THOMAS P. AGRESTI, Bankruptcy Judge.
A hearing on the
The Court took the matter under advisement after the hearing, including a determination as to whether an evidentiary hearing might be necessary before a final decision on the Motion could be made. Having now given the Motion careful consideration, the Court concludes that no evidentiary hearing is required at this time, and that the Motion must be denied, without prejudice to being refiled at a later time.
The State Court Action was filed on December 10, 2012, when Kenneth Judson sued a large number of defendants, including NLI, after he was diagnosed with mesothelioma.
Shortly after the State Court Action was filed, counsel for NLI contacted Judson's counsel and asked that NLI be dismissed from the case because of the Channeling Injunction issued in the present case. NLI's attorney provided some evidence to Judson showing that the Manchester Facility had been part of the Baroid Division of NLI during the relevant period and had manufactured a bentonite-based product called Bentone, which purportedly brought Judson's claim within the scope of the Channeling Injunction. On April 29, 2013, Judson agreed to a stipulation of dismissal that dismissed NLI from the State Court Action, without prejudice.
On December 27, 2013, Judson filed a motion in the State Court Action seeking leave to add NLI back in as a defendant. That motion was promptly granted and on December 31, 2013, NLI was again named as a defendant when Judson filed the "Second Amended Petition." The Second Amended Petition alleges that Kenneth Judson worked in a variety of different buildings and departments at the Manchester Facility in which he was exposed to asbestos, the majority of which ("approximately 85%") had nothing to do with the Baroid Division or Bentone. See Motion at Exhibit H, ¶28. These other operations allegedly included "the Lead Oxide Department, the Oncor department, lead chemicals, laboratory, storage and offices." Id. The Second Amended Petition also includes a statement saying that Judson "disclaims any claim for relief for any portion of the injuries arising out of Baroid-related products or operations and bentonite-mining related products or operations related to NL Industries, Inc." See Id. at ¶6.
The Parties sharply disagree on how to characterize Judson's action in bringing NLI back into the State Court Action. According to NLI, Judson's actions were based on unsubstantiated factual allegations that were in blatant disregard of, and were designed to circumvent, the Channeling Injunction. NLI contends that Judson acted in contempt of the Channeling Injunction and should therefore be sanctioned. On the other hand, Judson argues that she initially agreed to the dismissal of NLI from the State Court Action in the mistaken belief, based on representations by NLI's attorneys, that the Manchester Facility was entirely or primarily a Baroid Division/Bentone production plant, and that once she discovered that Bentone was merely a "minority function" of the Manchester Facility she moved to reinstate NLI as a defendant, while respecting the Channeling Injunction by disclaiming any liability based on Baroid/Bentone exposure. Even if her position is ultimately found to be wrong, Judson claims she did nothing that would warrant a contempt sanction. NLI disputes Judson's contention that there were operations other than the Baroid Division taking place at the Manchester Facility during the time that Kenneth Judson worked there.
The factual questions of what sort of operations were being conducted at the Manchester Facility from 1964 through 1968, and where in the facility Kenneth Judson may have worked, are obviously key ones. The Parties presented some conflicting documentary evidence in this regard by way of various attachments to their filings. The Court is in no position to make any ultimate factual determination on these questions
Having provided the necessary general background, the Court can now turn to the issues raised by the Motion and Judson's Response. An initial matter to be considered is whether the Channeling Injunction should be found invalid because its scope exceeded the Court's authority to grant. Assuming the first matter is decided in the negative, a second issue exists as to whether the Channeling Injunction bars Judson's renewed claim against NLI in the State Court Action.
The Channeling Injunction which is the subject of the Motion provides in relevant part as follows:
Id. See also Motion at ¶6.
Judson argues that NLI is not itself a Debtor and is being sued because of its own independent acts, not because of its relationship with any of the Debtors. She argues that the Channeling Injunction should not be enforced because the Court exceeded its jurisdiction in entering it, pointing to 11 U.S.C. §524(g), which she says does not authorize the issuance of an asbestos channeling injunction to protect non-debtor entities from non-derivative claims, i.e., from claims wherein the non-debtor is alleged to be independently liable to some third party because of its own actions and not merely derivatively liable because of its relationship to the Debtor. See, e.g., In re Quigley Co., Inc., 676 F.3d 45, 59-62 (2d Cir. 2012) (discussing how Section 523(g) is intended to allow bankruptcy courts to bar actions against third parties only where the third party has derivative liability due to its relationship with the debtor, and not to enjoin actions if the third party has independent liability). Judson further notes that the Third Circuit has held that Section 524(g) establishes the limits of a bankruptcy court's asbestos channeling injunction power. See In re Combustion Engineering, 391 F.3d 190, 233-34, 236 (3d Cir. 2004) (rejecting 11 U.S.C. §105(a) as an alternative basis for entering an asbestos channeling injunction broader than would be permitted under Section 524(g)). See also In re Pittsburgh Corning Corp., 417 B.R. 289, 292 (Bankr. W.D. Pa. 2006).
Were the Court able to reach this issue, Judson's argument might well carry the day. The Channeling Injunction does, on its face, seem to go beyond the permissible scope of Section 524(g) by enjoining non-derivative claims by third-parties against NLI and certain other non-Debtors.
In Travelers, a bankruptcy court entered an asbestos-related injunction order in 1986 and then issued a "clarifying" order in 2004 that some parties argued was actually an enlargement of the scope of the injunction. On an appeal from the 2004 order, the Second Circuit concluded that the bankruptcy court had lacked the jurisdiction and authority to enter the original asbestos-related injunction order in 1986. On further appeal, the Supreme Court held that the Second Circuit erred in that holding because the 1986 order was final, the time for direct review of such order having long-since passed, and none of the recognized exceptions, which would in effect allow a collateral attack on subject matter jurisdiction grounds, applied. If that principle is followed here, it would now be too late for Judson to question the validity of the Channeling Injunction almost 10 years after it was entered.
On the other hand, Travelers involved the ability of an appellate court to reach the jurisdiction and authority issue, whereas the Court here is being asked to reach that issue with respect to its own prior order. The Travelers court did state, in reference to the 1986 order followed by the 2004 clarifying order, that "the Bankruptcy Court plainly had jurisdiction to interpret and enforce its own prior orders." 557 U.S. at 151. It might be argued that this power to interpret and enforce would provide a sufficient basis for the Court to look back and reach the issue of whether there was authority to issue the Channeling Injunction to cover non-Debtors such as NLI on the facts presented. While there is some surface appeal to this argument, the Court does not ultimately find it persuasive.
It is true that Travelers involved an appellate review of the previously-entered injunction. A close reading of the case, however, indicates that the Supreme Court's focus was concerned with protecting the reliable finality of bankruptcy confirmation orders by generally preventing the re-litigation of the jurisdiction of the bankruptcy court to enter the order once the appeal period has passed and the order has become final.
Moving on then to the interpretation of the Channeling Injunction, the Court begins by again noting that both sides agree that the power to interpret and enforce it resides here. See, n. 3, supra. See also, Travelers, supra; Confirmation Order at ¶53. Ideally, of course, any injunction, but particularly a complicated one such as an asbestos channeling injunction, should be so written as to avoid the need for a subsequent interpretation as to its scope. As Judge Fitzgerald herself noted with respect to an asbestos channeling injunction being sought in another case:
In re Pittsburgh Corning Corp., 453 B.R. 570, 594 (Bankr.W.D.Pa. 2011). Unfortunately, that level of clarity does not appear to have been reached with respect to the Channeling Injunction in the present case, hence the Court must do its best to construe its scope.
The proper approach to be followed in construing an injunction was recently explained as follows:
Salazar v. Buono, 559 U.S. 700, 761-62 (2010) (Breyer J., dissenting). The Court must therefore begin with an inquiry as to why NLI was included within the protection of the Channeling Injunction in the first place since it is not a Debtor.
The Court is able to glean a sufficient understanding in that regard based on the filings of the Parties concerning the Motion, as well as the Disclosure Statement that was filed in support of the Plan. The Debtors in this case are or were all direct or indirect subsidiaries of Halliburton Company ("Halliburton"). See Disclosure Statement, Doc. No. 48 at 15. Due to various contracts, mergers and acquisitions, or joint ventures that occurred over the years, the Debtors or their predecessors may have become liable to provide indemnity to certain third-parties for certain asbestos-related claims. Id. at 23. Although the details are not entirely clear, it appears that beginning in 1988 one of the Debtors in the case, Dresser Industries, Inc., now known as DII Industries LLC, entered into a merger which resulted in it assuming historical liabilities for NLI's "petroleum services business," which included the former NLI Baroid Division. See NLI's Reply to the Judson Response at ¶18; Tremont, LLC v. Halliburton Energy Servs., Inc., 696 F.Supp.2d 741, 752-63 (S.D. Tex. 2010). Halliburton is the successor-in-interest to these Baroid liabilities. Id.
Several defined terms under the Plan must be considered when interpreting the scope of the Channeling Injunction. First, the protection of the Channeling Injunction extends to "Debtor-Affiliated Protected Parties," which is defined as being comprised of several sub-groups. See Disclosure Statement, Exhibit A at ¶62, Doc. No. 2086. One of these sub-groups, the one to which NLI allegedly belongs, are "Debtor-Indemnified Protected Parties," which are in turn defined in relevant part as:
Id. at ¶63. Looking next at Exhibit 17 to the Plan, which is self-described as a list of Debtor-Indemnified Protected Parties, the following is the relevant entry:
Doc. No. 1513 at Exhibit 17.
These are the pertinent terms which must be considered in construing the Channeling Injunction. NLI seeks the Court to focus only on the "relates to" phrase found in Exhibit 17, pointing out that courts have consistently given that phrase a broad construction. Thus, according to NLI, even if it turned out that Baroid Division production at the Manchester Facility during the relevant time was only a small fraction of the overall operations, the Judson claim would still relate to "Baroid-related products or operations and bentonite-mining related products or operations," and thus be subject to the Channeling Injunction. Reply at ¶5. This position might, of course, be taken to an extreme.
Suppose, for instance, that Kenneth Judson had only spent a total of one hour in the presence of any Baroid/Bentone
The Court does not find NLI's argument convincing for several reasons. First, while the phrase "related to" does undoubtedly connote a broadly defined causal connection, it cannot be without limits. In construing a similar phrase in the injunction that was at issue in Travelers, for example, the Supreme Court noted that there had to be a "cutoff at some point" where the connection in question would be "thin to the point of absurd." 557 U.S. at 149. NLI's failure to provide any recognition of such a limit, or any principled way to delineate such limit, counts against it.
Second, and more significantly, NLI's position would essentially result in a construction of the Channeling Injunction that reads the word "solely" completely out of it. That word, however, is as much a part of the Channeling Injunction as the "related to" phrase seized upon by NLI, and it was apparently included to reflect the fact that DII Industries, now Halliburton, was responsible for only certain asbestos-related liabilities of NLI, not all of them. To simply ignore the word "solely" would seem to give NLI more protection than that to which it is entitled.
A third reason for rejecting NLI's argument harkens back to the jurisdictional issue that was discussed briefly above, where the Court recognized that the Channeling Injunction likely pushed at least to the outer edge of the Court's authority. That conclusion also cautions against an overly-expansive construction in favor of NLI. See, e.g., In re The 1031 Tax Group, LLC, No. 10 CIV. 2799, 2011 WL 1158445 (S.D.N.Y., Mar. 29, 2011) (declining to interpret a channeling injunction in a manner that would exceed the subject matter jurisdiction of the Court).
A final reason for rejecting NLI's position stems from Judge Fitzgerald's comment in Pittsburgh Corning, supra, that the burden of articulating the scope of an asbestos channeling injunction as a requisite for confirmation is borne solely by the plan proponents. Where such an injunction is not sufficiently articulated to the point that there is uncertainty as to its scope, it behooves the Court to construe that uncertainty most strongly against the plan proponent, or in this case, the party aligned with the plan proponent.
While NLI ignores the term "solely," Judson understandably makes it a centerpoint of her argument. As she states in her response:
Response at ¶25. Judson thus seems to be arguing that the Channeling Injunction will only protect NLI from those claims where the claimant's only exposure occurred with respect to Baroid/Bentone operations. This position seems to go too far the other way and could also lead to extreme results.
For instance, if it is ultimately shown that only 1% of Kenneth Judson's asbestos exposure at the Manchester Facility involved operations other than Baroid/Bentone, does that nevertheless mean that the Channeling Injunction would be completely ineffectual to protect NLI because the claim did not arise "solely" from Baroid/Bentone operations? Under the formulation as stated in the Response, the answer would appear to be "yes." The Court likewise cannot agree with an interpretation of the Channeling Injunction that would produce such a result.
The Court finds that the most reasonable interpretation of the scope of the Channeling Injunction lies somewhere between the two positions proposed by the Parties. The key lies in the definition of "Debtor-Indemnified Protected Parties" found in Exhibit A to the Disclosure Statement, quoted above, which would seem to be central to an understanding of the intended scope of the Channeling Injunction, but which neither Party has addressed in its filings on this matter. That definition provides that the entities listed in Exhibit 17, such as NLI, are protected, but "only to the extent" they are alleged to be liable on a claim for which a Debtor or Halliburton has agreed, or is obligated by operation of law, to indemnify such entity. In other words, rather than the either/or approaches urged by the Parties, the definition recognizes that an apportionment process of some kind may be necessary if a claim that includes both Baroid/Bentone and non-Baroid/Bentone exposure is made against a protected party, with a part of the claim being protected by the Channeling Injunction and a part not protected.
The Court makes no pretense of having any expertise on the question of exactly how such an apportionment process should be done. It is, however, well aware that asbestos-related claims litigation has been going on for decades and routinely involves allegations of multiple exposures, to multiple products of multiple defendants, often extending over lengthy periods of time, all of which are alleged to have played some part in a non-divisible injury to the plaintiff. In these complex situations, the courts hearing the cases have been forced by the circumstances presented to develop methods for apportioning liability among the defendants in a fair and equitable manner. See, e.g., M. Green, A Future for Asbestos Apportionment?, 12 Conn. Ins. L.J. 315, 318-25 (2006) (discussing the approaches courts have taken to apportion asbestos liability).
What does the above mean with respect to the Motion? In general, it means that the Court will largely defer to the proceedings in the State Court Action provided they are conducted in a reasonable and proper manner, while holding open the possibility that NLI may return here at any time to renew its efforts to enforce the Channeling Injunction if it does not believe this standard is being met. Despite this deference, a number of comments can be made that will perhaps provide the state court with some general guidance as to how this Court would anticipate the State Court Action proceeding.
First, the Court views the disclaimer language included by Judson in the Second Amended Petition to be significant, and assumes that it will prevent Judson from introducing or relying upon any evidence of asbestos exposure from Baroid/Bentone operations at the Manchester Facility in proving her case. If Judson is unable to show any non-Baroid/Bentone exposure through admissible evidence, as NLI contends will be the case, then the Court assumes her claim against NLI in the State Court Action will be dismissed in due course, whether on summary judgment or otherwise. Second, if Judson is able to show sufficient non-Baroid/Bentone exposure occurred to establish liability against NLI, then there must be some opportunity provided for NLI to introduce evidence of Baroid/Bentone exposure so that the judge or jury can take that into account when making a determination as to an apportionment of liability between and among the Baroid/Bentone and non-Baroid/Bentone functions of NLI. Third, NLI must be given an appropriate offset or credit as against any overall liability that may be found to reflect that portion of the liability which is found to be attributable to Baroid/Bentone operations, and thus under the protection of the Channeling Injunction. (Similarly, should Judson ever pursue a claim against the Asbestos Trust for any Baroid/Bentone exposure, there should be an offset or credit to reflect any recovery against NLI that she obtains in the State Court Action).
The court in the State Court Action will be charged with carrying out the proceeding in accordance with the general principles discussed above but beyond that is free to act in accordance with applicable law as it may determine. If at any time NLI believes the state court has failed to do so in a manner that implicates a breach of the Channeling Injunction, as interpreted herein, it may seek further relief from the Court. An appropriate Order follows.