In re Muralo Co., Inc., Bankruptcy No. 03-26723 (MS).

• Decision Date: 16 July 2003
• Docket Number: Adversary No. 03-2008 (MS).,Bankruptcy No. 03-26723 (MS).
• Citation: 295 B.R. 512
• Parties: In re the MURALO COMPANY, INC., a New Jersey Corporation, et al., Debtors. The Muralo Company, Inc., and Norton & Son of California, Inc., Debtors and Debtors in Possession, Plaintiffs, v. All Defendants Listed on Exhibits A Through D to Complaint (as Synkoloid Asbestos Plaintiffs), and Jane Does 1-100, and John Does 1-100, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

295 B.R. 512

In re the MURALO COMPANY, INC., a New Jersey Corporation, et al., Debtors.

The Muralo Company, Inc., and Norton & Son of California, Inc., Debtors and Debtors in Possession, Plaintiffs, v. All Defendants Listed on Exhibits A Through D to Complaint (as Synkoloid Asbestos Plaintiffs), and Jane Does 1-100, and John Does 1-100, Defendants.

Bankruptcy No. 03-26723 (MS).

Adversary No. 03-2008 (MS).

United States Bankruptcy Court, D. New Jersey.

July 16, 2003.

Brian McMahon, Esq., Gibbons, DelDeo, Griffinger & Vecchione, PC, Newark, NJ, for Plaintiff/Debtor.

Jeffrey D. Prol, Esq., Lowenstein Sandler, PC, Roseland, NJ, for Official Committee of Asbestos Claimants.

Margaret Lambe Jurow, Esq., United States Department of Justice, Office of the United States Trustee, Newark, NJ, for U.S. Trustee.

Terri Jane Freedman, Esq., Porzio, Bromberg & Newman, P.C., Morristown, NJ, Proposed co-counsel to the Official Committee of Unsecured Trade Creditors of the Muralo Company, Inc.

OPINION

MORRIS STERN, Bankruptcy Judge.

The Muralo Company, Inc. and Norton & Son of California, Inc. ("Debtors"), move for relief which, in essence, would permit service of Summons and Complaint in this adversary proceeding (the "Adversary Proceeding"), upon certain counsel as implied or court-designated agents of the defendants herein. Counsel are identified as currently representing the defendants in state court actions. In fact, the more than 60,000 defendants here are plaintiffs in thousands of pending state court actions (the "Synkoloid Asbestos Actions"), where one or both Debtors are named defendants. There are seventy-six (76) identified counsel who would per this motion be served with initial process as agents for their clients. Debtors' motion in this regard seeks clarification of this court's Order of May 30, 2003 to the effect that such service has been approved, or, alternatively, an order so authorizing the service.

This court finds that it has jurisdiction pursuant to 28 U.S.C. 157 and 1334 and the "District Court General Order of Reference" of the United States District Court for the District of New Jersey, dated July 23, 1984. Service issues are governed by Fed. R. Bankr.P. 7004.

On May 20, 2003 (the "Petition Date"), Debtors filed voluntary petitions for relief under chapter 11, title 11, United States Code, 11 U.S.C. 101, et seq. (the "Bankruptcy Code"). Venue of Debtors' chapter 11 cases, this Adversary Proceeding and the immediate motion is properly in this district, pursuant to 28 U.S.C. 1408 and 1409. Debtors continue to operate their businesses and manage their properties pursuant to § 1107(a) and 1108 of the Bankruptcy Code as debtors-in-possession.

FACTUAL BACKGROUND

The Muralo Company, Inc. ("Muralo"), is a family-owned and operated New Jersey corporation that produces and distributes paint and related products, including paint brushes and rollers, from its principal place of business in Bayonne, New Jersey, and its distribution plant/warehouse located in Chicago, Illinois. Norton & Son of California, Inc. ("Norton"), is a California corporation affiliated with Muralo through common shareholders and is primarily a manufacturing company which produces patch and repair products sold and distributed by Muralo.

Debtors assert that these chapter 11 cases were filed because of the thousands of asbestos-related complaints that have been filed against one or both of them in state courts throughout the country. As detailed more fully in Debtors'"first-day" pleadings heretofore filed with the court and in the Complaint for Declaratory Judgment Relating to Successor Liability for Synkoloid Products (the "Complaint") which commenced the Adversary Proceeding, the Synkoloid Asbestos Actions seek to hold Debtors liable for certain personal injuries (the "Synkoloid Asbestos Claims"). These injuries purportedly arise out of the alleged exposure to Synkoloid products which Muralo claims contained asbestos prior to (but allegedly not after) Muralo's purchase of Synkoloid division assets from The Artra Group, Inc. ("ARTRA"). ARTRA is now a debtor in a chapter 11 case pending in the Bankruptcy Court for the Northern District of Illinois.

The Adversary Proceeding, initiated on June 7, 2003, seeks a declaratory judgment that Debtors are not liable for any Synkoloid Asbestos Claims, as defined in the Complaint, under any "successor liability," or analogous theory of liability. Each of the individually named defendants in the Adversary Proceeding (the "Synkoloid Asbestos Plaintiffs") is said to have filed a Synkoloid Asbestos Action in one of various state courts throughout the country against Muralo and/or Norton, as well as ARTRA and/or Synkoloid. The Synkoloid Asbestos Actions are alleged to be integrally related to this Adversary Proceeding in that both are said to center on whether Debtors have any liability for claims alleging injuries resulting from exposure to Synkoloid asbestos-containing products marketed prior to Muralo's purchase of Synkoloid assets.

Debtors assert that pursuant to an express indemnity agreement between Muralo and ARTRA and by ARTRA's purported admission of successorship to Synkoloid liabilities, ARTRA is said to have assumed and controlled defense of, and provided indemnity against, all Synkoloid Asbestos Actions for over twenty years. Though some of these actions were initiated by complaints served upon Muralo rather than ARTRA, Muralo maintains that it transmitted to ARTRA each of the complaints in the Synkoloid Asbestos Actions referring to Muralo. Debtors assert that during this same period, ARTRA defended and/or settled every Synkoloid Asbestos Action nominally against "Synkoloid, a Division of Muralo," without any material participation by Muralo.

Because ARTRA assumed the defense of any Synkoloid Asbestos Claims for over twenty years, Debtors claim to have little or no information regarding the majority of the tens of thousands of Synkoloid Asbestos Actions pending on June 3, 2002. On that date ARTRA commenced its chapter 11 case and abruptly ceased defending the Synkoloid Asbestos Actions naming Muralo. Debtors specifically assert that they have no address information for the vast majority of the defendants named in this Adversary Proceeding.

Debtors claim that because of the sheer volume of Synkoloid Asbestos Plaintiffs, it would be impractical (if not impossible), as well as a grossly inefficient use of Debtors' assets, to require Debtors first to obtain current addresses for and then to serve each of the over 60,000 Synkoloid Asbestos Plaintiffs named as defendants in this Adversary Proceeding.

The legal representation of the tens of thousands Synkoloid Asbestos Plaintiffs is said to be centralized in relatively few law firms. Based upon the information said to be currently available to Debtors, the seventy-six law firms collectively represent the named defendants in this Adversary Proceeding, with roughly 40,000 represented by but three law firms. Baron & Budd, P.C. is said to represent almost 23,000 of the defendants named in this Adversary Proceeding.

In the subject chapter 11 cases, to date the following firms have filed Notices of Appearance on behalf of their asbestos-claimant clients: Baron & Budd, P.C.; Wilentz, Goldman & Spitzer; Silber Pearlman, LLP; Foster & Sear, LLP; Steven R. Penn, Esq.; and Brayton Purcell.¹ These firms are said to represent between approximately 41,000 and 49,000 claimants.

Though the chapter 11 cases are in their early stages, some of the attorneys who would be served as agent have already taken an active role in the proceedings by their appearing at first-day order or related hearings (i.e. Baron & Budd, P.C., and Wilentz, Goldman & Spitzer), and allegedly by seeking the appointment of an official committee of asbestos claimants. Debtors allege that Baron & Budd, P.C. and Wilentz, Goldman & Spitzer corresponded with the United States Trustee requesting the appointment of such a committee, which has been formed. In fact, the now-proposed counsel to the Asbestos Creditors' Committee appeared before this court on first-day orders, representing Baron & Budd, P.C. and/or its client-asbestos claimants. Debtors claim that attorneys representing Synkoloid Asbestos Plaintiffs will continue to take an active role in the chapter 11 case on behalf of their clients. The Muralo Asbestos Creditors' Committee is comprised of seven individuals, each of whom is represented by counsel. Those counsel, in turn, represent between 40,000 and 48,000 claimants. Three of these firms also sit (as members) on the ARTRA Creditors' Committee; that committee includes six asbestos plaintiffs' firms representing between 30,000 and 38,000 claimants.

In ARTRA's chapter 11 case, Baron & Budd, P.C., has appeared on behalf of, and defended, their asbestos-claimant clients in an adversary proceeding naming those clients as defendants and in which the only process was served upon counsel. On May 7, 2003, an adversary proceeding was instituted by ARTRA and Debtors seeking an injunction pursuant to 11 U.S.C. § 105 that would stay asbestos litigation against Debtors and naming all known Synkoloid Asbestos Plaintiffs as defendants (the "ARTRA Adversary Proceeding"). ARTRA and Debtors sought and were granted the same relief requested herein. The Bankruptcy Court's May 16, 2003 Order authorizing service of the ARTRA Adversary Proceeding upon counsel provides in pertinent part the following:

2. Service of summons of the Movant's Complaint for Injunctive Relief In Furtherance of Debtor's First Amended Plan of Reorganization ("Complaint") on counsel to the Litigation Plaintiffs [i.e., the Synkoloid Asbestos Plaintiffs] ... shall be deemed appropriate service of the Complaint.

Accordingly, service of the ARTRA Adversary Proceeding was said to be effected on counsel of record for the known asbestos claimants, all of whom were named as defendants in the ARTRA Adversary Proceeding (and...