In re Johns-Manville Corp., 85 Civ. 8922 (GLG)
| Decision Date | 30 April 1986 |
| Docket Number | Bankruptcy No. 82 B 11656-82 B 11676,Adv. No. 85-6557A.,No. 85 Civ. 8922 (GLG),85 Civ. 8922 (GLG) |
| Citation | 60 BR 842 |
| Parties | In re JOHNS-MANVILLE CORPORATION, et al., Debtors. MANVILLE CORPORATION, Plaintiff-Appellee, v. The EQUITY SECURITY HOLDERS' COMMITTEE, et al., Defendant-Appellants. |
| Court | U.S. District Court — Southern District of New York |
Hahn & Hessen, Davis Polk & Wardwell, New York City, for defendants-appellants; George A. Hahn, Herbert L. Ash, Angela G. Tese, Steven J. Mandelsberg, Lowell Gordon Harriss, Deborah S. Guyol, of counsel.
Levin & Weintraub & Crames, New York City, for plaintiff-appellee Manville Corp.; Michael J. Crames, Herbert Stephen Edelman, Andrew A. Kress, of counsel.
Securities and Exchange Com'n, Washington, D.C. (Daniel L. Goelzer, Gen. Counsel, Paul Gonson, Sol., Jacob H. Stillman, Associate Gen. Counsel, Richard A. Kirby, Asst. Gen. Counsel, Stephen M. DeTore, of counsel), Securities and Exchange Com'n, New York City (Ira Lee Sorkin, Regional Admin., Charles E. Padgett, Associate Regional Admin., Nathan M. Fuchs, Chief Counsel, Corporate Reorganization, Virginia M. Handal, of counsel), for plaintiff-appellee Securities and Exchange Com'n.
Gilbert, Segall and Young, New York City, for The Committee of Asbestos Health Related Claimants and/or Creditors; Elihu Inselbuch, of counsel.
Fried, Frank, Harris, Shriver & Jacobson, New York City, for the Legal Representative; Matthew Gluck, of counsel.
Milbank, Tweed, Hadley & McCloy, New York City, for Committee of Unsecured Creditors; John G. Gellene, of counsel.
In the annals of mass tort actions and bankruptcy proceedings, nothing has rivalled the boundless asbestos litigation and the attempted reorganization of the company that was the leading manufacturer of asbestos, the Johns-Manville Corporation (now known as "Manville Corporation"). Plaintiff/appellee Manville Corporation ("Manville") is a Delaware corporation well into its fourth year of reorganization under Chapter 11 of the Bankruptcy Code ("the Code"), 11 U.S.C. §§ 1101-74 (1982). Defendant/appellant, the Committee of Equity Security Holders ("the Equity Committee"), was appointed by the bankruptcy court pursuant to 11 U.S.C. § 1102(a)(2) (1982), to represent Manville's common and preferred shareholders. Defendant/appellant Leon Dubin ("Dubin") is a Manville stockholder and a member of the Equity Committee.
On August 16, 1985, the Equity Committee and Dubin brought an action in the Delaware courts ("the Delaware action") seeking to compel a meeting of Manville's shareholders. Manville responded by bringing an action in the bankruptcy court ("the Manville action") to enjoin the Equity Committee and Dubin from pursuing their Delaware action.1 In a decision and order dated September 20, 1985, Judge Burton R. Lifland, Chief Judge of the Bankruptcy Court for the Southern District of New York, awarded summary judgment to Manville and enjoined the Equity Committee and Dubin, jointly and severally, from prosecuting the Delaware action. In re Johns-Manville Corp., 52 B.R. 879 (Bankr.S.D.N.Y.1985). Judge Lifland also denied the Equity Committee's motions for authority to retain special counsel in Delaware, for advance reimbursement of expenses in connection with holding a meeting of shareholders, and for summary judgment in the Manville action. The Equity Committee and its members2 now appeal3 from that decision and order. For the reasons stated below, the decision of the bankruptcy court is affirmed.
The history of the groundbreaking Manville reorganization bears on many of the issues on this appeal and is, therefore, recounted below.
On August 26, 1982, Manville, one of the nation's largest industrial concerns, and twenty of its subsidiaries and affiliates, filed for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Underlying the filing of the Chapter 11 petition were Manville's actual and contingent liabilities to tens of thousands of persons exposed to and injured by Manville products containing asbestos. As of June 30, 1982, Manville was a defendant in asbestos-related lawsuits brought by approximately 16,000 individual plaintiffs. In re Johns-Manville Corp., 36 B.R. 727, 729 (Bankr.S.D.N.Y. 1984), leave to appeal denied, 39 B.R. 234 (S.D.N.Y.1984). Over the preceding six years, four thousand more asbestos-related cases had been disposed of through settlement or trial. Id. Because of the long latency period associated with asbestos-related health conditions, Manville anticipated that thousands of new lawsuits would be filed against it during the next twenty to thirty years.4 Id. In fact, an estimated six thousand new asbestos claims arose in the first sixteen months after the filing. Id. at 739. No doubt, many more have arisen since then. "The number of post-filing claims increases each day as future claims back into the present." Id.
Prior to the filing date, Manville was also named as a defendant in a number of lawsuits seeking massive recoveries for asbestos related property damage. In these suits, various schools and school districts throughout the country sought compensatory and punitive damages from Manville and other asbestos producers for the plaintiffs' own, unknowing use of asbestos-containing products in ceilings, walls, and other school building structures. Since the filing date, two class action suits have been brought on behalf of every public school district and private school in the United States seeking comprehensive redress for the school asbestos problem including compensatory damages for remedial action already undertaken by the schools. Estimates of Manville's potential debt to the school creditors run well into the hundreds of millions. Id. at 739.
The immediate financial impact of the pending and anticipated lawsuits was exacerbated by the refusal of Manville's insurance carriers to defend or indemnify Manville. An independent accounting firm advised Manville that, given the attitude of its insurers, Manville would have to book a massive reserve on its financial statements to fund its actual and contingent liabilities. 36 B.R. at 734-35. Manville anticipated difficulties in obtaining unsecured financing, the gradual disintegration of its business, and increasing difficulties in paying past and future judgments. In order to stave off these undesired consequences of its asbestos crisis, the Manville board of directors authorized the Chapter 11 filing. Id. at 734-35.
Pursuant to its powers under section 1102 of the Code, the bankruptcy court appointed committees to represent the interests of Manville's major creditor constituencies and its equity security holders.5 Among the creditor committees appointed were the mandatory unsecured creditors committee, 11 U.S.C. § 1102(a)(2) (1982), and a committee representing institutional and trade creditors. A co-defendant's committee of asbestos manufacturers asserting claims for contribution or indemnity against Manville was also appointed.
The court also appointed a committee to represent the interests of asbestos health claimants. After this Asbestos Health Committee declined to represent future health claimants who had yet to manifest a disease, the bankruptcy court, on motion of one of the co-defendants, determined to appoint a legal representative for future health claimants. In re Johns-Manville Corp., supra, 36 B.R. 743. On August 14, 1984, the bankruptcy court appointed Leon Silverman as the "Legal Representative," with the powers of a committee to represent the future claimants, but without power to bind such persons. In re Johns-Manville Corp., Nos. 82 B 11656-11676 (Bankr. S.D.N.Y. Aug. 14, 1984) (), aff'd, In re Johns-Manville, 52 B.R. 940 (S.D.N.Y.1985).
During the pendency of this reorganization, Manville and its subsidiaries and affiliates have continued to operate their businesses as debtor-in-possession pursuant to 11 U.S.C. §§ 1107 & 1108 (1982).
During the first fourteen months of the reorganization, the bankruptcy judge periodically extended the statutory 120-day period during which Manville retained the exclusive right to file a plan of reorganization.6 In November 1983, Manville filed a proposed plan. Although the Equity Committee endorsed that plan, no creditor constituency did the same. Absent agreement by at least one class of creditors, a plan cannot be confirmed. 11 U.S.C. § 1129 (1982).7 Unable to obtain confirmation of its plan, Manville has continually sought and obtained still additional extensions of the period within which it maintains the exclusive right to propose a plan of reorganization. See 11 U.S.C. § 1121(d) (1982).8
Not only has Manville experienced difficulties in formulating an acceptable plan but continued, steady litigation concerning, inter alia, the propriety of the initial reference to the bankruptcy court, see e.g., In re Johns-Manville Corp., 9 Collier Bankr. Cas.2d 846 (S.D.N.Y.1983), attempts to dismiss the bankruptcy proceeding, In re Johns-Manville Corp., supra, 36 B.R. 727, and the appointment of a legal representative, In re Johns-Manville Corp., supra, 36 B.R. 743, has also delayed the progress of this reorganization. Indeed, the bankruptcy reporters during the period of this reorganization are replete with orders and appeals arising out of the Manville reorganization and concerning every conceivable aspect of bankruptcy law.
A potential breakthrough in the reorganization occurred on August 2, 1985, when Manville announced that its board of directors and the Legal Representative had approved an agreement on principal elements of a plan of reorganization (the "Principal Elements Agreement").
The Equity Committee, which did not participate in the...
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