In re Standard Insulations, Inc.

• Decision Date: 13 April 1992
• Docket Number: Bankruptcy No. 86-03413-KMS-11.
• Parties: In re STANDARD INSULATIONS, INC., Debtor.
• Court: U.S. Bankruptcy Court — Western District of Missouri

138 B.R. 947 (1992)

In re STANDARD INSULATIONS, INC., Debtor.

Bankruptcy No. 86-03413-KMS-11.

United States Bankruptcy Court, W.D. Missouri.

April 13, 1992.

COPYRIGHT MATERIAL OMITTED

Louis S. Robles, Miami, Fla., David T. Kupfer, Los Angeles, Cal., Catherine J. Brown, Saginaw, Mich., Scott R. Bickford, New Orleans, La., John E. Williams, Jr., Houston, Tex., for claimants.

James Borthwick, Kansas City, Mo., for Employers Reinsurance.

Edward E. Schmitt, Kansas City, Mo., for National Union.

John L. Hayob, Kansas City, Mo., for U.S. Fire Ins.

David Welte, Kansas City, Mo., for debtor.

ORDER AND MEMORANDUM OPINION

KAREN M. SEE, Bankruptcy Judge.

Two issues are pending: 1) whether the bankruptcy court has jurisdiction to make threshold rulings allowing and disallowing personal injury and wrongful death claims; and 2) whether untimely claims should be disallowed. The court has jurisdiction and may enter final orders under 28 U.S.C. §§ 1334(b) and 157(b)(2).

I. INTRODUCTION

Debtor Standard Insulations, a small company, manufactured, distributed and installed asbestos insulation products of its own and other companies in several areas of the country. Debtor, a defendant in thousands of suits, terminated operations in 1986 due to overwhelming litigation expenses, and filed a liquidating Chapter 11 case. On October 10, 1986, the court set a bar date of November 6, 1991 for all personal injury claims to be filed. In 1987 the court appointed a Claimants Committee to represent the collective interests of personal injury claimants.

There were 23,532 timely claims alleging injury from exposure to Standard asbestos products. In addition, about 1,000 untimely claims have been filed. Despite the extended filing period, most claims were filed on or within days of the bar date.

National Union Fire Insurance Co., Employer's Reinsurance Co., and U.S. Fire Insurance Co., indemnified debtor against personal injuries during a combined period from October 25, 1966 to October 31, 1976. The insurers are responsible for payment of allowed, liquidated claims that arose during the coverage period. The estate's primary asset is $14,000,000 of insurance.¹

By Order dated April 17, 1987, the court approved a special claims handling procedure, and a form for all personal injury claims which required claimants to supply information identifying asbestos products claimants were exposed to and dates and places of exposure. The claim form required that claimants

must file a Proof of Claim on or before November 6, 1991. To file a claim, you must complete this Proof of Claim form even if you have previously filed a lawsuit or claim against Standard Insulations or any other asbestos product manufacturer. Your claim will be considered only if you follow these procedures and file a completed Proof of Claim form. Failure to complete the mandatory sections of the form may result in the rejection of your claim. (Emphasis in original.)

The insurers filed a Motion to Determine Claims Disallowance Procedure for a ruling on this court's jurisdiction to dismiss defective personal injury claims. They are reviewing claims to prepare objections based on: 1) untimely claims; 2) failure to properly complete the mandatory claim form; 3) claims that on the face show no exposure to debtor's products, based on product identification and job-site information supplied by claimants; and 4) claims showing exposure outside the coverage period.

II. PARTIES IN INTEREST

The Claimants Committee contends the insurers lack standing to object to personal injury claims, and that the insurers' interest is adverse to the estate because they are seeking summary judgment relieving them from liability for payment of claims. A "party in interest" may raise and may be heard on any issue. 11 U.S.C. § 1109(b). A filed claim is deemed allowed unless a party in interest objects. § 502(a). The "phrase `parties in interest' applies to those who have some interest in the assets of the debtor being administered in the case." 3 L. King, Collier on Bankruptcy, ¶ 502.012, at 502-13 (15th Ed.1991). The Code does not define the term, but it is not limited to the examples in § 1109(b). In similar cases, "party in interest" was broadly construed to permit future personal injury claimants to be heard in asbestos manufacturers' bankruptcy cases. In re Amatex, 755 F.2d 1034, 1042 (3d Cir.1985); In re Johns-Manville Corp., 36 B.R. 743, 747 (Bankr.S.D.N.Y.1984), aff'd, 52 B.R. 940 (S.D.N.Y.1985). The court must inquire "whether the prospective party in interest has a sufficient stake in the proceeding so as to require representation." Amatex, 755 F.2d at 1042.

Debtor's insurance is the only asset of consequence. The insurers are responsible for payment of injury claims caused by exposure to debtor's products during covered periods. The insurers are parties in interest under 11 U.S.C. §§ 1109(b) and 502(a), and have standing to object to claims against the estate.

III. JURISDICTION OVER PERSONAL INJURY CLAIMS

Before the number of valid claims can be ascertained, the bankruptcy court must determine whether it has jurisdiction to disallow personal injury claims that are invalid as a matter of law, or whether the district court must disallow such claims.

The insurers contend: the court has authority under 11 U.S.C. § 105 to disallow claims that fail to comply with the mandatory Claims Handling Procedure; the procedure is a core proceeding as defined in 28 U.S.C. § 157(b)(2); and neither 28 U.S.C. § 157(b)(2)(O) nor § 157(b)(5) requires referral of personal injury claims to district court for a threshold determination of disallowance.

The Committee contends: a procedural ruling which bars a defective injury or death claim is beyond § 157(b)(5) jurisdiction limitations because it is equivalent to liquidation; and personal injury claimants are not included within bankruptcy jurisdiction over the claims allowance process because they have not voluntarily involved themselves with debtor in the same way as creditors with claims arising from commercial relationships.

The court holds: the claims allowance process is separate and distinct from liquidation of personal injury claims for purposes of distribution; the bankruptcy court may conduct a threshold inquiry on the limited issue of whether personal injury claimants have allowable claims, so long as the court stops short of liquidating those claims it allows; a jury trial is not required in personal injury claims allowance proceedings unless there is a genuine factual dispute; and eventually all allowable personal injury claims must be sent to district court or the court where the claim arose for liquidation, unless the parties agree otherwise.²

IV. JURY TRIALS IN CLAIMS ALLOWANCE PROCEEDINGS

The jurisdiction of the bankruptcy court is governed by 28 U.S.C. § 157. Bankruptcy judges have authority to hear and determine all cases arising under Title 11 and core proceedings. § 157(b)(1). Core proceedings, defined in § 157(b)(2)(B), include:

allowance or disallowance of claims . . . and estimation of claims or interests for the purposes of confirming a plan . . . but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11.

All personal injury claims shall be tried in the district court in which the bankruptcy is pending, or where the claim arose. § 157(b)(5). Title 11 does "not affect any right to trial by jury that an individual has under applicable nonbankruptcy law with regard to personal injury or wrongful death tort claims." 28 U.S.C. 1411(a). The scant legislative history is of little help in divining the intended scope of bankruptcy court jurisdiction over personal injury claims in claims allowance proceedings. The court concludes from the statutory language that jury trials are not required for personal injury claims at the claims allowance stage.

The inquiry now shifts to whether this conclusion comports with the Seventh Amendment. The claims allowance process is an integral component of the court's equitable power to restructure debtor-creditor relationships. Langenkamp v. Culp, ___ U.S. ___, 111 S.Ct. 330, 331, 112 L.Ed.2d 343 (1990). A chief purpose of the bankruptcy laws is to secure a prompt and effectual administration and settlement of debtor's estate within a limited period. Katchen v. Landy, 382 U.S. 323, 328, 86 S.Ct. 467, 472, 15 L.Ed.2d 391 (1966). The power to allow, disallow and reconsider claims is of basic importance in administration of the bankruptcy estate.

Unless an action involves "public rights," parties cannot be deprived of the Seventh Amendment guarantee of a jury trial. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 2796, 106 L.Ed.2d 26 (1989). The test for determining a public right in cases not arising between the government and others is whether the statutory right is closely integrated with a federal regulatory scheme that Congress has power to enact. 109 S.Ct. at 2797. Although stopping short of declaring restructuring of debtor-creditor relations a public right, the Supreme Court noted that "restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power, must be distinguished from the adjudication of state-created private rights." Granfinanciera, 109 S.Ct. at 2798 n. 12, quoting Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71, 102 S.Ct. 2858, 2871, 73 L.Ed.2d 598 (1982).

There "is no constitutional right to a jury trial for determination of objections to claims." Katchen, 86 S.Ct. at 476. In Langenkamp, 111 S.Ct. at 331, the Supreme Court, in its most recent discussion of jury trial rights in fraudulent conveyance and preference actions, explained that by filing a claim

against a bankruptcy estate the creditor triggers the process of "allowance and disallowance of claims," thereby subjecting himself

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