Summary
holding that withdrawal of the reference may be appropriate to have issues addressed by a court with undisputed jurisdiction
Summary of this case from Rodriguez v. Countrywide Home Loans, Inc.Opinion
Civil Action NO: 00-0558. Bankruptcy Case No. 00-10992 SECTION: "R"(5).
April 17, 2000.
April 18, 2000.
ORDER AND REASONS
Before the Court is debtors' Motion for Partial Withdrawal of the Reference with Respect to the Resolution of Personal-Injury Tort Claims. For the reasons that follow, debtors' motion is GRANTED.
I. BACKGROUND
On February 22, 2000, debtors, the Babcock Wilcox Co., Diamond Power International, Inc., Babcock Wilcox Construction Co., Inc. and Americon, Inc. [Babcock Wilcox], filed voluntary Chapter 11 petitions. Babcock Wilcox seeks protection under Chapter 11 from the mass of asbestos liability lawsuits and claims pending against it. Although Babcock Wilcox allegedly did not produce or manufacture asbestos, it incorporated asbestos insulation into the design and construction of large commercial boiler systems over a period of several decades. These boiler systems were used in electric power plants, manufacturing facilities and ships.
Plaintiffs filed the first asbestos lawsuits against Babcock Wilcox in the late 1970s. ( See Mem. Supp. Partial Withdrawal Ref., at 32.) By 1999, the total number of claims made against the company exceeded 400,000. ( See Id. at 33.) Through 1999, Babcock Wilcox responded to these claims with a settlement program that enabled it to resolve more than 340,000 claims at an average value of $4,800. ( See id.) Babcock Wilcox now asserts that it cannot maintain its policy of settling outstanding claims due to a dramatic increase in settlement demands. ( See id. at 35.) As a result, it looks to the bankruptcy system to resolve its mass tort liability. In particular, Babcock Wilcox seeks to take advantage of the 1994 amendments to the Bankruptcy Code, which permit a debtor in a Chapter 11 reorganization to establish a trust to compensate present and future claimants for asbestos-related liability and to obtain an injunction channeling all asbestos liability to the trust. See 11 U.S.C. § 524(g).
Pursuant to Local Rule 83.4.1, Babcock Wilcox's Chapter 11 proceeding was automatically referred to United States Bankruptcy Court Judge Jerry A. Brown. On February 22, 2000, Babcock Wilcox filed this motion for partial withdrawal of the reference. Babcock Wilcox asserts that partial withdrawal is warranted because it will reduce the uncertainty and confusion that presently exists among a number of courts regarding the bankruptcy court's jurisdiction to make threshold determinations as to the validity of personal injury tort claims and because it. will promote judicial economy by eliminating duplicative proceedings.
On April 3, 2000, the Court ordered Babcock Wilcox to identify the specific bankruptcy administration matters on which it moves to have the reference withdrawn. In response, Babcock Wilcox proposes that the district court withdraw the reference over the following matters relating to the validity of the asbestos personal injury claims: (1) the motion to set bar date for filing proofs of claim; (2) motions for summary judgment; and (3) Rule 42 trials. Babcock Wilcox further suggests that matters relating to ongoing business operations, preservation of assets, and matters relating to the proposal and confirmation of a Chapter 11 plan, including appointment of a "futures representative" under 11 U.S.C. § 524(g)(4)(B), should remain with the bankruptcy court. The Asbestos Claimants' Committee, appointed by the United States Trustee on March 3, 2000, does not argue that these matters are inappropriate for withdrawal, but asserts that the motion is premature.
II. DISCUSSION
Although a district court has original jurisdiction over all cases under Title 11, this jurisdiction is not exclusive, and the district court may refer to bankruptcy judges any case arising under Title 11. See 28 U.S.C. § 157(a), 1334(b). Pursuant to Local Civil Rule 83.4.1, the courts in this district refer to the bankruptcy judges "all cases under Title 11 and all proceedings arising under Title 11 or arising in or related to a case under Title 11." Once a Title 11 proceeding has been referred to the bankruptcy court, the district court's authority to withdraw the reference is governed by 28 U.S.C. § 157. Section 157(d) provides for both mandatory and permissive withdrawal of the reference of any case or proceeding on the Court's motion or on timely motion of any party.
A. Timeliness
The Asbestos Claimants' Committee argues that Babcock Wilcox's motion for partial withdrawal is premature because Babcock Wilcox has not yet filed an objection or commenced an adversary proceeding with regard to the issues raised in its motion. Section 157(d) requires a "case or proceeding" before the district court may withdraw a reference from the bankruptcy court. Generally, no "proceeding" exists for purposes of withdrawing a reference until a party in interest files an objection to a proof of claim submitted by a creditor. See In re E S Facilities, Inc., 181 B.R. 369, 371 (S.D. Ind. 1995), aff'd sub nom., Matter of Vicars Ins. Agency, Inc., 96 F.3d 949 (7th Cir. 1996); In re Laventhol Horwath, 139 B.R. 109, 113 (S.D.N.Y. 1992) ( citing In re Chateaugay Corp., 104 B.R. 622, 625 (S.D.N.Y. 1989)). Courts addressing this issue have nevertheless focused on substance over form and have held that the "filing of an objection to a proof of claim is less important to a determination of timeliness than a showing that the parties will be adversaries in bankruptcy court in the near future." Laventhol, 139 B.R. at 113 ( citing In re Baldwin-United Corp., 57 B.R. 751, 754-44 (S.D. Ohio 1985)). Thus, when it is clear that a debtor will object to a claim, courts will not delay the inevitable by dismissing a motion to withdraw as premature. See E S Facilities, 181 B.R. at 371-72. See also Laventhol, 139 B.R. at 113 (motion to withdraw reference not premature when debtor conceded that it would eventually file either an objection to the proof of claim or commence an estimation proceeding); Baldwin-United, 57 B.R. at 755 (claimants on notice that debtors would object to their claims when case involved $700 million, and parties had engaged in prior litigation elsewhere over same matter).
Here, Babcock Wilcox states that "the asbestos claims pending against [it] are both `disputed' and `contingent.'" (Mot. Partial Withdrawal Ref. Ex. A., Info. Brief, at 58.) Babcock Wilcox therefore asserts that claimants will have to file a proof of claim by a bar date and informs the Court that it. plans to file a Motion to Set a Bar Date by May 15, 2000. ( See id.; Debtor's Subm. Specific Bankr. Case Admin. Matters for Withdrawal Ref., at 3.) Further, Babcock Wilcox expressly states in its complaint that it seeks protection under Chapter 11 because it can no longer negotiate settlements of the asbestos claims pending against it. ( See Mot. Partial Withdrawal Ref. Ex. B, ¶¶ Compl. 21-24.) Last, Babcock Wilcox identifies in its motion for partial withdrawal a number of legal issues and defenses on which it will move for summary judgment against the asbestos claimants. After considering all of these factors, the Court concludes that the motion for partial withdrawal is not premature. The Court also finds that the motion is timely, having been filed on the same day that Babcock Wilcox filed its Chapter 11 petition with the bankruptcy court. See Baldwin-United, 57 B.R. at 753-54 (motion to withdraw reference timely if filed at earliest reasonable opportunity and without undue delay).
B. Permissive Withdrawal
Babcock Wilcox does not seek mandatory withdrawal under Section 157(a), and the Court need not address this issue. A district court may permissively withdraw the reference, in whole or in part, "for cause shown." See 28 U.S.C. § 157(d). In determining whether to withdraw the reference for cause shown, the Fifth Circuit requires district courts to consider a number of factors: whether the claims involve core or non-core proceedings, the uniformity of bankruptcy administration, reduction of forum shopping and confusion, fostering the economical use of the debtors' and creditors' resources, expediting the bankruptcy process, and whether the parties have requested a jury trial. See Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985). The Court recognizes that it "remains unresolved" whether a bankruptcy court can determine the validity of a personal injury tort claim as a core matter and that this issue is presently on appeal before the Fifth Circuit. See In re Metzner, 233 B.R. 919, 921 (E.D. La. March 16, 1999) (denying bankruptcy court jurisdiction over state law limitations objection to medical malpractice claim filed against debtor-physician's estate). See also Pettibone Corp. v. Easley, 935 F.2d 120, 123-24 (7th Cir. 1991) (bankruptcy court lacks jurisdiction to resolve statute of limitations defenses in personal injury suits against Chapter 11 debtor); In re Schepps Food Stores, Inc., 169 B.R. 374, 376 (Bankr. S.D. Tex. 1994) (decision on limitations defense not core proceeding); In re UNR Indus., Inc., 74 B.R. 146, 148 (N.P. Ill. 1987) (same, government contract specification defense). But see In re Dow Corning Corp., 215 B.R. 346, 360 (Bankr. E.D. Mich. 1997) (summary judgment motion seeking disallowance of breast implant disease claims for lack of sufficient causation evidence under Daubert is core proceeding); In re Chateaugay Corp., 111 B.R. 67, 73 (Bankr. S.D.N.Y. 1990), aff'd, 130 B.R. 403 (S.D.N.Y), aff'd in part and rev'd in part on other grounds, 961 F.2d 378 (2d Cir. 1992) (same, government contractor defense). For purposes of this motion, however, the Court need not resolve whether matters involving threshold personal injury liability issues are core proceedings within the bankruptcy court's jurisdiction or non-core proceedings which only the district court can finally resolve. Even if these are core issues, the district court may still withdraw the reference in appropriate cases. As the Fifth Circuit noted in Holland America,
The core versus non-core distinction in the mass personal injury context turns on an interpretation of 28 U.S.C. § 157(b)(2), which provides:
(1) Core proceedings include, but are not limited to —
(B) allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under Chapter 11, 12, or 13, or title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11[.]
[t]he cumulative effect of the grant of original jurisdiction to the district court and its right to withdraw the reference in a bankruptcy case or related matter or to refer bankruptcy-related matters to the bankruptcy court leaves little doubt that the district court may exercise jurisdiction broadly, even over "core" bankruptcy matters.777 F.2d at 998 ( citing Carlton, 751 F.2d at 781, 787-88 (5th Cir. 1985)). See also Mishkin v. Ageloff, 220 B.R. 784 (S.D.N Y 1998) (although assumption that claims are core proceedings weighs against withdrawal, it is not dispositive) ( citing In re Houbigant, Inc., 185 B.R. 680, 686 (S.D.N.Y. 1995)); In re Tastee Donuts, 137 B.R. 204, 207 (E.D. La. 1992) (interests of judicial efficiency required reference be withdrawn, even if proceeding involved core matters). After reviewing all of the Holland America factors, the Court finds it appropriate to withdraw the reference.
First, that the bankruptcy court's authority to allow or disallow personal injury claims is unresolved and currently on appeal weighs in favor of withdrawing the reference by reducing confusion in the proceedings. If this Court found that determinations as to the threshold validity of asbestos personal injury claims constituted core proceedings for the bankruptcy judge to decide, a contrary decision by the Fifth Circuit could require that the issues be relitigated in this Court. After Northern Pipeline Const. v. Marathon Oil Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858 (1982), and the 1984 amendments to the Bankruptcy Code, it is clear that the district court has original jurisdiction over all proceedings arising under Chapter 11, even if the proceedings involve core matters. See 28 U.S.C. § 1334(b); Holland America, 777 F.2d at 998. Accordingly, given the conflict in authority and the potential that a decision by this Court might conflict with a later Fifth Circuit opinion, it makes sense to withdraw the reference with respect to threshold liability issues in order to have these issues addressed before a court with undisputed jurisdiction.
The Court also finds that judicial economy and efficiency factors weigh in favor of partially withdrawing the reference. Babcock Wilcox asks the Court to withdraw the reference as to various proposed summary judgment motions on the asbestos personal injury claims, including inter alia, the appropriate standard of liability, the availability of punitive damages, the validity of claims by unimpaired individuals, the validity of claims based on unreliable scientific evidence of disease and/or causation, the appropriate statutes of limitations, and the applicability of the sophisticated purchaser and government contractor defenses. District courts are more familiar with these types of issues than bankruptcy courts. See, e.g., In re Dow Corning Corp., 215 B.R. 526, 529 (Bankr. E.D. Mich. 1997) (application of Daubert in complex personal injury case rarely arises in bankruptcy court and, given billions of dollars riding on determination, points strongly toward withdrawal of the reference). The district court is thus better poised to make these determinations expeditiously.
Finally, partial withdrawal on the validity of the personal injury claims will not affect the uniformity of bankruptcy administration because the division of labor contemplated by the debtors would enable the bankruptcy judge to proceed with the typical bankruptcy case administration matters, while the district court retains jurisdiction over the substantive liability issues. A similar delegation of authority appeared to work well in In re A.H. Robins Co., a case involving the resolution of debtors' liability for personal injuries sustained by use of the Dalkon Shield contraceptive device. The district court there withdrew the reference from the bankruptcy court "upon representation [of the debtor] that the major aspect of the case required the services of an Article III judge." 88 B.R. 742, 743 (E.D. Va. 1988), aff'd, 880 F.2d 694 (4th Cir.), cert. denied sub nom., Menard-Sanford v. A.H. Robins Co., Inc., 493 U.S. 959, 110 S.Ct. 376 (1989). The district court retained jurisdiction over "issues relating to the, dismissal of the case and the resolution of any claim arising out of Robins' potential liability from the Dalkon Shield" and left all other issues within the bankruptcy court's jurisdiction. 59 B.R. 99, 102 (Bankr. E.D. Va. 1986).
Based on the foregoing considerations, the Court finds that permissive withdrawal of the reference with regard to the validity of the asbestos personal injury claims is warranted. The Court therefore grants Babcock Wilcox's motion and withdraws the reference from the bankruptcy court on the following matters: motions to set a bar date; motions related to the procedure for notifying claimants; motions regarding the form of proofs of claims; and motions for summary judgment on threshold liability issues, together with all scheduling and discovery matters relating thereto. The Court will not withdraw the reference on Rule 42 trials at this time because Babcock Wilcox has not yet identified any specific issue that is susceptible to a Rule 42 trial.
Accordingly, the Court orders Babcock Wilcox to file a motion with this Court to set a bar date by Monday, May 15, 2000. The motion shall also address the issues of form and timing of notice, content of proof of claim forms, and the procedure for receipt and processing of claims. Responses to this motion shall be filed by Monday, June 12, 2000. A hearing on the motion, if necessary, will be held on June 21, 2000.
New Orleans, Louisiana, this 17th day of April, 2000.