319 F.Supp.3d 633
S.D.N.Y.2018Background
- Johns-Manville filed Chapter 11 (1982) and, following insurer settlements, the bankruptcy court confirmed 1986 Orders creating the Manville Trust and channeling into it future claims against settling insurers; Marsh contributed to the Trust and received releases and an injunction.
- Plaintiffs later brought state-law suits asserting independent, in personam torts against insurers and intermediaries (e.g., failure to warn, conspiracy to conceal asbestos dangers) to evade the channeling injunction.
- The Supreme Court in Travelers Indemnity Co. v. Bailey held the 1986 Orders final and construed them broadly to channel non-derivative insurer claims “based upon, arising out of or relating to” Manville coverage, but noted parties lacking due process could still challenge jurisdiction.
- Salvador Parra sued Marsh (an insurance broker) in Mississippi for independent misconduct; Marsh moved to enforce the 1986 Orders to enjoin that suit and force claims into the Trust.
- On remand from an earlier appeal, the bankruptcy court found Parra had been adequately represented by the Future Claims Representative (FCR) in the 1986 proceedings and that any due-process defect was not prejudicial; the district court reversed, holding Parra was not adequately represented and was prejudiced.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of Bogdan Firm to appeal | Bogdan (on behalf of Parra) intended appeal; notice and practice made Parra the real appellant | Bogdan Firm lacked separate standing because notice named the firm not Parra; Parra estate failed to file timely appeal | Court held appeal notice sufficiently showed Parra intended to appeal; Parra has standing |
| Adequacy of representation by FCR regarding non-derivative claims | FCR did not represent future claimants regarding independent in personam claims against third parties because the record shows parties believed the bankruptcy court lacked jurisdiction to bind such claims | Marsh: FCR and objectors argued against broad injunction, showing FCR protected future claimants' interests | Court held FCR did not adequately represent Parra as to non-derivative third-party claims |
| Prejudice from inadequate representation | Parra: inadequate representation likely affected bargaining and recovery (could have excluded claims or secured larger Trust contributions); cannot be confident prior proceedings reliable | Marsh: FCR and objectors raised jurisdictional objections, undermining claim of prejudice; Parra could submit a claim to the Trust | Court held prejudice existed — outcome could have differed, so defect was not harmless |
| Effect on enforcement of 1986 Orders / channeling injunction | Parra: due-process failure permits collateral attack on bankruptcy court jurisdiction to enjoin his Mississippi suit | Marsh: Bailey and Travelers construe 1986 Orders to reach these claims and bar relitigation | Court held Parra is not precluded from challenging jurisdiction and may proceed with the Mississippi action; January 2018 injunction reversed |
Key Cases Cited
- MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89 (2d Cir. 1988) (upheld aspects of Manville confirmation against a related challenge)
- Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009) (held the 1986 Orders final and construed them to channel even non-derivative insurer claims; preserved due-process exception)
- In re Johns-Manville Corp., 517 F.3d 52 (2d Cir. 2008) (addressed bankruptcy court jurisdiction over non-derivative claims)
- In re Johns-Manville Corp., 600 F.3d 135 (2d Cir. 2010) (Chubb) (held Chubb preserved due-process challenge and applied due-process principles to representation issue)
- In re Kane (Kane v. Johns-Manville Corp.), 843 F.2d 636 (2d Cir. 1988) (affirming aspects of bankruptcy notice and confirmation proceedings)
- In re Motors Liquidation Co., 829 F.3d 135 (2d Cir. 2016) (articulated standard for assessing whether procedural defects prejudiced the reliability of prior proceedings)