Lynch v. Johns-Manville Sales Corp.

• Decision Date: 05 October 1982
• Docket Number: No. C-1-82-358.,C-1-82-358.
• Citation: 23 BR 750
• Parties: Lincoln LYNCH, Plaintiff, v. JOHNS-MANVILLE SALES CORP., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

23 B.R. 750 (1982)

Lincoln LYNCH, Plaintiff, v. JOHNS-MANVILLE SALES CORP., et al., Defendants.

No. C-1-82-358.

United States District Court, S.D. Ohio, W.D.

October 5, 1982.

John Harrington, Cincinnati, Ohio, for Lynch; Robert E. Sweeney, Cleveland, Ohio, of counsel.

Frederick J. McGavran, Cincinnati, Ohio, for Johns-Manville.

David Fries, Cincinnati, Ohio, for Standard Asbestos Mfg.

Jack C. McGowan, Hamilton, Ohio, for Armstrong World Industries.

Thomas M. Green, Dayton, Ohio, for Raybestos-Manhattan, Inc.

James H. Ledman, J. Stephen Teetor, Columbus, Ohio, for Pittsburgh Corning Corp.

John H. Burtch, Columbus, Ohio, for GAF Corp.

Gordon C. Greene, Cincinnati, Ohio, for Celotex Corp.

Leo Breslin, James F. Brockman, Cincinnati, Ohio, for Nicolet Industries.

Neil F. Freund, Dayton, Ohio, for Keene Corp. and Keene Bldg. Products Corp.

Robert H. Sack, Cincinnati, Ohio, for Forty-Eight Insulation Co.

Thomas L. Eagen, Jr., Cincinnati, Ohio, for Fibreboard Corp.

OPINION AND ORDER DENYING STAY AND CERTIFICATE FOR IMMEDIATE APPEAL

SPIEGEL, District Judge:

This matter came before the Court for consideration of motions to stay all proceedings filed by defendants Keene Corporation (doc. 31) and Raymark Industries (doc. 33) and plaintiff's memorandum in opposition (doc. 34). We hereby deny defendants' motions, finding that the automatic stay provision of the Bankruptcy Reform Act of 1978, 11 U.S.C. § 362(a), does not stay litigation against solvent co-defendants of a Chapter 11 debtor. Furthermore, we find that Unarco and Johns-Manville are neither necessary nor indispensable parties as defined in Rule 19, Fed.R.Civ.P. Recognizing, however, that both the extent of section 362(a) protection and the appropriateness of a Rule 19 analysis in the context of multiparty products liability litigation where one or more of the defendants has filed a Chapter 11 petition with the Bankruptcy Court are unclear, we certify this Order for immediate appeal pursuant to 28 U.S.C. § 1292(b).

This case, one of at least eight now pending before the undersigned judge, is one of approximately 16,000 cases pending in various courts across the country involving liability for exposure to products containing asbestos. Most, if not all, of the complaints name multiple defendants. Johns-Manville Sales Corporation and related entities (Johns-Manville) are defendants in most of these actions; Unarco Industries, Inc., is a defendant in the majority.

On July 29, 1982 Unarco filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois. Johns-Manville filed similar petitions for reorganization August 26, 1982 in the Bankruptcy Court for the Southern District of New York. Section 362(a) of the Bankruptcy Code automatically stays all further proceedings as against Johns-Manville and Unarco. What is before this Court is the effect of section 362(a) on litigation against the debtors' solvent co-defendants in this products liability action.

Raymark, defendant in this and over 10,000 other actions, argues that the automatic stay provision requires a stay where the absent debtor is essential to a just and complete resolution of the litigation. The proper test for determining whether the debtor is essential to a just and complete resolution, according to defendant, is that posed by Rule 19, Fed.R.Civ.P. Defendants assert that Johns-Manville and Unarco are, at a minimum, necessary parties under a Rule 19(a) analysis, and thus the litigation should be stayed. Asserting, further, however, that the absent debtors are indispensable parties as defined in Rule 19(b), defendants conclude that the Court is required to stay the proceedings.¹

We are unpersuaded. We recognize the complexities posed by the asbestos litigation, the major roles played in this litigation by Johns-Manville and Unarco, and the uncertainties created by the interposition of reorganization petitions under Chapter 11 of the Bankruptcy Code by these two major defendants. We also recognize that a number of courts in other jurisdictions imposed a stay or modified stay on asbestos litigation following the filing of Unarco's petition with the Bankruptcy Court.² We nonetheless do not believe that Congress intended section 362(a) to extend to solvent co-defendants of a Chapter 11 debtor. Neither do we accept the view that the "equity and good conscience" test of Rule 19(b) permits a court to stay a products liability action, thereby imposing an unconscionable delay upon an innocent plaintiff merely because one of the joint tortfeasors files a Chapter 11 petition.

I. 11 U.S.C. § 362(a)

Section 362(a) provides in pertinent part that the filing of a petition in the Bankruptcy Court acts as a stay "applicable to all entities" of

(1) The continuation . . . of a judicial . . . proceeding against the debtor . . . commenced before the commencement of the case in bankruptcy, or to recover a claim against the debtor that arose before the commencement of the case in bankruptcy (emphasis added).

We do not believe that it was ever Congress' intent to allow the automatic stay provision of the Bankruptcy Code to be used as a sword by solvent co-defendants in a products liability action. The Bankruptcy Code is designed to facilitate the rehabilitation of debtors. Were we to find that the automatic stay of 11 U.S.C. § 362(a) extends to solvent co-defendants we would do nothing to further the goals of the Bankruptcy Code but would place unconscionable obstacles in the paths of plaintiffs. We do not accept that such a result was either intended by or is acceptable to Congress and, therefore, join those courts refusing to find that section 362(a) extends to solvent co-defendants of a Chapter 11 debtor.³

The parties in this case and courts who have addressed the question of the scope of the automatic stay in the context of the asbestos litigation have cited a number of cases to support their conclusions. The difficulty is that most of the cases cited do not treat the instant issue — the effect of the stay on solvent co-defendants in a products liability case where one of the defendants is in a Chapter 11 reorganization proceeding.⁴ For that reason, we believe it unnecessary to discuss these cases. Rather we choose to outline our reasons for declining to find that the stay extends to these solvent co-defendants.

The language of section 362(a) is unequivocal. It prohibits "all entities" from proceeding "against the debtor." It does not prohibit proceedings against the debtor and "all entities related to the debtor." On its face, the statute is for the protection of the debtor. See Clutter v. Johns-Manville Sales Corp., No. C-78-229 (N.D. Ohio Sept. 8, 1982) (transcript of proceedings at 7-9).

The Notes of the Committee on the Judiciary to section 362(a) support our conclusion. The automatic stay is a shield, described as a "fundamental debtor protection" intended to provide "the debtor a breathing spell" so that the "debtor may attempt a repayment or reorganization plan or simply . . . be relieved of the financial pressures that drove him into bankruptcy." The legislative history is to the same effect. H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 50 (1978), reprinted in (1978) U.S.Code Cong. & Ad.News 5787, 5836. It is true that the automatic stay also protects the debtor's creditors by providing for an orderly disposition of the claims of all creditors but a reading of the legislative history in its entirety makes it emphatically clear that protection of the creditor is a secondary purpose. We conclude that it would distort congressional purpose to hold that a third party solvent co-defendant should be shielded against his creditors by a device intended for the protection of the insolvent debtor.

It is settled law that the automatic stay of section 362(a) does not operate against sureties, guarantors, or co-obligors of the Chapter 11 debtor. In Re Fintel, 10 B.R. 50 (Bkrtcy.Or.1981) (surety); Matter of Earth Lite, Inc., 9 B.R. 440 (Bkrtcy.Fla.1981) (guarantor); In Re The Van Shop, Inc., 8 B.R. 73, 75 (Bkrtcy.N.D.Ohio 1980) (co-obligor). The surety (or guarantor or co-obligor) and his debtor have a far more intimate relationship than do co-defendants in a products liability action. It is surely both illogical and inequitable to provide the solvent products liability co-defendant with the protection of section 362(a) when that same protection is unavailable to the surety, guarantor or co-obligor of the insolvent co-defendant.

The provision in 11 U.S.C. § 1301(a) of a stay of proceedings to collect a consumer debt against co-debtors of the Chapter 13 debtor further persuades us that Congress did not intend the automatic stay of section 362(a) to extend to solvent co-defendants of a Chapter 11 debtor. Section 1301(a) provides in pertinent part that

a creditor may not act, or commence, or continue any civil action, to collect all of any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor, or that secured such debt, unless —

(1) such individual became liable on or secured such debt in the ordinary course of such individual\'s business; or

(2) the case is closed, dismissed, or converted to a case under Chapter 7 or 11 of this Title.

The very language of this section makes it clear that Congress did not intend the section 362(a) stay to extend to co-debtors automatically. The United States Supreme Court has stated: "Where Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of evidence of a contrary legislative intent." Andrus v. Glover Construction Co., 446 U.S. 608, 616-17, 100 S.Ct. 1905, 1910-11, 64 L.Ed.2d 548 (1980). Although we recognize that the rule of exclusion is an aid to statutory construction, not a rigid rule of law, Equal...