IN RE JOINT EASTERN AND SOUTHERN DISTS. ASBESTOS

• Decision Date: 10 June 1996
• Docket Number: No. CV-90-3973 (E.D.N.Y.),CV-90-7518 (S.D.N.Y.).,CV-90-3973 (E.D.N.Y.)
• Parties: In re JOINT EASTERN AND SOUTHERN DISTRICTS ASBESTOS LITIGATION. 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. Robert A. FALISE, Louis Klein, Jr., Christian E. Markey, Jr., and Frank Macchiarola, not individually, but solely in their capacities as Trustees of the Manville Personal Injury Settlement Trust, Defendants. In re JOHNS-MANVILLE CORPORATION, et al., Debtors.
• Court: U.S. District Court — Eastern District of New York

929 F. Supp. 1

In re JOINT EASTERN AND SOUTHERN DISTRICTS ASBESTOS LITIGATION.

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. Robert A. FALISE, Louis Klein, Jr., Christian E. Markey, Jr., and Frank Macchiarola, not individually, but solely in their capacities as Trustees of the Manville Personal Injury Settlement Trust, Defendants.

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

Nos. CV-90-3973 (E.D.N.Y.), CV-90-7518 (S.D.N.Y.).

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

June 10, 1996.

Caplin & Drysdale (by Elihu Inselbuch, James Sottile, IV, Christian R. Pastore), New York City, Cartwright, Slobodin, Bokelman, Borowsky, Wartnick, Moore & Harris, Inc. (by Harry F. Wartnick), San Francisco, CA, Baron & Budd, (by Frederick M. Baron), Dallas, TX, Rose, Klein & Marias, (by Robert B. Steinberg), Los Angeles, CA, Ness, Motley, Loadholt, Richardson & Poole, P.A. (by Ronald L. Motley, Joseph F. Rice), Charleston, SC, Wilentz, Goldman & Spitzer, P.C., (by Christopher M. Placitella, Philip Pahigian), Woodbridge, NJ, for Class.

Paul, Weiss, Rifkin, Wharton & Garrison, (by Leslie Gordon Fagen, Jean McMahon), New York City, for Future Claimants.

Pepper, Hamilton & Scheetz (by Francis J. Lawall, Charles H. Carpenter), Philadelphia, PA, Steele & Sales, P.S., (by Katherine Steele), Seattle, WA, for Distributor Sub-class.

Debevoise & Plimpton, (by Anne E. Cohen, Roger E. Podesta), New York City, for Codefendant Subclass.

Lani A. Adler, New York City, for Subclass of Claimants with Pre-November 1990 Settlements and Judgments.

John H. Faricy, Jr., Minneapolis, MN, for MacArthur Subclass.

Weitz & Luxenberg, P.C., (by Perry Weitz, Richard Nemsoff), New York City, for Subclass of Present Claimants.

Cohen, Shapiro, Polisher, Shiedman & Cohen (by Roberta Golden, Robert Lapowsky, Judah Labovitz), Philadelphia, PA, for Pacor Settlement Trust.

Law Offices of Peter G. Angelos, (by Peter G. Angelos, Timothy J. Hogan), Baltimore, MD, for Maryland Plaintiffs.

Goldberg, Persky, Jennings & White, P.C. (by Craig L. Vandergrift, Theodore Goldberg, Robert L. Jennings), Pittsburgh, PA, for Pennsylvania Plaintiffs.

Cooney & Conway (by Kathy Byrne), Chicago, IL, Gavin & Gavin (by James C. Gavin), Philadelphia, PA, Greitzer & Locks (by Lee B. Balefsky), Philadelphia, PA, Thomas W. Henderson, Pittsburgh, PA, Hal Pitkow, Washington Crossing, PA, Robert E. Sweeney Co., L.P.A. (by Robert E. Sweeney), Cleveland, OH, for Various Other Claimants.

Carla G. Hancock and Maxine Smith, Vivian, LA, for J.C. Smith.

Pollack & Greene (by Harold Goldfuss), for Laura Goldfuss.

Ms. Zeldonia J. Jackson, Fort Worth, TX, for Estate of George E. and Tena Lee Jackson, Sr. Berlack, Israels & Liberman (by Carole L. Fern), New York City, for Keene Corp.

Hodgson, Russ, Andrews, Woods & Goodyear (by Michael P. Murphy), Buffalo, NY, Wiley, Rein & Fielding (by Bert W. Rein, Keith S. Watson), Washington, DC, for United States Fidelity & Guaranty Co.

Whiteford, Taylor & Preston, L.L.P. (by Louis G. Close, Jr., Gardner M. Duvall), Baltimore, MD, for Porter Hayden Co.

Jeffrey M. Weiner, Wilmington, DE, for DI Distributors, Inc.

Myles O'Malley, William Rausnitz, Barbara Zelluck, Newark, NJ, for National Asbestos Victims Legal Organizing Committee and the White Lung Information Centers of New York and New Jersey.

James Fite, Paul Safchuck, Baltimore, MD, for White Lung Association.

David T. Austern, Patricia Dansbury, Manville Personal Injury Settlement Trust, Fairfax, VA, Donovan, Leisure, Newton & Irvine (by James L. Stengel, Laurie S. Dix, Richard De Marco, Steven Fink), New York City, for Manville Personal Injury Settlement Trust.

Mark Peterson, Rand Institute, Santa Monica, CA, Special Advisor to the Courts.

AMENDED MEMORANDUM, ORDER, AND JUDGMENT

WEINSTEIN, Senior District Judge, and BURTON R. LIFLAND, Bankruptcy Judge:

                   I. Introduction .......................................................... 3
                  II. When Federal Courts Must Decide an Issue of State Law ................. 4
                      A. Duty to Decide ..................................................... 4
                      B. Discretion and the Declaratory Judgment Act ........................ 5
                      C. Terms of Settlement ................................................ 6
                         1. Power to Reject Entirely ........................................ 6
                         2. Limited Power to Interpret ...................................... 6
                         3. New Conditions Requiring Modification ........................... 6
                         4. Court of Appeals' Limitation on Courts' Powers .................. 6
                 III. Law of Maryland as Construed by the Court of Appeals .................. 7
                  IV. Post-Remand Proceedings ............................................... 7
                      A. Requests From Courts to Parties .................................... 7
                      B. Remand Precludes Certification to Maryland Courts .................. 8
                      C. Evidentiary Hearings ............................................... 8
                      D. Courts' Conclusions ................................................ 8
                   V. Order Interpreting Maryland Law ....................................... 9
                      A. Text ............................................................... 9
                      B. Illustrative Examples .............................................. 9
                  VI. Fairness ............................................................. 10
                 VII. Conclusion ........................................................... 10
                

I. Introduction

A class action against the Manville Trust was settled during trial. Payment by the Trust of some 10% of the value of injured workers' claims was agreed to under the terms of the settlement. See Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir.1988) (Manville I) (affirming Second Amended Plan of Reorganization); In Re Joint E. & S. Dist. Asbestos Litig., 129 B.R. 710 (E. & S.D.N.Y.1991) (Manville II) (certifying class and approving original settlement for Manville reorganization); In Re Joint E. & S. Dist. Asbestos Litig., 982 F.2d 721 (2d Cir. 1992) (Manville III), as modified, 993 F.2d 7 (2d Cir.1993) (Manville III.A) (vacating settlement); In Re Joint E. & S. Dist. Asbestos Litig., 878 F.Supp. 473 (E. & S.D.N.Y.1995) (Manville IV) (approving new settlement); In Re Joint E. & S. Dist. Asbestos Litig., 78 F.3d 764 (2d Cir.1996) (Manville V) (remanding for resolution of Maryland law issue and affirming Manville IV in all other respects).

The only issue unresolved is the effect under Maryland law of the settlement in allocating responsibility for payment when judgment is entered in that state. Manville V, 78 F.3d at 776-77. The agreement, the court of appeals has ruled, requires the district courts in the Southern and Eastern Districts of New York and the bankruptcy court in the Southern District of New York ("the courts") to resolve that issue by predicting how the Maryland Court of Appeals would apply "Maryland set-off principles ... in the context of the present Settlement." Id. at 776. For the reasons indicated below, the courts predict that the Maryland Court of Appeals would exclude the Trust in determining the number and size of pro rata shares and would credit amounts settled by the Trust to defendants adjudicated joint tortfeasors who have not already settled.

II. When Federal Courts Must Decide an Issue of State Law

In determining the obligation of the courts to decide this dispositive issue of state law, three principles must be considered. These are first, the general obligation of the courts to decide every issue properly posed, leading to a general duty not to abstain. Second, since the courts are being asked, in effect, for a declaratory judgment on the effect of the settlement on future litigations in the Maryland courts, the discretion to avoid decisions under the Declaratory Judgments Act, 28 U.S.C. §§ 2201, 2202 and Rule 57 of the Federal Rules of Civil Procedure must be considered. Third, when the courts have approved a class action settlement, the extent to which they have discretion to vary or interpret its terms to minimize "duties" placed upon judges by the parties has a bearing.

A. Duty to Decide

With limited exceptions, it is the duty of the federal courts when acting as if they were state courts enforcing state substantive law pursuant to Erie principles to decide what the state law is. See In Re Joint E. & S. Dist. Asbestos Litig., 78 F.3d 764, 774-76 (2d Cir.1996) (Manville V); In Re Joint E. & S. Dist. Asbestos Litig., 878 F.Supp. 473, 546-56 (E. & S.D.N.Y.1995) (Manville IV); see also Braune v. Abbott Laboratories, 895 F.Supp. 530, 542 (E.D.N.Y.1995). The court of appeals in Manville V relied upon the subset of the somewhat murky Burford-type abstention doctrine to define this duty. See Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). The Burford issue was raised by defendants for the first time on appeal. The views of the courts were, therefore, not before the court of appeals.

Professor Charles Alan Wright has characterized Justice Scalia's statement of the Burford rule to be "as good a summary of Burford as can be hoped for." Charles A. Wright, Law of Federal Courts 331 (5th ed. 1994). Writing for the Court, Justice Scalia pointed out that the difficulty of the state law question and disruption of coherent state policy must be considered in deciding whether to abstain.

Where timely and adequate state court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are "difficult questions of state law bearing on policy problems of substantial public import whose importance

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