IN RE JOHNS-MANVILLE CORP. Nos. 82 B 11656, 82 B 11657, 82 B 11660, 82 B 11661, 82 B 11665 82 B 11666, 82 B 11667, 82 B 11668, 82 B 11669, 82 B 11670, 82 B 11671, 82 B 11672, 82 B 11673, 82 B 11675, 82 B 11676 (BRL).
440 B.R. 604 (2010)
In re JOHNS-MANVILLE CORPORATION, et al., Debtors.
United States Bankruptcy Court, S.D. New York.
December 16, 2010.
Simpson Thacher & Bartlett LLP, New York, NY, by
Barry R. Ostrager, Myer O. Sigal, Jr., Andrew T. Frankel, for Respondents The Travelers Indemnity Company and Travelers Casualty and Surety Company.
MEMORANDUM DECISION AND ORDER GRANTING THE MOTIONS OF HAWAII AND STATUTORY DIRECT ACTION SETTLEMENT COUNSEL AND COMMON LAW SETTLEMENT COUNSEL TO COMPEL TRAVELERS' PAYMENT OF SETTLEMENT PROCEEDS
BURTON R. LIFLAND, Bankruptcy Judge.
Before the Court are the motions (the "Motions") of (1) Statutory and Hawaii Direct Action Settlement Counsel to Compel Payment of Settlement Proceeds Under Statutory and Hawaii Direct Action Settlement Agreements (the "Statutory/Hawaii Motion") (Dkt. No. 3931) and (2) Common Law Settlement Counsel to Enforce Settlement Agreement and Compel Payment of Settlement Proceeds Under Common Law Settlement Agreement (the "Common Law Motion") (Dkt. No. 3932).
Nearly three decades ago, the Johns-Manville Corporation and its affiliated companies (collectively, "Manville") filed the instant chapter 11 cases before this Court. The same parties that were present thirty years ago are again before this Court in this long-standing saga. In addition, as the Supreme Court noted, "[a]lmost a quarter-century after the 1986 Orders were entered," "the same judge who had issued the 1986 Orders" is still presiding today. Travelers Indem. Co. v. Bailey, ___ U.S. ___,
More than six years ago, Settlement Counsel
At the core of the instant Motions lies a sharp dispute between the Parties as to whether, pursuant to the terms of these settlements, Travelers' payment obligations were irreversibly triggered by the Supreme Court's decision in Bailey or terminated
For the reasons set forth below and at oral argument, the Motions are GRANTED. Travelers is, therefore, ordered to immediately fulfill its payment obligations in accordance with the plain terms of the settlements.
This Court assumes familiarity with the lengthy procedural history of these cases and, accordingly, will address only those facts necessary for resolution of the Motions at issue.
A. The Direct Actions
On December 18, 1986, this Court entered an order (the "Insurance Settlement Order")
While certain of the Direct Actions were based on state consumer statutes (the "Statutory Direct Actions") and others on common law theories (the "Common Law Direct Actions"), all were predicated on the same underlying conduct: that Travelers acquired knowledge about the dangers of asbestos from claims in the 1950s, recognized the potential for future escalation of asbestos litigation and began to influence Manville's purported failure to disclose knowledge about asbestos hazards.
In 2002, for cause shown, this Court issued a temporary restraining order prohibiting further prosecution of the Direct Actions. Following a hearing, this Court referred the Parties to mediation and, on August 1, 2002, appointed the Honorable Mario M. Cuomo, former Governor of New York, to serve as mediator (the "Mediator").
Over the next several months, under the auspices of the Mediator, the Parties executed settlement agreements resolving claims brought in the Statutory Direct Actions (the "Statutory Direct Action Settlement"), the Common Law Direct Actions (the "Common Law Direct Action Settlement"), and the Hawaii Direct Actions
B. The Settlements
The mechanics of each of the Settlements are the same: Travelers will make the agreed-upon settlement payments into a fund created to pay Direct Action claims brought by eligible asbestos personal injury and wrongful death claimants. Travelers
Pursuant to the Settlements, Travelers' payment obligations are contingent upon the satisfaction of three conditions precedent. These conditions, stated in general terms, are as follows: (a) entry of an order by this Court that becomes a "Final Order"
In late spring of 2004, the Parties filed separate motions seeking this Court's approval of the Settlements. Thirteen objections were filed, either by insurance companies or various asbestos claimants separately referred to as the Asbestos Personal Injury Plaintiffs and the Cascino Asbestos Claimants
One of the objectors was Chubb Indemnity Insurance Company ("Chubb"), a co-defendant with Travelers in certain Common Law Direct Actions, who stood to be enjoined from bringing potential contribution and indemnity claims against Travelers. To preserve its ability to bring such claims against Travelers, Chubb joined the Objecting Plaintiffs in arguing that this Court lacked subject matter jurisdiction to enjoin non-derivative claims against Travelers, a third party non-debtor in Manville's bankruptcy proceedings. Chubb additionally (and independently) objected on due process grounds, contending that this Court lacked authority to enjoin it because despite being a major informed institutional insurer that engaged in the mammoth asbestos litigation, Chubb did not receive sufficiently adequate constitutional notice of the 1986 Orders.
C. The 2004 Clarifying Order
Following a full and contested evidentiary hearing on July 6, 2004, and upon a thorough review of the entire record, this Court granted the Parties' motions by entering a single order approving all three Settlements, and clarifying that the 1986
That same day, this Court separately issued findings of fact and conclusions of law detailing the basis for the 2004 Clarifying Order. See generally Findings of Fact and Conclusions of Law Regarding Travelers Motions For Approval of Certain Settlement Agreements and For Entry of a Clarifying Order, dated Aug. 17, 2004 (Dkt. No. 3750).
II. Procedural History
On appeal, the District Court affirmed the 2004 Clarifying Order in all material respects, except with regard to the "gate-keeping" provision.
In 2008, however, the Second Circuit reversed Manville I, holding that the District Court lacked subject matter jurisdiction to enjoin claims against Travelers "that were predicated, as a matter of state law, on Travelers' own alleged misconduct and were unrelated to Manville's insurance policy proceeds and the res of the Manville estate." In re Johns-Manville Corp. ("Manville II"),
Less than a year later, the United States Supreme Court granted certiorari and reversed Manville II. Bailey, 129 S.Ct. at 2198. Finding that the Second Circuit erred in revisiting this Court's subject matter jurisdiction of the 1986 Orders, the Supreme Court expressly held that "the 1986 Orders became final on direct review over two decades ago" and "whether the Bankruptcy Court had jurisdiction and authority to enter the injunction in 1986 was not properly before the Court of Appeals in 2008 and is not properly before us." Bailey, 129 S.Ct. at 2203. The Supreme
The Supreme Court in Bailey refrained from determining whether any particular party was bound by the 1986 Orders. Id. at 2207 ("We have assumed that respondents are bound, but the Court of Appeals did not consider this question."). Because Chubb preserved its due process objection on appeal but since the Second Circuit never reached it in Manville II, the Supreme Court remanded for the Second Circuit to address whether due process "absolves" Chubb from following the 1986 Orders, "whatever their scope." Id.
On March 22, 2010, the Second Circuit affirmed the District Court's March 28, 2006 order as to the Objecting Plaintiffs, but reversed it as to Chubb, finding that Chubb did not receive constitutionally adequate notice of the 1986 Orders, and thus "it would offend the Due Process Clause to enforce the 1986 Orders against ... Chubb." Manville III, 600 F.3d at 147. Again, as in Manville II, the Second Circuit declined "to determine the prospective status of [the Settlements] or to resolve arguments relating to technical objections and [the Settlements]' overall fairness," and left "it to the parties, with the aid of the bankruptcy court, to determine the status of their settlements." Id. at 158-59 (quoting Manville II, 517 F.3d at 68 n. 26).
On August 18, 2010, Travelers filed a petition for a writ of certiorari and a writ of mandamus (collectively, the "Petitions") before the United States Supreme Court, both of which were recently denied on November 29, 2010. Travelers Indem. Co. v. Chubb Indem. Co., 562 U.S. ___, ___ S.Ct. ___, ___ L.Ed.2d ___ (2010) (No. 10-244).
On September 2, and on September 3, 2010, the Statutory and Hawaii Direct Action Settlement Counsel and the Common Law Settlement Counsel, respectively, filed their Motions requesting that this Court compel Travelers to pay the settlement proceeds. On September 30, 2010, Travelers filed its opposition brief ("Travelers Opp. Br.") (Dkt. No. 3936) requesting that this Court deny the Motions on the grounds that pursuant to the terms of the Settlements, Travelers' payment obligations are not due. After accepting supplemental briefing from the Parties, this Court conducted oral argument on October 21, 2010. At that hearing, Settlement Counsel expressly asked this Court to follow the Second Circuit's directive and aid them in determining the status of the Settlements. Transcript of Oct. 21, 2010 Hearing at p. 40: 17-21 (Dkt. No. 3953).
The instant Motions before this Court request the enforcement of Settlements that were approved by this Court in the 2004 Clarifying Order. As a threshold matter, this Court has jurisdiction to enforce these Settlements pursuant to 28 U.S.C. §§ 1334, 157, 11 U.S.C. §§ 105, 1141 and/or 11 U.S.C. § 1142, as well as pursuant to the terms of the Settlements, which each provide that "[t]he United States Bankruptcy Court for the Southern District of New York shall have continuing and exclusive jurisdiction over this Settlement Agreement and the Parties in respect of their relations hereunder." Bronson Decl., Ex. 1, ¶ 18; Ex. 2, ¶ 17; Ex. 3,
To do so, this Court must first identify that which is preventing the Parties from determining the status of the Settlements on their own. The Parties do not dispute that the [Settlements] "were the product of good-faith, arms-length negotiations, are complete, clear and unambiguous on their face and must be enforced according to the plain meaning of their terms." Travelers Opp. Br. at p. 1; see Statutory/Hawaii Motion at p. 14; Common Law Reply Br. (Dkt. No. 3944) at pp. 1-2. They do, however, dispute whether, pursuant to the terms of the Settlement, Travelers' payment obligations were irreversibly triggered by the Supreme Court's decision in Bailey or terminated by the Second Circuit in Manville III.
At the heart of their dispute is whether the Disputed Condition Precedent has been satisfied, namely whether the 2004 Clarifying Order clarifies that the Direct Action claims were, and always have been, barred by this Court's 1986 Orders, and that the 2004 Clarifying Order became a "Final Order." According to Settlement Counsel, the 2004 Clarifying Order, affirmed by the Supreme Court in Bailey, completely satisfies the Disputed Condition Precedent. Travelers, however, argues that the Second Circuit's ruling in Manville III that the 1986 Orders are "jurisdictionally void" as to Chubb is a "material failure" of the Disputed Condition Precedent, and consequently releases Travelers from its payment obligations. Travelers Opp. Br. at p. 2.
All of the Parties agree that the terms of the Settlements clearly resolve this dispute, and request that this Court follow the general principles of contract interpretation
The Disputed Condition Precedent Has Been Satisfied Such that Travelers is Obligated to Fulfill Its Payment Obligations Under the Settlement Agreements
To determine whether the Disputed Condition Precedent has been satisfied, this Court begins its inquiry with the plain language of the Disputed Condition Precedent.
The 2004 Clarifying Order provides that for which the Parties bargained, both according to its plain terms and its content. First, the injunctive language specified in the proposed orders attached as Exhibit A to each of the Settlement Agreements was adopted, verbatim, in paragraphs 6 and 7 of the 2004 Clarifying Order. Indeed, even Travelers admits that the 2004 Clarifying Order, at least facially, "contained the broad injunctive language contained in the proposed orders attached to each of the Settlement Agreements." Travelers Opp. Br. at p. 8. Second, in upholding this Court's entry of the 2004 Clarifying Order, the Supreme Court expressly found that "[t]he Bankruptcy Court correctly understood
Nevertheless, Travelers maintains that it is "absurd to argue" that the Settlements remain intact in the wake of the Second Circuit's Manville III decision. Travelers Supp. Br. (Dkt. No. 3949) at p. 4. Given the Second Circuit's holding that the 2004 Clarifying Order is "jurisdictionally void" as to Chubb, Travelers asserts that the 2004 Clarifying Order, consequently, does not "contain prohibitions against claims `at least as broad' as those agreed to by the Parties as condition precedent to any payment obligation." Id. In effect, Travelers is arguing that because the 2004 Clarifying Order does not enjoin all parties, including those who failed to receive sufficient notice such as Chubb, Travelers has not achieved "complete and total peace from Direct Action Claims" and is therefore released from its payment obligations. Travelers Opp. Br. at p. 13 (emphasis added).
Travelers' position cannot be squared with fundamental principles of contract law that require this Court to adopt "a construction [of an agreement]. . . which renders the contract valid." Civil Serv. Employees Ass'n, Inc. v. State Univ. of Stony Brook,
Accordingly, from a contractual standpoint, this Court concludes that Travelers received everything that it bargained for: an order clarifying that to the extent a Direct Action claim (including any related contribution or indemnity claim) was enjoined under the 1986 Confirmation Order, such claim was indeed enjoined, and such order has become a Final Order. Travelers' notion of "complete and total peace" is a subjective concept that no tribunal can ever guarantee. See Bailey, 129 S.Ct. at 2197 (noting that it is "black-letter law that an unambiguous private contract's terms must be enforced irrespective of the parties' subjective intent"). Therefore, the Disputed Condition Precedent has occurred, and the Settlements should be upheld in their entirety.
Further, from an equitable standpoint, given that the 2004 Clarifying Order became a "Final Order" after Bailey on June 18, 2009, and Travelers has yet to fulfill its payment obligations pursuant to the Settlements, this Court is concerned that Travelers is getting something for nothing. Indeed, this is in line with the "overriding general policy, as Mr. Justice Holmes put it, `of preventing people from getting other people's property for nothing when they purport to be buying it.'" Kelly v. Kosuga,
Here, even though Travelers received everything that it bargained for, Travelers is threatening to upend all of the Settlements, even after they have been affirmed
Although not contemplated by the Settlements, this Court has been asked to determine whether it will award interest to the beneficiaries of the Settlements. Statutory and Hawaii Settlement Counsel maintain that "the beneficiaries of the Statutory and Hawaii Direct Action Settlements are entitled to interest on the settlement proceeds accruing since the Supreme Court's June 2009 Ruling." Statutory/Hawaii Motion at p. 20. They argue that Travelers has failed to fulfill its payment obligations and, under relevant New York law, the beneficiaries of the Statutory and Hawaii Direct Action Settlements are entitled to interest "upon a sum awarded because of a breach of performance of a contract," which shall be computed "from the earliest ascertainable date the cause of action existed." N.Y. C.P.L.R. § 5001(a), (b) (McKinney 2007). Travelers counters that "no interest can possibly be due as there is not a final Clarifying Order, no settlement payments are due, and there is no need for Travelers to take a position on the date of an alleged breach that has not occurred." Travelers Supp. Br. at p. 7 n. 6. As the asbestos victims have been waiting a long time to receive their compensation, while in the process Travelers has been benefiting from the Supreme Court's mandate barring Direct Action claims against it, the Statutory and Hawaii Settlement Counsel's request may be what is required to make these victims whole. Accordingly, unless the Parties can consensually resolve the interest issue, this Court is ordering briefing on that subject forthwith.
For the reasons set forth above, the Motions are hereby GRANTED in their entirety. In light of the foregoing, this Court hereby orders Travelers to immediately satisfy its payment obligations pursuant to the Settlement Agreements, which have been due and owing since June 18, 2009. In addition, the Parties are hereby directed to submit a briefing schedule to this Court within 21 days of issuance of this Memorandum Decision and Order regarding whether the beneficiaries of the Settlements are entitled to interest on the settlement proceeds and, if so, the amount due and owing. Alternatively, the Parties are granted 60 days from the issuance of this Memorandum Decision and Order to submit a consent order resolving the interest issue, with or without the aid of the Mediator.
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