The Second Circuit plugged another hole in the trust intended to take responsibility for all asbestos-related claims against Johns-Manville Corp., its insurers and insurance brokers.
The new opinion from the appeals court on February 19 nixed another theory attempting to show that claimants were not afforded due process because their injuries were not manifest in 1986 and they were not given notice of the chapter 11 case.
Background
Manville, an otherwise successful business, was bedeviled with asbestos claims. In chapter 11, the problem was this: how to afford due process to asbestos creditors whose injuries would not become manifest until years after confirmation.
Manville and its creditors came up with two creative solutions working in tandem. First, the court appointed a so-called future claims representative, or CFR, to represent people whose injuries from asbestos would not become apparent for years to come. For the plan to be binding on “future” asbestos creditors, the CFR was created to afford due process to people with “future” claims who might not know about the bankruptcy or would not know they had claims.
Second, Manville’s chapter 11 plan created a trust to be funded in part with contributions from the company’s insurers and insurance brokers. The trust was intended to be the sole source of payment for creditors with present and future asbestos-related claims.
In return for their contributions, the insurers and brokers were given assurances that any claims that might be made against them in the future instead would be “channeled” into the trust, leaving them with no residual liabilities related to Manville’s asbestos problems.
The Manville plan was confirmed and withstood initial appellate challenges.
The Second Circuit found a gaping hole in the Manville plan in 2008 when it held that the plan did not bar so-called direct claims held by asbestos claimants against insurers and brokers who allegedly violated state laws by failing to disclose the dangers of asbestos. To the good fortune of Manville and its insurers, the Supreme Court reversed in Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (2009).
In Bailey, the high court ruled that the plan, as later clarified by the bankruptcy court, did in fact bar direct claims against insurers.
The ‘New’ Loophole
An enterprising claimant took a new tack in a lawsuit bringing direct claims against Manville’s chief insurance broker. The claimant argued that the plan was not binding because the claimant was not afforded due process.
Bankruptcy Judge Cecelia Morris had inherited the Manville case from the late Bankruptcy Judge Burton R. Lifland of New York. Judge Morris ruled that the channeling injunction applied and that the claimant could assert claims only against the Manville trust.
The district judge, however, reversed, finding a lack of due process.
In its non-precedential, per curiam opinion, the Second Circuit reversed the district court and reinstated Judge Morris’s order enjoining the claimant’s state law claims against the broker.
The Second Circuit’s Rationale
Asserting in personam claims against the broker for violation of state law, the claimant contended it was not afforded constitutional due process because the FCR only represented future claimants with regard to in rem claims.
Bankruptcy Judge Morris had concluded, as a matter of fact, that the FCR was representing future claimants with regard to both in rem and in personam claims. The Second Circuit reversed the district court because it concluded that Judge Morris did not “clearly err” in finding that the claimant’s interests were represented by the FCR “as to both in rem and in personam claims.”
The appeals court reached its conclusion through a feat of logical gymnastics, beginning with the fact that the FCR argued in bankruptcy court in 1986 that the trust could not bar in personam claims. Although the FCR was ultimately proven wrong about the exclusion of in personam claims, the appeals court decided that the FCR’s advocacy on behalf of holders of in personam claims demonstrated that they indeed were represented in the confirmation process.
The Second Circuit therefore held that “the notice provided to [the claimant] and other similarly situated claimants was constitutionally sufficient” because (1) the FCR was representing the interests of future claimants with both in rem and in personam claims, and (2) Manville had employed a massive “publicity campaign” with radio and television advertisements, notices in six national newspapers, and notices in the largest newspaper in every state.
The Second Circuit carved out a possible exception to its new ruling: The court expressed no opinion “where a potential claimant does not receive the level of representation provided by the FCR.”
The Second Circuit plugged another hole in the trust intended to take responsibility for all asbestos-related claims against Johns-Manville Corp., its insurers and insurance brokers.
The new opinion from the appeals court on February 19 nixed another theory attempting to show that claimants were not afforded due process because their injuries were not manifest in 1986 and they were not given notice of the chapter 11 case.
Background
Manville, an otherwise successful business, was bedeviled with asbestos claims. In chapter 11, the problem was this: how to afford due process to asbestos creditors whose injuries would not become manifest until years after confirmation.
Manville and its creditors came up with two creative solutions working in tandem. First, the court appointed a so-called future claims representative, or CFR, to represent people whose injuries from asbestos would not become apparent for years to come. For the plan to be binding on “future” asbestos creditors, the CFR was created to afford due process to people with “future” claims who might not know about the bankruptcy or would not know they had claims.
Second, Manville’s chapter 11 plan created a trust to be funded in part with contributions from the company’s insurers and insurance brokers. The trust was intended to be the sole source of payment for creditors with present and future asbestos-related claims.
In return for their contributions, the insurers and brokers were given assurances that any claims that might be made against them in the future instead would be “channeled” into the trust, leaving them with no residual liabilities related to Manville’s asbestos problems.
The Manville plan was confirmed and withstood initial appellate challenges.