US Lines v. US Lines Reorganization Trust
| Decision Date | 17 May 2001 |
| Docket Number | No. 00 Civ. 3800 RWS.,00 Civ. 3800 RWS. |
| Citation | 262 BR 223 |
| Parties | In re U.S. LINES, INC., Asbestosis Claimants, Appellant, v. U.S. LINES REORGANIZATION TRUST, U.S. Lines, Inc., Appellee. |
| Court | U.S. District Court — Southern District of New York |
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Maritime Asbestosis Legal Clinic, Division of Jaques Admiralty Law Firm, Detroit, MI, By: Alan Kellman, for Appellant, of counsel.
Stern, Dubow & Marcus, Maplewood, NJ, By: Morris Stern, for Appellee, of counsel.
The appellant Maritime Asbestosis Legal Clinic ("MALC") has appealed an order of March 8, 2000 of the Bankruptcy Court entered by the Honorable Arthur J. Gonzalez (the "March 2000 Order") which expunged 23,963 claims of seamen exposed to asbestos filed by MALC in the bankruptcy proceeding of appellees United States Lines Inc. ("Lines") and United States Lines (S.A.) Inc. Reorganization Trust (the "Trust"). For the reasons set forth below, the March 2000 Order is affirmed.
The issues presented by this appeal include the complications presented by the Supreme Court's decision in Marathon,1 the difficulties in administering mass tort litigation and a tortured procedural history. To resolve this appeal it is necessary to reach conclusions with respect to: 1) the propriety of the bankruptcy claim dismissals lifting the bankruptcy stay and requiring claim definition and the filing of district court actions; 2) the applicability of equitable tolling as affected by venue; and 3) filing and pleading requirements including the propriety of a master complaint. Simplification is imperative but almost unachievable.
In early 1986, MALC commenced filing maritime asbestos-related causes of action against shipowners, alleging violations of the Jones Act (46 App.U.S.C. § 688 et seq.) and the duty of seaworthiness under general maritime law arising out of exposure to asbestos. These cases were largely filed electronically in the United States District Court, Northern District of Ohio, where a maritime docket ("MARDOC") was established. MALC filed 288 such cases against Lines by November 24, 1986, and there are presently at issue in the neighborhood of 15,000 claims prepared by MALC on behalf of seamen.
Lines began operating in 1893. During the relevant period of exposure to asbestos, Lines employed a significant number of seamen on its cargo vessels, tugs, barges and scows, operating in the neighborhood of 687 vessels. There is some scientific evidence that roughly thirty percent of merchant marine seamen were affected by physical changes resulting from asbestosis. Lines filed for relief under the Bankruptcy Code on November 24, 1986, and the Trust was set up to process asbestos claims and to preserve and pursue insurance rights.
After the filing of the petition for reorganization in 1986, a number of things were done to facilitate the processing of outstanding asbestos claims. The Trust was established, a bar date for filing claims was established, the automatic stay was modified nullifying claims also filed in the Northern District of Ohio, and proceedings were held to establish the documentation which would be required to lift the stay.
The Debtors' Plan of Reorganization (the "Plan") became effective on February 23, 1990.
In 1991, MALC and the Trust sought to settle a sampling of 70 claims, but disagreed about the documentation needed from MALC to comply with the Bankruptcy Court's orders of April 18, 1990, October 17, 1990, and October 24, 1990 (the "Early Procedure Orders") and generally to substantiate each proof of claim. Finally, by consent order dated June 9, 1993 (the "June 1993 Order"), the level of documentation required to validate all MALC asbestos claims ("Initial Documentation")2 and the documentation necessary for claim settlement to go forward ("Settlement Documentation") were defined. The June 1993 Order provided that MALC submit Initial Documentation for all filed and to-be-filed asbestos claims or "the Trust may move to expunge claims where compliant and timely Initial Documentation has not been provided." The June 1993 Order left MALC-Trust settlement efforts to the discretion of the parties, permitting either party to move for relief from the pending injunction against litigation. The order further provided that any order granting relief from the pending injunction must refer to 28 U.S.C. § 157(b)(5) and include the recommendation that asbestos trial management be carried out under the auspices of the Multi-District Litigation ("MDL").3
Also in 1993, an adversary proceeding was started by the Trustee involving some seven insurers and protection and indemnity associations (the "P & I Clubs"). That litigation has been hard fought and is ongoing. In re United States Lines and United States Lines (S.A.) Reorganization Trust v. American Steamship Owners Mutual Protection and Indemnity Association Inc., et al., Adversary Case No. 93-8004A (Bankr.S.D.N.Y.). In 1999, the Second Circuit upheld the bankruptcy court's decision that this was a "core" proceeding and thus should be resolved here rather than in arbitration abroad. 216 F.3d 228 (1999), cert. denied, 529 U.S. 1038, 120 S.Ct. 1532, 146 L.Ed.2d 347 (2000).
In 1994, a sampling of 368 MALC claims were the subject of another settlement effort which was again unsuccessful.
On May 2, 1996, Judge Weiner administratively dismissed without prejudice the vast majority of the MALC cases as unresponsive to discovery demands.
By motion of July 31, 1996 (the "July 1996 Motion"), the Trust sought an order from the Bankruptcy Court for: (1) expungement of all filed and persisting MALC asbestos claims based on insufficient documentation, or, as a lesser preferred alternative, a lifting of the restraint on litigation against the Trust then affecting all such persisting and after-filed claims; (2) establishment of a second bar date for all asbestos and other late-manifesting bodily injury claims manifesting in the period between the petition date and the date of the applied-for order; (3) provision for the documentation and settlement of MALC asbestos claims filed after the date of the applied-for order, including expungement or lifting of the restraint on litigation where necessary; (4) promulgation of a timetable for the filing and maintenance of a civil action complaint by each MALC asbestos claimant relieved of the restraint on litigation; and (5) a requirement that any litigation of asbestos claims shall be filed in the District Court for the Southern District of New York consistent with 28 U.S.C. § 157(b)(5) and that the Bankruptcy Court commend referral of trial management by the District Court to the MDL Court.
As of the filing of the July 1996 Motion, Initial Documentation had generally been provided by MALC. There were exceptions, however, and expungement for failure to file the rudimentary Initial Documentation was sought as to many claims.
Following initial argument on September 18, 1996, there were conferences before the Bankruptcy Court on December 5, 1996, March 21, 1997 and May 20, 1997, during which asbestos claim resolution processes were addressed. Finally, after acknowledging on May 20, 1997 the "significant period of time to try to work things out" since the Plan called for confirmation on a comprehensive and consensual basis, the Bankruptcy Court announced that the Trust's July 31, 1996 Motion would be decided on June 5, 1997.
On June 5, 1997, the Bankruptcy Court found "that although there is a great deal of support for expungement of all of MALC's claims, a less drastic remedy appears more appropriate under the circumstances and in light of the various documentation Orders that have been entered previously by the Court." The alternate remedy was embodied in an Order ("Order B") which included terminating the injunction against litigation of asbestos claims which had persisted for more than seven years, providing for certain diligent prosecution requirements with respect to any such ensuing litigation, and commending referral to the MDL Court. The Bankruptcy Court explained its finding that the restraint on litigation would no longer serve bankruptcy administration purposes as follows:
The stalemate that has plagued this case must be ended. There is no longer any cognizable justification for the restraint on litigation. Further, based upon the actions of MALC throughout the history of this case regarding settlement documentation, the Trustee has persuaded the Court that MALC\'s failure to comply with the relief requested will be grounds for a motion of the Trustee to expunge the claims. Therefore, the lifting of the restraint, coupled with the other relief requested by the Trustee in Order B, is granted.
MALC objected, and for the first time raised objection to the requirements that it file "Complaints" rather than "Claims" in the District Court once the injunction against litigation is terminated, and stated that it could file "some 15,000 civil action complaints" in "up to six (6) weeks" from the date of the entry of an order.
The Bankruptcy Court signed a somewhat modified form of Order B on June 30, 1997 (the "June 1997 Order"), stating:
MALC\'s settlement strategy over the last four years leading up to the Decision included failing to produce any documentation other than the initial documentation. Thus it chose to go forward with settlement negotiations, but not in accordance with the terms of the June 1993 Order. But that strategy was risky, and has proved unwise. MALC\'s cry that it needs the continued restraint on litigation rings hollow to the Court. The Court finds that MALC had the ability to demonstrate its desire to resolve the claims through the settlement process provided in the June 1993 Order, but it chose to pursue a path that was apparently premised on the theory that the sheer volume of its claims would force a settlement without the necessity of...
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