United States District Court, S.D. New York
In Re JOHNS-MANVILLE CORPORATION, Debtor.
MARSH USA, INC., Appellee, THE BOGDAN LAW FIRM, as counsel for Salvador Parra, Jr., Appellant,
OPINION AND ORDER
appeal arises out of the long-running bankruptcy of the
Johns-Manvilie Corporation ("Manville"), once the
largest supplier of raw asbestos in the United States.
Salvador Parra, Jr. (collectively with his estate,
"Parra") brought suit in Mississippi state court
against Marsh USA, Inc. ("Marsh"), Manville's
principal insurance broker. Parra alleged that Marsh knew of
the dangers of asbestos but did not disclose them, and
conspired with Manville and others to prevent the public and
the government from learning the truth. Marsh moved to enjoin
that litigation, and the bankruptcy court held that claims
like these were enjoined and channeled into the bankruptcy as
part of an order issued in 1986. Parra appealed, and the
district court remanded for consideration of whether Parra
was adequately represented during the 1986 proceedings with
regard to these types of claims, and, if he was not, whether
he suffered any prejudice. The bankruptcy court held that he
was adequately represented and, in any event, was not
prejudiced because he could recover from the trust set up as
part of the bankruptcy.
reasons that follow, the Court reverses and holds that Parra
was not adequately represented in the 1986 proceedings and
was thereby prejudiced. Parra is therefore not precluded from
challenging the bankruptcy court's jurisdiction to enjoin
Parra's state law case, and, on the merits, Parra
succeeds in that challenge.
Facts and Procedural History
The 1986 Orders
enormous liability for decades of asbestos-related injuries,
Manville filed for Chapter 11 bankruptcy in 1982. In 1984,
Manville reached a settlement in principal with various
insurers (the "1984 Insurance Settlement
Agreement"), requiring the insurers to contribute to a
settlement fund that would compensate present and future
claimants, contingent on the bankruptcy court channeling to
that fund all related, future claims against the settling
insurers. Record on Appeal ("RCA") 1887-1926,
Bankr. Dkt. 4277-1 at 1-41. The bankruptcy court appointed a
future claims representative ("FCR") to represent
the interests of those whose injuries were not yet manifest,
ROA 913-916, Bankr. Dkt. 3919-20 at 1-4, and set about the
herculean task of ensuring that the settlement would maximize
recovery for the huge No. of known and unknown victims. Over
the next year, the No. of settling parties expanded to
include, among others, Marsh, which Manville had sued for
failing to procure sufficient insurance coverage.
1986, following several years of objections and negotiations,
the bankruptcy court confirmed the various settlements
between Manville and its insurers (the "1986
Orders"). ROA 223-397, Bankr. Dkt. 3916-2. As
contemplated by the 1984 Insurance Settlement Agreement, the
1986 Orders created a single settlement fund (the
"Manville Trust" or "Trust"), funded in
part with payments from the settling insurers, and channeled
all future claims against the settling insurers into the
Trust, effectively immunizing settling parties from future
liability. As relevant here, Marsh contributed $29.75 million
to the Manville Trust and received a release of claims
"arising out of or relating to services" performed
by Marsh for Manville or "in connection with insurance
policies issued to" Manville, and an injunction
channeling any future such claims into the Manville Trust.
the district court and the Second Circuit upheld the 1986
Orders against a challenge from a Manville distributor who
asserted that the bankruptcy court had no jurisdiction to
enjoin its derivative claims against Manville's other
insurers. See MacArthur Co. v. Johns-Manville Corp.,
837 F.2d 89, 90 (2d Cir. 1988). The process for making claims
has been adjusted, see In re Joint E. & S. Dist.
Asbestos Litig., 129 B.R. 710 (E.D.N.Y. 1991), but the
channeling injunction remains in place and the Trust
continues making payments to eligible claimants.
The Travelers Litigation
ever-enterprising plaintiffs' bar, however, spent the
following two decades endeavoring to evade the 1986 Orders
and access the pockets of the surviving insurance companies.
Eventually, they hit upon bringing state suits against the
insurers themselves for allegedly independent torts, such as
failing to warn the public and conspiring to hide the danger
of the asbestos Manville sold. These suits proliferated, and
Manville's principal insurer, Travelers Indemnity Co.
("Travelers"), sought to enforce the channeling
injunction against them. Following a temporary injunction and
mediation, many of the parties reached a settlement in 2003
by which Travelers would pay $445 million into a new
settlement fund, separate from the Manville Trust. Travelers
conditioned that settlement, however, on an order from the
bankruptcy court clarifying that these claims were covered by
the 1986 order. In 2004, over objection from the FCR, the
bankruptcy court provided that clarification, noting that the
injunction was intended to cover "100% of everything
Manville-related." In re Johns-Manville Corp.,
No. 82-B-11656, 2004 WL 1876046 at *30 (Bankr. S.D.N.Y. Aug.
17, 2004); see also ROA 2293, Bankr. Dkt. No.
4277-12 (FCR objection).
decision was appealed by some plaintiffs in the state law
cases and by non-settling insurer Chubb Indemnity Insurance
Co. ("Chubb"), which sought to preserve its right
to bring state law contribution and indemnity claims against
a Manville insurer. The district court affirmed, but the
Second Circuit reversed, holding that the bankruptcy court
did not have jurisdiction to enjoin non-derivative claims
against third parties. In re Johns-Manville Corp.,
517 F.3d 52, 62-65 (2d Cir. 2008). The Supreme Court,
however, held that the 1986 Order had become final after
direct appeal, so attacks on the bankruptcy court's
jurisdiction to issue such a broad order were barred by claim
preclusion. Travelers Indem. Co. v. Bailey, 557 U.S.
137, 152-54 (2009) ("Bailey"). The Supreme Court
also held that the 1986 Orders unambiguously channeled into
the Manville Trust even non-derivative claims against
insurers, as long as they were "based upon, arising out
of or relating to" their coverage of Manville.
Id. at 148-51. The Court did note that parties who did
not receive due process leading up to the 1986 Orders would
not be precluded from challenging the bankruptcy court's
jurisdiction, but it did not determine which parties had
received due process or resolve the underlying jurisdictional
question. Id. at 155.
remand, the Second Circuit held that, while Chubb had
preserved its due process claim, the objecting plaintiffs in
the state law cases had not, as they had failed to raise the
issue until after the Supreme Court's remand. In re
Johns-Manvi1le Corp., 600 F.3d 135, 147-48 (2d Cir.
2010) ("Chubb"). The Second Circuit then held that
Chubb's claims were in personam, so the unique due
process considerations for in rem claims did not apply.
Id. at 154. The Court then looked to the due process
principles applicable in class action settlements, as
outlined in Amchem Prod., Inc. v. Windsor, 521 U.S.
591 (1997), and held that Chubb (1) had not been adequately
represented in the 1986 proceedings because the FCR only
represented those who were exposed to asbestos and the
represented parties' interests conflicted with
Chubb's, and (2) did not receive constitutional notice
because it could not have predicted that the bankruptcy court
would overstep its jurisdiction. Chubb, 600 F.3d at
156-58. Chubb was therefore free to attack the bankruptcy
court's subject matter jurisdiction regarding the breadth
of the 1986 Orders, and the Second Circuit affirmed its prior
holding that the bankruptcy court could not enjoin
non-derivative claims against non-debtors arising from
independent conduct that did not affect the debtor's
estate. Id. at 153. Therefore, the court concluded,
Chubb was not bound by the 1986 Orders, and its claims were
not channeled into the Trust. Id. at 158.
J. Parra, Jr. developed asbestosis and other conditions after
he was exposed to asbestos while working as an insulator in
the 1960s and 1970s. In 2009, he hired The Bogdan Law Firm
(the "Bogdan Firm") to bring suit against numerous
Manville-related entities, including Marsh, in Mississippi
state court. ROA 1200-52, Bankr. Dkt. 4088 at 4-56. Parra
alleged that Marsh, among other things, conspired with
asbestos producers, distributors, and insurers to withhold
information from the public regarding the dangers of asbestos
inhalation. ROA 1218-24. Like the claims in Chubb, Parra
brought "in personam claims against Marsh for
Marsh's independent misconduct." In re
Johns-Manville Corp., 551 B.R. 104, 120 (S.D.N.Y. 2016)
Parra passed away on June 30, 2010 and his wife, Peggy Parra,
became the administrator of his estate. See Dkt. No. 15. On
August 6, 2010, Marsh filed a motion in the bankruptcy court
to enforce the 1986 Orders against Parra and the Bogdan Firm.
ROA 39-55, Bankr. Dkt. No. 3915. In July 2015, the bankruptcy
court held that Parra's claims against Marsh were barred
by the express terms of the 1986 Orders and Parra's due
process rights were not violated, so Parra had to bring his
claims against the Trust. See In re Johns-Manville
Corp., 534 B.R. 553, 563-568 (Bankr. S.D.N.Y. 2015).
appeal, Judge Scheindlin affirmed that Parra's claims
were "related to" Marsh's insurance
relationship with Manville, as that phrase was broadly
interpreted by the Supreme Court in Travelers, and thus
barred by the 1986 Orders. Bogdan I, 551 B.R. at
117-18, 123. However, the Court remanded in part, ordering
the bankruptcy court to further develop the factual record to
determine "the extent to which the FCR was charged with
representing Parra (and other future asbestos claimants) with
respect to in personam claims against Marsh and, if the FCR
was so charged, determine whether the quality of that
representation was sufficient to satisfy due process."
Id. at 123-24. This factual finding, she held,
should be guided by the due process analysis the Second
Circuit applied in Chubb. Id. at 124. Second, the
bankruptcy court was to determine "whether a denial of
due process would have resulted in prejudice," because
Parra perhaps could have collected from the Manville Trust
and had not explained why he did not. Id.
remand, the bankruptcy court held that Parra received due
process as to his non-derivative claims against Marsh
because, as a matter of fact, he was adequately represented
by the FCR as to those claims, and, in any case, he was not
prejudiced by any alleged due process defect. In re
Johns-Manville Corp., 581 B.R. 38, 54, 58-59 (Bankr.
S.D.N.Y. 2018) ("Bogdan II"). The bankruptcy court
therefore issued another order (the "January 2018
Order") enjoining Parra's Mississippi claim and
stating that ...