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In Re Quigley Company

May 20, 2011

IN RE QUIGLEY COMPANY, INC.


The opinion of the court was delivered by: Richard J. Holwell, District Judge:

MEMORANDUM OPINION AND ORDER

Appellant Law Offices of Peter A. Angelos appeals from an order of the United States Bankruptcy Court for the Southern District of New York ("the Bankruptcy Court") determining that certain state law claims it wished to bring were prohibited by the amended channeling injunction put in place in this case. Appellant brought claims against Pfizer, Inc. ("Pfizer"), the parent company of debtor Quigley Company, Inc. ("Quigley"), in state court. Pfizer filed a motion in the Bankruptcy Court arguing that these claims were subject to the amended injunction. On May 15, 2008, the Bankruptcy Court issued a memorandum order and opinion clarifying the amended injunction ("BR Opinion") that held that Appellant's suits fell within the injunction and directed Appellant to cease prosecuting them. Appellant appeals that decision, arguing that the Bankruptcy Court did not have subject matter jurisdiction to enjoin its actions and that its fell outside the scope of 11 U.S.C. § 524(g). For the reasons stated below, the Bankruptcy Court's opinion is REVERSED.

BACKGROUND

Quigley was founded in 1916 and produced refractories (materials that retain their strength at high temperatures). (Def.'s Mem. 7.) From the 1930s through the early 1970s, some of those products, including an insulation called Insulag, contained asbestos. (Id.) In August 1968, Pfizer acquired Quigley, which became Pfizer's wholly owned subsidiary. (Pl.'s Mem. 3.) Following the acquisition, marketing materials for several of Quigley's products, including Insulag, began to include the Pfizer name, logo, and trademark. (Id.) For example, an advertisement for Insulag contains the Pfizer logo followed by the Quigley logo over the words, "Manufacturers of Refractories-Insulation-Paints." (RA 878.) The Pfizer name and/or logo also appeared on bags of Insulag. (Pl.'s Mem 3-4.) Insulag was an insulation that could be used in high heat environments such as blast furnaces used in steel mills. (Id. 4.) Although it functioned well as an insulation, the asbestos it contained because dangerous when airborne because workers could inhale the fibers. (Id.) Once the fibers lodged in the lungs, they could cause fatal disease, including mesothelioma. (Id.) The Insulag packaging did not contain any warnings about the danger of asbestos. (Id.) To the contrary, Quigley marketing materials that also contained the Pfizer logo specifically marketed the product as safe, stating "Insulag . . . is not injurious contains no mineral oil or fine slag particles which are irritants to the body." (Id.)

After the health effects of asbestos became known, many individuals began to file law suits against Quigley. By the time Quigley filed for Chapter 11 bankruptcy, it was defending over 160,000 asbestos-related law suits and claims. (BR Opinion 3.) Over 100,000 of these suits also named Pfizer as a defendant although it is difficult to tell which of the claims against Pfizer are based on its own products, certain of which contain asbestos, and which are based on Quigley's Insulag. (Id.) Quigley's principal asset is its interest in a joint insurance policy that it shares with Pfizer. (Def.'s Opp'n 7.)

When Quigley filed for bankruptcy in 2004, it petitioned the Bankruptcy Court for an injunction that would stop all asbestos-related lawsuits against itself and Pfizer. (Id.) The Bankruptcy Court (Beatty, J.) preliminarily enjoined all asbestos-related claims from proceeding against both companies (including those arising from Pfizer's own products) during the pendency of Quigley's bankruptcy proceeding. (Id.) In 2007, the Bankruptcy Court (Bernstein, J.) narrowed its earlier channeling injunction to permit certain direct actions against non-debtor Pfizer. The amended injunction afforded Pfizer with more limited protection against lawsuits, protection that tracks the language of 11 U.S.C. § 524(g)(A)(ii). (Id.) This provision is part of § 524(g), which enables bankruptcy courts to create asbestos litigation trusts that set aside money to pay out future asbestos claims. This statute also provides for injunctions of certain claims against certain non-debtors, including the parent companies of asbestos manufacturers such as Quigley. Tracking the statute, the Amended Injunction enjoined: any action directed against Pfizer alleging that Pfizer is directly or indirectly liable for the conduct of, claims against, or demands on Quigley to the extent such alleged liability of Pfizer arises by reason of-

(I) Pfizer's ownership of a financial interest in Quigley, a past or present affiliate of Quigley, or a predecessor in interest of Quigley;

(II) Pfizer's involvement in the management of Quigley or a predecessor in interest of Quigley, or service as an officer, director or employee of Quigley or a related party;

(III) Pfizer's provision of insurance to Quigley or a related party; or

(IV) Pfizer's involvement in a transaction changing the corporate structure, or in a loan or other financial transaction affecting the financial condition, of Quigley or a related party, including but not limited to-

(aa) involvement in providing financing (debt or equity), or advice to an entity involved in such a transaction; or (bb) acquiring or selling a financial interest in an entity as part of such a transaction. (Id. at 4 (emphasis added).)

Beginning in 1999, appellant commenced lawsuits in Pennsylvania on behalf of plaintiffs who had been exposed to asbestos-containing products sold by Quigley and Pfizer, including Insulag. (Id.) Appellant has named Pfizer as a defendant in Insulag-related claims under the theory that Pfizer, because it placed its logo on Insulag packaging and advertising, held itself out to consumers as a manufacturer of Insulag. (Id. at 5.) In doing so, appellant argues, Pfizer was an "apparent manufacturer" of Insulag and thus was liable pursuant to § 400 of the Second Restatement of Torts (id.), which the Pennsylvania courts have adopted as state law, Forry v. Gulf Oil Corp., 237 A.2d 593, 599 (Pa. 1968). Section 400 of the Second Restatement of Torts provides: "One who puts out as his own product a chattel manufactured by another is subject to the same liability as though he were its manufacturer." Restatement (Second) of Torts § 400 (1965). In 2008, appellant moved for partial summary judgment in many of these actions, and Pfizer in response moved in the Bankruptcy Court to enforce the Amended Injunction. (BR Opinion 5.)

The Bankruptcy Court held that appellant's Pennsylvania suits fell within the Amended Injunction. (Id.) The Bankruptcy Court framed the § 524(g) analysis in terms of three questions, all of which must be answered in the affirmative for the claims to be enjoined: "(1) does Pfizer's Section 400 liability arise directly or indirectly from the 'conduct of, claims against, or demands on' Quigley; (2) will the Section 400 claims asserted by the Pennsylvania plaintiffs against Pfizer be paid under Quigley's plan; and (3) does Pfizer's liability 'arise by reason of' its ownership or management of Quigley?" (BR Opinion 7-8.) It answered the first two questions quickly in the affirmative. (Id. at 9.) It found that found that under a § 400 theory, Pfizer would be held directly or indirectly liable for the actions of Quigley because Quigley, not Pfizer, had manufactured the defective product. It also found that these claims would be paid out under the Quigley plan because § 400 provides that an apparent manufacturer "is subject to the same liability as though he were its manufacturer." (Id.)

It then devoted the majority of its analysis to answering the third question. Noting that "at first glance," Pfizer's § 400 liability "arises by reason" of the placement of Pfizer's name and logo on the packaging of Insulag, the Bankruptcy Court concluded that the statutory text was vague because it could equally be said that Pfizer's § 400 liability arose by reason of its corporate affiliation with Quigley. (Id. at 10.) Finding that on the facts presented the use of the Pfizer name and logo were merely a "statement of corporate affiliation," the Bankruptcy Court concluded that Pfizer's § 400 liability arose from ownership of Quigley and fell within the ambit of § 524(g). (Id. at 12) Finally, it distinguished the Second Circuit's holding in In re Johns-Manville, 517 F.3d 52 (2d Cir. 2008) (hereinafter "Manville III")*fn1 , wherein the court concluded that bankruptcy courts do not have subject matter jurisdiction to enjoin independents direct claims against non-debtors Id., 517 F.3d at 66, ("[A] bankruptcy court only has jurisdiction to enjoin third-party non-debtor claims that directly affect the res of the bankruptcy estate."). Here, the Bankruptcy Court found that the § 400 claims against Pfizer differed from the claims at issue in Manville III because they were not direct, non-derivative claims but were "vicarious and derivative" claims that could eventually affect the res of Quigley's bankruptcy estate. (Id. at 14.)

STANDARD OF REVIEW

"Pursuant to Bankruptcy Rule 8013, a District Court reviews a bankruptcy court's conclusions of law de novo and reviews findings of fact for clear error." In re Cavalry Const., Inc., 428 B.R. 25, 29 (S.D.N.Y. 2010); see also In re Bayshore Wire Prods. Corp., 209 F.3d 100, 103 (2d Cir. 2000) ("Like the District Court, we review the Bankruptcy Court's findings of fact for clear error, [and] its conclusions of law de novo . . . ." (internal citations omitted)). Pfizer correctly points out that a bankruptcy court's interpretation of its own order, including the preliminary injunction at issue here, is typically given deference on appeal. Deep v. Copyright Creditors, 122 F. App'x 530, 531 (2d Cir. 2004); Casse v. Key Bank Nat'l Ass'n, 198 F.3d 327, 333 (2d Cir. 1999). Nonetheless, where, as here, the proper effect of an order hinges upon a question of statutory interpretation, this question is reviewed de novo. See Casse, 198 F.3d at 334; see also Kern v. TXO Production Corp., 738 F.2d 968, 970 (8th Cir. 1984) ("That is, when we say that a decision is discretionary, or that a district court has discretion to ...


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