Opinion
Case No. 91-10100
04-23-2020
In re: EAGLE-PICHER INDUSTRIES, INC., et al., Debtors.
Copies to: Default List Charles H. Moellenberg, Jr., Attorney for The Sherwin-Williams Company (electronically) Laura A. Meaden, Attorney for The Sherwin-Williams Company (electronically) Anderson T. Bailey, Attorney for The Sherwin-Williams Company (electronically)
Chapter 11
ORDER ON MOTION TO QUASH (DOC. 6957)
This matter is before the Court on the motion (Doc. 6957) (the "Motion") of the Eagle-Picher Personal Injury Settlement Trust (the "EPI Trust" or the "Trust") to quash two subpoenas issued by the District Court for the Eastern District of Wisconsin at the request of the paint manufacturer, Sherwin-Williams Company ("Sherwin"), a defendant in two lawsuits in that court involving claims for personal injuries from the use of white lead carbonates in products sold in Wisconsin (the "Wisconsin Litigation"). By the subpoenas (Doc. 6954, Exs. 1-2) (the "Subpoenas"), Sherwin seeks to depose an agent for the EPI Trust under Federal Rule of Civil Procedure 30(b)(6) and to have the EPI Trust produce certain documents under Federal Rule of Civil Procedure 45(e), targeted at revealing the paint formulas used by the now defunct chapter 11 debtor Eagle-Picher Industries in paints the company historically manufactured and marketed in Wisconsin. With its Motion, the EPI Trust filed a brief in support (Doc. 6953) and provided exhibits attached to the declaration of one its attorneys (Doc. 6954). Sherwin filed a response (Doc. 6960) (the "Response") and the declaration of its counsel (Doc. 6961) in support of its opposition to the Motion, and the EPI Trust filed a reply (Doc. 6966). On April 15, the Court held a telephonic hearing. Having considered the parties' filings and all of the arguments of counsel, and being fully advised in the premises, for the reasons stated below, the Motion is DENIED in part and TRANSFERRED in part to the District Court for the Eastern District of Wisconsin for further adjudication.
DISCUSSION
A. The Court Has Limited Jurisdiction to Adjudicate This Dispute.
Under Federal Rule of Civil Procedure 45(d)(3), a party subject to a subpoena may move to quash that subpoena in the district in which compliance is required. Here, although the Subpoenas require compliance in Illinois, the EPI Trust maintains that the selection of Illinois was improper because the EPI Trust does not regularly conduct business there and because this Court "retains exclusive jurisdiction over the matters at issue here." Mot. at 9 n.2.
Although Sherwin contests the extent to which this Court may exercise jurisdiction over the present discovery dispute, it concedes that the bankruptcy court has jurisdiction "to the extent this dispute requires interpretation of the Confirmation Order." Resp. at 6 n.3. By its silence, Sherwin also appears to concede that the Trust did not need to file (or strategically would gain no advantage by filing) the Motion to quash the Subpoenas in the District Court for the Northern District of Illinois. In a similar case, the District Court in Illinois previously transferred a discovery dispute to this Court, finding that "even if the Bankruptcy Court did not contemplate presiding over a contested subpoena, served in a separate lawsuit, . . . the Bankruptcy Court appears to posses[s] such exclusive jurisdiction under the plain reading of the language of Article 9" of Eagle-Picher's confirmed plan. Martin v. Holloran, No. 1:10-cv-02272, slip op. at 2 (N.D. Ill. June 22, 2010) (Mason, J.).
A copy of the plan is attached as Exhibit 8 to Doc. 6954.
To the extent this dispute requires interpretation of the plan, the order confirming that plan, or the trust agreement implemented by the plan and its confirmation (the "Trust Agreement") (Doc. 6954, Ex. 7), this Court has explicitly retained jurisdiction. Doc. 6954, Ex. 8 (Plan) at 55-56. But "[r]etention of jurisdiction provisions . . . do not alter the overall scope of the bankruptcy court's post-confirmation jurisdiction." Thickstun Bros. Equip. Co. v. Encompass Serv. Corp. (In re Thickstun Bros. Equip. Co., Inc.), 344 B.R. 515, 521 (B.A.P. 6th Cir. 2006); see also Binder v. Price Waterhouse & Co. (In re Resorts Int'l, Inc.), 372 F.3d 154, 169 (3d Cir. 2004) ("Given the limited jurisdiction of non-Article III bankruptcy courts, jurisdiction does not extend necessarily to all matters involving [bankruptcy] trusts."). "At the heart of the matter before [the Court] is a discovery dispute that could routinely occur in any type of litigation." In re ACandS, Inc., No. 10-53702, 2011 WL 744913, at *2 (Bankr. D. Del. Feb. 22, 2011), as corrected (Feb. 23, 2011). "[R]eorganized debtors and . . . trusts are separate entities that can sue and be sued"—and be served with discovery. Id. The court in ACandS found that it lacked subject matter jurisdiction over a discovery dispute because, even though it involved the interpretation of confidentiality provisions of the trust agreement, "that fact [did] not approach the level necessary to establish a close nexus to the bankruptcy proceedings, as confidentiality issues often arise in the context of discovery disputes." Id. at *4.
The Court is not convinced that it has subject matter jurisdiction to decide those aspects of the Motion that do not have a sufficiently "close nexus" to the plan, confirmation order, or Trust Agreement. But even if it did have the requisite jurisdiction to decide the entirety of the Motion, as explained below, the Court finds that exceptional circumstances exist meriting the transfer of a majority of the Motion under Rule 45(f) to the Eastern District of Wisconsin as the issuing court.
B. The Subpoenas Do Not Violate the Channeling Injunction or the Trust Agreement.
The attorneys for the EPI Trust argue strenuously that the Subpoenas violate the channeling injunction of the confirmed plan entered in this case (the "Channeling Injunction") as well as the Trust Agreement. Mot. at 13-16; see also In re Eagle-Picher Indus., Inc., 203 B.R. 256 (S.D. Ohio 1996) (confirmation order); Doc. 6954, Ex. 8 (Plan) at ¶ 1.1.12 (defining "Asbestos and Lead PI Permanent Channeling Injunction"); Doc. 6954, Ex. 7 (Trust Agreement).
In the Motion, the EPI Trust maintains that the Court should quash the Subpoenas because Sherwin intends to use the information obtained from them in a manner that would violate the Channeling Injunction. Mot. at 13-16. Specifically, Sherwin plans to use the discovery to try to establish that the Trust is at least partially, if not wholly, liable for the Wisconsin Litigation plaintiffs' alleged injuries under the novel risk-contribution theory unique to Wisconsin. If Sherwin is successful in the Wisconsin Litigation, the EPI Trust contends that the plaintiffs could use the finding in future proceedings and that this Court would have little choice but to give those findings preclusive effect in the (thus far) untested lead paint claims' adjudication process governed by the Trust Agreement. Mot. at 16; Tr. Agreement, Art. 3.3. Sherwin counters that this is an overbroad interpretation of the Channeling Injunction and that the inclusion of the EPI Trust as a nonparty on the verdict form would not result in liability against the Trust. Under the risk-contribution theory, Sherwin argues, it has a right to assert as a defense that other lead-based paint manufacturers who marketed and sold products in the state of Wisconsin, even nonparties like the Trust, are or may at least be partially responsible so that any liability can be appropriately apportioned among the named (and unnamed) defendants.
In a case of first impression, the Supreme Court of Wisconsin recognized the novel risk-contribution theory in Collins v. Eli Lilly Co., 342 N.W.2d 37 (Wis. 1984), which was later extended to cover lead pigment claims in Thomas ex rel. Gramling v. Mallett, 701 N.W.2d 523 (Wis. 2005). Under the risk-contribution theory, a plaintiff may sue and "recover against a manufacturer of a product which allegedly harmed him even if he cannot establish that a specific manufacturer produced the injurious product." Burton v. Am. Cyanamid, 690 F. Supp. 2d 757, 760 (E.D. Wis. 2010); Gibson v. Am. Cyanamid Co., 760 F.3d 600, 604 (7th Cir. 2014) ("Under the risk-contribution theory, plaintiffs are relieved of the traditional requirement to prove that a specific manufacturer caused the plaintiff's injury."). Once the plaintiff proves certain threshold elements of harm, the theory shifts the burden to the defendant to prove it did not manufacture the specific product and to implead other potentially culpable manufacturers. Thomas, 701 N.W.2d at 550 & n.29. Wisconsin appears to be the only jurisdiction that has adopted the risk-contribution theory; the theory has been largely rejected by other courts. See, e.g., Mulcahy v. Eli Lilly & Co., 386 N.W.2d 67, 75 (Iowa 1986); Smith v. Eli Lilly & Co., 560 N.E.2d 324, 333 (Ill. 1990) ("No [other] court . . . has gone so far as to impose total liability on a defendant merely for creating a risk of harm. It has been said that this theory contravenes the fundamental tort principle that a mere possibility is insufficient to satisfy causation.").
The District Court judge in the Wisconsin Litigation who issued the subpoenas, Judge Adelman, recently disagreed with Sherwin on this point. See In re Nonparty Subpoenas to PPG Indus., Inc. ("PPG II"), No. 20-MC-12 (E.D. Wis. Apr. 10, 2020). In an order on a motion to quash another nonparty subpoena issued by Sherwin, Judge Adelman held that the ordinary rule permitting allocation of liability to nonparties is inapplicable to cases brought under Wisconsin's risk-contribution theory. Id. at 2 ("The ordinary rule in Wisconsin is that if there is evidence of conduct which if believed by the jury would constitute negligence on the part of the person or legal entity complained about, then that person or entity should appear on the verdict form for the apportionment of negligence. However, that mechanism does not appear appropriate in the context of risk contribution."). Instead, he ruled, Sherwin would need to implead the nonparty. Id. at 3.
As Sherwin's counsel acknowledged during the hearing, any attempt to implead the EPI Trust would clearly violate the Channeling Injunction. See also Resp. at 9 ("acknowledg[ing] that any claim for indemnity or contribution from the [EPI] Trust would be subject to the Confirmation Order and channeling injunction"). But to the extent Sherwin seeks to merely exculpate itself and diminish its own liability, this Court sees no reason why the Channeling Injunction can be used to prevent reasonable discovery. By requesting the Subpoenas, Sherwin is seeking information; it does not appear to be taking any action "for the purpose of, directly or indirectly, collecting, recovering, or receiving payment of, on, or with respect to any . . . Lead Personal Injury Claims[.]" Doc. 6954 Ex. 8 (Plan) at 12. If Sherwin or the Wisconsin Litigation plaintiffs were to seek to implead the Trust or take other action that would violate the Channeling Injunction, the EPI Trust could seek an appropriate order from the Court at that time. It appearing that Sherwin seeks merely information at this point—and that the information will likely be limited to the lead paint formulas Eagle-Picher used historically—the Court will decline to grant the Motion on these grounds.
Indeed, the EPI Trust is not unfamiliar with such motions—it has brought several motions for an order enforcing the plan and confirmation order in the past. See In re Eagle-Picher Industries, Inc., 215 B.R. 983 (Bankr. S.D. Ohio 1997) (enjoining party from suit filed against EPI in state court); In re Eagle-Picher Industries, Inc., 216 B.R. 611 (Bankr. S.D. Ohio 1997) (enjoining suit against EPI to the extent it sought relief for EPI's pre-filing, pre-confirmation acts, but denying motion to enforce to the extent plaintiff sought relief for post-confirmation acts of EPI); In re Eagle-Picher Industries, Inc., No. 91-10100, 2005 WL 4057842 (Bankr. S.D. Ohio Oct. 6, 2005).
In its reply and during the hearing, the EPI Trust homed in on a slightly different argument: that the Trust Agreement prevents it from complying with the Subpoenas. The EPI Trust states that it "exists exclusively to pay valid asbestos personal injury claims." Doc. 6966 at 1. While it was required to set up an asbestos personal injury claim facility, the EPI Trust never had to establish a similar lead facility, nor is it required to do so until one of three "triggers" occurs:
[T]he Trustees shall not be required to estimate the PI Trust's possible liability for, or decide whether to reserve funds or otherwise maintain sufficient resources for the payment of, Lead Personal Injury Claims until the latest of the following events:
Tr. Agreement, Art. 3.3(c)(i). The EPI Trust takes the position that because none of these triggering events has occurred, it exists solely for the purpose of paying out asbestos-related claims. According to its attorneys, compelling the EPI Trust to spend any amount of funds on something lead-related—like the Subpoenas—would cause the trustees to violate their fiduciary duties under the Trust Agreement. Further, counsel for the Trust argues that the Court would essentially be amending the Trust Agreement, contrary to its terms, if it were to deny the Motion to quash the Subpoenas.(A) four years have passed after the Effective Date;
(B) the PI Trust has paid One Million Dollars ($1,000,000) in indemnity costs, as opposed to claim defense costs, for Lead Personal Injury Claims in any one calendar year; or
(C) holders of Lead Personal Injury Claims obtain final, non-appealable liability judgments against lead pigment manufacturers in more than one state.
Amendments to the Trust Agreement are governed by Article 7.3, which provides that certain terms maybe modified by consent and others only with court approval. See also Doc. 6910 (motion to amend the Trust Agreement describing how the agreement may be amended). No fair reading of Article 7.3—or of Article 3.3—could lead to the conclusion that responding to the Subpoenas constitutes an amendment to the Trust Agreement.
The Trust's arguments here are similarly unconvincing. Counsel's reading of the Trust Agreement as prohibiting it from even responding to a validly issued subpoena—one issued after that court's careful consideration—is, at best, a strained one. The EPI Trust can point to no language or provision other than Article 3.3(c) above to suggest that the Subpoenas themselves are barred by the Trust Agreement. Being excused from establishing a lead claims facility and from reserving funds for payment of lead-based claims is a far cry from being insulated from all third-party discovery, even if the subject of that discovery is not asbestos. Indeed, as counsel acknowledged, the EPI Trust has responded to thousands of subpoenas since its creation. The only difference here is the relatively increased burden and added expense of complying with the lead-related Subpoenas compared with that imposed by complying with the asbestos-related subpoenas which the EPI Trust is accustomed to and has well established facilities for. As discussed below, whether that burden is undue (or whether costs should be shared by Sherwin) is a question better suited for the issuing court in the Wisconsin Litigation.
Counsel for the EPI Trust makes the impassioned argument that the costs associated with complying with the Subpoenas are significant and that every dollar spent on complying with the Subpoenas will be a dollar less spent on paying asbestos claims. To the extent this is the case—and again, this Court leaves that decision up to the issuing court—the Trust can always seek to shift some of those costs of production to Sherwin. See Fed. R. Civ. P. 45(d)(2)(B)(ii) (providing that an order compelling production from a third party "must protect a person who is neither a party nor a party's officer from significant expense resulting from compliance"); see also, e.g., Legal Voice v. Stormans Inc., 738 F.3d 1178, 1184 (9th Cir. 2013) ("[W]hen discovery is ordered against a non-party, the only question before the court in considering whether to shift costs is whether the subpoena imposes significant expense on the non-party."); Linder v. Calero-Portocarrero, 251 F.3d 178, 182 (D.C. Cir. 2001) (holding that under Rule 45 if the expenses imposed on a nonparty by a subpoena are "significant," "the court must protect the non-party by requiring the party seeking discovery to bear at least enough of the expense to render the remainder 'non-significant'").
In the end, the Motion merely seeks a determination as to whether Sherwin is entitled to discovery from a nonparty to the Wisconsin Litigation, and neither the Channeling Injunction nor the Trust Agreement protects the EPI Trust from responding to such a discovery request.
C. The Court Will Not Revisit Any Relevancy Determination Already Rendered in the Wisconsin Litigation.
Counsel for the EPI Trust also argues that the Subpoenas should be quashed because they are (1) overbroad, (2) would impose an undue burden on the Trust, and (3) seek discovery that is irrelevant to Sherwin's ability to establish a defense in the Wisconsin Litigation. For the reasons stated below, the Court declines to address these arguments because it finds that exceptional circumstances exist that warrant the transfer of the remainder of the Motion to the District Court for the Eastern District of Wisconsin for consideration by Judge Adelman.
Rule 45(f) provides that the court where compliance with a subpoena is required "may transfer a motion [to quash] to the issuing court if the person subject to the subpoena consents or if the court finds exceptional circumstances." Fed. R. Civ. P. 45(f). Exceptional circumstances under Rule 45(f) include "where the . . . court's ruling could disrupt management of the underlying litigation or where similar issues are likely to arise in multiple districts," and transfer is warranted "[w]here these concerns outweigh the interests of the nonparty in obtaining local resolution for the motion." F.T.C. v. v. A+ Fin. Ctr., LLC, 1:13-MC-50, 2013 WL 6388539, at *2 (S.D. Ohio Dec. 6, 2013); Fed. R. Civ. P. 45 advisory committee notes ("[T]ransfer may be warranted in order to avoid disrupting the issuing court's management of the underlying litigation, as when that court has already ruled on issues presented by the motion or the same issues are likely to arise in discovery in many districts."). Traditionally, federal courts have looked to "case complexity, procedural posture, duration of pendency, and the nature of the issues pending before, or already resolved by, the issuing court in the underlying litigation" to determine whether "exceptional circumstances" exist. Parker Compound Bows, Inc. v. Hunter's Mfg. Co. Inc., 5:15-MC-00064, 2015 WL 7308655, at *1 (N.D. Ohio Nov. 19, 2015) (quoting Judicial Watch, Inc. v. Valle Del Sol, Inc., 307 F.R.D. 30, 34 (D.D.C. 2014)).
As the court in the Western District of Pennsylvania held in an order transferring a similar motion to quash by PPG, a different nonparty paint manufacturer, the Eastern District of Wisconsin is the most appropriate forum for resolving this matter. In re Nonparty Subpoenas to PPG Indus., Inc. ("PPG I"), 2:20-MC-00296-RJC, 2020 WL 1445844, *4 (W.D. Pa. Mar. 25, 2020) (also found at Doc. 6961, Ex. 2 at 7). Judge Adelman of the Wisconsin district court, in authorizing the issuance of the Subpoenas, specifically found that Sherwin had "good cause" for the nonparty discovery that the EPI Trust now seeks to quash. Doc. 6954, Ex. 3 at 13; see also PPG I, 2020 WL 1445844, at *2. Any reexamination of the relevancy of such nonparty discovery to Sherwin's risk-contribution defense under Wisconsin law unreasonably invites inconsistent judicial decision making and could "disrupt [the issuing court's] management of the underlying litigation." A+ Fin. Ctr., 2013 WL 6388539, at *2. The risk of inconsistent rulings is further exacerbated in light of the transfer of the PPG motion to quash—featuring similar relevancy and breadth issues and issued in the same underlying Wisconsin Litigation—back to the Wisconsin issuing court for adjudication. PPG I, 2020 WL 1445844, at *4. And indeed, as previously noted, Judge Adelman recently ruled on the transferred PPG motion, finding that at least some discovery—information about paint formulas—was relevant to Sherwin's defense. PPG II, No. 20-MC-12, at *3. Finally, the underlying Wisconsin Litigation has been pending for several years and addresses a unique aspect of Wisconsin tort law. All of this leads the Court to conclude that the District Court for the Eastern District of Wisconsin, as the issuing court and the location of the underlying litigation, is "the most appropriate forum for a determination regarding whether the relevant, yet voluminous, discovery sought from [the EPI Trust], a nonparty, is proportional to the needs of the case." PPG Subpoenas, 2020 WL 1445844, at *4.
CONCLUSION
For GOOD CAUSE SHOWN, the Motion is DENIED to the extent it seeks a ruling that the discovery sought by the Subpoenas would violate the plan, the Channeling Injunction, or the Trust Agreement. IT IS FURTHER ORDERED that, in light of the exceptional circumstances found above—as well as the Court's limited jurisdiction over such matters, see ACandS, 2011 WL 744913, at *4—the remainder of the Motion is hereby TRANSFERRED to the United States District Court for the Eastern District of Wisconsin for adjudication, specifically as to the proportionality, undue burden and expense, and relevancy arguments raised in this proceeding.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Jeffery P. Hopkins
United States Bankruptcy Judge
Dated: April 23, 2020
Copies to: Default List Charles H. Moellenberg, Jr., Attorney for The Sherwin-Williams Company (electronically) Laura A. Meaden, Attorney for The Sherwin-Williams Company (electronically) Anderson T. Bailey, Attorney for The Sherwin-Williams Company (electronically)