Response to Question Regarding Whether the Chrysler Bankruptcy Causes a Stay of Underlying Tort Cases as to All Defendants

A comment/question was posed under yesterday's post about the asbestos issues bubbling up in the Chrsyler case. The question is whether the Chrsyler bankruptcy would cause a stay of all underlying asbestos cases as against all defendants. The question is interesting and again underscores the importance of what the US Supreme Court has to say in Travelers/Manville about the scope of bankruptcy court jurisdiction. The short answer is that the bankruptcy code's automatic stay provisions do not stay cases against co-defendants, and adverse existing precedent would have to be overcome to obtain a stay for all defendants based on "related to" jurisdiction in the bankruptcy court.

The "related to" precedent arises from Federal-Mogul's chapter 11 petition filed October 1, 2001. Soon thereafter, some car makers sought to use the FM proceedings as the forum to hold a global Daubert hearing on whether friction products can cause asbestos-related disease. Among other things, there were arguments that the bankruptcy court could exert "related to" jurisdiction based on express or implied indemnity claims that might be asserted against FM by other entities involved with friction products, and various arguments about the inter-related nature of the friction product claims. The asbestos plaintiff's bar vigorously opposed that approach.

Judge Wolin denied the effort, concluding that he lacked jurisdiction. The 3rd Circuit declined to reverse him based on issues regarding its appellate jurisdiction. For a complete synopsis of the issues and rulings from the Crowell & Moring lawyers who have for years represented insurers in asbestos bankrutcies, go here. The 3rd Circuit's opinion, In re Federal-Mogul Global, Inc., 300 F.3d 368 (3rd Cir. 2002) provides the following brief synopsis:

" In re Federal-Mogul Global, Inc., No. 01-10587, 2002 Bankr.LEXIS 105, *4-5 (Bankr.D.Del. Feb. 8, 2002) (hereinafter, Feb. 8 Order). The District Court's written opinion supplementing the order was issued on February 15, 2002. In re Federal-Mogul Global, Inc., No. 01-10578 et al., slip op. (Bankr.D.Del. Feb. 15, 2002) (hereinafter, Feb. 15 Op.).

The District Court held that it lacked subject-matter jurisdiction because the claims against the Friction Product Defendants were not “related to” the Federal-Mogul bankruptcy proceedings. The court found it unlikely that “Congress ... intended that the bankruptcy of a single player [in a multi-player industry] would have automatic, nation-wide impact in which every manufacturer and distributor and all tens of thousands of injured parties are concentrated in a single reorganization proceeding.” Feb. 15 Op. at 16. Specifically, the District Court found that under this court's influential decision in Pacor, Inc. v. Higgins (In re Pacor), 743 F.2d 984 (3d Cir.1984), “related-to bankruptcy jurisdiction [does] not extend to a dispute between non-debtors unless that dispute, by itself, creates at least the logical possibility that the estate will be affected.” Id. at 17.

The District Court noted that Pacor made clear that there is no “related to” jurisdiction over a personal injury claim *376 against a non-debtor “without the filing and adjudication of a separate claim for indemnification” against the debtor. Id. at 18. Further, the District Court observed that “cases since Pacor have failed to endorse the proposition that any contract of indemnification will support an extension of related-to jurisdiction.” Id. at 22 (emphasis in original)."

Chrysler's Asbestos Bankruptcy Issues Are Finally Being Mentioned in Public

Update: Yet another article mentions asbestos and provides some big picture facts and thinking. In states, among other things:

"The 60 days projected by the President at an April 30 press conference announcing the automaker’s bankruptcy only applies to a sale of Chrysler’s best assets to a new entity, said the official, who can’t be identified because the matter is confidential. Afterward, creditors would fight over unwanted factories and other assets to recover money, lawyers said.

“The unsold assets and liabilities may take years to sort out due to the complexities of resolving thousands of commercial, tort, future asbestos, dealership and employee claims,” said Dewey & LeBoeuf LLP partner Martin Bienenstock, who has advised General Motors Corp. and Chrysler Financial on restructuring.

The bulk of assets left in the old Chrysler will be eight factories, valued by Chrysler at $2.3 billion. Those with claims against them include the U.S. government, provider of a $4.5 billion bankruptcy loan, and lenders with an unpaid balance of $4.9 billion on a secured loan."

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Popular press articles are now starting to mention the reality that the bankruptcy court at some point will have to sort out Chrysler's legacy liability issues, including asbestos claims. A prior post here pointed out that the asbestos plaintiff's bar has a seat on the unsecured creditors' committee and that plaintiff's firm SimmonsCooper filed an appearance in the case early on to protect the interests of its asbestos clients. One would assume that before the May 20 hearing, the unsecured creditor's committee will have something to say about the distribution of the asset sale proceeds and the scope of the order and injunctive terms related to the sale. For example, will the final order regarding the sale include language purporting to immunize Chrysler and Fiat from facing future claims that the asset sale is a conveyance intended to impair collection of claims by unsecured creditors, including tort claimants with non-asbestos claims and those holding asbestos claims ?

Chrysler's legacy liability issues illustrate the importance of the issues presently pending before the US Supreme Court in the Travelers/Manville case. There, the Court has been asked to decide just how far a bankruptcy court can go in enjoining current and future claims, a topic mentioned in this prior post.

Answers to FAQ's Regarding Asbestos Bankruptcies

Time to put in one place some answers to questions I'm repeatedly asked or ask myself. The list will expand over time.



1) Where are Updated Lists of Asbestos Bankruptcy Cases? Believe it or not, you can find online a very useful set of lists of asbestos bankruptcy cases, including citations to published opinions in the cases. This link will take you to this set of lists thoughtfully maintained in public view by a team of bright lawyers at Crowell & Moring. The team is led by Mark Plevin, and represents insurers in many asbestos bankruptcy cases. They kindly provide periodic updates to the lists and post them online. Just go to this page of the Crowell web site and choose the list you want.



2) Where Are Periodic Commentaries Summarizing the Status of Asbestos Bankruptcies ? The Crowell & Moring team also has published a series of five articles with expert commentary on the status of and key issues in asbestos bankruptcy cases. The articles are titled "Where Are They Now" and can be found at the same page as the bankruptcy lists. Reading these summaries provides a great, manageable lesson in how the cases and issues have evolved.



3) How Much Money Do the Asbestos Trusts Have ? This answer is harder because of course the amount keeps changing. As of November, 2006, the answer was: about $ 30 billion. That answer is set out in an excellent article by economists Charlie Bates and Charlie Mullin who lead an expert team at economic consulting firm Bates White. They know the asbestos bankruptcy topic quite thoroughly. The article's title is "Having Your Tort and Eating it Too?"

4) Is Valid Science Applied in Asbestos Bankruptcy "Liability Estimates" ? No, according to a an expert witness report submitted in the W.R. Grace asbestos bankruptcy by Dr. James Heckman, a Nobel Prize winning economist at the University of Chicago. Dr. Heckman's expert witness report is here, along with the brief of the WR Grace shareholder committee that submitted the report in support of Grace's attacks on the estimates offered by other witnesses. The report is a scathing indictment of the lack of science and reliability in the estimation process used in asbestos bankruptcies.

5) What Happened in the Federal-Mogul Bankruptcy Regarding the Efforts to Stay all Underlying Asbestos Cases Against All Friction Defendants? The answer is in this prior post.

6) Where is a Terse Summary of the Babcock & Wilcox Chapter 11 and Report of the $415 Million Settlement with Equitas? At this page of the website of Jenner & Block, counsel for the debtor.

London Delays Its Decision on Pleural Plaques Legislation

This May 12, 2009 post updates a post of Wednesday, April 22, 2009 regarding pleural plaques and asbestos issues in the UK.

The UK press is now reporting that the UK government has now publicly stated that it will not make its decision on pleural plaques legislation until some time prior to Parliament's summer recess. The statement can be seen here in context, but it's brief. The statement says:

"Jack Straw (Lord Chancellor, Ministry of Justice; Blackburn, Labour)

Of course, I fully acknowledge the concern of my hon. Friend and other hon. Members on both sides of the House about that issue. Consideration of the responses, of which we have received quite a number following publication of our paper on the way forward, is taking longer than we anticipated, because of the complexity involved. However, I certainly intend that we should come to conclusions before the summer recess."

Meanwhile, union groups and their supporters have continued to agitate for legislation to once again allow claiming for pleural plaques. A "members bill" was introduced and discussed in Parliament. The discussion can be read here, and reveals that at least some of the legislators are ill-informed on the issues.

My personal opinion is that London will rue the day if it allows plaques claiming to go forward. Plaques claiming in the US was a disaster for companies and Chapter 11 trusts that were swamped by claims from persons with little or no impairment. The April 22 post links to my detailed set of reasons regarding why plaques claiming should not be reinstituted.

Antitrust Law - Revival on the Way

News this morning includes word that the Obama Administration will revive antitrust law and enforcement. Where the government leads, class actions are sure to follow.

(Speaking only as a consumer fresh from purchasing a new cell phone under the bizarre rules and pricing created by the cell phone companies. I'd like to see the cell phone market changed to encourage new telephone retailers from which we could safely buy a relaible phone that will work on any network that uses its type of signal (e.g. GSM). It's ridiculous to either have to sign up for years of service (and ancillary penalties) or pay $ 400 for a phone, epsecially when I can buy a small, web-focused laptop for the same amount.)