Putting the Brakes on Federal Court Jurisdiction

Journal Issue

Jun 2002

Column Name

Journal HTML Content

As the 19th Century gave way to the 20th, and the horse-drawn carriage gave
way to the horseless kind, manufacturers of early automobile engines were able to
achieve remarkable advances in power, allowing their contraptions to obtain speeds that
even a Triple Crown-winning steed could only dream of. Narrow, often unpaved city
streets built for cable cars, horses and pedestrians proved ill-suited for the blazing
speeds of the Gilded Age's precursors to the PT Cruiser. As the automobile's
penchant for acceleration grew, so did the automobile's need for deceleration. Something
was needed to stop those infernal deathtraps.

Using brakes to slow the revolution of a wheel was hardly a new concept by then,
but with internal combustion spinning wheels ever faster, traditional brakes would
literally catch fire if applied with enough force to do any good. The solution, first
employed in England in 1896 then in the United States by 1906, was to line
brake pads with a remarkably heat-resistant substance that had been in use for
thousands of years. This substance, once one of the industrialized world's most widely
used and pervasive industrial and domestic materials, is now becoming as rare as it
is reviled. It is asbestos.

Although most American motorists remained oblivious to the asbestos used in their
cars' brakes and clutches, auto mechanics knew all about asbestos brake linings and
clutch components. Cakes of black "brake dust"—asbestos—would cover their garages,
tools, hands, clothing, hair and lungs. Scientists and physicians began to associate
years of doing brake jobs with aggressively fatal lung diseases such as mesothelioma.
Auto mechanics began to get sick and die. Their survivors began to sue.

Those companies whose primary business was the manufacture of asbestos products,
unable to withstand the crush of thousands of personal injury and wrongful death
lawsuits, filed chapter 11 petitions. Companies such as Johns-Manville, Owens
Corning and U.S. Gypsum are more than familiar to bankruptcy lawyers. Recently,
though, more diversified (and more solvent) companies have begun attempting to take
advantage of pending asbestos-related bankruptcy proceedings to delay or avoid altogether
trials of asbestos claims against them when they are sued as co-defendants with chapter
11 debtors. A spate of recent rulings appear to have thwarted those non-debtor
companies' admittedly creative efforts.

The strategy usually plays out in the fashion described most fully in the Fifth
Circuit's decision in Arnold v. Garlock Inc.<a href="#1" name="1a">1</a> The plaintiffs sued a chapter 11
debtor, Gasket Holding Inc. (a subsidiary of Federal Mogul Corp.), and the
non-debtor company, Garlock Inc., as co-defendants in numerous state courts in
Texas. Garlock either formally asserted cross-claims or cited the potential for a
cross-claim for contribution against the debtor, then methodically removed the several
dozen state court actions to corresponding federal district courts, maintaining that
removal was warranted under <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §1452(a)</a>.<a href="#2" name="2a">2</a> The federal jurisdictional
"hook" required in §1452(a) is the cross-claim against the chapter 11 debtor's
estate, which Garlock argued made the plaintiffs' lawsuits against Garlock "related to"
the bankruptcy proceeding for purposes of jurisdiction under <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C.
§1334(b)</a>.<a href="#3" name="3a">3</a> Then, Garlock moved the federal district court for an order
transferring venue of the personal injury or wrongful death claim to the federal
district court where the debtor's bankruptcy case was pending (the District of
Delaware), invoking mandatory provisions of <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §157(b)(5)</a>.<a href="#4" name="4a">4</a> Once
there, the court must rule on whether the case will be tried in that district court
or in the district court to which it was originally removed (and ostensibly, which
court can make a determination regarding abstention under <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §1334(c)</a>

or remand under either <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §1447(c)</a>—for lack of subject-matter
jurisdiction—or <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §1452(b)</a>—on equitable grounds).

The plaintiffs accused Garlock of attempting to obtain substantial and prejudicial
delay by jurisdictional cunning and procedural sleight of hand made possible by a
frivolously concocted cross-claim. The plaintiffs opposed the removal and venue transfer
motions in each of the district courts and, in rapid succession and uniformly, the
district courts remanded the actions against Garlock back to the state court, ruling
that federal jurisdiction was lacking under <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §1334(b)</a>. Some district
courts dismissed the debtor with prejudice or severed the claims against the debtor
before remanding the claims against Garlock back to state court. At least one federal
district court, the Beaumont and Paris Division of the Eastern District of Texas,
regarded Garlock's claim for contribution against the debtor as "scantily asserted" and
"so tenuously related to the debtor's bankruptcy case as to be virtually immaterial."<a href="#5" name="5a">5</a>

<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… 28 U.S.C. §1447(d)</a> makes a district court's remand order under
§1447(c) unappealable, Garlock's consolidated appeals of the district courts'
orders to the Fifth Circuit would have been dead on arrival if not for the fact
that the district court orders for remand under §1447(c) are not effective until
they are certified and mailed by the district court's clerk to the clerk of the
state court from whence the action came. That process left enough time for Garlock
to exert a last-ditch and hasty effort to get in front of the Fifth Circuit.
Strictly speaking, Garlock's efforts in the Fifth Circuit were limited to seeking
an emergency stay of the district court's orders and preventing a remand of all the
actions back to state court. Ultimately, the Fifth Circuit denied the stay,
finding that Garlock had failed to demonstrate a likelihood of success on the merits
of its proposed appeal of the remand orders. In doing so, the court clearly
indicated its support for the reasoning underlying the district court orders and
thoroughly dispelled any lingering doubt about how the circuit court viewed Garlock's
arguments. Nonetheless, the court was "not prepared to say that Garlock's motives
were purely dilatory and its motions frivolous,"<a href="#6" name="6a">6</a> but did note that Garlock had
"never litigated a contribution claim to collection in any of approximately
250,000 previous asbestos lawsuits in which Garlock was a co-defendant."<a href="#7" name="7a">7</a>

The Fifth Circuit's decision not only apparently put Garlock back in full
trial-preparation mode, but presaged nearly identical outcomes for even larger, more
familiar companies in the same position as Garlock. In a February 2002
decision, the federal district court in Portland, Ore., rejected precisely the same
strategy Garlock had employed in the Texas litigations.<a href="#8" name="8a">8</a> This time, General
Motors, DaimlerChrysler, Ford, Nissan and Volkswagen all made a "fatally flawed"
argument in favor of federal subject matter jurisdiction based on ostensibly spurious
cross-claims against the chapter 11 debtor Federal Mogul for contribution.<a href="#9" name="9a">9</a>
Citing the Garlock opinion from the Fifth Circuit, the Oregon court remanded the
actions back to state court, and it would appear that the automakers too must begin
preparing for a trial about the decades of damage allegedly wrought by their asbestos
brake linings.

The automakers might be excused for obstinately (desperately?) trying the Garlock
strategy in Oregon, and elsewhere, back in February. Within days of the Oregon
ruling, a jury in Manhattan awarded a deceased auto mechanic's family $53 million
in a verdict against the Big Three automakers and Honeywell International Inc.
Automakers and other companies such as Garlock and Honeywell obviously believe they
have reason to fear juries throughout the country. As recently as April 23,
2002, the U.S. District Court in Galveston, Texas, again remanded an
asbestos claim against Honeywell back to state court after soundly rejecting the same
arguments Garlock had made at the end of last year in that same court and in
front of the Fifth Circuit.<a href="#10" name="10a">10</a> Judge Kent's most recent ruling is worth quoting:

<blockquote>
Honeywell...incredibly removed yet another asbestosis lawsuit to this court on
April 19, 2002. Despite this court's consistent and strenuous efforts
to remand these cases for lack of subject matter jurisdiction, and
notwithstanding the Fifth Circuit's unwavering support of such remands, defendant
Honeywell amazingly propounds the same old, tired, and now-thrice-rebuked
argument... The court is understandably confounded as to Honeywell's rationale
for removing this lawsuit, and queries as to how many times it must
effectuate these remand orders for defendants to finally grasp the big
picture... The court instructs Honeywell that any further attempts to remove
this or similarly situated asbestosis cases may be regarded as an ACT OF
CONTEMPT of this court for which appropriately harsh sanctions may issue.<a href="#11" name="11a">11</a>
</blockquote>

It may be that these defendants do grasp the big picture. It is a picture of
$53 million in verdicts and hundreds of thousands of lawsuits on the horizon. It
is a picture of car repair shops and those that work in them covered in a layer
of fatal soot. It is a picture of hard-working auto mechanics with incurable lung
cancer. It is a picture so grim that these defendants are willing to plot a doomed
course through 28 U.S.C. time and again in the futile hope of delaying jury
trials on these claims—essentially, to do anything to stop the liability wheel from
spinning out of control.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.3d 246 (5th Cir. 2001)</a>, reh'g. denied, 2002 U.S. App. LEXIS 6564 (5th Cir. Apr. 9, 2002). <a href="#1a">Return to article</a>

<a name="2">2</a> "A party may remove any claim or cause of action in a civil action...to the district court for the district where such civil action is
pending, if such district court has jurisdiction of such claim or cause of action under §1334 of this <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; 28 U.S.C.
§1452(a)</a>. <a href="#2a">Return to article</a>

<a name="3">3</a> "Notwithstanding any act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts
shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under
<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… 11." 28 U.S.C. §1334(b)</a>. <a href="#3a">Return to article</a>

<a name="4">4</a> "The district court shall order that personal injury tort and wrongful-death claims shall be tried in the district court in which the bankruptcy
case in pending, or in the district court in the district in which the claim arose, as determined by the district court in which the
bankruptcy case is pending." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §157(b)(5)</a>. The Garlock court noted that use of these provisions in the mass-tort context
is largely uncommon. <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.3d at 435</a>. <a href="#4a">Return to article</a>

<a name="5">5</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; 278 F.3d at 432</a>. <a href="#5a">Return to article</a>

<a name="6">6</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 441</a>. <a href="#6a">Return to article</a>

<a name="7">7</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 440</a>. <a href="#7a">Return to article</a>

<a name="8">8</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Asbestos Litigation, 2002</a> U.S. Dist. LEXIS 3083 (D. Ore. Feb. 1, 2002). <a href="#8a">Return to article</a>

<a name="9">9</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at *10</a>. <a href="#9a">Return to article</a>

<a name="10">10</a> Armstrong v. Honeywell International Inc., 2002 U.S. Dist. LEXIS 7432 (S.D. Tex. April 23, 2002). <a href="#10a">Return to article</a>

<a name="11">11</a>Armstrong at *4-5 (emphasis in original). <a href="#11a">Return to article</a>

Journal Authors

Jordan A. Kroop

Journal Date

Saturday, June 1, 2002 - 12:00

Bankruptcy Rule

2002