio court had previously severed Manville as defendant in the Doan case.
It is the opinion of this Court that the acts of these parties in seeking to advance Ms. Doan's cause of action in the Ohio litigation are in direct contravention of Section 362 of the Code as well as the substantially identical restraining order of August 26, 1982. I find that these respondents, although fully aware of Manville's Chapter 11 filing, the automatic stay, and the Court's stay order of August 26, 1982, nonetheless have proceeded with the Ohio suit. See Respondents' Motion to Advance Cause Against Johns-Manville Sales Corp. at p. 2 annexed to Manville's Application as Exhibit B. Before the Ohio plaintiff and her counsel may properly proceed with the Ohio litigation, Section 362(d) requires that they must first apply to this court for an order to lift, vacate or modify the automatic stay for good cause shown. See 11 U.S.C. § 362(d). Having failed to do so, they must now find themselves in continuing violation of the stay and thus in contempt of this Court. See Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47 (2d Cir. 1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540, reh. denied, 430 U.S. 976, 97 S.Ct. 1670, 52 L.Ed.2d 372 (1977).
In Fidelity Mortgage Investors v. Camelia, the Second Circuit held that a contempt order can be premised on the institution of a foreclosure action in violation of the automatic stay. The Second Circuit declared, 550 F.2d at 57:
Camelia and Farnale were aware of FMI\'s Chapter XI petition in New York almost immediately after it was filed. At that point, Rule 11-44 (the predecessor to Section 362) required Camelia and Farnale to secure the permission of the New York bankruptcy court before filing a separate action in Mississippi. As noted above, the need to centralize bankruptcy-related proceedings and to prevent a chaotic scramble for the debtor\'s assets is an interest of paramount importance in the bankruptcy laws.
The Second Circuit thus concluded:
Camelia and Farnale did not secure such permission and, therefore, must be prepared to confront the consequences.
Accordingly, the Circuit affirmed the bankruptcy judge's finding of contempt, which he had certified to District Judge Owen and affirmed the sanctions imposed by Judge Owen of costs, including reasonable attorneys' fees for both defending the state court action and prosecuting the contempt proceeding.
The instant case falls squarely within the holding in Fidelity Mortgage Investors v. Camelia, supra, notwithstanding any assertion that may be made here by defendants that the bankruptcy court did not have the jurisdiction to promulgate its order of August 26, 1982 or that it does not now have the authority to enforce the provisions of Section 362 of the Code because of the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipeline Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Defendants have asserted in their motion papers before the court in Ohio that the Emergency District Court Rule empowering bankruptcy judges to decide automatic stay issues, Rule (d)(3)(A) in the Southern District of New York, is unconstitutional in that Marathon invalidated the jurisdiction of the district court, as well as the bankruptcy court, to decide bankruptcy issues. See Defendants' Motion to Advance Ohio Cause at 7.
Without passing on the merits of defendants' possible jurisdictional defense to these contempt proceedings, it is abundantly clear that all persons bound by an injunctive order have a duty to comply until such time as the order is modified or reversed by a court having authority to do so. See, e.g., Walker v. City of Birmingham, 388 U.S. 307, 87 S.Ct. 1824, 18 L.Ed.2d 1210, reh. denied, 389 U.S. 894, 88 S.Ct. 12, 19 L.Ed.2d 202 (1967); United States v. United Mine Workers, 330 U.S. 258, 289-95, 67 S.Ct. 677, 693-96, 91 L.Ed. 884 (1947).
In United Mine Workers, the Supreme Court affirmed a District Court's finding of criminal and civil contempt and a fine based upon the union's violation of a restraining order issued in a suit by the government which was aimed at preventing a union and its officers from precipitating a nationwide strike in the coal mines pending judicial interpretation of a labor contract between the government and the union at a time when the mines were being operated by the government. The union contended that provisions of the Norris LaGuardia Act and the Clayton Act deprived the district court of jurisdiction to issue this restraining order. The Supreme Court held that even if the district court had not had jurisdiction to issue the injunction, this jurisdictional defect would constitute no excuse for the violation of this injunction issued properly by the district court to preserve existing conditions pending a decision on its jurisdiction.
The Court in United Mine Workers declared:
It is for the court of first instance to determine the question of the validity of the law, and until its decision is reversed for error by orderly review, either by itself or by a higher court, its orders based on its decision are to be respected, and disobedience of them is contempt of its lawful authority, to be punished.
United Mine Workers, 330 U.S. at 294, 67 S.Ct. at 696 (quoting Howat v. Kansas, 258 U.S. 181, 189-90, 42 S.Ct. 277, 280-81, 66 L.Ed. 550 (1922)).
The policy rationale for this holding was reiterated by the court in United Mine Workers as follows:
If a party can make himself a judge of the validity of orders which have been issued, and by his own act of disobedience set them aside, then are the courts impotent, and what the constitution now fittingly calls the "judicial power of the United States" would be a mere mockery.
Id. at 290, 67 S.Ct. at 694 (quoting Gompers v. Bucks Store & Range Co., 221 U.S. 418, 450, 31 S.Ct. 492, 501, 55 L.Ed. 797 (1911)).
Accordingly, the proper mode of raising the issue of an alleged defect in an injunctive order is not as a defense to a contempt proceeding, but as an application to the court which issued the injunction for a construction of its terms or to modify or dissolve it. See Walker v. Birmingham, 388 U.S. 307, 318, 87 S.Ct. 1824, 1830, 18 L.Ed.2d 1210, where the court affirmed a contempt order even though the injunction and parade ordinance were subject to substantial constitutional question; United Mine Workers, supra; New Jersey v. New York City, 296 U.S. 259, 56 S.Ct. 188, 80 L.Ed. 214 (1935); Fidelity Mortgage Investors v. Camelia, supra. See also 11 U.S.C. § 362(d).
As the court found in Walker, this is "not a case where a procedural requirement has been sprung upon an unwary litigant when prior practice did not give him fair notice of its existence". Walker, 388 U.S. at 319, 87 S.Ct. at 1831. On the contrary, respondents clearly recognized the intended prohibitory effect of the automatic stay in their brief to the Ohio court and nonetheless are proceeding in willful and flagrant disregard of these stay orders.
It is certainly not arguable in any sense that the Supreme Court's decision in Marathon has already invalidated this Court's power to enforce the provisions of the Section 362 automatic stay and of its August 26, 1982 order. This is because the drafters of Emergency District Court Rule (d)(3)(A) clearly carved out enforcement of the automatic stay as an area to be lodged with the bankruptcy court until Congress acts to cure the constitutional infirmity delineated in the Marathon opinion. Unless and until this district court rule is declared unconstitutional, it is well-established, as detailed above, that it must be obeyed. If it is not obeyed, those who violate it are liable in contempt. Along these lines, it should be noted that many of the courts facing...
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