In re Johns-Manville Corp., 86 Civ. 1745(PNL)

• Decision Date: 05 August 1986
• Docket Number: No. 86 Civ. 1745(PNL),86 Civ. 1746(PNL),85-6558A.,Adv. No. 85-6828A,86 Civ. 1745(PNL)
• Citation: 63 BR 600
• Parties: In re JOHNS-MANVILLE CORPORATION, et al., Debtors. UNITED STATES of America, v. JOHNS-MANVILLE CORPORATION, et al. BOSTON AND MAINE CORPORATION, Plaintiff, v. JOHNS-MANVILLE CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

63 B.R. 600 (1986)

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

UNITED STATES of America, v. JOHNS-MANVILLE CORPORATION, et al.

BOSTON AND MAINE CORPORATION, Plaintiff, v. JOHNS-MANVILLE CORPORATION, et al., Defendants.

Nos. 86 Civ. 1745(PNL), 86 Civ. 1746(PNL), Adv. Nos. 85-6828A, 85-6558A.

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

August 5, 1986.

Rudolph W. Giuliani, U.S. Atty., S.D.N.Y., New York City, Alan Nisselson, Asst. U.S. Atty., for U.S., Joel M. Gross, Environmental Enforcement Section, Land and Natural Resources Div., U.S. Dept. of Justice, of counsel.

Sage Gray Todd & Sims, New York City, Kirkpatrick & Lockhart, Boston, Mass., for plaintiff Boston and Maine Corp., Robert W. Brundige, Jr., New York City, James E. Howard, Charles W. Mulcahy, Jr., Thomas L. Crotty, Jr., Boston, Mass., of counsel.

Davis Polk & Wardwell, Levin & Weintraub & Crames, New York City, for Johns-Manville Corp., et al., Lowell Gordon Harriss, Michael J. Lonergan, Edmund M. Emrich, of counsel.

LEVAL, District Judge.

These are motions by the plaintiffs in two related adversary proceedings in bankruptcy for mandatory withdrawal of reference to the Bankruptcy Court in accordance with 28 U.S.C. § 157(d). Plaintiffs who seek withdrawal from the Bankruptcy Court are the United States Environmental Protection Agency and Boston and Maine Corporation. The defendants are Johns-Manville Corporation and related companies, all under the protection of the automatic stay of § 362(a)(1) of the Bankruptcy Code. The adversary proceedings to which the motions relate are actions for declaratory judgment seeking rulings that causes of action asserted (or to be asserted) against Johns-Manville in the Federal District Court in Massachusetts are not barred by the automatic stay issued in this district in the Manville bankruptcy. The motions are granted.

Background

Boston & Maine Corp. owns a landfill in Billerica, Massachusetts which was used by Manville for the disposal of asbestos wastes at various times between 1944 and 1974. Manville and its related entities filed for reorganization under the Bankruptcy Code on August 26, 1982, at which time the automatic stay issued. In March 1984, the United States Center for Disease Control determined that the landfill posed a health hazard to nearby residents. The EPA, acting in response to this determination and pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601 et seq., undertook to eliminate the health risks by spreading 2½ feet of gravel and topsoil over the asbestos contaminated areas. In so doing, the EPA incurred costs in excess of $1.1 million.

In August 1985, the United States filed suit in the District of Massachusetts to recover these costs from Boston & Maine in accordance with provisions of CERCLA. Before lodging its parallel suit against Manville to recover the same costs, the United States brought this adversary proceeding in the Bankruptcy Court in this district seeking a declaratory judgment that the automatic stay does not bar the action. The Boston & Maine Corp. brought a parallel proceeding here seeking declaration of its right to make cross-claims in the Massachusetts suit against Manville, seeking contribution, indemnification, or reimbursement. The question whether the causes to be asserted against Manville in Massachusetts are stayed turns on whether those causes of action arose prior or subsequent to Manville's filing in bankruptcy. Causes of action that had not yet arisen at the time of the bankruptcy filing are not affected by the stay order.

The only question now before this court is whether these adversary proceedings seeking determination of the scope of the stay should be withdrawn from the Bankruptcy Court.

Discussion

The standard for mandatory withdrawal of reference was recently amended as part of the congressional response to Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). It is set forth in 28 U.S.C. § 157(d), which reads, in pertinent part:

The district court shall, on timely motion of a party, so withdraw, a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

It is difficult to understand the meaning or purpose of this provision. If its reference to "other laws of the United States" is read literally, it applies to (and requires withdrawal of) enormous numbers of claims against bankrupts and would effectively defeat the attempts of the Code to rationalize bankruptcy litigation. After carefully examining the legislative history, the District Court for the Northern District of Ohio concluded In re White Motor Corp., 42 B.R. 693, 703 (N.D.Ohio 1984), that withdrawal is mandatory "only when" consideration of non-Code federal statutes "is necessary for the resolution of a case or proceeding" and that "substantial and material consideration" of those non-bankruptcy statutes must be involved before withdrawal will be mandatory. Id. at 704. This standard has been generally followed. See, e.g., In re Baldwin United Corp., 57 B.R. 751, 757 (S.D.Ohio 1985); United States v. ILCO, 48 B.R. 1016, 1021 (N.D. Ala.1985). The parties in the instant case agree with the "substantial and material" standard, but disagree whether it is met on these facts.

Precisely where the substantial and material line falls is open to dispute. It would seem incompatible with congressional intent to...