In re Prudential Lines, Inc.
| Decision Date | 29 July 1994 |
| Docket Number | No. 93 Civ. 1481 (CSH),93 Civ. 7164 (CSH).,93 Civ. 1481 (CSH) |
| Citation | 170 BR 222 |
| Parties | In re PRUDENTIAL LINES, INC., Debtor. Asbestosis Claimants Represented by Maritime Asbestosis Legal Clinic, Submitter of First Partial Judgment, Lee J. DICOLA, Trustee of the PLI Disbursement Trust, Judgment Creditor, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC., Judgment Debtor. In re PRUDENTIAL LINES, INC., Debtor. Lee J. DICOLA, Trustee of the PLI Disbursement Trust, Judgment Creditor, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC., Judgment Debtor. |
| Court | U.S. District Court — Southern District of New York |
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Kirlin, Campbell, Meadows & Keating, New York City, Richard H. Brown, Jr., James E. Pratt, for defendant-appellant American S.S. Owners Mut. Protection and Indem. Ass'n, Inc.
Maritime Asbestosis Legal Clinic, A Div. of Jaques Admiralty Law Firm, Detroit, MI, Leonard C. Jaques, Alan Kellman, for intervenors-appellees Asbestosis Claimants.
These two consolidated appeals present another example of the growing number of cases arising from the havoc wrought by asbestos. The appeals seek review of various decisions of Bankruptcy Judge Francis G. Conrad, sitting by designation in the Bankruptcy Court for the Southern District of New York, made during Chapter 11 bankruptcy proceedings. For reasons detailed below, the bankruptcy court's "Memorandum of Decision on Summary Judgment and 11 U.S.C. § 553" and accompanying "Order and Judgment" are affirmed in part and reversed in part, the Order dated August 4, 1993 and the First Partial Judgment are vacated, and the case is remanded for further proceedings consistent with this opinion.
Debtor Prudential Lines, Inc. ("PLI"), a United States shipowning company, consented to an entry of Chapter 11 relief on November 4, 1986. American Steamship Owners Mutual Protection & Indemnity Association, Inc. ("American Club") is a not-for-profit corporation which provides protection and indemnity insurance to its shipowner members. American Club underwrote protection and indemnity ("P & I") policies for PLI ships on an annual basis from 1940 through 1970 and from 1975 through early 1986.
These policies were "assessable" policies, which meant that American Club charged participants premiums based upon the amount necessary to cover claims and related expenses owed in the insurance year. Assessments were levied on participants for a period of several years after the end of an insurance year as necessary to cover the costs of paying claims and related expenses for that particular insurance year. After ten years, when most of the claims for a particular insurance year had been paid, the insurance year was "closed" and a reserve to cover the unpaid claims for that insurance year was transferred to a Reserve Account. Any surplus remaining in the insurance year account was refunded to the participants pro rata according to the premiums each participant paid in the relevant insurance year. Prior to the 1977 insurance year, no additional transfers were made to reserve funds for closed insurance years to cover possible unasserted asbestos claims. PLI paid in full the premiums due and assessments levied for all years in which policies were issued by American Club except for the years 1979, 1983, 1984 and 1985. It is undisputed that asbestotic diseases constitute injuries compensable under the policies.
The Maritime Asbestosis Legal Clinic ("MALC") represents over 5,000 claimants ("Asbestosis Claimants") seeking damages for their alleged exposure to asbestos with resulting injury while serving on PLI ships during one or more of the years in which American Club had issued P & I policies to PLI. With few exceptions, each claimant also served on vessels of other shipowners during their period of exposure to asbestos.
The Second Amended Joint Plan of Reorganization as Modified (the "Plan") was confirmed by the bankruptcy court on October 4, 1990. The Plan, whose confirmation was never appealed by any party, established a PLI Disbursement Trust (the "Trust") to liquidate asbestos-related claims and to enforce the Trust's interests under PLI's numerous insurance policies. Pursuant to its authority under the Plan, on December 14, 1990, the PLI Disbursement Trustee ("Trustee") commenced an adversary proceeding in the bankruptcy court against American Club seeking a declaratory judgment to determine the Trustee's rights under the P & I policies issued by American Club to PLI. The Asbestosis Claimants, represented by MALC, were granted leave by the bankruptcy court to intervene in that proceeding on February 26, 1991. On April 2, 1991, Judge Conrad signed an order declaring the adversary proceeding to be a "core" proceeding, or in the alternative a "related" proceeding, and denying American Club's motion that he abstain from hearing the matter.
In its "Memorandum of Decision on Summary Judgment and 11 U.S.C. § 553," issued December 10, 1992, the bankruptcy court ruled on the parties' cross-motions for summary judgment in the declaratory judgment action 148 B.R. 730. The bankruptcy court entered a "Final Order and Judgment" on January 10, 1993 implementing the conclusions it had reached in the summary judgment opinion. American Club filed a notice of appeal on March 11, 1993, seeking review of the April 2, 1991 order of Judge Conrad declaring the proceeding to be "core" and refusing to abstain; the December 10, 1992 summary judgment decision; and the January 10, 1993 Final Order and Judgment (the "First Appeal").
In March of 1993, the PLI Disbursement Trustee and MALC entered into a stipulation settling the asbestosis claims by specifying certain fixed amounts to be paid for certain named categories of diseases, and establishing a procedure for the Trustee's payment of the claims. The bankruptcy court "so ordered" the stipulation of settlement on March 9, 1993. American Club did not receive notice of this stipulation until it received the Trustee's initial claim under it, in a letter dated May 25, 1993, seeking reimbursement of over $13,000,000 expended pursuant to the so ordered stipulation. American Club subsequently declined to pay the claims for indemnification asserted by the Trustee. As a result, in an order dated August 4, 1993 and filed on August 9, 1993 ("August 4 Order") upon MALC's motion, the bankruptcy court directed American Club to fully comply with the Bankruptcy Plan and to reimburse the Trustee for sums expended pursuant to the stipulation.
American Club sought leave from this Court to appeal the August 4 Order, arguing that the bankruptcy court lacked jurisdiction to issue the order because it impacted on issues under appeal in this Court. This Court granted American Club's motion for leave to appeal that order in a Memorandum Opinion and Order dated September 27, 1993.
In a hearing held September 2, 1993, on American Club's motion, the bankruptcy court ordered the Trustee to submit to American Club information sufficient to enable American Club to determine the reasonableness of the settlements. On September 21, 1993, before the Trustee had complied with this order, and over American Club's objections, the bankruptcy court entered the First Partial Judgment submitted by MALC requiring payment of $66,160,000 by American Club to the Trustee pursuant to the so ordered stipulation of settlement.
American Club has also appealed this judgment. That appeal, consolidated with the first, seeks review of both the August 4 Order and the First Partial Judgment.
In Northern Pipeline v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the Supreme Court held unconstitutional the broad congressional grant of jurisdiction to bankruptcy courts to decide "private rights" matters, such as state breach of contract claims. Marathon involved the adjudication in bankruptcy court of a state breach of contract claim based on a pre-petition contract brought by a debtor against a defendant who had not filed a claim with the bankruptcy court. As explicated in a later decision, Marathon held "that Congress may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law, without consent of the litigants, and subject only to ordinary appellate review." Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 584, 105 S.Ct. 3325, 3334, 87 L.Ed.2d 409 (1985).
In response to the Supreme Court's decision in Marathon, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984, 28 U.S.C. § 151, restructuring the jurisdiction of the bankruptcy courts by drawing a distinction between "core" and "non-core" proceedings. Bankruptcy courts now have jurisdiction to adjudicate matters constituting core proceedings pursuant to 28 U.S.C. § 157(b)(1). Although the statute does not define "core," § 157(b)(2) sets forth a non-exclusive list of matters considered to be core. Bankruptcy courts may also hear matters which are not core but are otherwise related to the bankruptcy case. See 28 U.S.C. § 157(c)(1). These non-core but "related" matters are also left undefined.
Because the bankruptcy court has jurisdiction to adjudicate both categories of proceedings, the primary consequence of a determination of whether the proceeding is core or non-core in this case is the applicable standard of review on appeal of the bankruptcy court's decision.
When adjudicating core matters, the bankruptcy court may issue final orders and judgments, which are subject to appellate review pursuant to Bankruptcy Rule 8013. Under that rule, a district court reviews the bankruptcy court's findings of facts under a "clearly erroneous" standard and his conclusions of law de...
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