Bogdan Law Firm v. Marsh USA, Inc. (In re Johns-Manville Corp.)

319 F. Supp. 3d 633
CourtDistrict Court, S.D. Illinois
DecidedJuly 25, 2018
Docket82-B-11656 (CGM); 18-cv-1228 (JSR)
StatusPublished
Cited by5 cases

This text of 319 F. Supp. 3d 633 (Bogdan Law Firm v. Marsh USA, Inc. (In re Johns-Manville Corp.)) is published on Counsel Stack Legal Research, covering District Court, S.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bogdan Law Firm v. Marsh USA, Inc. (In re Johns-Manville Corp.), 319 F. Supp. 3d 633 (S.D. Ill. 2018).

Opinion

JED S. RAKOFF, U.S.D.J.

This 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.

For the 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.

*636I. Facts and Procedural History

A. The 1986 Orders

Facing 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 1-41.1 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 numbers of known and unknown victims. Over the next year, the number of settling parties expanded to include, among others, Marsh, which Manville had sued for failing to procure sufficient insurance coverage.

In 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. ROA 321-25.

Both 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.

B. The Travelers Litigation

The 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 *637bankruptcy 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).

That 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, 129 S.Ct. 2195, 174 L.Ed.2d 99 (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.

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Bluebook (online)
319 F. Supp. 3d 633, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bogdan-law-firm-v-marsh-usa-inc-in-re-johns-manville-corp-ilsd-2018.