In Re: Johns-Manville Corporation

Background

Lydia Berry brought asbestos-related personal-injury claims in a Louisiana state-court action against several defendants, including Graphic Packaging International, Inc. She alleged that asbestos fibers traveled home on her husband’s work clothes from a mill in Louisiana and that she later developed malignant mesothelioma. Graphic Packaging was the only premises defendant in that action.

The mill was previously owned by Manville Forest Products Corporation (MFP). MFP, its parent Johns-Manville Corporation, and affiliates filed Chapter 11 bankruptcy cases in 1982. The Bankruptcy Court confirmed the MFP reorganization plan in 1984 and the Manville reorganization plan in 1986. MFP later changed its name to Riverwood International Corporation, which merged with Graphic Packaging in 2003, with Riverwood surviving and changing its name to Graphic Packaging International, Inc.

Graphic Packaging moved in the bankruptcy court to enforce the MFP and Manville confirmation orders and to stop Berry’s claims against it in Louisiana. Chief Bankruptcy Judge Cecilia G. Morris granted the motion and enjoined Berry’s claims. Berry appealed to the District Court for the Southern District of New York.

Pre-petition claim

The district court affirmed the bankruptcy court’s conclusion that Berry held a pre-petition bankruptcy claim. Under the Bankruptcy Code, a claim is broadly defined as a possible right to payment, including a contingent or unmatured right. Applying the relationship test described in the opinion, the court held that an asbestos claim arises when the claimant is first exposed to asbestos and the alleged duty and breach occur.

Berry acknowledged that her first asbestos exposure occurred before the bankruptcy filings. The court held that this fact controlled under federal bankruptcy law, even though her illness manifested later and her alleged exposure continued after the filings. The court also held that it did not matter whether a jury might later determine that post-petition exposure contributed more to her illness, because asbestos-related latency made it impossible to establish that pre-petition exposure did not cause the mesothelioma.

The district court acknowledged that the bankruptcy court had incorrectly stated that Berry conceded that pre-petition exposures were more likely to have caused her illness. It nevertheless held that the error did not affect the result because the bankruptcy court relied on the undisputed timing of her first exposure and a legal conclusion rather than a factual finding about which exposure caused the illness. The court distinguished the Second Circuit’s decision in Motors Liquidation because that case involved alleged wrongful conduct after bankruptcy and did not involve asbestos-related latency.

Jurisdiction and due process

The district court held that the bankruptcy court had subject-matter jurisdiction over Graphic Packaging’s motion. It concluded that the motion was a core proceeding concerning administration of the bankruptcy estate and determination of the dischargeability of debt. It also held that the bankruptcy court retained authority to interpret and enforce its prior confirmation orders and injunctions.

The district court rejected Berry’s argument that the bankruptcy court exceeded its jurisdiction by deciding an important fact in her state-court tort case. The district court characterized the bankruptcy court’s ruling as a legal conclusion about when her bankruptcy claim arose, based on undisputed evidence about the date of first exposure.

The district court also held that Berry received constitutionally adequate notice. It reasoned that the MFP and Manville bankruptcy notices were connected, that the Manville Plan covered asbestos obligations arising indirectly from Manville’s pre-confirmation conduct, and that Berry did not challenge the adequacy of notice in the Manville bankruptcy. The court found that the notices identified the relevant bankruptcy proceedings and bar dates and advised claimants who had filed claims in the Manville case to file amended claims against MFP. It therefore held that the notice satisfied due process for future pre-petition asbestos claims against MFP, including Berry’s claim.

Discharge and channeling of the claim

The district court held that Berry’s claim was an “Other Asbestos Obligation” under the Manville Plan. The plan’s injunction covered asbestos-related liabilities arising directly or indirectly from acts or omissions before confirmation and applied to the debtors and their subsidiaries. The court concluded that MFP was a subsidiary within the plan’s definition and that Berry’s claim arose indirectly from Manville’s pre-confirmation conduct.

The court explained that the bankruptcy court had relied on the Bankruptcy Code’s general discharge provision, 11 U.S.C. § 524(a), rather than the specialized asbestos-injunction provision in § 524(g). It therefore rejected Berry’s argument that the requirements of § 524(g) prevented the injunction. The court also held that MFP’s liability was derivative of Manville’s liability for purposes of the plan because Berry’s injuries allegedly arose indirectly from Manville’s manufacture and placement of asbestos products.

The court further held that the MFP Plan did not need to provide its own separate mechanism for compensating future asbestos claimants because the intertwined Manville Plan channeled claims like Berry’s to the Manville Asbestos Trust, which was designed to represent and pay future asbestos claimants.

Disposition

The district court affirmed the Bankruptcy Court’s order. The opinion also states that the appeal was dismissed in its entirety and directs the clerk to close the case. The injunction therefore remained in place against Berry’s asbestos-related claims against Graphic Packaging and any potential covered claims against Manville or MFP.