DONALD RUSSELL, Circuit Judge:
Confronted, if not overwhelmed, with an avalanche of actions filed in various state and federal courts throughout the United States by citizens of this country as well as of foreign countries seeking damages for injuries allegedly sustained by the use of an intrauterine contraceptive device known as a Dalkon Shield,
The device, which is the subject of these suits, had been developed in the 1960's by Dr. Hugh Davis at the Johns Hopkins Hospital in Baltimore, Maryland.
The filing of the Chapter 11 petition automatically stayed all suits against Robins itself under section 362(a) of the Bankruptcy Code, even though no formal order of stay was immediately entered. See In re Larmar Estates, 5 B.R. 328, 330 (Bankr.E.D.N.Y.1980). But a number of plaintiffs in suits where there were defendants other than Robins, sought to sever their actions against Robins and to proceed with their claims against the co-defendant or co-defendants. Robins responded to the move by filing an adversary proceeding in which it named as defendants the plaintiffs in eight such suits pending in various state and federal courts. In that proceeding, the debtor sought (1) declaratory relief adjudging
The debtor's application for a temporary restraining order and for the setting of a date for a hearing on the request for preliminary injunction in the adversary proceeding was heard ex parte by the district judge who had jurisdiction over the proceedings.
At the hearing on the motion for a preliminary injunction, a number of defendants as well as the Committee constituted by the court to represent Dalkon Shield Claimants appeared by counsel.
In his order granting the preliminary injunction, the district judge found (1) that continuation of litigation in the civil actions threatened property of Robins' estate, burdened and impeded Robins' reorganization effort, contravened the public interest, and rendered any plan of reorganization futile; (2) that this burden on Robins' estate outweighed any burden on the Dalkon claimants caused by enjoining their civil actions; and (3) that all remaining insurance coverage in favor of the debtor under its liability policy issued by Aetna was property of the Robins' Chapter 11 estate. The district judge then held that all actions for damages that might be satisfied from proceeds of the Aetna insurance policy were subject to the stay pursuant to 11 U.S.C. § 362(a)(3) and enjoined further litigation in the eight civil actions, pursuant to 11 U.S.C. § 362(a)(1), (3) as supplemented by 11 U.S.C. § 105.
Only the defendants Piccinin, the Mosas, and Conrad filed timely notices of appeal from the grant of the preliminary injunction. Their appeals, questioning the propriety of that preliminary injunction as against suits by Robins' co-defendants is the first of the issues now before this Court.
Some three weeks after entry of the preliminary injunction, Robins filed a motion for (1) a determination of trial venue of all Dalkon Shield suits, (2) identification of such Dalkon Shield cases as were "related to" the Chapter 11 case, and (3) transfer of such cases to the Eastern District of Virginia for trial. It also requested an expedited
After a hearing on the motions, the district judge entered an order holding that (1) pursuant to 28 U.S.C. § 1334(b), all actions based upon personal injury tort or wrongful death claims arising from the use of the Dalkon Shield were proceedings related to this Chapter 11 case over which this court had jurisdiction; (2) pursuant to 28 U.S.C. §§ 157(b)(5)
From this order, the Committee of Representatives of Dalkon Shield Claimants and the defendant Piccinin have appealed.
The initial question in the appeal of the first issue relates to the court's jurisdiction to grant a stay or injunction of suits in other courts against co-defendants of the debtor or of third parties; none of the parties herein contest the jurisdiction of the bankruptcy court to stay actions against the debtor itself in any court. Jurisdiction over suits involving co-defendants or third-parties may be bottomed on two statutory provisions of the Bankruptcy Act itself as well as on the general equitable powers of the court. The first of these statutory grants of jurisdiction is found in section 362, 11 U.S.C. The purpose of this section by its various subsections is to protect the debtor from an uncontrollable scramble for its assets in a number of uncoordinated proceedings in different courts, to preclude one creditor from pursuing a remedy to the disadvantage of other creditors, and to provide the debtor and its executives with a reasonable respite from protracted litigation, during which they may have an opportunity to formulate a plan of reorganization for the debtor. Matter of Holtkamp, 669 F.2d 505, 508 (7th Cir.1982). As the Court in Fidelity Mortg. Investors v. Camelia Builders, Inc., 550 F.2d 47, 55 (2d Cir.1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540, put it, "[t]he stay insures that the debtor's affairs will be centralized, initially, in a single forum in order to prevent conflicting judgments from different courts and in order to harmonize all of the creditors' interests with one another."
Section 362 is broken down into several subsections, only two of which are relevant on this appeal. The first of such subsections is (a)(1), which imposes an automatic stay of any proceeding "commenced or [that] could have been commenced against the debtor" at the time of the filing of the Chapter 11 proceeding; the second is (a)(3), which provides similar relief against suits involving the possession or custody of property of the debtor, irrespective of whether
Subsection (a)(1) is generally said to be available only to the debtor, not third party defendants or co-defendants. The rationale for this narrow construction of the statute has been stated in Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194, 1196-97 (6th Cir.1983), and in our own case of Williford v. Armstrong World Industries, Inc., 715 F.2d 124, 126-27 (4th Cir.1983), and it need not be repeated here. However, as the Court in Johns-Manville Sales Corp., 26 B.R. 405, 410 (S.D.N.Y .1983) remarked, in discussing the oft-cited case, Royal Trucks & Trailer v. Armadors Meritina Salvadoreana, 10 B.R. 488, 491 (N.D.Ill.1981),
In Metal Center the third-party plaintiff had been sued, along with the debtor, on his guaranty of the debtor's obligation. The third-party was entitled to be indemnified by the debtor on account of any judgment rendered against him because of his guaranty. While the action against both the debtor and the guarantor was pending, the debtor filed its Chapter 11 petition. The action was stayed against the debtor but the plaintiff sought to continue his suit against the guarantor. The guarantor at this point moved to stay the action as against him. The bankruptcy court reviewed the motion because of the possible "effect upon the debtor of a state court judgment against Gardner [the guarantor]." In discussing the issue, the court first dismissed as inapplicable to the facts of this case the situation where the third-party defendant was "independently liable as, for example, where the debtor and another are joint tort feasors or where the nondebtor's liability rests upon his own breach of duty." It noted that in such a case "the automatic stay would clearly not extend to such non debtor." But, in contrast to those situations, it declared that "where, however, a debtor and nondebtor are so bound by statute or contract that the liability of the nondebtor is imputed to the debtor by operation of law, then the Congressional intent to provide relief to debtors would be frustrated by permitting indirectly what is expressly prohibited in the Code." It concluded with the statement: "Clearly the debtor's protection must be extended to enjoin litigation against others if the result would be binding upon the debtor's estate," and this is so, whether the debtor is a party or not. 31 B.R. at 462.
It is true that, although the third-party defendant in Metal Center was found to be entitled to indemnity from the debtor, the court held that the situation was not such as to qualify for a stay under section 362(a)(1). The court reached this conclusion because in its opinion the judgment in the suit against the third-party would not
In Seybolt v. Bio-Energy of Lincoln, Inc., 38 B.R. 123 (D.Mass.1984), the issue was similar to that in Metal Center, i.e., whether a guarantor entitled to indemnity by the debtor would be entitled to seek a stay under section 362(a)(1). In granting the stay in that case, the Court, after quoting the language of Metal Center with respect to the case in which "the liability of the non-debtor is imputed to the debtor by operation of law," said:
In Re Brentano's, 27 B.R. 90 (S.D.N.Y.1983), also involved the situation of a guarantor of a debtor in a Chapter 11 proceeding who was entitled under contract to indemnity by the debtor against any judgment against him. While the case did not directly concern section 362 but the question of bankruptcy jurisdiction, the language of the court appears relevant on the issue under review here. It said that the action against the guarantor-indemnitee "could and would affect the estate in bankruptcy," since, under the indemnity agreement, "a judgment in favor of the [plaintiff] in the guaranty action would automatically result in indemnification liability against Brentano's" [i.e., the indemnitor]. Accepting this language one would have difficulty in not concluding that the action was in effect one against the debtor and as such would qualify for relief under (a)(1). Brentano's is cited and discussed in Pacor, Inc. v. Higgins, 743 F.2d 984, 995 (3d Cir.1984), which was an asbestos case. The issue in Pacor, as in Brentano's, was one of bankruptcy jurisdiction. The court described the facts in Brentano's and stated the resulting legal situation as follows:
Pacor, however, found Brentano's inapplicable in its case because:
The clear implication of the decision is that, if there had been a contract to indemnify, a contrary result would have been in order.
But (a)(1), which stays actions against the debtor and arguably against those whose interests are so intimately intertwined with those of the debtor that the latter may be said to be the real party in interest, is not the only part of section 362 providing for an automatic stay of proceedings. Subsection (a)(3) directs stays of any action, whether against the debtor or third-parties, to obtain possession or to exercise control over property of the debtor. A key phrase in the construction and application of this section is, of course, "property" as that term is used in the Act. Section 541(a)(1) of the Bankruptcy Act defines "property" in the bankruptcy context. It provides that the "estate is comprised of all the following property, wherever located ... all legal or equitable interests of the debtor in property as of the commencement of the case." The Supreme Court in construing this language in United States v. Whiting Pools, Inc., 462 U.S. 198, 205, n. 9, 103 S.Ct. 2309, 2313, n. 9, 76 L.Ed.2d 515, quoted this language in the legislative history of the Section:
Under the weight of authority, insurance contracts have been said to be embraced in this statutory definition of "property." In re Davis, 730 F.2d 176, 184 (5th Cir.1984). For example, even the right to cancel an insurance policy issued to the debtor has uniformly been held to be stayed under section 362(a)(3). Lam, Cancellation of Insurance: Bankruptcy Automatic Stay Implications, 59 Am.Bank.L.J., 267 (1985), (extensively reviewing the cases to this effect). A products liability policy of the debtor is similarly within the principle: it is a valuable property of a debtor, particularly if the debtor is confronted with substantial liability claims within the coverage of the policy in which case the policy may well be, as one court has remarked in a case like the one under review, "the most important asset of [i.e., the debtor's] estate," In re Johns Manville Corp., 40 B.R. 219, 229 (S.D.N.Y.1984). Any action in which the judgment may diminish this "important asset" is unquestionably subject to a stay under this subsection. In re Johns Manville Corp., 33 B.R. 254, 261 (S.D.N.Y.1983). Accordingly actions "related to" the bankruptcy proceedings against the insurer or against officers or employees of the debtor who may be entitled to indemnification under such policy or who qualify as additional insureds
The statutory power of the bankruptcy court to stay actions involving the debtor or its property is not, however, limited to section 362(a)(1) and (a)(3). It has been repeatedly held that 11 U.S.C. § 105 which provides that the bankruptcy court "may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title," "empowers the bankruptcy court to enjoin parties other than the bankrupt" from commencing or continuing litigation. In re Otero Mills, Inc., 25 B.R. 1018, 1020 (D.N.M.1982).
In stating the same scope for section 105, the Court in Johns-Manville Corp., 26 B.R. 420, 425 (S.D.N.Y.1983), quoting from 2 Collier on Bankruptcy §§ 362.02 and 362.05 (15th ed. 1982), put the matter thus:
Accepting that section 105 confers on the bankruptcy court power under its expanded jurisdiction as expressed in section 1471(b) [28 U.S.C.] of the Bankruptcy Reform Act of 1978 and now section 1334(b), 28 U.S.C. of the 1984 Bankruptcy Amendments to enjoin suits against parties in other courts, whether state or federal, it is necessary to mark out the circumstances under which the power or jurisdiction may be exercised. In Otero Mills, supra, the Court approved a ruling that "[t]o so enjoin a creditor's action against a third party, the court must find that failure to enjoin would effect [sic] the bankruptcy estate and would adversely or detrimentally influence and pressure the debtor through the third party." 25 B.R. at 1020. In Johns-Manville, the Court phrased somewhat fuller the circumstances when section 105 may support a stay:
Beyond these statutory powers under section 362 and section 105 to enjoin other actions whether against the debtor or third-parties and in whatsoever court, the bankruptcy court under its comprehensive jurisdiction as conferred by section 1334, 28 U.S.C., has the "inherent power of courts under their general equity powers and in the efficient management of the dockets to grant relief" to grant a stay. Williford v. Armstrong World Industries, Inc., supra, 715 F.2d at 127, Austin v. Unarco Industries, Inc., 705 F.2d 1, 5 (1st Cir.1983). In exercising such power the court, however, must "weigh competing interests and maintain an even balance" and must justify the stay "by clear and convincing circumstances outweighing potential harm to the party against whom it is operative." Williford, supra, Metal Center and Seybolt, discussed supra, are illustrative of situations in which courts have found sufficient grounds to grant a stay under this power.
There are thus four grounds on which the bankruptcy court may enjoin suits
Johns-Manville, an asbestos producer, was beset by a mass of suits seeking large awards for damages sustained by reason of asbestos exposure much as has Robins in this case and, after suffering large and burdensome recoveries by plaintiffs and making substantial settlements in many of the cases, filed its Chapter 11 petition in the Southern District of New York in August, 1982. Such filing operated as an automatic stay of all proceedings against Johns-Manville. However, many of the thousands of cases named as defendants not only Johns-Manville but a number of other asbestos producers and dealers as co-defendants. Shortly after Johns-Manville filed its Chapter 11 petition, these co-defendants, charged in the complaints of the plaintiffs in the actions as joint tort feasors, sought judicial relief in the bankruptcy court, "inviting," that court by way of a declaratory judgment in the exercise of "its equitable powers" to enlarge the automatic stay provided by section 362 of the Act to include nondebtor defendants "under the penumbra of section 362's protection" as well as under section 105, and to extend this stay throughout the nation to all asbestos litigation. Matter of Johns-Manville Corp., 26 B.R. 405 (S.D.N.Y.1983). The primary issue at this stage was stated to be "whether this Court should take the unprecedented step of exercising its discretion pursuant to section 105 of the Code to extend the section 362 automatic stay so as to encompass the co-defendants herein." 26 B.R. at 408-409. The bankruptcy court ruled, first, "that section 362 is limited in scope to the debtor and does not operate to stay actions against the co-defendants of this debtor." 26 B.R. at 409-414. Secondly, it held that relief under section 105 is only available if found to be "necessary or appropriate in order to achieve the goals of a Chapter 11 reorganization," and, even then, only after a finding that "a failure to enjoin would affect the bankruptcy estate and would adversely or detrimentally influence and pressure the debtor through that third-party," thereby justifying a finding of irreparable injury and likelihood of prevailing on the merits. None of these facts the court found present on the instant showing, but it added:
It concluded by declaring that there was "no basis [as shown by the record] to extend the section 362 stay to cover them [the appeals] by means of section 105."
A second action was begun shortly afterwards, this time by the debtor, to enjoin (1) the prosecution of "proceedings against
But it denied a stay of the suits against the insurers and sureties, saying:
On motion for rehearing, however, the bankruptcy court withdrew its decision denying an injunction against suits directed against the debtor's insurers and granted such injunction. It did so on the basis of these findings:
It ended with these legal conclusions:
As a result of action in the Fifth Circuit to which we later advert and in order to enlarge the stay theretofore granted to include past officers and employees, (the court having reached the decision that suits against past as well as present employees of the debtor should be stayed) the bankruptcy court in New York entered a third reported decision in 33 B.R. 254 (S.D.N.Y.1983). It found that:
It reiterated in this same decision its ruling that the insurance policies constituted assets of the debtor, and stated the test for granting a stay or injunction in the circumstances: "(a) possible irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." It concluded by granting the stay in favor of the insurers and the past as well as present directors, officers and employees, finding that the required findings for a preliminary injunction had been satisfied. 33 B.R. at 262-63.
On appeal of certain of these decisions, the district court affirmed the decisions of the Bankruptcy Court staying discovery of any officers, directors or employees of the debtor and ruled that the provisions of section 362 stayed proceedings against the debtor's insurers. Specifically, it declared that "the fact that it [Manville] ultimately may not receive all of the proceeds under its products liability insurance does not affect its status as property under the Code subject to the provisions of the automatic stay." 40 B.R. at 230.
As we have earlier indicated, we have discussed at some length these proceedings in the Johns-Manville proceedings in New York and Louisiana, because, with their striking similarity both factually and on the legal issues to this case, the decisions of those courts provide persuasive guidance for our action herein. Though the district judge below did not cite the various rulings of the Manville courts in support of his decision, there was a close identity of issues between those in the Manville cases and in the present case. In the three situations in which the defendants have challenged the injunction granted by the district judge [i.e., the Mosa, Conrad and Piccinin cases], the only defendants other than the debtor, are the two Robins, Dr. Frederick A. Clark, Jr., Dr. Hugh J. Davis, and the debtor's insurer Aetna. So far as the suits against the two Robins and Dr. Clark, those defendants were entitled to indemnification by the debtor under the corporate by-laws and the statutes of Virginia, the State of debtor's incorporation,
The district court in this case applied the test for a grant of preliminary injunctive relief as stated by us in Blackwelder Furniture, 550 F.2d 189, 195 (4th Cir.1977), and Televest v. Bradshaw, 618 F.2d 1029, 1032 (4th Cir.1980). It found, as had the Johns-Manville courts, that irreparable harm would be suffered by the debtor and by the defendants since any of these suits against these co-defendants, if successful, would reduce and diminish the insurance fund or pool represented in Aetna's policy in favor of Robins and thereby affect the property of the debtor to the detriment of the debtor's creditors as a whole. The likelihood of success by the debtor under these circumstances appeared indisputable. The hardships which would be suffered irreparably by the debtor and by its creditors generally in permitting these plaintiffs to secure as it were a preference in the distribution of the insurance pool herein to which all creditors were entitled, together with the unquestioned public interest in promoting a viable reorganization of the debtor can be said to outweigh any contrary hardship to the plaintiffs. Such was the finding in the Manville cases and that finding does not appear unreasonable here.
The appellants, however, suggest that the record is insufficient to support such findings by the district judge. We disagree. The record is not extensive but it includes every fact considered by the courts in the Manville cases to be necessary for their decision. The rights of Dr. Davis, Dr. Clark and the two Robins to indemnity and their status as additional insureds under Robins' insurance policy are undisputed on the record. That there are thousands of Dalkon Shield actions and claims pending is a fact established in the record and the limited fund available under Robins' insurance policy is recognized in the record. It seems incontestable that, if the suits are permitted to continue and discovery allowed, any effort at reorganization of the debtor will be frustrated, if not permanently thwarted. It is obvious from the record that if suits are permitted to proceed against indemnitees on claims on which the indemnitees are entitled to indemnity by Robins, either a binding judgment against the debtor will result or, as the court in Metal Center said, inconsistent judgments will result, calling for the exercise of the court's equitable powers. In our opinion, the record was thus more than adequate to support the district court's grant of injunctive relief. Certainly, the district court did not commit an abuse of discretion in granting the injunction herein.
The appellants add a final complaining note that the district judge stated in his decision that the "Conclusions of Law" made by him should apply "with equal force to all defendants similarly situated who are brought to the attention of the court." This is little different, however, from the language of the court in the Manville cases in which there was a broad, general injunction against all present or future suits.
In summary, we have no difficulty in sustaining the grant of a preliminary injunction herein. We are sustained in this conclusion by the fact, recognized by the district judge on the record, that any Dalkon Shield plaintiff may at any time petition for the vacation of the stay as it affects his or her suit and he or she is entitled to a hearing on such petition. Actually, there is one such petition pending and
The second appeal questions the validity of the district court's order of November 9, 1985, fixing the venue for the trial of all Dalkon Shield cases and providing for the transfer of such cases to the District Court of the Eastern District of Virginia at Richmond. Robins has challenged the appealability of such order. We find the challenge without merit.
It is unquestionably true that, as the Court in In Re Amatex Corp., 755 F.2d 1034, 1038-39 (3d Cir.1985), declared, jurisdiction in a Court of Appeals to review a decision or order of a district court sitting in bankruptcy is controlled by § 1291, 28 U.S.C. See also Matter of UNR Industries, Inc., 725 F.2d 1111, 1114-16 (7th Cir.1984). While section 1291 limits jurisdiction to appeals from "all final decisions of the district courts," the concept of finality under such statute has traditionally been applied "in a more pragmatic and less technical way in bankruptcy cases than in other situations." Amatex, supra, at 1039. Judge Breyer in In Re Saco Local Development Corp., 711 F.2d 441, 443-45 (1st Cir.1983) has traced this traditional rule of more liberal construction of finality as applied to appeals in bankruptcy cases over the years. In tracing appealability under the statute in bankruptcy cases, Judge Breyer noted the definition of a "proceeding" in bankruptcy as stated in Taylor v. Voss, 271 U.S. 176, 181, 46 S.Ct. 461, 463-64, 70 L.Ed. 889 (1926), as "not the overall liquidation or reorganization, but rather an individual `matter of an administrative character ... presented in the ordinary course of the administration of the bankrupt's estate." (Emphasis added by Judge Breyer.) He then declared on the basis of this determination that "any dispute between a bankrupt and his creditors over a claim or priority was a separate `proceeding' and an order settling such dispute was appealable." 711 F.2d at 445. Such is but another practical expression of the principle that "finality" under 1291 is to be given not an absolute and inflexible construction in bankruptcy cases in which a "functional" and "practical" application is to be the rule.
The special or unique reason for this relaxed rule of appealability in bankruptcy is that
This particular appeal illustrates well the justification for the relaxed rule of appealability in bankruptcy cases. Should appeal be denied and trials proceed in the district court of the myriad of claims involved with the possibility of reversal on appeal from a final decision in such proceedings, months and months of litigation, carried on at great expense to all concerned might be voided and the reorganization derailed, with consequent extensive delays both in reorganization and in resolution of the claims of the tort plaintiffs themselves. Weighty considerations of fairness and efficient judicial administration, therefore, mandate appealability in this case. We accordingly dismiss Robins' challenge to the appealability of the order in question.
Were it necessary, appealability could be sustained under Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546-47, 69 S.Ct. 1221, 1225-26, 93 L.Ed. 1528 (1949), as well as in mandamus. See In re Ralson Purina Co., 726 F.2d 1002, 1005 (4th Cir.1984). We, however, prefer to ground our decision on the more relaxed standard of finality for appeal purposes under 1291 traditionally assigned bankruptcy appeals.
Turning to the merits of the appeal on this part of the case, we address first the power of the district court, sitting in bankruptcy, to enter an order fixing the venue
We do not understand the appellants to contend that under this language the district court did not have authority under this statute to issue an order fixing the venue for trial of tort cases against a Chapter 11 debtor. They do argue, however, that the sense of the section, if not its precise language, was to decentralize the trial of these tort claims and to permit their continuance for trial in the court in which the complaints were filed and that the ruling of the district judge in this case fixing venue in the district court in which the bankruptcy petition was filed flies in the face of this congressional purpose. They refer to the language of Senator Dole in commenting on the Senate Conference Report on the 1984 amendments and construe it as suggesting that tort claims were to be tried in the court in which those claims were originally filed. Senator Dole, in the language to which appellants refer and out of which the appellants arrive at their finding of the sense of the Congress, actually restated simply the language of the statute itself. He said that "where abstention does not occur,
Nor do we find anything in In re White Motor Credit, 761 F.2d 270, 273-74 (6th Cir.1985), also relied on by the appellants, that lends support to appellant's construction of § 157(b)(5). The extent of the holding in White Motor was that the district court had the power under the statute to allow products liability cases to be tried where the claim arose; there was nothing in the opinion, however, that declared that such action was mandated or even preferred. Specifically, there was no statement in the opinion that the district court in which the bankruptcy was pending could not try the claim. Unquestionably the district court in this case had the power under the statute to fix the trial venue in its district for all the Dalkon Shield cases.
The primary point of difference between the parties, however, relates not so much to the power of the district court in this case to fix venue for all the pending Dalkon Shield tort cases — that power is stated in unmistakable terms in section
And there are very real considerations that support a centralization of all the Dalkon Shield claims, at least at first, in the district court having jurisdiction of the bankruptcy. The "single focal point" of this proceeding is the development of a reasonable plan of reorganization for the debtor, one which will work a rehabilitation of the debtor and at the same time assure fair and non-preferential resolution of the Dalkon Shield claims. See In re Towner v. Petroleum Co., 48 B.R. 182, 190 (W.D.Okla.1985). These Dalkon Shield claims, asserted by thousands of individuals in courts throughout the United States on behalf of both citizens of this country and citizens or residents of other countries, represent what are characterized in the Act as "contingent or unliquidated claims." 11 U.S.C. § 502. Ordinarily such claims would be "estimated" by the bankruptcy court as a "core proceeding," 28 U.S.C. § 157(b)(2), for purpose of allowance if failure to do so "would unduly delay the administration of the case." 11 U.S.C. § 502(c); 3 Collier on Bankruptcy, § 502.03 (15 ed. 1982). That duty of estimation in
Section 157(b)(2)(B) excepts from the definition of "core proceedings" personal tort claims against the debtor. The bankruptcy court thus is without authority under the Act over "the liquidation or estimation of contingent or unliquidated personal injury or wrongful death claims against the estate for purposes of distribution under Title 11" 28 U.S.C. § 157(b)(2)(B). (Italics added) It will be observed, however, that the statute denies authority to the bankruptcy court to "estimate" contingent claims only if the purpose is to make a "distribution" of the assets of the debtor; the statute does not in express terms deny to the bankruptcy court the authority, or relieve it of the duty, to "estimate" the contingent "personal injury" claims for purposes of determining the feasibility of a reorganization. And such has been the construction of the statute which has been adopted by the courts which have had to face the issue, the two leading cases being proceedings arising out of the asbestos litigation. Roberts v. Johns-Manville Corp., 45 B.R. 823, 825-26 (S.D.N.Y.1984); In re UNR Industries, Inc., 45 B.R. 322, 326-27 (N.D.Ill.1984). Both of these cases hold that estimations of the debtors' potential personal injury tort liabilities as an incident of the development of a plan of reorganization are core proceedings within the bankruptcy court's jurisdiction and that such estimations are not foreclosed by Section 157(b)(5) of the Act.
This is not to say the personal injury claimants in this proceeding will not be ultimately entitled, if they elect to do so, to have a jury trial of their claim in the district court. Section 157(b)(5) gives them that right. But, even though the tort claimants may be entitled to their jury trials, the bankruptcy court is not relieved of its duty in a Chapter 11 proceeding to estimate those contingent claims. The real question thus arises as to which proceedings takes precedence, whether the estimation by the bankruptcy court of the claims or the jury trials in the district court of the claims. The authorities which have considered this question in connection with a complicated products liability situation such as this are all unanimous. The estimations of the potential and pending claims by the bankruptcy courts should precede any trials of the claims. This was specifically held in the asbestos cases. Roberts v. Johns-Manville Corp., 45 B.R. at 825-26. After all, the first and primary purpose of the proceedings, however, is to ascertain whether a fair reorganization of the debtor can be achieved. This purpose may well be completely thwarted if the energies of the debtor's executives and officers are initially diverted by, and the resources of the debtor are dissipated in the expenses of litigating, the trial of thousands of personal injury suits in courts throughout the land spread over an interminable period of time. As the Court in Newton v. Johns-Manville Corp., 45 B.R. 827, 830 (S.D.N.Y.1984), put it, in explaining its decision to proceed in the estimation of the claims
There are 5,000 suits pending against the debtor in this proceeding. There are perhaps an equal number not filed. If all these claims were to be tried, the expense of discovery proceedings and trial would likely consume all the assets of the debtor and exhaust all the resources of its executives and employees. As one court has commented, we "must be mindful of the realities of modern litigation. Pre-trial discovery under modern federal practice has become a monster on the loose .... Pre-trial proceedings have become more costly and important than trials themselves." In re Johns-Manville, supra, 40 B.R. at 224. Since the Dalkon Shield litigation began, forty claims have actually been tried but over $517,000,000 have been expended in defending or settling Dalkon Shield suits or claims. It is impossible to anticipate the stupendous costs that would be involved if all the claims here had to be tried. If the claimants as a whole are to realize reasonable compensation for their claims, it is obviously in the interest of the class of claimants as a whole to obviate the tremendous expense of trying these cases separately. If the bankruptcy court could arrive at a fair estimation of the value of all the claims and submit a fair plan of reorganization based on such estimation, with some mechanism for dispute resolution and acceptable to all interested parties, great benefit to all the claimants could be achieved and the excessive expense of innumerable trials, stretching over an interminable time, could be avoided.
It is manifest, of course, that the process of estimation will involve some examination of the claims. But this examination will be conducted by the court, will likely not involve duplicative discovery, and can be accomplished expeditiously. It was argued in In re UNR Industries, Inc., 45 B.R. 322 (N.D.Ill.1984), though, that this would require a hearing by the bankruptcy court in making its estimation of the tort claims and accordingly would "not be any more efficient than ordering district court trials." The court dismissed the argument with this apt comment:
That language is applicable in this case. It is unlikely that all 8,000 to 10,000 claims which have been filed would have to be tried before an intelligent estimation of the claims could be made by the bankruptcy court. The interests of all the claimants and the public interest in a reasonable and fair reorganization combine in favor of an effort at an estimation of the Dalkon Shield claims as a basis for formulating such a plan of reorganization and as a possible step in working out a mechanism acceptable to all the claimants for a dispute-resolution of their claims without burdening the estate with the tremendous expense of endless litigation and reducing if not exhausting,
No progress along estimating these contingent claims, however, can be made until all Dalkon Shield claims and suits are centralized before a single forum where all interests can be heard and in which the interests of all claimants with one another may be harmonized. Cf. Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 55 (2d Cir.1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1670, 52 L.Ed.2d 372. That undoubtedly was the purpose of the motion to fix venue and to transfer the pending suits to the district court sitting in bankruptcy before which the proceedings were pending. This unquestionably was the idea which prompted the district court to opt tentatively in his order fixing venue in the district court sitting in bankruptcy for all these claims. We approve of the idea and find it conducive of the interests of all concerned.
However persuasive may be the reasons for fixing temporarily at least venue of all the pending suits against the debtor in the district court sitting in bankruptcy where all the other Dalkon Shield claims not in suit may be handled together, the question remains as to what procedure must be followed in effecting such change of venue in order to satisfy the requirements of due process. It is the position of the appellants that a right of action in tort is "property" which may not under due process be adversely affected by an involuntary change of venue in the absence of a full hearing after reasonable notice. It may be accepted that, as the appellants argue, a tort claim or action is a "species of property" in the constitutional sense. Logan v. Timmerman Brush Co., 455 U.S. 422, 428, 102 S.Ct. 1148, 1153-54, 71 L.Ed.2d 265 (1982); cf. Martinez v. California, 444 U.S. 277, 281-82, 100 S.Ct. 553, 557, 62 L.Ed.2d 481 (1980). Similarly, it may be agreed that where the plaintiff has such a claim against a debtor in a Chapter 11 proceeding, he has a statutory right to a jury trial in a district court and that the place of such trial is an important right which may be entitled to some form of due process protection under the broad principles of Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950). The question is, though, what form such protection must take.
"Due process" does not establish an inflexible standard to be rigorously applied in all cases. Recently, in McClelland v. Massinga, 786 F.2d 1205 (4th Cir.1986), we said that "due process is not `a technical conception' of `inflexible procedures' (citing Cafeteria Workers v. McElroy, 367 U.S. 886, 895, 81 S.Ct. 1743, 1748-49, 6 L.Ed.2d 1230 (1961) nor is it `a mechanical instrument' or `yardstick'; it is rather `a delicate process of adjustment' and of a balancing of interests in which it is recognized `that what is unfair in one situation may be fair in another ....'" In particular, it is important to recognize that the notice and hearing is not "always require[d] ... prior to the initial deprivation of property" and that "[w]here only property rights are involved, mere postponement of the judicial enquiry is not a denial of due process, if the opportunity given for ultimate judicial determination of liability is adequate." Parratt v. Taylor, 451 U.S. 527, 540, 101 S.Ct. 1908, 1915, 68 L.Ed.2d 420 (1981). We conclude, therefore, that due process requires some form of notice and opportunity for a hearing before there can be a change of venue and before trial of a personal injury tort cause of action against a debtor may be transferred finally from the court in which the cause was initially filed to the district where the bankruptcy proceedings are pending.
We reach this conclusion not only under due process analysis, but also under the language and Rules issued under the Bankruptcy Act. In our opinion, the debtor's motion herein qualified as a "contested matter" under the Act. As such it had to be begun by the filing of a motion with "reasonable notice and opportunity for hearing ... afforded the party against whom [the] relief [was] sought." Bankruptcy Rule 9014. The debtor filed with the district court sitting in bankruptcy an
The role of Committees appointed under the Act as revised has received considerable discussion but remains somewhat uncertain. As we have already noted, the status and position of Chapter 11 Committees are thoroughly canvassed in Andrews, The Chapter 11 Creditors' Committee: Statutory Watchdog?, 2 Bankruptcy Developments Journal, 247 (1985). As that article indicates, the Committee's right to intervene and be heard in any proceeding is, we think, fairly established. Matter of Marin Motor Oil, Inc., 689 F.2d 445, 454-6 (3d Cir.), cert. denied, 459 U.S. 1206, 103 S.Ct. 1196, 75 L.Ed.2d 440 (1983). In fact, the Rules require that certain notices in the course of the proceedings must be given the Committee. But it seems clear under the Rules that the Committee is not authorized to represent the individual interests of any claimant, as distinguished from the general interests of all claimants, In re Johns-Manville, 26 B.R. 919, 926 (S.D.N.Y. 1983), and only in certain specific situations, no one of which is relevant here, may proper service be made on the Committee rather than on the individual claimants themselves under Bankruptcy Rule 2002(i). It follows that, in our opinion, service of notice of the hearing on the motion to fix venue and to transfer, as given only to the Committee did not represent compliance with Bankruptcy Rule 9014 or with due process.
Conceding that notice to the Committee did not qualify as service on the individual claimants, it does not follow that the absence of such notice may be fatal to due process in this proceeding. The notice to the Committee may have been sufficient under Cleveland Bd. of Education v. Loudermill, ___ U.S. ___, ___, 105 S.Ct. 1487, 1495, 84 L.Ed.2d 494, 506 (1984), to permit the issuance of a provisional or conditional order providing for a fixing of venue in the district court sitting in bankruptcy for all the pending Dalkon Shield cases against the debtor but giving the claimants individual notice and an opportunity to object and to be heard before the order became final in any case where the plaintiff has filed an objection. That procedure would satisfy due process under Parratt and the other cases. And, as we read the record as well as the formal order of the district court, this is precisely what the district court intended, though the language of its order may be obscure on the point.
The district court entered a ruling bringing for the time being all the pending suits against the debtor before the district court sitting in bankruptcy in order to proceed expeditiously in the reorganization but with the definite condition that any party might object and might petition for abstention in his or her case. It was in our opinion intended as a conditional order, though not clearly stated as such. We are of the opinion, because of this possible want of clarity in the order assailed, that such order must be modified to make it crystal clear that the determination of venue therein is, as we have said, conditional, dependent finally and ultimately on a ruling to be made only after notice to all claimants advising them of their right to enter any objections they may have to such a tentative ruling and to submit a motion for
We do not presume to suggest rigid guidelines for the district judge to follow when considering objections to the transfer. We believe it important, however, to observe that although there may be distinct advantages of the tort claims being transferred to Richmond, those advantages should be balanced against the disadvantages that may be advanced at the hearing. In that regard, some cases may be fully prepared and ready for state trial. Some cases may require substantial numbers of local witnesses. Claimants may be receiving critical medical, physical or psychological care in a local area which would have to be halted or transferred to Richmond. All of these factors are relevant. Moreover, there are issues of state law that may substantially affect the results in individual cases.
In summary, we affirm the district court's order staying the suits of the plaintiffs against the debtor and all co-defendants, but remand with directions the order fixing venue for all pending suits against the debtor and transferring the suits to the district court before which the bankruptcy proceedings were pending.
AFFIRMED IN PART and REMANDED WITH DIRECTIONS.
A recent article in the Nat.L.J., p. 10, (March 17, 1986), states that by mid 1985, Robins, along with its insurer, Aetna Casualty & Surety Company, "had paid roughly $517 million for 25 trial judgments and 9,300 settlements since the first verdict in 1975."
It is obvious from that statement of the court that White actually sustains the result reached by us that, if the liability insurance is inadequate to satisfy in full all claims under the insurance, the actions by claimants should be stayed and the claims should be "liquidated" in the bankruptcy court.
See also Note, Selective Exercise of Jurisdiction in Bankruptcy-Related Civil Proceedings, 59 Tex.L.Rev. 325, 330-31 (1981):
It is true that both Pacor and the Texas Note were referring to section 1471(b) of the 1978 Act. That section, however, was re-enacted in the exact words of the repealed 1471(b) in section 1334(a) and (b) of the 1984 Act. Therefore, "[t]he jurisdiction conferred on the district court [under the 1984 Act's section 1334(a) and (b)] is exactly the same jurisdiction that was conferred on the district courts under the Bankruptcy Reform Act [of 1978]." Taggart, The New Bankruptcy Court Systems, 59 Am.Bank.L.J. 231, 239 (1985). To the same effect, King, Jurisdiction and Procedure Under the Bankruptcy Amendments of 1984, 38 Vand.L.Rev. 675, 677 (1985).