IN RE JOINT EASTERN & SOUTHERN DIST. ASBESTOS LIT.
| Decision Date | 30 November 1990 |
| Docket Number | Class Civ. A. No. 90-3973.,Bankruptcy No. 82 B 11656 (BRL) through 82 B 11676 (BRL) |
| Citation | 120 BR 648 |
| Parties | In re JOINT EASTERN AND SOUTHERN DISTRICTS ASBESTOS LITIGATION. In re JOHNS-MANVILLE CORPORATION, et al., Debtors. Bernadine K. FINDLEY, as Executrix of the Estate of Hilliard Findley, Uma Lail Caldwell, as Executrix of the Estate of Odell Caldwell, Edward Lindley, Joseph C. Jones and James William Barnette, Jr., on behalf of themselves, and all others similarly situated as beneficiaries of the Manville Personal Injury Settlement Trust, Plaintiffs, v. Donald M. BLINKEN, Daniel Fogel, Francis H. Hare, Jr., Christian E. Markey, Jr. and John C. Sawhill, not individually but solely in their capacities as Trustees of the Manville Personal Injury Settlement Trust, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
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Caplin & Drysdale, New York City by Elihu Inselbuch, Baron & Budd, Dallas, Tex. by Frederick M. Baron, Wilentz, Goldman & Spitzer, Woodbridge, N.J. by Christopher M. Placitella, Patten, Wornom & Watkins, Newport News, Va. by Robert R. Hatten, Rose, Klein & Marias, Los Angeles, Cal. by Robert B. Steinberg, Ness, Motley, Loadholt, Richardson & Poole, Charleston, S.C. by Ronald L. Motley, Paul, Weiss, Rifkind, Wharton & Garrison, New York City by Leslie Gordon Fagen, for plaintiffs.
Debevoise & Plimpton, New York City by Roger E. Podesta, Anna E. Cohen, for defendant Owens-Corning Fiberglass Corp.
Wood, Williams, Rafalsky & Harris, New York City by Earl L. Scott, for defendant H.K. Porter.
Phillips, Lytle, Hitchcock, Blaine & Huber, Buffalo, N.Y. by Paul F. Jones, for defendant General Refractories & Grefco, Inc.
Wachtell, Lipton, Rosen & Katz, New York City by Amy R. Wolf, for defendant Manville Personal Injury Settlement Trust, Manville Personal Injury Settlement Trust, Washington, D.C. by David T. Austern.
Casey, Gerry, Casey, Westbrook, Reed & Hughes, San Diego, Cal. by Frederick Schenk, Jacobs & Crumplar, P.A., Wilmington, Del. by Robert Jacobs, Henerson & Goldberg, P.C., Pittsburgh, Pa. by Thomas W. Henderson, Cadwalader, Wickersham & Taft, New York City by H. Peter Haveles, Jr., McCarter & English, Newark, N.J. by Andrew T. Berry, Boulanger, Finley & Hicks, New York City by Gregg J. Borri, Pustovino, Pederson, Tilton & Parrington, Minneapolis, Minn. by John H. Faricy, Jr., The Jaques Admiralty, Detroit, Mich. by Alan Kellman, Boyar, Higgins & Hayden, Morristown, N.J. by James J. Higgins, Wilson, Elser, Moskowitz, Edelman & Dicker, Newark, N.J., attorneys for E.J. Bartells by James Crawford Orr, Glasser & Glasser, Norfolk, Va. by Richard S. Glasser, Porzio, Bromberg & Newman, Morristown, N.J. by D. Jeffrey Campbell.
Before WEINSTEIN, District Judge, and BURTON R. LIFLAND, Chief Judge.
MEMORANDUM ON STAYS
This Memorandum covers the authority of a federal court to stay proceedings in all other courts to prevent the inequitable distribution of trust assets available to pay claims filed by the trust's beneficiaries. Part One briefly describes the history of the bankruptcy proceedings of the Manville Corporation and certain affiliated entities ("Manville"). Part Two touches upon the fiscal problems experienced by the Manville Personal Injury Settlement Trust (the "Trust"). Part Three outlines the procedural background of the proceedings that led to the class action complaint and the stipulation of settlement. Finally, Part Four provides the legal basis for enjoining all proceedings against the Trust.
Manville filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code on August 26, 1982. At that time, Manville, the nation's leading producer and distributor of asbestos, faced a substantial number of asbestos disease claims, including more than 17,000 pending tort suits. It estimated its projected asbestos liability at more than one billion dollars. It sought bankruptcy protection to devise a means to cope with its burgeoning asbestos liability.
On August 22, 1986, Manville proposed the Second Amended and Restated Plan of Reorganization (the "Plan"). Insofar as is relevant, the Plan provided for the creation of the Trust "out of which all asbestos-related claims will be paid." See In re Johns-Manville Corp., 68 B.R. 618, 621 (Bankr.S.D.N.Y.1986), aff'd, 78 B.R. 407 (S.D.N.Y.1987), aff'd sub nom., Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir.1988). The Plan was designed to deal with the rapidly increasing number of claims filed against Manville. It was confirmed by the bankruptcy court on December 22, 1986. Id.
The parties in the Manville bankruptcy agreed "as a condition precedent to confirmation of the Plan that the Bankruptcy Court would issue an injunction channeling all asbestos-related personal injury claims to the Trust. . . ." Kane, 843 F.2d at 640. Thus, the Trust became the exclusive entity from which to seek compensation for existing and future asbestos health claims caused by exposure to Manville products.
Pursuant to the Plan, the courts have continuing responsibility to implement the terms of the Manville reorganization and to protect the interests of the beneficiaries of the Trust. See Second Amended and Restated Plan of Reorganization for Johns-Manville Corporation Art. X (Nov. 28, 1988) (retention of jurisdiction); Trust Agreements §§ 6.12, 6.13 (same).
Under the provisions of the Plan, Manville would fund the Trust for at least thirty years. The Trust received $150 million in cash plus $5,444,422 in accrued interest from Manville. Additional funding was contributed from the following sources: insurance settlement proceeds and cash totaling $909 million; two bonds with an aggregate value of $1.8 billion payable in installments commencing August 1991 and extending through November 2014; and twenty-four million shares of Manville common stock (50% of common stock outstanding) plus 7,200,000 shares of Manville convertible preferred stock — in all eighty percent of the stock in the reorganized Manville after conversion. Finally, beginning in 1992 the Trust is entitled to twenty percent of Manville's profits for as long as necessary to satisfy all asbestos health claims.
The Plan provided for the creation of a Claims Resolution Facility ("CRF") to administer the processing and payment of claims. As specified in the Plan, the CRF processes claims in the order in which they are liquidated, the first-in first-out ("FIFO") system. Plan, Annex B, § I.A.2. Although the CRF states that claims liquidated by settlement or arbitration must be paid shortly after liquidation, id. at §§ II. B.9, III.D.6, III.E.5, no similar urgency is expressed for payment of claims that have been liquidated through trial.
It was assumed that the Trust would have adequate funds to satisfy all asbestos health claims as they became liquidated if the process occurred over a period of time coinciding with the Plan's long-term funding provisions. See Kane, 843 F.2d at 640. In fact, the number of claims, the rate at which they were filed and their average liquidated value far exceeded the projected amounts. For example, as of March 30, 1990, the Trust had received more than 150,000 claims, a fifty percent increase over the highest number estimated when the Plan was approved. The Trust has settled 22,386 of those claims at an average liquidated value of $42,000 — far above the predicted average — leaving roughly 130,000 claims pending. The cost of satisfying those claims is anticipated to exceed by fifty percent the value Manville had extrapolated from its earlier pre-petition experience. By the Spring of 1990, the Trust was effectively out of money to pay its current and short term obligations.
A district judge with substantial responsibility for pending asbestos cases in the Southern and Eastern Districts of New York (particularly the New York Navy Yard and related cases) was assigned supervisory responsibility over the reorganization of the Johns-Manville Corporation (consolidated cases) 82 BR 11656 (BRL) through 82 B 11676 (BRL). See Order of James L. Oakes, Chief Judge, Second Circuit dated January 23, 1990 and July 20, 1990; Order of Charles L. Brieant, Chief Judge, United States District Court, Southern District of New York dated July 20, 1990.
In May 1990, the state and federal judges presiding jointly over the consolidated New York Navy Yard and related asbestos cases requested that the Trust furnish a report on the initial assets of the Trust; the initial projections concerning future claimants, assets and payment schedules at the time the Plan was approved; and the Trust's current assets, its administrative expenses, legal fees, and other transaction costs.
The Trust's responses indicated that the assets anticipated from Manville would not cover the amounts that the Trust owed for liquidated claims and that the Plan did not provide for an additional influx of funds for a substantial period of time. The Trust estimated a deficit of $19,600,000 at the end of 1990 assuming no additional claims were settled or paid. In fact, the pressure of state and federal trials and plaintiffs all over the country was threatening a deluge of hundreds of millions of dollars in judgments and settlements which could not be paid.
In an effort to cope with the impending shortfall of cash, the Trust established a deferred payment plan under which the majority of cases would receive up to 40% of the total settlement amount within a year of settlement and the balance within five years, subject to the availability of funds. As a result, approximately $306 million of settled and unpaid claims as of June 30, 1990 will be paid in 1991 or later. Even this program, however, would leave the Trust with insufficient funds to satisfy its obligations in the next twelve months.
Based on the...
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