In re Johns-Manville Corp.

• Decision Date: 15 February 2008
• Docket Number: Docket No. 06-2186-bk (con).,Docket No. 06-2099-bk (L).,Docket No. 06-2118-bk (con).,Docket No. 06-2105-bk (con).,Docket No. 06-2103-bk (con).
• Citation: 517 F.3d 52
• Parties: In re JOHNS-MANVILLE CORPORATION, Debtor. Johns-Manville Corporation, Manville Corporation, Manville International Corporation, Manville Export Corporation, Johns-Manville International Corporation, Manville Sales Corporation f/k/a Johns-Manville Sales Corporation, Successor by Merger to Manville Buildings Materials Corporation, Manville Products Corporation and Manville Service Corporation, Manville International Canada, Inc., Manville Canada, Inc., Manville Investment Corporation, Manville Properties Corporation, Allan-Deane Corporation, Ken-Caryl Ranch Corporation, Johns-Manville Idaho Inc., Manville Canada Service Inc., Sunbelt Contractors Inc., Debtors, Travelers Casualty and Surety Company, Travelers Property Casualty Corp., Travelers Indemnity Company, Common Law Settlement Counsel, Statutory Settlement Counsel, Hawaii Settlement Counsel, Movants-Appellees, v. Chubb Indemnity Insurance Company, Asbestos Personal Injury Plaintiffs, Cascino Asbestos Claimants, Pearlie Bailey, Shirley Melvin, General Lee Cole, Robert. Alvin Griffin, Vernon Warnell, Lee Fletcher Anthony, Objectors-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

517 F.3d 52

In re JOHNS-MANVILLE CORPORATION, Debtor Johns-Manville Corporation, Manville Corporation, Manville International Corporation, Manville Export Corporation, Johns-Manville International Corporation, Manville Sales Corporation f/k/a Johns-Manville Sales Corporation, Successor by Merger to Manville Buildings Materials Corporation, Manville Products Corporation and Manville Service Corporation, Manville International Canada, Inc., Manville Canada, Inc., Manville Investment Corporation, Manville Properties Corporation, Allan-Deane Corporation, Ken-Caryl Ranch Corporation, Johns-Manville Idaho Inc., Manville Canada Service Inc., Sunbelt Contractors Inc., Debtors Travelers Casualty and Surety Company, Travelers Property Casualty Corp., Travelers Indemnity Company, Common Law Settlement Counsel, Statutory Settlement Counsel, Hawaii Settlement Counsel, Movants-Appellees, v. Chubb Indemnity Insurance Company, Asbestos Personal Injury Plaintiffs, Cascino Asbestos Claimants, Pearlie Bailey, Shirley Melvin, General Lee Cole, Robert. Alvin Griffin, Vernon Warnell, Lee Fletcher Anthony, Objectors-Appellants.

Docket No. 06-2099-bk (L).

Docket No. 06-2103-bk (con).

Docket No. 06-2105-bk (con).

Docket No. 06-2118-bk (con).

Docket No. 06-2186-bk (con).

United States Court of Appeals, Second Circuit.

Argued: November 16, 2007.

Decided: February 15, 2008.

Sander L. Esserman (Cliff I. Taylor, on the brief), Stutzman, Bromberg, Esserman & Plifka, PC, Dallas, TX (Douglas T. Tabachnik, Law Offices of Douglas T. Tabachnik, Manalapan, NJ, on the brief) for Objector-Appellant Asbestos Personal Injury Plaintiffs.

Jacob C. Cohn (William P. Shelley, on the brief), Cozen O'Connor, Philadelphia, PA, for Objector-Appellant Chubb Indemnity Insurance Company.

Jason R. Searcy, (Joshua P. Searcy, on the brief), Jason R. Searcy, P.C., Longview, TX, for Objector-Appellant Cascino Asbestos Claimants.

Barry R. Ostrager (Andrew T. Frankel, on the brief), Simpson Thatcher & Bartlett, LLP, New York, N.Y. (Robert J. Pfister, Simpson Thatcher & Bartlett, LLP, Los Angeles, CA, on the brief), for Movants-Appellees Travelers Casualty and Surety Company, Travelers Property Casualty Corp., and Travelers Indemnity Company.

Ronald Barliant (Kenneth S. Ulrich, Kathryn A. Pamenter, on the brief), Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., Chicago, IL (Karen A. Giannelli, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, PC, Newark, NJ, on the brief), for Movant-Appellee Common Law Settlement Counsel.

Matthew Gluck (Kent A. Bronson, on the brief), Milberg Weiss, LLP, New York, NY, for Movant-Appellee Statutory Direct Action Plaintiffs and the Hawaii Plaintiffs.

Before: CALABRESI, SOTOMAYOR, and WESLEY, Circuit Judges.

WESLEY, Circuit Judge:

Chubb Indemnity Insurance Company, Asbestos Personal Injury Plaintiffs,¹ and Cascino Asbestos Claimants² ("Appellants") appeal from an order of the District Court for the Southern District of New York (Koeltl, J.) affirming in significant part and vacating in part the Findings of Fact and Conclusions of Law entered by the bankruptcy court (Lifland, J.) regarding Travelers's³ motions for approval of certain settlement agreements and for entry of a Clarifying Order in connection with the Chapter 11 proceeding of the Johns-Manville Corporation ("Manville"). The bankruptcy court granted Travelers' motion to approve settlements with three separate classes of "Direct Action"⁴ plaintiffs and, in conjunction with the settlements, issued an order clarifying that all Direct Action claims against Travelers were barred by the original 1986 injunction that issued as part of Manville's reorganization plan. Appellants, who were not party to the settlements, argue that the bankruptcy court erred by interpreting its prior order to enjoin suits brought against Travelers that allege independent misconduct by Travelers during its tenure as Manville's primary insurer. Appellants insist that the bankruptcy court was without subject matter jurisdiction to enjoin claims against Travelers that are not limited by the terms and scope of the insurance coverage Travelers provided Manville, do not seek recovery from Manville's insurance proceeds, and allege independent misconduct by Travelers. We conclude that the bankruptcy court erred insofar as it enjoined suits that, as a matter of state law, are predicated upon an independent duty owed by Travelers to the Appellants, that do not claim against the res of the Manville estate, and that seek damages in excess of and unrelated to Manville's insurance policy proceeds. The order of the District Court is VACATED and the case REMANDED for further proceedings consistent with this opinion.

Background

This case concerns the outer reaches of a bankruptcy court's jurisdiction. Manville was, by most sources, "the largest manufacturer of asbestos-containing products and the largest supplier of [raw] asbestos in the United States" from the 1920s until the 1970s. In re Joint E. & S. Dist. Asbestos Litig., 129 B.R. 710, 742 (E.D.N.Y. & Bankr.S.D.N.Y.1991), vacated on other grounds, 982 F.2d 721 (2d Cir. 1992), modified on reh'g, 993 F.2d 7 (2d Cir.1993). In its heyday, Manville sold raw asbestos to manufacturers of asbestos-based products in 58 countries and distributed its own asbestos-based products "across the entire spectrum of industries and employment categories subject to asbestos exposure." (Findings of Fact and Conclusions of Law Regarding Travelers Motions for Approval of Certain Settlement Agreements and for Entry of a Clarifying Order, dated Aug. 17, 2004) (Docket No. 3750), 2004 WL 1876046 (cited herein as "FOF" or "COL") at ¶ 3, 2004 WL 1876046, at *3, aff'd in part; vacated in part by In re Johns-Manville Corp., 340 B.R. 49 (S.D.N.Y.2006). As a result of studies linking asbestos with respiratory disease, Manville became the target of a growing number of products liability lawsuits in the 1960s and 1970s. See Kane v. Johns-Manville Corp., 843 F.2d 636, 639 (2d Cir.1988), Buckling under the weight of its asbestos liability, Manville filed for Chapter 11 protection on August 26, 1982.⁵ Id.

The bankruptcy filing was without precedent, largely due to the nature of liability Manville faced: a person exposed to Manville asbestos might not develop an identifiable injury for decades.⁶ Id.; see also (FOF ¶ 52; 2004 WL 1876046, at *14). The bankruptcy court (Lifland, J.),⁷ cognizant that Manville's insurance policies were the bankruptcy estate's most valuable asset, realized that the value of those policies to the estate was uncertain because Manville was engaged in extensive litigation with its insurance carriers regarding the scope and limits of its policies. (FOF ¶¶ 53-54; 2004 WL 1876046, at *14). To avoid the uncertainty of the insurance litigation and to fund its plan of reorganization, Manville sought to settle its insurance claims. See MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 90 (2d Cir.1988); (FOF ¶ 53; 2004 WL 1876046, at *14). Ultimately, Manville settled with its insurers for approximately $770 million.⁸ MacArthur, 837 F.2d at 90.

Travelers, Manville's primary insurer from 1947 through 1976, paid nearly $80 million into the bankruptcy estate (in addition to the $20 million already paid in litigation expenses on behalf of Manville) in exchange for a "full and final release of Manville-related claims." (FOF ¶¶ 12, 58; 2004 WL 1876046, at *5, 15); see also In re Johns-Manville Corp., 33 B.R. 254, 260-61 (Bankr.S.D.N.Y.1983). Travelers' settlement, like those of the other Manville insurers, was predicated upon the bankruptcy court issuing an injunction that barred suits against Manville's insurers— including Travelers—and directed litigation by potential claimants instead against the. Manville Personal Injury Settlement Trust ("Manville Trust"). (FOF ¶¶ 58, 61; 2004 WL 1876046, at *15). The injunction, embodied in the 1986 Confirmation Order (the "Confirmation Order") and the 1986 Insurance Settlement Order (the "Insurance Settlement Order"), channeled to the Manville Trust any and all claims that were based upon, arose out of, or related to Manville's liability insurance policies. (FOF ¶¶ 61-64; 2004 WL 1876046, at *15-16).

The Confirmation Order simultaneously enjoins "all persons" from commencing any action against any of the Settling Insurance Companies "for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on or with respect to any Claim ... or Other Asbestos Obligation...." (Order Confirming Debtors' Second Amended and Restated Plan of Reorganization, dated Dec. 22, 1986 at 25, ¶ 29). The bankruptcy court would note during this litigation that its "repeated use of the terms `arising out of' and `related to' were not gratuitous or superfluous; they were meant to provide the broadest protection possible to facilitate global finality for Travelers as a necessary condition for it to make a significant contribution to the Manville estate."⁹ (COL ¶ 23; 2004 WL 1876046, at *31).

Undeterred by the 1986 orders, various groups of plaintiffs subsequently filed Direct Action lawsuits against Travelers and other insurers in several states under a variety of legal theories. (FOF ¶70; 2004 WL 1876046, at *17). These lawsuits fall into two broad categories; those based on statutory regulation of insurance practices (the "statutory claims") and those based on common law theories (the "common law claims"). (FOF ¶ 72; 2004 WL 1876046, at *17). The statutory claims aim to assert the rights of individuals who are dissatisfied with the settlements they received after negotiating with Travelers acting on behalf of Manville, or who declined to file personal injury suits against Manville because Travelers allegedly suppressed information about asbestos hazards and intentionally propagated an allegedly-fraudulent "state of the art" defense to frustrate the claimants' rights.¹⁰ (FOF ¶ 73, 78; 2004 WL 1876046, at *18). These plaintiffs...