In Re: Johns-Manville Corporation ( 2020 )

18-2531(L)
In re: Johns-Manville Corporation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT
ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
19th day of February, two thousand twenty.
Present:
PIERRE N. LEVAL,
DEBRA ANN LIVINGSTON,
RAYMOND J. LOHIER, JR.,
Circuit Judges.
_____________________________________
IN RE: JOHNS-MANVILLE CORPORATION,
Debtor.
_____________________________________
MARSH USA, INC.,
Appellant,
v. 18-2531-bk (Lead)
18-2539-bk (Con)
THE BOGDAN LAW FIRM, as Counsel for Salvador
Parra, Jr.,
Appellee.
_____________________________________
For Appellant: MITCHELL J. AUSLANDER, Willkie Farr & Gallagher
LLP, New York, NY; Joseph G. Davis, Willkie Farr &
Gallagher, Washington, DC; John A. Koepke, Jackson
Walker LLP, Dallas, TX
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For Appellee: TODD E. DUFFY, Duffy Amadeo, New York, NY
Appeal from a judgment of the United States District Court for the Southern District of
New York (Rakoff, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is REVERSED.
Appellant Marsh USA, Inc. (“Marsh”) appeals from a July 27, 2018 order of the United
States District Court for the Southern District of New York (Rakoff, J.), reversing a January 24,
2018 order of the United States Bankruptcy Court for the Southern District of New York (Morris,
C.J.). 1 The bankruptcy court’s order enjoined Salvador Parra, Jr.’s (“Parra”) state-law claims
against Marsh and mandated that any such claims be brought instead against the Manville Trust, a
fund established pursuant to a 1986 bankruptcy settlement to compensate individuals harmed by
asbestos products manufactured or sold by the Johns-Manville Corporation (“Johns-Manville”).
Certain orders of the bankruptcy court issued by Judge Lifland at the time of the settlement (the
“1986 Orders”) require that all claims related to settling parties’ relationships with Johns-Manville
be brought against the Manville Trust. 2 In this appeal, the parties principally disagree over
whether Parra received sufficient due process in the 1986 bankruptcy proceedings to render the
1
Marsh also appeals a March 14, 2016 order of the United States District Court for the Southern
District of New York (Scheindlin, J.), remanding the case to the bankruptcy court to determine the
extent to which Parra was adequately represented during the Johns-Manville bankruptcy
proceedings in connection with his in personam claims against Marsh. Our determination that the
bankruptcy court did not clearly err on remand in developing the factual record conclusively
resolves this appeal in Marsh’s favor. Accordingly, we need not reach Marsh’s challenge to Judge
Scheindlin’s order.
2
In this order, all references to “the bankruptcy court” are to Chief Judge Morris unless explicitly
associated with Judge Lifland.
2
1986 Orders enforceable against him. 3 Because the bankruptcy court did not clearly err in
concluding that Parra’s interests as to both in rem and in personam claims were represented by the
Future Claims Representative (“FCR”) in these proceedings, we reverse the judgment of the
district court and reinstate the bankruptcy court’s order enjoining Parra’s state-law claims. We
assume the parties’ familiarity with the underlying facts, the procedural history of the case, and
the issues on appeal.
* * *
The 1986 Orders channel all Johns-Manville-related claims against settling insurers and
insurance brokers (including Marsh) (collectively, the “Settling Insurers”) into the Manville
Trust—whether those claims arise from the Settling Insurers’ contractual obligation to cover
Johns-Manville’s liability (in rem claims) or from their own conduct “based upon, arising out of
or relating to” that coverage (in personam claims). Travelers Indem. Co. v. Bailey, 557 U.S. 137,
148–51 (2009). Those orders have long since become res judicata as to then-present parties “and
those in privity with them.”4 Id. at 152. In enjoining Parra’s claims, the bankruptcy court found
that Parra is bound by the 1986 Orders because he was represented in absentia by the FCR, whom
the bankruptcy court appointed to advocate for parties like Parra who may have been harmed by
Johns-Manville’s asbestos products, but who had not yet manifested symptoms of asbestos-related
3
Marsh also argues that the district court lacked subject matter jurisdiction to hear Parra’s appeals
from the bankruptcy court because the notice of appeal named Parra’s counsel (identifying the
firm “as counsel for Salvador Parra, Jr.”) rather than Parra himself. Like the district court, we
decline to dismiss the appeal for what can be, on this record, characterized as a captioning error.
See Manrique v. United States, 137 S. Ct. 1266, 1274 (2017) (“The court of appeals may, in its
discretion, overlook defects in a notice of appeal . . . .”).
4
Although the 1986 Orders remain binding on these parties, we have since found that the scope
of those orders exceeded the issuing court’s jurisdiction. See In re Johns-Manville Corp., 600 F.3d
135, 158 (2d Cir. 2010).
3
disease. See Taylor v. Sturgell, 553 U.S. 880, 894–95 (2008) (“[A] nonparty may be bound by a
judgment because she was ‘adequately represented by someone with the same interests who [wa]s
a party’ to the suit. . . . [including] trustees, guardians, and other fiduciaries.” (quoting Richards v.
Jefferson Cty., 517 U.S. 793, 798 (1996))). The FCR’s representation, the bankruptcy court found,
encompassed both future claimants’ potential in rem and in personam actions against the Settling
Insurers. The district court reversed the bankruptcy court’s order, concluding that the FCR
represented claimants like Parra in connection with their in rem claims only.
Our review of the order of a district court in its capacity as an appellate court is plenary. In
re DeTrano, 326 F.3d 319, 321 (2d Cir. 2003). We therefore review the bankruptcy court’s factual
conclusions for clear error and its legal determinations de novo. In re CBI Holding Co., Inc., 529
F.3d 432, 449 (2d Cir. 2008). A factual finding—in this case the determination that the FCR
actually represented future claimants in connection with their in personam claims—is clearly
erroneous if “the reviewing court on the entire evidence is left with the definite and firm conviction
that a mistake has been committed.” Id. (internal quotation marks omitted). Because we conclude
that the bankruptcy court did not clearly err in finding that the FCR’s advocacy on behalf of future
plaintiffs extended to their in personam claims, we reverse the district court and reinstate the
January 24, 2018 order of the bankruptcy court.
In a May 13, 1985 memorandum to the bankruptcy court—as well as in subsequent
hearings—the FCR urged Judge Lifland to cabin the language of the ultimate order, which
appeared to enjoin both in rem and in personam claims, to encompass only the former. The FCR
explained that although the settling parties generally agreed that the bankruptcy court’s jurisdiction
is limited to in rem claims, he was compelled to request clear language to the effect that “the
injunction and channeling order requested is in rem” due to the parties’ “disagree[ment] as to
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whether the relevant language . . . is limited to this Court’s in rem jurisdiction.” J.A. 1390. In other
words, the FCR sought to prevent the bankruptcy court from issuing an order channeling in
personam claims based on the FCR’s view that the bankruptcy court had no jurisdiction to issue
such an order. Although ultimately unsuccessful, see Bailey, 557 U.S. at 150, this request itself
provided the bankruptcy court with substantial evidence that the FCR advocated for future
claimants in connection with their potential in personam claims.
That the settling parties may have agreed that Judge Lifland lacked jurisdiction over these
claims is not compelling evidence that the FCR understood his representation to encompass
anything less than all of future claimants’ potential claims against the settling insurers.5 Indeed,
the FCR would have had little reason to request that Judge Lifland’s order not enjoin in personam
claims if his representation did not reach such claims. This is especially true as applied to the order
enjoining claims against Marsh. Since Marsh did not issue any insurance policies, all foreseeable
suits against it would necessarily be in personam. Because the record supports the conclusion that
the FCR advocated for the exclusion of in personam claims to protect the interests of future
claimants, the bankruptcy court did not clearly err in concluding that the FCR provided Parra with
adequate representation on that score. See Taylor, 553 U.S. at 900 (holding that adequate
5
At the time of the FCR’s representation, it was not settled law that the bankruptcy court could
not enjoin in personam claims against the Settling Insurers. As recently as 2009, the Supreme
Court in Bailey cautioned that “[w]e do not resolve whether a bankruptcy court, in 1986 or today,
could properly enjoin claims against nondebtor insurers that are not derivative of the debtor's
wrongdoing.” Bailey, 557 U.S. at 155. Our Circuit did not definitively resolve the issue until 2008.
See In re Johns-Manville Corp., 517 F.3d 52, 66 (2d Cir. 2008), rev’d on other grounds sub nom.
Bailey, 557 U.S. at 156. Because the FCR’s argument that Judge Lifland’s jurisdiction was limited
to the res was rooted in the parties’ common understanding rather than in controlling law, we
disagree with the district court’s conclusion that it would have been “nonsensical” for the FCR to
contemplate that the bankruptcy court could enjoin future claimants’ in personam claims, and to
advocate for the exclusion of such claims from the 1986 Orders. See In re Johns-Manville Corp.,
319 F. Supp. 3d 633, 641 (S.D.N.Y. 2018).
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representation requires that “[t]he interests of the nonparty and her representative are aligned” and
“the party understood herself to be acting in a representative capacity.”).
Because the district court determined that the FCR did not afford Parra adequate
representation in connection with his potential in personam claims against Marsh, it did not reach
the question of whether Parra received adequate notice of the bankruptcy proceedings to be bound
by the 1986 Orders. At least in the unique circumstances of the Johns-Manville bankruptcy—
including the appointment of a special representative for future claimants—we conclude that the
notice provided to Parra and other similarly situated claimants was constitutionally sufficient. As
Judge Lifland wrote in 1986, the publicity campaign accompanying the bankruptcy proceeding
was “designed to inform as many future asbestos claimants as possible . . . [about the]
proceedings,” providing for, inter alia, “national television and radio advertisements, [and]
newspaper advertisements in the six leading U.S. and Canadian newspapers and in the largest
circulation daily newspaper in each state . . . .” In re Johns-Manville Corp., 68 B.R. 618, 626
(Bankr. S.D.N.Y. 1986), aff’d sub nom. Kane v. Johns-Manville Corp., 843 F.2d 636, 650 (2d Cir.
1988); cf. Stephenson v. Dow Chemical Co., 273 F.3d 249, 260 (2d Cir. 2001) (holding that due
process in class action proceedings requires “notice reasonably calculated to apprise interested
parties of the pendency of the action”). Our conclusion is limited, and we take no position on what
notice may be required under different circumstances, such as where a potential claimant does not
receive the level of representation provided by the FCR. Cf. Taylor, 553 U.S. at 900 n.11 (citing
Richards v. Jefferson Cty., 517 U.S. 793, 801 (1986)) (suggesting that the degree of required notice
may depend on the adequacy of representation).
6
We have considered the Appellee’s remaining arguments and find them to be without
merit. Accordingly, we REVERSE the judgment of the district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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