Judicial Management

of Mass Tort Bankruptcy Cases

S. Elizabeth Gibson

Burton Craige Professor of Law

University of North Carolina at Chapel Hill

School of Law

FEDERAL JUDICIAL CENTER

2005

This Federal Judicial Center publication was undertaken in furtherance of

the Center’s statutory mission to develop and conduct education programs

for judicial branch employees. The views expressed are those of the authors

and not necessarily those of the Federal Judicial Center.
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iii

Contents

Acknowledgments, v

I. Introduction, 1

II. Initial Concerns, 5

A. Overview, 5

B. Early Case Management and AdministrativeIssues, 5

C. Division of Labor and Coordination with Other Judges, 8

1. Involvement of the district court of the bankruptcy district, 9

2. Involvement of other courts, 14

D. Consolidation and Coordination of Pending Mass Tort Litigation, 17

1. Claims against the debtor, 18

2. Claims against non-debtor codefendants, 21

E. Expansion of the Automatic Stay to Include Non-debtor Entities, 26

1. Expanded relief under section 362, 27

2. Preliminary injunction under section 105(a), 29

F. Emergency Payments to Tort Claimants, 32

III. Structuring the Committees, 37

A. Overview, 37

B. Number of Committees, 38

C. Membership of the Tort Claimants’ Committee, 43

D. Court’s Role in Committee Appointments, 47

E. Communication Between Tort Claimants’ Committee and Tort Claimants,

50

F. Containment of Costs Incurred by Committees, 52

1. Number of committees, 52

2. Judicial control over committee fees and expenses, 53

G. Representation of Future Claimants, 58

1. Legal issues concerning future claims, 58

2. Appointment of future claims representatives, 66

3. Role of the future claims representative in the bankruptcy case, 67

IV. Handling the Tort Claims, 71

A. Overview, 71

B. Establishment of a Bar Date, 72

C. Information To Be Provided in Tort Claimants’ Proofs of Claim, 75
iv

D. Notice of the Bar Date, 78

E. Resolution of Causation and Other Liability Issues, 82

F. Estimation of Tort Claims, 88

G. Use of Court-Appointed Experts and Advisors, 100

V. Negotiating the Plan, 105

A. Overview, 105

B. Plan Negotiations in a Free-Fall Bankruptcy, 105

1. Unwillingness to accept unproductive acrimony and squabbling among

the parties, 107

2. Decisions on the extension or lifting of exclusivity, 107

3. Appointment of a mediator, 108

4. Timing of rulings on key issues, 109

C. Extension of Exclusivity, 110

D. Handling of Prepackaged Bankruptcies, 114

1. Role of the future claims representative, 117

2. Inequality of treatment of claims, 119

3. Self-dealing of prepetition committee, 121

E. Dealing with Insurance Issues, 122

1. Coveragelitigation, 123

2. Possible objections by insurers to the use of insurance proceeds to fund

the tort claimant trust, 126

3. Protection of insurers against further litigation, 127

VI. Plan Confirmation, 129

A. Overview, 129

B. Voting by Tort Claimants, 129

C. Confirmation Hearing, 133

D. Confirmation Issues, 135

E. Scope of the Discharge and Channeling Injunction, 137

1. Channeling injunctions in asbestos cases, 138

2. Mass tort cases in which section 524(g) does not apply, 142

VII. Postconfirmation Jurisdiction, 149

A. Overview, 149

B. Postconfirmation Jurisdiction Generally, 149

C. Judicial Supervision of the Trust and Claims Facility Operation, 151

Table of Cases, 155
v

Acknowledgments

Many people assisted in the creation of this manual and deserve my thanks.

In particular, I’d like to express my appreciation to the judges, academics,

and staff who participated in the Federal Judicial Center’s Advisory Meeting on Mass Torts in Bankruptcy in March 2001. I am grateful for their

ideas and advice and for their willingness to serve as an ongoing resource as

the manual developed. Also deserving thanks are the practitioners who

shared their insights with me and helped me to understand more about

these cases than can be gleaned from published opinions, as well as the

reviewers of various drafts of this manual who were generous in providing

helpful comments and encouragement to me along the way. Without diminishing in any way my appreciation for all of these contributors, I must

give special thanks to Denise Neary of the Federal Judicial Center. Her

patience, wisdom, and steady guidance made this manual possible.

Here at home I’d like to acknowledge and express my gratitude for the

support I received for this project from the University of North Carolina

School of Law and Dean Gene Nichol. I am especially grateful for the contributions of my research assistants, Betsy Holt and Allison Smith. They

were able to figure out what I wanted even when I wasn’t sure what that

was, and they were excellent companions on the long road to completion of

this manual.

Finally, I’d like to thank my wonderful family and especially my husband, Bob, for always supporting me and encouraging me to do my best

work.
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1

I. Introduction

During the past twenty years, the federal bankruptcy courts have taken on a

role that Congress did not anticipate for them in 1978 when it enacted the

current Bankruptcy Code. Beginning in 1982 with the chapter 11 filings

of two asbestos products manufacturers—Johns-Manville Corporation and

UNR Industries, Inc.—bankruptcy courts have become a forum for companies seeking the resolution of pending and threatened mass tort litigation

against them under chapter 11 of the Bankruptcy Code. Although bankruptcy has often been a remedy of last resort, the features of the bankruptcy

system that bring a halt to lawsuits against the debtor, facilitate a global

resolution of its liabilities, and free the debtor from further responsibility

for prebankruptcy claims have made bankruptcy a viable alternative for

companies hoping to put their mass tort liability behind them. Moreover,

the bankruptcy system’s ability to use a company’s future earning capacity

to compensate its creditors and to equitably treat similarly situated tort

claimants, regardless of where they reside or when their injuries manifest

themselves, has made bankruptcy acceptable to tort claimants as a means of

resolving their claims.

To date, over seventy companies, motivated primarily by their desire to

reach a final resolution of their mass tort liabilities, have sought bankruptcy

protection. This manual refers to these cases as “mass tort bankruptcy

cases.” Most of them have involved asbestos-related personal injury or

property damage claims, but chapter 11 has also been used to resolve mass

tort claims involving silicon gel breast implants and the Dalkon Shield

contraceptive device.

The bankruptcy system was not designed specifically to deal in a single

case with hundreds of thousands of unliquidated tort claims, including

those involving injury that will not become manifest for many years. Thus,

mass tort bankruptcy cases have presented many challenges to courts and

litigants. Courts and litigants have had to face a host of legal issues—

statutory and constitutional—usually with little or no appellate court guidance, as well as a series of unique logistical problems. Over time, some

standard practices and legal interpretations have emerged, which sometimes

are reflected in reported opinions but often are revealed or only hinted at

by documents in case files and unreported orders and opinions. The relative absence of established doctrine, the novelty and complexity of some of
Judicial Management of Mass Tort Bankruptcy Cases

2

the issues presented, and the ever-evolving nature of mass tort bankruptcy

practice make the task of presiding over one or more of these bankruptcy

cases a challenge to any judge. Such an assignment may be interesting and

intellectually stimulating, but also potentially frustrating and overwhelming.

Largely as a result of the complexity and unique challenges mass tort

bankruptcy cases present, their resolution has usually been timeconsuming and costly. According to a recent RAND report, the average

duration of an asbestos bankruptcy case is six years,1 and the costs involved

in each case run into the multiple millions of dollars. One suggestion for

reducing cost and delay in mass tort bankruptcy cases is preparation of

educational materials that would provide judges new to these cases with the

benefit of the experience of those who have handled similar cases. Each

judge who presides over a mass tort bankruptcy case should not have to

start at the beginning of the learning curve. The Federal Judicial Center

commissioned this manual in response to this perceived need. It launched

this effort by convening an Advisory Meeting on Mass Torts, attended by

many of the bankruptcy, district, and circuit judges who have handled

mass tort bankruptcy cases. It later circulated a draft of this manual for review by knowledgeable judges and practitioners.

The end product is a combination judicial manual–treatise–case study

that provides information useful to bankruptcy and district judges who

preside over some or all aspects of a mass tort bankruptcy case. It previews

the major issues that are likely to arise in such a case and sets out the relevant law, often discussing conflicting points of view that courts have expressed. In many instances it provides a narrative of how courts handled

these issues, not necessarily to endorse the approach taken, but sometimes

simply to provide the context of how practices in mass tort bankruptcy

cases have evolved. Where the law provides clear answers, or “best practices” can be identified on the basis of discussions at the advisory meeting

and interviews with judges and practitioners, the manual makes specific 

suggestions (e.g., “the judge should hold a case management status conference”). This manual is not, however, a blueprint or recipe for the successful handling of a mass tort bankruptcy case. Every case is unique, and a

successful outcome in the case will depend upon the judge’s own wisdom

and good judgment.

 1. Stephen J. Carroll et al., RAND Institute for Civil Justice, Asbestos Litigation 118 (2005).
I.Introduction

3

As of this writing, federal legislation is pending that is designed to end

the judicial resolution of asbestos claims, including resolution by the bankruptcy courts.2 At this point, enactment of the legislation is uncertain. But

even if some form of the Fairness in Asbestos Injury Resolution Act is

passed, this manual should not be tossed aside as irrelevant. Other manufactured products or substances, unfortunately, may spawn mass tort litigation that will lead the manufacturers to seek a bankruptcy solution. If so,

those bankruptcy cases, while having their own unique characteristics, will

build on the asbestos and other mass tort bankruptcy cases that have come

before. Furthermore, because this manual chronicles how asbestos and

other mass tort bankruptcy cases have been handled, it can serve as a resource for policy makers and academics, as well as members of the judiciary

and the bar, who study and seek to improve on the methods available for

resolving similar claims held by large numbers of injured persons.

 2. Fairness in Asbestos Injury Resolution Act of 2005, S. 852, 109th Cong. (2005).
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II. Initial Concerns

A. Overview

Part II addresses the following issues that are likely to arise at the outset of a

mass tort bankruptcy case:

• Early case management and administrative issues: What outside resources will be needed to assist the clerk’s office in the administration of the case, and how can they be obtained? How should the

court handle first-day orders? What case management steps should

the court take early in the case?

• Division of labor and coordination with other judges: What are the

possible roles for the bankruptcy judge, the district judge, a multidistrict litigation transferee judge, and other judges before whom

related litigation is pending? What factors affect how the work is actually distributed among the courts? What issues should the judges

communicate about, and what are the ethical limitations on their

communications?

• Consolidation and coordination of pending mass tort litigation: What

happens with all of the pending tort suits when the debtor files for

bankruptcy? When should lawsuits against the debtor be transferred to the bankruptcy district? When should lawsuits against

non-debtor parties be transferred? What happens to these cases once

they are in the bankruptcy or district court in which the bankruptcy

is pending?

• Expansion of the automatic stay to include non-debtor entities: Under

what circumstances should the bankruptcy court temporarily enjoin

litigation against entities other than the debtor? Does the automatic

stay ever provide such protection to non-debtors?

• Emergency payments to tort claimants: Does the bankruptcy court

have authority to permit payment to injured tort claimants prior to

confirmation of the reorganization plan?

B. Early Case Management and Administrative Issues

A mass tort bankruptcy case presents many of the same management and

administrative challenges as other large chapter 11 cases do. In those cases,
Judicial Management of Mass Tort Bankruptcy Cases

6

just as in a mass tort bankruptcy, the complexity and size of the case present a host of logistical problems for the court. Other Federal Judicial Center publications address these issues.

3 This section does not repeat those

discussions in full, but rather highlights some of the administrative and

case management issues that the bankruptcy court will confront at the outset of a mass tort bankruptcy case.

The staff of the bankruptcy court’s clerk’s office is not likely to be large

enough to handle the increased workload a mass tort bankruptcy case filing

requires. Thus, the judge, as statutorily authorized,4 may need to call on

the debtor to provide additional personnel, equipment, and facilities in

accordance with circuit council guidelines. Judges have required debtors in

bankruptcy mega-cases to provide, among other things, “special employees

of the estate” to assist in the administration of the case under the supervision of the clerk of court; computers, telephones, and other equipment; and

additional office space. To reduce the burden on the clerk’s office, judges in

large chapter 11 cases have commonly called on debtors to provide outside

claims and noticing agents and copy services, and off-site maintenance of a

duplicate set of case files. It is advisable for the clerk of court, the debtor’s

counsel, the U.S. trustee,5 and counsel for representative creditors (including tort claimants) to hold an early organizational meeting in order to formulate plans for a smooth handling of the logistical aspects of the case.

Just as in other bankruptcy mega-cases, at the time of filing the petition

in a mass tort case, the debtor is likely to present and seek the bankruptcy

judge’s approval of a variety of proposed “first-day orders.”6 Typically,

these orders will relate to matters affecting the debtor’s ability to conduct

the bankruptcy proceedings and to continue its business operations with

 3. See Conference on Large Chapter 11 Cases (Judicial Conference Committee on the Administration of the Bankruptcy System and Federal Judicial Center 2004); Case Management Manual for United States Bankruptcy Judges (Federal Judicial Center and Administrative Office of the

United States Courts 1995) [hereinafter Case Management Manual]; S. Elizabeth Gibson, A Guide

to the Judicial Management of Bankruptcy Mega-Cases (Federal Judicial Center 1992). See also

Manual for Complex Litigation, Fourth (Federal Judicial Center 2004) [hereinafter MCL 4th]. The

MCL 4th incorporates a draft of portions of this manual written in 2002. See id. § 22.5 and note

1160.

4. See 28 U.S.C. § 156(c) (2000) (authorizing the court’s use in a bankruptcy case of facilities and services “pertain[ing] to the provision of notices, dockets, calendars, and other administrative information” that are paid for by the bankruptcy estate).

5. Throughout this manual, references to the “U.S. trustee” include the bankruptcy administrator in cases pending in North Carolina and Alabama.

6. See generally Debra Grassgreen, First-Day Motions Manual (American Bankruptcy Institute 2003).
II.Initial Concerns

7

minimal disruption. If the debtor has given little or no notice to other parties, the judge should scrutinize the motions to determine whether the relief sought is justified and whether the debtor has demonstrated sufficient

cause to act without greater notice and an opportunity for a hearing. Even if

the debtor demonstrates sufficient cause for immediate entry of some firstday orders, the judge should consider whether any of the orders should be

limited in amount or duration, and should subject an extension to more

extensive notice and a hearing. Some of the orders sought are likely to be

relatively routine; others will seek dispensation from requirements that the

bankruptcy court would normally impose on a debtor owing to the complex nature and size of the case. In ruling on the latter requests for relief,

the judge should take into account not only the practical and logistical difficulties presented by a bankruptcy case of such complexity and size, but also

the needs of the court and the parties in interest that are served by the requirements in question.

The judge should hold a case management status conference under 11

U.S.C. § 105(d)(1) on administrative matters as early in the case as possible in order to set the ground rules on such issues as noticing, filing, and

service requirements; procedures for scheduling and hearing motions;

ground rules concerning the need for local counsel; and procedures for the

interim payment and allowance of professional fees and reimbursement of

expenses. Such a status conference can contribute to the expeditious and

economical handling of the case. Many of the lawyers in the case may be

from out of town and will not be familiar with all of the regular practices

and preferences of the court.

The matters addressed at the status conference should be set forth in a

case management order, which can be posted on the court’s Web site and

amended or supplemented by additional orders as the case proceeds.

Because of the large number of parties in a mass tort bankruptcy case

and the resulting volume of proceedings filed in the case, judges should

establish at the outset of the case a regular schedule of motion hearings.

Depending on the particular needs of the case, such omnibus hearing dates

may be as frequent as once a week or every other week. As the case proceeds,

the judge may adjust the schedule to reduce the frequency of hearing dates.

Some judges who have established omnibus hearing dates have allowed the

parties to schedule their motions for themselves, thus reducing the burden

on the court’s staff. Other judges prefer to retain more control over their

docket and continue to have their clerk of court do the scheduling. Regard-
Judicial Management of Mass Tort Bankruptcy Cases

8

less of who does the scheduling, the judge should specify by administrative

order early in the case the notice periods required and the time by which

any objections must be filed. The early administrative order might also

specify, for example, who has the burden of notifying the court that a specific matter has settled and thus should be removed from the court’s

docket.

Judges should also consider at the outset how to facilitate communications with what is likely to be a widely dispersed group of parties in interest and their counsel. Some judges use video and telephone conferences to

reduce the necessity for travel. Other technologies, including a court Web

site, party-created Web sites, recorded telephone messages, and LEXIS and

Westlaw, are means of communicating actions taken in the case and matters

on the docket for upcoming hearings. When out-of-town counsel know in

advance what matters will and will not be heard at a court hearing, it may

substantially reduce their need for travel.

Ongoing developments in case management and electronic case filing

will greatly influence the management of these cases. The judge should

therefore work closely with the clerk’s office to learn what technologies are

available to assist with case management and to ensure that the parties are

aware of and able to use them.

C. Division of Labor and Coordination with Other Judges

A mass tort bankruptcy inevitably involves judges other than the bankruptcy judge assigned to the case. At the very least, it will involve judges

who will hear appeals from the bankruptcy judge, including either district

or bankruptcy appellate panel judges7 and circuit judges.8 The district

court of the district in which the case is filed may also exercise original jurisdiction over certain aspects of the bankruptcy case by entering final

judgments in non-core proceedings9 and by partially withdrawing the reference of jurisdiction to the bankruptcy court as to core or non-core proceedings.10 Moreover, litigation related to the bankruptcy case is likely to be

pending or commenced during the course of the bankruptcy in other state

and federal courts. Accordingly, at the outset of the bankruptcy case and

throughout its duration, bankruptcy courts should consider the following:

 7. See 28 U.S.C. § 158(a), (b) (2000).

8. See id. § 158(d).

9. See id. § 157(c)(1).

10. See id. § 157(d).
II.Initial Concerns

9

• whether there are aspects of the bankruptcy case that should or must

be resolved by judges other than the assigned bankruptcy judge;

• whether and how knowledge and expertise other judges have already

acquired about the tort claims or other related litigation can be used

in the bankruptcy; and

• how proceedings in other courts can be coordinated with the proceedings in the bankruptcy court.

There are no settled answers to these questions, and the best method in any

case will depend upon the preferences of the judges involved, the practices

of their courts, and the particular needs of the case. Attention to these issues, however, may help the court achieve a more efficient and informed

resolution of the bankruptcy case.

1. Involvement of the district court of the bankruptcy district

Assigning a single district judge to hear all appeals in a mass tort bankruptcy case will enable the judge and his or her staff to develop knowledge

about the case that will expedite decision making and facilitate consistency

in ruling.11 It will also obviate the need to continually educate other district

judges about the case. Whether or not districts generally assign all appeals

in a particular bankruptcy case to the same judge, doing so is especially

desirable in this context, given the complexity of mass tort bankruptcies.

Once a district judge has been designated as the appellate judge, that judge

can open permissible lines of communication with the bankruptcy judge to

facilitate proper sequencing of decisions by both of them and to avoid unnecessary or duplicative efforts.12 For similar reasons of efficiency and consistency, some courts of appeals have assigned all appeals from a single

mass tort bankruptcy case to the same appellate panel.13

 11. In a federal circuit in which the judicial council has established a bankruptcy appellate

panel (BAP), an appeal from a bankruptcy judge can be heard by the BAP if a majority of the district judges of the district in which the appeal is filed have so authorized and none of the parties to 

the appeal elects to have the appeal heard by a district judge. Id. § 158(b), (c). If all of those conditions are met in a mass tort bankruptcy case, the BAP should consider using the same panel to hear

all appeals in the case.

12. Discussions between the judges, of course, must adhere to the bounds of judicial ethics.

See infra text accompanying notes 43–44.

13. See, e.g., Official Comm. of Tort Claimants v. Dow Corning Corp. (In re Dow Corning

Corp.), 142 F.3d 433 (6th Cir. 1998); Lindsey v. Dow Chem. Co. (In re Dow Corning Corp.),

113 F.3d 565 (6th Cir. 1997); Tort Claimants’ Comm. v. Dow Corning Corp. (In re Dow

Corning Corp.), 103 F.3d 129 (6th Cir. 1996); Lindsey v. O’Brien, Tanski, Tanzer & Young

Health Care Providers (In re Dow Corning Corp.), 86 F.3d 482 (6th Cir. 1996) (appeals all
Judicial Management of Mass Tort Bankruptcy Cases

10

A district judge has the authority under certain circumstances to play

more than an appellate role in a bankruptcy case. First, as is discussed below,14 trials of personal injury and wrongful death claims must take place

in the district court, either in the district in which the bankruptcy case is

pending or in the district in which the claim arose.15 Second, if all parties

to a non-core proceeding do not consent to its determination by the bankruptcy judge, the district judge will have to review the bankruptcy judge’s

proposed findings of fact and conclusions of law and enter a final judgment

in the proceeding, perhaps after a de novo review.16 Finally, because bankruptcy subject-matter jurisdiction is conferred on the district courts and

then automatically referred to bankruptcy courts, district courts are statutorily authorized “for cause” to withdraw the reference of any bankruptcy case

or proceeding from the bankruptcy court and to exercise original jurisdiction themselves over the withdrawn case or proceeding; this action may be

taken either on the district court’s own motion or on the timely motion of a

party.17 When chapter 11 issues become intertwined with federal statutory

issues involving interstate commerce, withdrawal of the reference is statutorily required.18

Although bankruptcy judges exercise jurisdiction in many mass tort

cases, in a few cases district judges have withdrawn the reference with respect to various proceedings relating to the personal injury and wrongful

death tort claims against the debtor. Perhaps the broadest withdrawal of the

reference in a mass tort bankruptcy occurred in the A.H. Robins case.19 The

district judge in that case, who prior to the bankruptcy filing had been presiding over a large group of Dalkon Shield cases against Robins, partially

withdrew the reference of jurisdiction from the bankruptcy court on the

day the debtor filed its petition.20 The withdrawal order specified seventeen

categories of proceedings and motions that the district court would determine, including all “[p]roceedings involving the estimation or liquidation

 decided by a panel composed of Chief Judge Martin, Circuit Judge Batchelder, and District Judge

Wiseman).

14. See infra text accompanying notes 53–57.

15. 28 U.S.C. § 157(b)(5) (2000).

16. Id. § 157(c).

17. Id. § 157(d).

18. Id.

19. In re A.H. Robins Co., Bankr. No. 85-01307-R (Bankr. E.D. Va. filed Aug. 21, 1985).

20. Richard B. Sobol, Bending the Law 60–63 (1991).
II.Initial Concerns

11

of any personal injury tort or wrongful death claims against the estate.”21

The order broadly defined the latter category to include

• motions to establish procedures for filing and resolving the tort

claims, including the establishment of bar dates;

• motions concerning procedures for and discovery in proceedings

relating to the estimation or liquidation of the tort claims;

• requests for declaratory relief concerning the debtor’s liability for

the tort claims;

• the estimation or liquidation of the tort claims for purposes of allowance, confirmation, or distribution;

• motions concerning the automatic stay’s application to tort claims;

and

• requests for relief under section 105 with respect to a tort claim.22

In addition to the mass tort claims, the district court withdrew jurisdiction

over motions for conversion or dismissal, appointment of committees, extensions of exclusivity, approval of disclosure statements, confirmation,

appointment of a trustee, compensation for services, and enforcement of the

automatic stay.23

In other mass tort bankruptcies in which a district judge has no prior

involvement with the mass tort litigation, unlike the judge in Robins, the

district judge should generally allow the bankruptcy judge to exercise jurisdiction over most aspects of the bankruptcy case.

Some district judges have withdrawn the reference of jurisdiction from

bankruptcy courts in mass tort cases with respect to a narrower set of proceedings than those in A.H. Robins. In the Dow Corning case, for example,

acting upon the recommendation of the bankruptcy judge,24 the district

judge withdrew jurisdiction to consider the debtor’s “omnibus objection to

disease claims,” which sought a determination that the tort plaintiffs lacked

proof that the debtor’s product was a cause of their alleged diseases. The

bankruptcy judge recommended withdrawal of the reference because a

similar issue was likely to be raised in cases against the debtor’s shareholders already pending in the district court25 and because a ruling on the

 21. Ackles v. A.H. Robins Co. (In re A.H. Robins Co.), 59 B.R. 99, 105 (Bankr. E.D. Va.

1986) (attaching Administrative Order No. 1), aff’d sub nom. Beard v. A.H. Robins Co., 828 F.2d

1029 (4th Cir. 1987).

22. Id. at 105–06.

23. Id. at 105–07.

24. In re Dow Corning Corp., 215 B.R. 526 (Bankr. E.D. Mich. 1997).

25. Id. at 527–29.
Judicial Management of Mass Tort Bankruptcy Cases

12

debtor’s objection depended largely on application of Daubert v. Merrell

Dow Pharmaceuticals,26 an issue as to which the bankruptcy judge believed

the district judge possessed greater expertise.27

Another district judge acting in a mass tort case withdrew the reference

of jurisdiction with regard to the validity of the personal injury claims

against the debtor, specifically including within the withdrawn proceedings

motions to set a bar date, motions concerning notice to claimants, motions

relating to the form to be used for proofs of claim, and motions for summary judgment based on threshold liability issues.28 The judge’s decision

rested on the fact that the circuit was unresolved as to whether a bankruptcy

judge has authority to decide dispositive pretrial motions concerning personal injury and wrongful death claims against a bankruptcy estate.29

Rather than allowing the bankruptcy judge to rule on the debtor’s expected

summary judgment motion seeking the disallowance of the tort claims,

since the court of appeals might hold that the judge lacked such authority,

the district judge concluded that judicial economy supported withdrawal of

the reference of jurisdiction over matters relating to the validity of the

claims.30

Proceedings brought in the bankruptcy court during the course of a

mass tort bankruptcy might trigger a district judge’s mandatory withdrawal

of the reference.31 In the Johns-Manville bankruptcy, for example, the district judge held that 28 U.S.C. § 157(d) required withdrawal of the reference of jurisdiction over a proceeding against the debtor under the Comprehensive Environmental Response, Compensation and Liability Act

(CERCLA).32 The judge reasoned that the proceeding came within the

terms of the mandatory withdrawal provision because its adjudication required a “significant interpretation of the CERCLA statute”—a statute

“‘rooted in the commerce clause’”—as well as an “assessment of the rela-

 26. 509 U.S. 579 (1993).

27. In re Dow Corning Corp., 215 B.R. at 530.

28. In re Babcock & Wilcox Co., No. CIV.A. 00-0558, 2000 WL 422372, at *5 (E.D. La.

Apr. 17, 2000).

29. Id. at *4.

30. Id.

31. See 28 U.S.C. § 157(d) (2000) and supra text accompanying note 18.

32. United States v. Johns-Manville Corp. (In re Johns-Manville Corp.), 63 B.R. 600

(S.D.N.Y. 1986); see also In re Nat’l Gypsum Co., 134 B.R. 188 (N.D. Tex. 1991). See Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601–9661

(2000).
II.Initial Concerns

13

tionship of such CERCLA claims to the automatic stay arising under section 362(a)(1) of the Bankruptcy Code.”33

For a number of reasons, then, including familiarity with the tort

claims involved, greater expertise as to the legal issues raised, desire to

avoid duplication of effort, jurisdictional limitations on the bankruptcy

court’s authority, and statutory command, a district judge might choose to

withdraw the reference of one or more proceedings in a mass tort bankruptcy case. Once the withdrawal occurs, it will be especially important for

the bankruptcy judge and district judge handling the various aspects of the

bankruptcy case to have frequent communications about administrative

matters so that the matters can proceed in a coordinated fashion.34 This

coordination will be easier if the two judges are in the same location, but

that will not always be possible. Whatever means of communication is

used, each judicial officer should know what the other is doing.

In some bankruptcy cases, following a partial withdrawal of the reference, the bankruptcy and district judges have held hearings at which they

presided jointly and after which they issued joint rulings.35 Such a manner

of proceeding may allow coordination and consistency, but it presents

questions about the jurisdictional status of both judges. Although 28

U.S.C. § 157(d) allows the district court to “withdraw, in whole or in

part, any case or proceeding” referred to the bankruptcy judge, there is no

indication that after such withdrawal, jurisdiction over the withdrawn matter can be shared by the bankruptcy and district judges. Either the bankruptcy judge has jurisdiction over a particular matter or proceeding (or

part thereof) upon reference from the district court, or the district judge

has jurisdiction over it, having withdrawn the reference from the bankruptcy court.36 If the judges conduct joint hearings, therefore, they should

clarify matters in which the bankruptcy judge is exercising original jurisdiction and those in which the district judge is exercising such jurisdiction

(or serving as an appellate judge reviewing orders entered by the bankruptcy judge). If only one of the judges is exercising original jurisdiction

 33. Johns-Manville Corp., 63 B.R. at 602–03 (quoting United States v. ILCO, 48 B.R. 1016,

1021 (N.D. Ala. 1985)).

34. See infra text accompanying notes 43–44.

35. See, e.g., In re A.H. Robins Co., 88 B.R. 742, 743 (E.D. Va. 1988) (Memorandum in re

Confirmation Order jointly issued by District Judge Merhige and Bankruptcy Judge Shelley and

noting that “[b]y agreement, the undersigned, with few exceptions, conducted all proceedings

jointly”), aff’d sub nom. Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th

Cir. 1989).

36. See 28 U.S.C. §§ 157(a), (d), 1334 (2000).
Judicial Management of Mass Tort Bankruptcy Cases

14

over the matters before the court, the role of the other judge at the hearing

should be fully explained.

2. Involvement of other courts

A mass tort bankruptcy case is typically filed in response to an avalanche of

products liability lawsuits against the debtor, and thus frequently litigation

involving the debtor and those associated with the debtor will be pending

in other federal districts or in state courts. Some of these courts may have a

long history of dealing with the tort litigation that led the debtor to seek

bankruptcy protection or with related insurance coverage litigation that the

products liability litigation spawned. The automatic stay under 11 U.S.C.

§ 362(a) will bring a halt to the prepetition litigation against the debtor

and shift the focus of attention to the bankruptcy court. Nevertheless, the

judge involved in the resolution of the bankruptcy case should consider

whether any of the judges who were involved with the tort or related litigation prior to the debtor’s bankruptcy filing could play a useful role in the

bankruptcy case and whether creative use of interdistrict transfer or intercircuit assignment procedures might make their involvement possible.

a. MDL transferee judge. Prior to the bankruptcy filing, the proliferation of products liability lawsuits against the debtor and others may have

led the Judicial Panel on Multidistrict Litigation to consolidate the federal

litigation by transferring it to a single district court for pretrial purposes.37

Depending on the time that has elapsed since the MDL transfer was ordered, the MDL transferee judge may have gained considerable knowledge

about the tort litigation, including the potential scope of liability, possible

defenses, insurance coverage, and settlement discussions. The MDL transferee judge may also continue to preside over litigation against codefendants

of the debtor who have not filed for bankruptcy. The judge presiding over

the bankruptcy case should therefore consider whether the MDL transferee

judge should play a role in the bankruptcy case.

For example, at the request of the debtor in the Dow Corning bankruptcy, the MDL judge presiding over the breast implant litigation received an intercircuit assignment under 28 U.S.C. § 292(d) to “presid[e]

over all breast implant and non-breast implant personal injury claims arising out of the reorganization of the Dow Corning Corporation and cases

against the shareholders of the Dow Corning Corporation that have been

 37. See 28 U.S.C. § 1407 (2000); see also MCL 4th, supra note 3, at 366–70 (discussing criteria for interdistrict transfers, including MDL).
II.Initial Concerns

15

transferred to the Eastern District of Michigan.”38 The debtor apparently

hoped that the MDL transferee judge, who had been presiding over the

breast implant litigation for five years, would preside over a trial of the causation issue in the breast implant cases against it and its shareholders, litigation that had been transferred to the district in which its bankruptcy case

was pending. As it turned out, no causation trial was ever conducted, and

the parties negotiated a resolution of the breast implant litigation that

formed the basis of the reorganization plan that was confirmed. Thus, the

MDL transferee judge in fact played only a limited role in the bankruptcy

case.

Although an assignment of the MDL transferee judge to the bankruptcy district under 28 U.S.C. § 292 provides a means of utilizing that

judge’s expertise with the tort claims in the bankruptcy case, it presents

some problems that might prevent frequent use of this statutory authority.

First, the procedure required for an intercircuit assignment is somewhat

cumbersome, requiring a certificate of necessity by the chief judge of the

circuit in which the bankruptcy case is pending, consent by the chief judge

of the circuit in which the MDL transferee judge sits, and a designation by

the Chief Justice, following review by the Judicial Conference’s Committee

on Intercircuit Assignments.39 Furthermore, an intercircuit assignment

restricts the ability of the two circuits involved to lend or borrow judges for

other purposes.40 Perhaps even more significantly, a successful assignment

of the MDL transferee judge to handle portions of a bankruptcy case requires the cooperation of the bankruptcy and district judges presiding over

the case.41 For that reason, such an assignment, when it is thought to be

beneficial, should be initiated by judges of the bankruptcy district, rather

than one of the parties. Ideally, when such an assignment occurs, the MDL

transferee judge will be invited to participate in the bankruptcy case, rather

than being imposed on the judge or judges presiding over the bankruptcy.

Assigning an MDL transferee judge to the bankruptcy district will be

productive only if there is a useful role for the judge to play in the bank-

 38. Amended Joint Disclosure Statement With Respect to Amended Joint Plan of Reorganization at 48, In re Dow Corning Corp., No. 95-20512 (Bankr. E.D. Mich. Feb. 4, 1999) (quoting

Designation and Assignment of a Chief United States District Judge for Service in Another Circuit

(June 27, 1997)).

39. See John F. Nangle, Bankruptcy’s Impact on Multidistrict Litigation: Legislative Reform as

an Alternative to Existing Mechanisms, 31 Ga. L. Rev. 1093, 1112–13 (1997).

40. Id. at 1113.

41. Id. at 1111.
Judicial Management of Mass Tort Bankruptcy Cases

16

ruptcy case. If causation is not seriously at issue and the bankruptcy court

is going to let the parties attempt to negotiate a resolution of the tort claims,

rather than estimating their value, the MDL transferee judge’s familiarity

with the litigation may be of little help. On the other hand, in some bankruptcy cases a trial or ruling on causation or other global liability issues

may be needed or judicial estimation of the tort claims may be required; in

such cases the bankruptcy judge should consider whether the MDL transferee judge is in the best position to preside over such matters. There may

also be cases in which the participation of the MDL transferee judge is desirable to facilitate settlement of claims involving multiple defendants or

establishment of joint claims resolution facilities.

It may be possible to utilize the MDL transferee judge’s familiarity and

expertise with the tort claims without an intercircuit assignment.42 The

judge or judges presiding over the bankruptcy case can instead informally

consult with the MDL transferee judge within the bounds allowed by the

rules of judicial ethics.43 While a judge cannot decide matters based on

information outside the record in the case, through informal consultation

with the MDL transferee judge the bankruptcy judge may be able to acquire information about the context and history of the litigation that will be

helpful in the judicial management of the reorganization proceedings. If

through this informal consultation the judge acquires specific information

that may have an impact on issues that are likely to come before the bankruptcy court, the judge should apprise the parties of this fact and allow

them to respond to the information and any conclusions formed as a result.44

b. Other judges. Litigation pending in other courts may be of special

importance to the bankruptcy proceedings, even if it does not involve tort

claims against the debtor. For instance, the debtor may have previously

filed suit against one or more of its insurers, seeking a declaration of cover-

 42. Some possible means of utilizing the MDL transferee judge’s expertise in the bankruptcy

case present a number of procedural and substantive problems, however, and have never been used.

These procedures include having the bankruptcy case transferred to the MDL transferee district by

the bankruptcy judge pursuant to 28 U.S.C. § 1412 or by the Judicial Panel on Multidistrict Litigation pursuant to 28 U.S.C. § 1407. See Nangle, supra note 39, at 1103–08.

43. See Francis E. McGovern, Rethinking Cooperation Among Judges in Mass Tort Litigation,

44 UCLA L. Rev. 1851, 1866 (1997) (discussing possible ethical concerns about the appropriateness of cooperation between judges).

44. See id. at 1868 (“Communication of public information among judges rarely seems to be

a problem, but the more private, less susceptible to adversarial scrutiny, and more judgmental the

communication, the greater the resistance.”).
II.Initial Concerns

17

age. Because it is an action by, not against, the debtor, it will not be automatically stayed by the debtor’s bankruptcy filing. Unless the parties obtain a transfer of the venue of the litigation or removal under 28 U.S.C.

§ 1452(a) to the bankruptcy court, or the debtor dismisses the lawsuit and

refiles it in the bankruptcy court, the litigation may proceed where it was

originally filed. In that event, the bankruptcy judge needs to be informed

of the progress of that litigation through the parties or through permissible

informal consultation with the judge presiding over it.45 If it appears that

the resolution of the litigation in the nonbankruptcy court will frustrate or

delay progress in the bankruptcy case, the bankruptcy judge should encourage the parties to seek a change of venue or removal to the bankruptcy

court or to initiate a new adversary proceeding there.

D. Consolidation and Coordination of Pending Mass Tort

Litigation

Among the initial issues that the judge may have to confront will be what,

if anything, the bankruptcy court should do with the hundreds, or even

thousands, of personal injury tort cases pending against the debtor and

others in state and federal courts at the time the bankruptcy petition is

filed. One of the frequently cited advantages of using the bankruptcy system to resolve mass tort litigation is the system’s capacity to consolidate the

pending mass tort litigation in the district in which the bankruptcy case is

filed.46 Once the lawsuits are consolidated before a single court, they can be

resolved in a coordinated and consistent manner under the supervision of

the judge to whom they have been assigned, perhaps without the needless

repetition of effort that dispersed litigation usually engenders. The bankruptcy filing itself largely accomplishes this consolidation and coordination

with respect to the mass tort claims against the debtor company. Parties

may go further, however, and ask the district judge to reinforce the scope of

this consolidation by actually transferring the tort suits pending against the

debtor to the bankruptcy district and even to expand the consolidation to

 45. See id. (noting that cooperation among judges in the form of “[s]uccessful coordination of

pretrial activities by reconciling overlapping schedules and eliminating redundancies in case development” and “the reduction of duplication” rarely presents problems).

46. See, e.g., Barbara J. Houser, Chapter 11 as a Mass Tort Solution, 31 Loy. L.A. L. Rev.

451, 457 (1998); Alan N. Resnick, Bankruptcy as a Vehicle for Resolving Enterprise-Threatening

Mass Tort Liability, 148 U. Pa. L. Rev. 2045, 2050–54 (2000). For a discussion of the advantages

and disadvantages of aggregating mass tort claims and managing them in a single forum, see MCL

4th, supra note 3, at 355–58.
Judicial Management of Mass Tort Bankruptcy Cases

18

include claims against non-debtor parties. While there may be advantages

of such a consolidation, the judge who is asked to approve the consolidation will be faced with a number of legal and practical questions.

1. Claims against the debtor

The Bankruptcy Code spells out rather clearly the effect of the mass tort

defendant’s bankruptcy filing on the litigation pending against it as of the

petition date. The Bankruptcy Code stays the prosecution of these lawsuits

in all courts and bars new lawsuits on prepetition claims.47 Thus, the

bankruptcy automatic stay provision itself provides a means of coordinating

the mass tort litigation, because proceeding further against the debtor in

any of the actions will require the permission of the presiding bankruptcy

judge. Such permission should not be granted in most cases pending plan

negotiations under chapter 11.

The bankruptcy filing achieves consolidation of the mass tort litigation

against the debtor by virtue of the court’s exclusive jurisdiction over the

property of the debtor and of the estate48 and the requirement that to participate in the bankruptcy (and thus be eligible to receive any of the assets

of the estate), a creditor not listed by the debtor as having an undisputed,

non-contingent, liquidated claim must file a proof of claim in the bankruptcy court.49 The mass tort litigation against the debtor becomes consolidated in the district in which the debtor’s bankruptcy case is pending because a tort plaintiff hoping to receive compensation for a preconfirmation

debt must seek payment there.

The bankruptcy judge generally has authority to allow or disallow

claims against the estate, since such action constitutes a core proceeding.50

However, the Judicial Code prescribes special rules for the resolution of

personal injury tort and wrongful death claims. It excludes from the definition of core proceedings the liquidation and estimation of such claims for

purposes of distribution,51 and it requires that the trials of such claims take

place in federal district court, in the district of the bankruptcy case or the

district in which the tort claim arose, as determined by the district court in

which the bankruptcy case is pending.52 Furthermore, notwithstanding

 47. 11 U.S.C. § 362(a)(1) (2000).

48. See 28 U.S.C. § 1334(e) (2000).

49. See 11 U.S.C. §§ 501, 1111(a) (2000).

50. 28 U.S.C. § 157(b)(2)(B) (2000).

51. Id.

52. Id. § 157(b)(5).
II.Initial Concerns

19

bankruptcy, it preserves any jury trial rights with respect to the resolution

of these claims that exist outside of bankruptcy.53

This special treatment of personal injury tort and wrongful death

claims does not necessarily mean, however, that all of the thousands of such

claims against the debtor must be tried to a jury in district court. Courts

have allowed waiver of such jury trials by a tort claimant who accepts a reorganization plan’s provisions for settlement or for alternative resolution

methods.54 Moreover, most courts have concluded that the bankruptcy

court has authority to estimate the value of the mass tort claims for purposes of voting and confirmation and for determining the feasibility of the

plan.55 Thus, it is likely that most of the mass tort claims will never have to

be tried in the district court.

Courts have consistently read 28 U.S.C. § 157(b)(5) as authorizing

the district court in which the bankruptcy case is pending to transfer personal injury tort and wrongful death claims to its district.56 But the bankruptcy case filing itself already provides consolidation and coordination of

claims against the debtor. What is gained at the outset of the bankruptcy

case by actually transferring the mass tort cases against the debtor from the

federal and state courts in which they are pending to the district in which

the bankruptcy case is filed?

Judges concluded in both the Dow Corning and A.H. Robins chapter

11 cases that such transfers were warranted. The district judge in Dow

Corning stated:

This Court is mindful that one or more causation trials held during the estimation process for the purpose of assuring a more accurate estimation can

best be accomplished if all cases pending against the Debtor are before one

 

53. Id. § 1411(a).

54. See, e.g., A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1013 n.17 (4th Cir. 1986); In re

Dow Corning Corp., 187 B.R. 919, 930 (E.D. Mich. 1995), rev’d in part on other grounds, 86

F.3d 482 (6th Cir. 1996); In re UNR Indus., Inc., 45 B.R. 322, 326 (N.D. Ill. 1984); Resnick,

supra note 46, at 2053.

55. See, e.g., A.H. Robins Co., 788 F.2d at 1012 (citing Roberts v. Johns-Manville Corp., 45

B.R. 823, 825–26 (S.D.N.Y. 1984)); In re UNR Indus., Inc., 45 B.R. at 326–27; Resnick, supra

note 46, at 2052–53. Courts are divided, however, over whether a bankruptcy judge is authorized

to rule on dispositive motions seeking to disallow personal injury and wrongful death claims

against the debtor. Compare In re U.S. Lines, Inc., Asbestosis Claimants v. U.S. Lines Reorganization Trust, 262 B.R. 223 (S.D.N.Y. 2001), and In re Dow Corning Corp., 215 B.R. 346 (Bankr.

E.D. Mich. 1997), with Pettibone Corp. v. Easley, 935 F.2d 120 (7th Cir. 1991), and In re UNR

Indus., Inc., 74 B.R. 146 (N.D. Ill. 1987).

56. See, e.g., Lindsey v. O’Brien, Tanski, Tanzer & Young Health Care Providers (In re Dow

Corning Corp.), 86 F.3d 482, 496 (6th Cir. 1996); Murray v. Pan Am. World Airways, Inc. (In

re Pan Am. Corp.), 16 F.3d 513, 516 (2d Cir. 1994); A.H. Robins Co., 788 F.2d at 1010–11.
Judicial Management of Mass Tort Bankruptcy Cases

20

court, the district court where the bankruptcy is pending. Coordination is

therefore assured.

57

In the A.H. Robins bankruptcy, the Fourth Circuit concluded that

“[n]o progress along estimating these contingent claims . . . 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.”58

In asbestos mass tort bankruptcies, however, judges have generally not

transferred actions pending against the debtors to the bankruptcy district.

In at least one of those cases, the bankruptcy court was able to estimate the

value of the tort claims without having the pending cases transferred to its

district.59 In other cases, the parties were able to negotiate a value of the tort

claims for structuring the reorganization plan, again without the court having to transfer all tort actions against the debtor to the district in which the

bankruptcy case was pending.60 Moreover, after the reorganization plans

were confirmed, individual tort claims were resolved according to the terms

of the plans, which established trusts to which all present and future asbestos claims were channeled for payment.61

Even the judges who approved the transfer of the actions pending

against the debtor to the district in which the bankruptcy case was filed did

not necessarily require the immediate physical transfer to that district of all

the case files. In the Dow Corning case, the district judge found that “no

physical transfer of case files or case records to the Eastern District of

Michigan is necessary at this time.”62 Furthermore, the judge ordered that

all removed cases continue to be transferred to the MDL judge for pretrial

purposes.63 In the A.H. Robins case, although the district judge apparently

contemplated that the case files would eventually be transferred to the Eastern District of Virginia, the Fourth Circuit held that no actual transfer of

 57. In re Dow Corning Corp., 187 B.R. at 929.

58. A.H. Robins Co., 788 F.2d at 1014.

59. See, e.g., In re Eagle-Picher Indus., Inc., 189 B.R. 681 (Bankr. S.D. Ohio 1995).

60. See, e.g., In re UNR Indus., Inc., Bankr. No. 82B9841-9845, 1996 Bankr. LEXIS 1455

at *11 (Bankr. N.D. Ill. Aug. 13, 1996) (quoting disclosure statement explanation of how the value

of asbestos claims was negotiated).

61. See, e.g., In re Eagle-Picher Indus., Inc., 203 B.R. 256, 279, 282 (S.D. Ohio 1996); In

re UNR Indus., Inc., 143 B.R. 506, 514 (Bankr. N.D. Ill. 1992).

62. In re Dow Corning Corp., 187 B.R. at 932.

63. Id. But see Maritime Asbestosis Legal Clinic v. U.S. Lines, Inc. (In re U.S. Lines, Inc.),

216 F.3d 228 (2d Cir. 2000) (holding that the district court lacked authority under section

157(b)(5) to transfer personal injury or wrongful death claims against the debtor to the MDL district unless the claims arose there).
II.Initial Concerns

21

the case files should take place until the individual plaintiff in each case was

given notice of and an opportunity to object to the transfer of her case and

the court’s conditional order of transfer was made final.64

A decision concerning the transfer of the pending tort litigation against

the debtor, therefore, may not be necessary in many mass tort bankruptcies

because no one will seek it. When a debtor does seek a transfer, the district

judge’s decision whether to grant the transfer may depend on whether the

judge determines that there is a need for additional control over the mass

tort litigation while the bankruptcy case is pending and whether actual trial

of any of the personal injury tort and wrongful death claims against the

debtor is anticipated prior to confirmation of the reorganization plan.65

2. Claims against non-debtor codefendants

The provisions of the Bankruptcy Code that consolidate and coordinate the

mass tort litigation against the debtor are not explicitly applicable to mass

tort claims against the debtor’s codefendants who have not filed for bankruptcy protection.66 Accordingly, parties may seek rulings by the district

judge that would expressly permit the consolidation of the pending litigation against these non-debtor parties with the litigation against the debtor

itself in the district in which the debtor’s bankruptcy case is pending. The

 64. A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1016 n.18 (4th Cir. 1986). Ultimately, an

overwhelming majority of the personal injury claims in the A.H. Robins case were resolved by nontrial options offered by the Claims Resolution Facility. See S. Elizabeth Gibson, Case Studies of

Mass Tort Limited Fund Class Action Settlements & Bankruptcy Reorganizations 199–200 (Federal Judicial Center 2000). The trials of those claims that were not otherwise resolved were apparently dispersed around the country. See Georgene M. Vairo, The Dalkon Shield Claimants Trust:

Paradigm Lost (or Found)?, 61 Fordham L. Rev. 617, 645 (1992) (discussing the trust’s employment of “several trial teams and counsel in all states”). But see David G. Epstein et al., Bankruptcy

870 n.9 (1993) (noting the planned opposition of the trustee of the Robins trust to any attempts by

claimants to transfer their unresolved suits back to the original jurisdictions).

65. Compare Citibank, N.A. v. White Motor Corp. (In re White Motor Credit), 761 F.2d

270, 274 (6th Cir. 1985) (“[I]n large bankruptcy cases with hundreds or even thousands of tort

litigants beating on the door of one federal judge, judicial health and survival, or at least judicial

economy and expeditiousness, may depend on the court’s authority to refer cases to other courts.”),

with Coker v. Pan Am. World Airways, Inc. (In re Pan Am. Corp.), 950 F.2d 839, 845 (2d Cir.

1991) (“Transfer [under section 157(b)(5)] should be the rule, abstention the exception.”).

66. By their terms, these statutory provisions apply only to debtors, not other parties. The

automatic stay prohibits the “commencement or continuation . . . of a judicial . . . proceeding

against the debtor that was or could have been commenced before the commencement of the case

under this title, or to recover a claim against the debtor that arose before the commencement of the

case under this title.” 11 U.S.C. § 362(a)(1) (2000) (emphasis added). Bankruptcy courts are

granted exclusive jurisdiction over “all of the property, wherever located, of the debtor as of the

commencement of such case, and of property of the estate.” 28 U.S.C. § 1334(e) (2000) (emphasis

added).
Judicial Management of Mass Tort Bankruptcy Cases

22

motivations for such requests may vary: to achieve the efficiencies of a unified resolution; to prevent the potential unfairness of continuing the prosecution of actions against derivative defendants while the actions against a

major defendant, the debtor, are stayed; to prevent the dissipation of a

jointly held asset; to delay. Whatever the reason for it, a motion to transfer

the actions against these non-debtor parties to the district in which the

debtor’s bankruptcy case is pending raises a number of difficult and uncertain legal issues.

An initial issue that the bankruptcy judge may have to confront is

whether the automatic stay applies to litigation against non-debtor codefendants and, if not, whether the judge should exercise the authority under 11

U.S.C. § 105(a) to expand the stay to prevent the continuation of the mass

tort litigation against these non-debtor parties. This issue, which is discussed in more detail below,67 frequently goes hand in hand or is raised

alternatively with the question whether the litigation against non-debtor

codefendants should be consolidated in the district in which the debtor’s

bankruptcy case is pending. The consolidation issue, in turn, rests on the

scope of the bankruptcy court’s subject-matter jurisdiction.

District courts (and by reference, bankruptcy courts) have subjectmatter jurisdiction over cases under title 11 and over all civil proceedings

arising under title 11, or arising in or related to cases under title 11.68

Mass tort litigation against non-debtor parties falls within bankruptcy jurisdiction, if at all, only if it is “related to” a bankruptcy case.69 The scope of

this type of bankruptcy jurisdiction is much debated, and its application to

personal injury tort claims against a chapter 11 debtor’s codefendants has

led to conflicting decisions. The most frequently used test for whether a

proceeding comes within “related-to” jurisdiction is the one the Third Circuit announced in Pacor, Inc. v. Higgins.70 Under that formulation, a proceeding is related to a bankruptcy case, and thus falls within federal subject-matter jurisdiction under section 1334(b), if “the outcome of that

proceeding could conceivably have any effect on the estate being administered in bankruptcy.”71 In other words, “the outcome [of the proceeding]

 67. See infra section II.E.

68. 28 U.S.C. § 1334(a), (b) (2000).

69. Tort litigation by non-debtor plaintiffs against non-debtor defendants is not a “case[] under title 11,” a “civil proceeding[] arising under title 11,” or a “civil proceeding[] . . . arising in . . .

[a] case[] under title 11.” Id. § 1334(a), (b).

70. 743 F.2d 984 (3d Cir. 1984).

71. Id. at 994 (emphasis omitted).
II.Initial Concerns

23

could alter the debtor’s rights, liabilities, options, or freedom of action (either positively or negatively) and [could] in any way impact[] upon the

handling and administration of the bankrupt estate.”72 Courts have emphasized different aspects of the Pacor test, and some have applied it more

broadly than others;73 at least one commentator has judged it to be “manifestly inadequate.”74 It nevertheless remains the test courts are likely to use

in determining whether mass tort litigation against non-debtor codefendants comes within bankruptcy jurisdiction.

In mass tort litigation, the litigation against some codefendants is more

likely to come within related-to jurisdiction than the litigation against others. Some courts have held that litigation against parties closely affiliated

with the debtor, such as officers, directors, and shareholders, is related to

the debtor’s bankruptcy case because of joint insurance coverage or because

of claims against the debtor for indemnification that are sure to result.75

Direct claims against a debtor’s insurers have also been found to come

within related-to jurisdiction.76

The most far-reaching decision regarding mass tort litigation against

non-debtor codefendants was the Sixth Circuit’s in the Dow Corning case,

which held that claims against other breast implant manufacturers fell

within related-to jurisdiction, because the prosecution of such claims could

lead to claims for contribution or indemnity against the debtor, Dow

 72. Id.

73. Compare Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir. 1986), and Kelley v.

Nodine (In re Salem Mortgage Co.), 783 F.2d 626 (6th Cir. 1986), with Elscint, Inc. v. First

Wis. Fin. Corp. (In re Xonics, Inc.), 813 F.2d 127 (7th Cir. 1987).

74. Ralph Brubaker, On the Nature of Federal Bankruptcy Jurisdiction: A General Statutory

and Constitutional Theory, 41 Wm. & Mary L. Rev. 743, 750 (2000). Professor Brubaker proposes that the same test used for supplemental jurisdiction in federal district courts be used for determining the scope of bankruptcy courts’ related-to jurisdiction. Id. at 865, 867–68. According to 

his view, tort claims against a debtor’s codefendants would fall within related-to jurisdiction if they

and the tort claims against the debtor “derive from a common nucleus of operative fact.” See United

Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966) (announcing test for supplemental jurisdiction).

75. See, e.g., Lindsey v. O’Brien, Tanski, Tanzer & Young Health Care Providers (In re Dow

Corning Corp.), 86 F.3d 482, 490–94 (6th Cir. 1996); cf. A.H. Robins v. Piccinin, 788 F.2d

994, 1007 (4th Cir. 1986) (affirming district court’s exercise of bankruptcy jurisdiction to stay

mass tort actions against officers, directors, and employees of the debtor).

76. See, e.g., Coar v. Nat’l Union Fire Ins. Co., 19 F.3d 247 (5th Cir. 1994).
Judicial Management of Mass Tort Bankruptcy Cases

24

Corning.77 Other courts have not read the jurisdictional statute this

broadly.78

Even if a judge determines that mass tort claims against some or all of

the debtor’s codefendants come within bankruptcy jurisdiction, the judge

must then determine whether the district court in which the bankruptcy

case is pending has authority to transfer all of those claims from state and

federal courts to the bankruptcy district. Section 157(b)(5) of title 28

authorizes the district court in which the bankruptcy case is pending to

determine the place of trial of “personal injury tort and wrongful death

claims.” Other parts of that same statute refer more specifically to “personal

injury tort or wrongful death claims against the estate.”79 A question therefore arises whether Congress intended the district court’s authority to determine trial venue to be similarly limited to claims against the estate or

whether it intended to confer broader authority in this provision that

would extend to personal injury and wrongful death claims against nondebtor parties. Two courts of appeals have concluded that this broader

authority does exist. The Sixth Circuit has held that “[s]ection 157(b)(5)

should be read to allow a district court to fix venue for cases pending

against non-debtor defendants which are ‘related to’ a debtor’s bankruptcy

proceedings pursuant to Section 1334(b).”80 The Fourth Circuit reached a

similar conclusion in the A.H. Robins case.81

In cases in which the courts approved the transfer of mass tort litigation against closely affiliated non-debtor parties, those claims ended up

being resolved as part of the overall resolution of the tort claims in the

debtor’s plan of reorganization.82 And as is discussed more fully in a subsequent section of this manual, those non-debtor parties were released from

further liability upon confirmation of the debtor’s plan.83 There is no mass

tort case to date, however, in which claims against unaffiliated non-debtor

 77. Lindsey, 86 F.3d at 494.

78. See, e.g., In re Federal-Mogul Global, Inc., 300 F.3d 368 (3d Cir. 2002); Pacor, Inc. v.

Higgins, 743 F.2d 984 (3d Cir. 1984); cf. GAF Corp. v. Johns-Manville Corp. (In re JohnsManville Corp.), 26 B.R. 405 (Bankr. S.D.N.Y. 1983) (declining to extend scope of automatic stay

to cover suits against non-debtor codefendants).

79. 28 U.S.C. § 157(b)(2)(B) (emphasis added).

80. Lindsey, 86 F.3d at 497.

81. A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1014 (4th Cir. 1986).

82. See, e.g., In re Dow Corning Corp., 255 B.R. 445, 475 (E.D. Mich. 2000); Vairo, supra

note 64, at 629–30 (describing provisions of the A.H. Robins reorganization plan that released nondebtor parties from liability).

83. See infra section VI.E.
II.Initial Concerns

25

manufacturers have been resolved as part of the debtor’s bankruptcy case.

In Dow Corning, the one mass tort case in which related-to jurisdiction was

found to cover such claims, the district court abstained from exercising its

jurisdiction to transfer the litigation against the other breast implant manufacturers,84 and the Sixth Circuit denied those parties’ petitions for mandamus.85 Thus, there has been no case in which the bankruptcy of one defendant has been used to achieve a global resolution of a mass tort litigation

against an entire industry.86

The fact that a district court determines that it has authority under 28

U.S.C. § 157(b)(5) to transfer personal injury tort litigation pending

against a debtor’s codefendants does not mean that the court will necessarily

choose to exercise that authority, especially at the outset of the bankruptcy

case. If the goal of the transfer is to coordinate and consolidate all of the

mass tort cases pending against the debtor and related parties, a favorable

ruling by the court on a motion to expand the stay to cover the non-debtor

parties may make transfer of the litigation to the bankruptcy district unnecessary. The litigation in state and federal courts around the country will

have already been halted, and the debtor will most likely attempt to achieve

the ultimate resolution of the litigation against these parties according to the

terms of the plan of reorganization. Thus, there may be no need to incur

the trouble and expense involved in physically transferring hundreds or

thousands of cases to the bankruptcy district.87

Even if claims against non-debtor defendants are actually tried, the trials do not necessarily have to take place in the bankruptcy district. Courts

have held that in addition to the venue options expressly included in section 157(b)(5)—the district in which the bankruptcy case is pending and

the district in which the personal injury claim arose—the district judge has

the option of abstaining and allowing the personal injury tort claims to

 84. In re Dow Corning Corp., No. 95-CV-72397-DT, 1996 WL 511646, at *4 (E.D.

Mich. July 30, 1996).

85. Lindsey v. Dow Chem. Corp. (In re Dow Corning Corp.), 113 F.3d 565, 572 (6th Cir.

1997).

86. Cf. GAF Corp. v. Johns-Manville Corp. (In re Johns-Manville Corp.), 26 B.R. 405, 409

(Bankr. S.D.N.Y 1983) (rejecting codefendant manufacturers’ proposal for “an industry-wide

solution of the entire asbestos health-related problem,” despite finding it “tempting”). See also In re

Federal-Mogul Global, Inc., 300 F.3d 368 (3d Cir. 2002).

87. See Roberts v. Johns-Manville Corp. (In re Johns-Manville Corp.), 45 B.R. 823, 825

(S.D.N.Y. 1984) (Section 157(b)(5) “does not mandate that all personal injury and wrongful death

claims be tried. It merely sets forth the procedure by which the forum for trial shall be designated

for those . . . claimants who do not agree to another procedure for settling their claims.”).
Judicial Management of Mass Tort Bankruptcy Cases

26

remain in the courts in which they are pending.88 The Sixth Circuit has

held that the abstention decision must be made on a case-by-case basis,

rather than globally.89 Other courts, however, may find that the factors

governing abstention lend themselves to a categorical analysis when applied

to a large number of similar cases against non-debtor defendants. Prior to

making a final decision to transfer personal injury cases to the bankruptcy

district, the district judge must give the individual plaintiffs in each case an

opportunity to object to the relocation of their lawsuits.90

E. Expansion of the Automatic Stay to Include Non-debtor

Entities

Just as non-debtor parties may seek the transfer of mass tort litigation

against them to the bankruptcy district, where it can be consolidated along

with the mass tort claims against the debtor, they may also seek to utilize

the debtor’s bankruptcy to gain a stay of the litigation against them. Thus,

the bankruptcy judge may be asked to determine that litigation against

non-debtor parties has been automatically stayed by virtue of section 362

or, in the alternative, to enter an order pursuant to section 105 temporarily

enjoining the prosecution of the litigation against these non-debtor parties.91 Although only the debtor itself is generally entitled to the benefit of

the automatic stay in chapter 11 cases,92 several courts have found circum-

 88. Lindsey v. O’Brien, Tanski, Tanzer & Young Health Care Providers (In re Dow Corning

Corp.), 86 F.3d 482, 497 (6th Cir. 1996); Coker v. Pan Am. World Airways (In re Pan Am.

Corp.), 950 F.2d 839, 844 (2d Cir. 1991); Citibank, N.A. v. White Motor Corp. (In re White

Motor Credit), 761 F.2d 270, 271, 273 (6th Cir. 1985).

89. Lindsey, 113 F.3d at 569–70.

90. A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1014 (4th Cir. 1986) (“[D]ue process requires some form of notice and an 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.”).

91. Courts in which the litigation sought to be stayed is pending may also be asked to declare

that the automatic stay applies to non-debtors or to stay the litigation against non-debtors. Such

courts have concluded that they have authority to enter the requested relief with respect to the cases

before them. See, e.g., Wedgeworth v. Fibreboard Corp., 706 F.2d 541 (5th Cir. 1983); In re

Related Asbestos Cases, 23 B.R. 523 (N.D. Cal. 1982); G.H. Ishii-Chang, Litigation and Bankruptcy: The Dilemma of the Codefendant Stay, 63 Am. Bankr. L.J. 257, 277–79 (1989). The bankruptcy court, however, has jurisdiction to enjoin litigation against non-debtors pending in other

courts so long as that litigation is at least “related to” the bankruptcy case before it. Celotex Corp. v.

Edwards, 514 U.S. 300, 307–10 (1995).

92. See, e.g., Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194, 1197 (6th Cir. 1983);

Wedgeworth, 706 F.2d at 544; In re Sunbeam Sec. Litig., 261 B.R. 534, 536 (S.D. Fla. 2001). In
II.Initial Concerns

27

stances in mass tort bankruptcies that justify expanding the scope of that

protection.93

1. Expanded relief under section 362

According to section 362 of the Bankruptcy Code, the automatic stay halts

litigation against the “debtor” and efforts to reach “property of the estate.”94

Therefore, in order to rule that litigation against non-debtor parties is also

automatically stayed, a judge must conclude that the litigation in question

is tantamount to litigation against the debtor or that it constitutes an effort

to obtain possession of or exercise control over property of the estate. The

judge must focus on the litigation’s impact on the debtor and its estate,

rather than on its impact on the non-debtor parties.95

The leading mass tort case that held that litigation against non-debtors

was stayed by section 362 is A.H. Robins Co. v. Piccinin.96 In that decision,

the Fourth Circuit affirmed the district court’s ruling that personal injury

suits against various individual defendants who were closely associated with

the debtor—its chairman of the board, its president, its chief medical officer, and the inventor of the Dalkon Shield, whom the debtor had agreed to

indemnify—and litigation against the debtor’s insurer were stayed pursuant to section 362(a)(1) and (3).97 The court of appeals held that application of the automatic stay to non-debtors was appropriate only in “unusual

 limiting the benefit of the automatic stay to debtors in chapter 11 cases, courts have sometimes contrasted this limit with the automatic stay in chapter 13 cases, which is expressly made applicable to

persons liable with the debtor on a debt. See, e.g., Wedgeworth, 706 F.2d at 544 (citing 11 U.S.C.

§ 1301(a)).

93. See, e.g., Am. Imaging Servs., Inc. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus.,

Inc.), 963 F.2d 855 (6th Cir. 1992); A.H. Robins v. Piccinin, 788 F.2d 994 (4th Cir. 1986);

Johns-Manville Corp. v. Asbestos Litig. Group (In re Johns-Manville Corp.), 40 B.R. 219

(S.D.N.Y. 1984); W.R. Grace & Co. v. Chakarian (In re W.R. Grace & Co.), 42 Bankr. Ct.

Dec. 270 (Bankr. D. Del. 2004).

94. 11 U.S.C. § 362(a) (2000).

95. See, e.g., Am. Imaging Servs., Inc., 963 F.2d at 862 (“[I]t is for the protection of EaglePicher’s numerous creditors, not for [non-debtor defendants] Hall and Ralston, that AISI is properly prohibited from proceeding with its action against Hall and Ralston . . . .”); Johns-Manville

Corp. v. Asbestos Litig. Group (In re Johns-Manville Corp.), 26 B.R. 420, 430 (Bankr. S.D.N.Y.

1983), aff’d, 40 B.R. 219 (S.D.N.Y. 1984) (enjoining under sections 362 and 105 suit against

non-debtors because it “threatens adversely to impact on property of the debtor’s estate as well as

disrupt the reorganization proceedings and frustrate Manville’s efforts to achieve financial rehabilitation”); Charles Jordan Tabb, The Law of Bankruptcy 170–71 (1997) (discussing the “very limited

circumstances” under which actions against non-debtors may be stayed under section 362 in chapter 11 cases).

96. 788 F.2d 994 (4th Cir. 1986).

97. Id. at 1007.
Judicial Management of Mass Tort Bankruptcy Cases

28

circumstances.”98 It went on to explain that such unusual circumstances

exist “when there is such identity between the debtor and the third-party

defendant that the debtor may be said to be the real party defendant and

that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor.”99 Of particular significance to the

Fourth Circuit in concluding that the interests of the individual defendants

were “so intimately intertwined with those of the debtor that the latter may

be said to be the real party in interest”100 was the individual defendants’

absolute right to be indemnified by the debtor for any judgments rendered

against them.101

The impact of the litigation against the non-debtors on Robins’s products liability insurance was also of significance to the Fourth Circuit. Finding that the liability insurance policy issued by Aetna was an important

asset of the estate,102 the court held that litigation against non-debtors covered by that policy was also stayed under section 362(a)(3) because it constituted an attempt to obtain possession of or exercise control over property

of the estate.

103 The court explained that “[a]ny action in which the judgment may diminish this ‘important asset’ is unquestionably subject to a

stay under . . . subsection [(a)(3)].”104

The Fourth Circuit also upheld the application of the section

362(a)(3) stay to Aetna itself. The court explained that “a stay was authorized [against Aetna] under . . . § 362(a)(3) because Aetna might seek indemnification from Robins for any damages it had to pay, thus implicating

the debtor’s policy.”105

 98. Id. at 999.

99. Id.

100. Id. at 1001.

101. Id. at 1007.

102. Id. at 1001.

103. Id. at 1001–02; see also Forty-Eight Insulations, Inc. v. Lipke (In re Forty-Eight Insulations, Inc.), 54 B.R. 905 (Bankr. N.D. Ill. 1985).

104. A.H. Robins, 788 F.2d at 1001.

105. Oberg v. Aetna Cas. & Sur. Co. (In re A.H. Robins Co.), 828 F.2d 1023, 1025 (4th

Cir. 1987) (footnote omitted). The court later approved extension of the stay to Aetna even when

recovery was sought solely from Aetna’s own assets and for actions taken solely by Aetna. Id. at

1025, 1026. The court found authority for extending the stay to this litigation against the nondebtor insurer, not under section 362(a)(3), but under section 105. The court based its decision on

possible harm to the debtor caused by the litigation against its insurer, including the likelihood that

the debtor’s officers, directors, and employees would be required to participate in the litigation and

would thus be diverted from their reorganization efforts. Id. at 1026.
II.Initial Concerns

29

While the Fourth Circuit upheld the application of section 362 to the

litigation against defendants closely associated with the debtor and the

debtor’s insurer, the automatic stay provision will generally not protect

unrelated non-debtor codefendants who have merely a joint tortfeasor relationship with the debtor. In several asbestos bankruptcies, for example,

courts have rejected codefendant manufacturers’ attempts to bring their

cases within the scope of the debtor’s automatic stay.106 As one court observed:

Nothing in the legislative history counsels that the automatic stay

should be invoked in a manner which would advance the interests of some

third party, such as the debtor’s codefendants, rather than the debtor or its

creditors. This Court concurs with the district court’s conclusion that “it

would distort congressional purpose to hold that a third party solvent codefendant should be shielded against his creditors by a device intended for the

protection of the insolvent debtor” and creditors thereof.

107

2. Preliminary injunction under section 105(a)

Because a judge will rarely be able to conclude that litigation against a nondebtor defendant is effectively litigation against the debtor, an order extending the stay to non-debtor litigation should generally rely on 11 U.S.C.

§ 105(a) rather than an expansive application of section 362.108 Like the

Fourth Circuit’s interpretation of section 362(a), section 105(a) provides

authority to extend the stay to litigation against non-debtor parties only if

such litigation “would frustrate the statutory scheme or impact adversely on

a debtor’s ability to formulate a plan or on the debtor’s property.”109 As

one court explained:

 106. See, e.g., Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194 (6th Cir. 1983);

Wedgeworth v. Fibreboard Corp., 706 F.2d 541 (5th Cir. 1983); GAF Corp. v. Johns-Manville

Corp. (In re Johns-Manville Corp.), 26 B.R. 405 (Bankr. S.D.N.Y. 1983).

107. Lynch, 710 F.2d at 1197.

108. See, e.g., Am. Imaging Servs., Inc. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.), 963 F.2d 855 (6th Cir. 1992) (affirming grant of preliminary injunction enjoining

prosecution of civil action against debtor’s officers pursuant to section 105); A.H. Robins v. Piccinin, 788 F.2d 994 (4th Cir. 1986) (affirming grant of preliminary injunction enjoining litigation

against debtor’s insiders and insurer pursuant to section 105, in addition to relying on section 362

as basis for the stay); Johns-Manville Corp. v. Asbestos Litig. Group (In re Johns-Manville

Corp.), 33 B.R. 254 (Bankr. S.D.N.Y. 1983) (granting preliminary injunction enjoining litigation

against officers, directors, and employees of debtor “[b]ased upon the broad grant of power contained in Section 105(a)”).

109. Johns-Manville Corp. v. Asbestos Litig. Group, 26 B.R. 420, 427 (Bankr. S.D.N.Y.

1983), aff’d, 40 B.R. 219 (S.D.N.Y. 1984).
Judicial Management of Mass Tort Bankruptcy Cases

30

While section 105 vests the Bankruptcy Court with the authority to extend the stay, such an extension must be in aid of authority exercised by the

court pursuant to some other provision of the Code, in this case, section

362. In order to issue a stay under section 105, the court must determine that

such relief is at least appropriate to achieve the goals of a chapter 11 reorganization, and is necessary to protect the debtor.

110

Accordingly, courts ruling on requests for extension of the stay to protect non-debtor parties in mass tort cases have generally restricted such relief to key officers and employees of the debtor, persons covered by the

debtor’s insurance policy, and in some instances the debtor’s liability insurers.111 They have declined to grant this relief under section 105(a) to

alleged joint tortfeasors who are merely codefendants of the debtor.112

Because the extension of the stay of litigation under section 105(a) constitutes the entry of a preliminary injunction, courts have held that the general standards for the grant of a preliminary injunction apply.113 Not all

judges have agreed, however. Some have held that relief is authorized so

long as it meets the statutory requirement of being “necessary or appropriate to carry out the provisions of . . . title [11].”114 Assuming that a judge

believes that the standards for a preliminary injunction must also be met,

the judge most likely will apply some variation of a four-factor test:

• possible irreparable harm to the debtor and the estate;

• likelihood of success on the merits;

• whether a preliminary injunction would be in the public interest;

and

 110. Johns-Manville Corp. v. Asbestos Litig. Group (In re Johns-Manville Corp.), 40 B.R.

219, 225 (S.D.N.Y. 1984).

111. See Forty-Eight Insulations, Inc. v. Lipke (In re Forty-Eight Insulations, Inc.), 54 B.R.

905, 909 (Bankr. N.D. Ill. 1985); Epstein et al., supra note 64, at 126 (listing factors that increase

chances of obtaining a stay of litigation against a non-debtor).

112. See, e.g., Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194 (6th Cir. 1983);

Wedgeworth v. Fibreboard Corp., 706 F.2d 541 (5th Cir. 1983); GAF Corp. v. Johns-Manville

Corp. (In re Johns-Manville Corp.), 26 B.R. 405 (Bankr. S.D.N.Y. 1983).

113. See, e.g., Am. Imaging Servs., Inc., 963 F.2d at 858.

114. 11 U.S.C. § 105(a) (2000). See LTV Steel Co. v. Bd. of Educ. (In re Chateaugay

Corp.), 93 B.R. 26, 29 (S.D.N.Y. 1988) (“The usual grounds for injunctive relief such as irreparable injury need not be shown in a proceeding for an injunction under section 105(a).”); AP Indus., Inc. v. SN Phelps & Co. (In re AP Indus., Inc.), 117 B.R. 789, 802 (Bankr. S.D.N.Y.

1990) (“‘Since injunctions in bankruptcy cases are authorized by statute, the usual equitable

grounds for relief, such as irreparable damage, need not be shown.’”) (quoting In re Neuman, 71

B.R. 567, 571 (S.D.N.Y. 1987)).
II.Initial Concerns

31

• possible hardship to others resulting from the granting of a preliminary injunction.115

A judge’s application of these preliminary injunction factors in the

context of an attempt to halt litigation in other courts against non-debtor

parties is somewhat problematic. In a non-bankruptcy context, a plaintiff

seeking a preliminary injunction is trying to stop acts by the defendant

while a lawsuit challenging the legality of those acts is pending. To obtain

the preliminary relief, therefore, the plaintiff must show that it may be irreparably harmed by the defendant’s actions during the course of the lawsuit, that it is likely to succeed in proving that the acts are unlawful, that a

preliminary injunction will be in the public interest, and that the defendant will not suffer undue hardship as a result of the granting of the injunction.116 In the mass tort bankruptcy context, by contrast, one or more

defendants involved in litigation pending in other courts are seeking a preliminary injunction of the lawsuits themselves, not out-of-court actions of

the opposing party. Moreover, the defendants seeking the injunction do

not usually argue that they are likely to prevail on the merits of that litigation.

Because a traditional application of the preliminary injunction standards does not fit well here, some courts have tailored the standards to apply in this particular context. Thus, as noted above, they require a showing

that the litigation against the non-debtor will cause irreparable harm to the

debtor and its reorganization efforts, rather than to the non-debtor.117

Likewise, in discussing “likelihood of success on the merits,” judges refer to

the likelihood of the debtor’s success in achieving a viable reorganization, as

opposed to the likelihood of the defendants’ success in the litigation to be

enjoined.118 Similarly, judges assess the public interest in the debtor’s suc-

 115. See, e.g., Am. Imaging Servs., Inc., 963 F.2d at 858. Some courts, while still taking into

account the same factors, apply an alternative test for a preliminary injunction: “[S]uch relief should

be granted upon a showing of either ‘(1) probable success on the merits and possible irreparable

harm, 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.’” Johns-Manville Corp. v. Asbestos Litig. Group (In re Johns-Manville Corp.), 26 B.R.

420, 430 (Bankr. S.D.N.Y. 1983) (quoting Sonesta Int’l Hotels Corp. v. Wellington Assoc., 483

F.2d 247, 250 (2d Cir. 1973)), aff’d, 40 B.R. 219 (S.D.N.Y. 1984).

116. See Fleming James, Jr., et al., Civil Procedure § 5.16 (5th ed. 2001).

117. See, e.g., A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1008 (4th Cir. 1986); GAF Corp.

v. Johns-Manville Corp. (In re Johns-Manville Corp.), 26 B.R. 405, 416–17 (Bankr. S.D.N.Y.

1983).

118. See, e.g., Am. Imaging Servs., Inc., 963 F.2d at 860; Epstein et al., supra note 64, at 126.

But see Apollo Molded Prods., Inc. v. Kleinman (In re Apollo Molded Prods., Inc.), 83 B.R. 189,
Judicial Management of Mass Tort Bankruptcy Cases

32

cessful reorganization.119 Finally, although courts will sometimes consider

the possible harm to the tort plaintiffs that might result from a stay of their

lawsuits, if the other three factors have been satisfied, some courts have concluded that that harm is outweighed by the benefits to be gained from the

debtor’s successful reorganization.120 Thus, even when a judge applies the

preliminary injunction standards, whether non-debtor parties are able to

obtain a stay of the litigation against them depends primarily on a showing

of the harm that prosecution of that litigation could cause the debtor and its

reorganization efforts.

F. Emergency Payments to Tort Claimants

Because of the typical lengthy duration of a mass tort bankruptcy case and

the accompanying stay of all pending litigation and judgment enforcement

efforts against the debtor, some tort claimants may seek interim or emergency payments from the estate for medical treatments while the case is

pending. Without a specific statutory authorization for the payment of

prepetition unsecured creditors prior to reorganization plan confirmation,

tort claimants seeking such treatment have based their request on the socalled “doctrine of necessity.” This doctrine is discussed below.121 Generally, payments pursuant to the doctrine of necessity are made in the early

days of the bankruptcy case.122 Accordingly, a request for emergency payments to tort claimants is one of the initial concerns a judge handling a

mass tort bankruptcy case might face, although it could arise at any point

in the case.

In one mass tort case, A.H. Robins, the district judge approved the

creation of a $15 million “Emergency Treatment Fund” while the case was

pending to cover the costs of surgery for tort claimants whose infertility

resulting from the use of the debtor’s product might be surgically corrected.123 The tort claimants argued that time was of the essence with respect

 194 (Bankr. D. Mass. 1988) (“We disagree with those courts who have ruled that in the present

context the requirement for likely success on the merits means merely that the Chapter 11 debtor

must show it will probably be successful in its reorganizational efforts. We see no reason to depart

from the more traditional requirement of likelihood of ultimate success in the litigation before the

court.”).

119. See, e.g., Am. Imaging Servs., Inc., 963 F.2d at 862; A.H. Robins Co., 788 F.2d at 1008.

120. See, e.g., A.H. Robins Co., 788 F.2d at 1008.

121. See infra text accompanying notes 131–39.

122. See Conference on Large Chapter 11 Cases, supra note 3, at 7.

123. See Official Comm. of Equity Sec. Holders v. Mabey, 832 F.2d 299, 300 (4th Cir.

1987) (quoting from district court order).
II.Initial Concerns

33

to the surgery, because the younger the women were when they had the

surgery, the more likely it was to restore their fertility. Delaying the surgery

until the claimants received compensation pursuant to a confirmed plan,

therefore, would mean that many of them would be unable to benefit from

it. A claimant had to satisfy a number of requirements to receive benefits

from the fund, and those benefits—which were in the form of payments

made directly to hospitals and doctors—were to be deducted from her ultimate distribution under a confirmed plan.124 The district judge relied on

the court’s equitable powers under section 105(a) as authority for his approval of the fund.125

Upon appeal by the Committee of Equity Security Holders, the order

approving the fund was reversed by the Fourth Circuit.126 In a brief opinion, the court of appeals held that there was no authority in the Bankruptcy

Code for making a distribution to unsecured creditors in a chapter 11 case

except pursuant to the terms of a confirmed plan of reorganization. The

court stated that, while a bankruptcy court’s equitable powers are broad,

they do not permit the court to violate “the clear language and intent of the

Bankruptcy Code.”127 As the court of appeals saw it, the Emergency Treatment Fund approved by the district judge “violate[d] the clear policy of

Chapter 11 reorganizations by allowing piecemeal, preconfirmation payments to certain unsecured creditors.”128

The Fourth Circuit’s opinion reversing approval of the emergency

fund has been the subject of a good deal of criticism,129 principally on the

ground that the court failed to discuss the doctrine of necessity, which has

been applied by some bankruptcy courts to authorize payments to unse-

 124. See id. at 301. In his order approving the fund, the district judge assumed that a claimant

with a compensable infertility claim would receive at least $15,000 under any plan that might be

confirmed. Thus, an advance payment for surgery, expected to cost between $10,000 and $15,000,

would merely represent an election by a tort claimant “to take a portion of her ultimate distribution

in the form of medical assistance now rather than cash later.” Id. If a claimant who received the

emergency treatment ultimately had her claim disallowed or valued at less than $15,000, no repayment would be sought from her. Id.

125. See id.

126. Id. at 300.

127. Id. at 302.

128. Id.

129. See, e.g., Russell A. Eisenberg & Frances F. Gecker, The Doctrine of Necessity and Its

Parameters, 73 Marq. L. Rev. 1, 34–37 (1989); Jason A. Rosenthal, Note, Courts of Inequity: The

Bankruptcy Laws’ Failure to Adequately Protect the Dalkon Shield Victims, 45 Fla. L. Rev. 223

(1993).
Judicial Management of Mass Tort Bankruptcy Cases

34

cured creditors at the outset of a chapter 11 case.130 Invoking this doctrine,

judges have permitted the payment of outstanding wage and benefit claims

of the debtor’s employees, prepetition claims of key suppliers of the debtor,

and prepetition claims of customers.131 Judges approving such payments

have found that making these payments early in the case was beneficial to

all creditors, because it enhanced the likelihood of a successful reorganization by maintaining employee morale, retaining access to necessary supplies, or restoring customer support. Judges have frequently cited section

105(a) of the Bankruptcy Code as providing statutory support for this

judicially created doctrine.132 Other courts and commentators, however,

have found no statutory support for the doctrine and have raised concerns

about the possible economic blackmail that might result from recognition

of the doctrine of necessity.133 Recently, the Seventh Circuit held that payment of prepetition unsecured creditors is not authorized by section

105(a), 364(b), or 503 of the Bankruptcy Code. While the court left open

the possibility that section 363(b)(1) might permit payment of prepetition

critical vendors, it held that such payments would have to be supported by

proof that disfavored creditors would fare as well with the debtor’s reorganization as with its liquidation and that the vendors receiving payment

would have otherwise ceased doing business with the debtor.134

In mass tort bankruptcies, judges have sometimes invoked the doctrine

of necessity as a basis for authorizing early payment of certain unsecured

creditors other than tort claimants. In the third month of the Eagle-Picher

asbestos bankruptcy, for example, the bankruptcy judge authorized the

debtor to pay the prepetition claims of certain toolmakers, over the objection of the Injury Claimants’ Committee.135 The judge found that the

debtor had shown that the payment was “necessary to avert a serious threat

to the Chapter 11 process,” because failure to make the payment would

 130. See generally Chapter 11 Theory and Practice—A Guide to Reorganization §§ 7.87–

7.93 (James F. Queenan, Jr., et al. eds., 1994); Eisenberg & Gecker, supra note 129, at 1–24.

131. See, e.g., In re Gulf Air, Inc., 112 B.R. 152 (Bankr. W.D. La. 1989) (authorizing immediate payment of prepetition employee wage and benefits claims); In re Ionosphere Clubs, Inc.,

98 B.R. 174, 174–75 (Bankr. S.D.N.Y. 1989) (referring to earlier order authorizing debtor’s

payment prior to confirmation of prepetition wage, salary, benefits, and expenses claims of active

employees).

132. See, e.g., Eisenberg & Gecker, supra note 129, at 5–6; Rosenthal, supra note 129, at

233–38.

133. See In re FCX, Inc., 60 B.R. 405 (E.D.N.C. 1986); Charles Jordan Tabb, Emergency

Preferential Orders in Bankruptcy Reorganizations, 65 Am. Bankr. L.J. 75, 97 (1991).

134. See In re K-Mart, 359 F.3d 866 (7th Cir.), cert. denied, 125 S. Ct. 495 (2004).

135. In re Eagle-Picher Indus., Inc., 124 B.R. 1021 (Bankr. S.D. Ohio 1991).
II.Initial Concerns

35

“seriously jeopardize ongoing business relationships with customers” who

had previously paid the debtor for the toolmakers’ charges.136 And on the

day the UNR asbestos bankruptcy case was filed, the bankruptcy judge

authorized the debtor to pay prepetition workers’ compensation claims in

order to preserve employee morale and to enable the debtor to remain as a

self-insurer under various workers’ compensation programs.137

Early payment for the medical treatment of injured tort claimants,

however, is more difficult for courts to fit within the doctrine of necessity,

even those courts that accept and are willing to apply the doctrine in appropriate cases. Persons asserting mass tort claims against a chapter 11

debtor are typically not persons on whom the company is dependent for its

future success, such as current employees, suppliers, or customers. Thus,

it is more difficult to argue that making payments to these claimants is necessary for a successful reorganization that will benefit all creditors. Claimants seek payment primarily for reasons of compassion rather than to enhance the likelihood of the debtor’s reorganization.138 Moreover, in cases in

which courts have authorized the early payment of unsecured claims, such

as for employee wages and debts to suppliers, the amount and liability of

the claims have been undisputed. In some mass tort cases, by contrast,

early in the case the debtor might dispute both aspects of a personal injury

tort claim, and, even if not, the ultimate payout percentage for tort claims

will most likely be unknown. The bankruptcy judge, therefore, will not

have a basis for concluding that the emergency payments will alter the timing, but not the amount, of payment to the claimants in question. The best

mass tort scenario, therefore, for authorizing emergency payments to tort

claimants would be one in which liability is not disputed, the payout

amounts are expected to be substantial, and claimants’ receipt of medical

treatment early in the case will significantly reduce their ultimate measure

of damages, thus benefiting all creditors.

Even if a judge decides that the Bankruptcy Code authorizes and circumstances justify an emergency payment to some tort claimants in a particular case, the judge should proceed only after giving notice and an opportunity for a hearing to the various constituencies that might be affected

 136. Id. at 1022–23.

137. See In re UNR Indus., Inc., 143 B.R. 506, 520 (Bankr. N.D. Ill. 1992) (explaining basis for earlier order).

138. See, e.g., Rosenthal, supra note 129, at 245 (noting that the doctrine of necessity does not

adequately protect the health needs of personal injury tort claimants, because “the doctrine places

undue focus on the debtor’s interests rather than on the health interests of the tort victims”).
Judicial Management of Mass Tort Bankruptcy Cases

36

by such an order.139 These groups include the tort claimants’ committee,

any future claims representative who has been appointed, and other official

committees; the judge should also provide notice to the U.S. trustee and

the debtor if it is not the moving party. Unlike payments made to employees or suppliers at the outset of a case in order to maintain their needed

cooperation with the business, payments to tort claimants for medical

treatment prior to the confirmation of a plan will generally not require that

the judge proceed on an emergency basis.

 139. See Tabb, supra note 133, at 103–06.
37

III. Structuring the Committees

A. Overview

Part III addresses issues involving the representation of the tort claimants’

interests in a mass tort bankruptcy case:

• Number of committees: Should a separate official committee be established to represent the tort claimants? When is more than one tort

claimant committee needed? What factors should the court consider

if it is requested to appoint an additional committee to ensure adequate representation of creditors?

• Membership of the tort claimants’ committee: Are lawyers who represent tort claimants, rather than claimants themselves, eligible to

serve as members of an official creditors’ committee? Does their

service present conflicts of interest between their duties to their own

clients and their duties to the whole tort claimant group? Are there

any advantages to having lawyers serve as committee members?

• Court’s role in committee appointments: What are the respective roles

with regard to committee appointments of the U.S. trustee and the

bankruptcy judge? Does the judge have authority to change the size

or membership of an existing committee? If so, under what circumstances may the judge do so?

• Communication between the tort claimants’ committee and tort claimants: What methods of communication should the tort claimants’

committee and its constituency establish in order to ensure that the

committee is adequately representing the claimants’ interests?

• Containment of costs incurred by committees: What steps can the

bankruptcy judge take to reduce the fees and expenses incurred by

the official committees? Are committee members authorized to be

reimbursed for compensation they pay their own attorneys in connection with service on the committee? What procedures should be

established for interim fee awards and expense reimbursement of

professionals involved in the case that will allow sufficient scrutiny

of fee and expense requests but not impose an unreasonable burden

on the professionals? Should the court withhold fees in order to encourage progress in the case?

• Representation of future claimants: May the claims of persons who

have not yet manifested any injuries or not yet been exposed to the
Judicial Management of Mass Tort Bankruptcy Cases

38

debtor’s product be affected by the bankruptcy? Do these persons

have claims that can be discharged? How can their due process

rights be protected? What role does a future claims representative

play in the bankruptcy case? What qualifications should the judge

look for in appointing a future claims representative?

B. Number of Committees

The Bankruptcy Code provides that the U.S. trustee shall appoint a “committee of creditors holding unsecured claims” as soon as practicable after

the beginning of a chapter 11 case,140 and it further authorizes the U.S.

trustee to appoint additional committees of creditors or equity security

holders “as the United States trustee deems appropriate.”141 Congress declared in section 1102(b)(1) that a committee of creditors appointed pursuant to section 1102(a) “shall ordinarily consist of the persons, willing to

serve, that hold the seven largest claims against the debtor of the kinds represented on the committee.”

Section 1102(a) also provides a role for the bankruptcy judge to play

in the appointment of creditors’ committees, although prior to recent

amendments to the Bankruptcy Code, courts divided over the precise scope

of that role and its relationship to the U.S. trustee’s role.142 At the very

least, the Code authorizes the bankruptcy court “on request of a party in

interest” to order the appointment of additional committees of creditors if

necessary to ensure “adequate representation of creditors.”143 The U.S. trustee actually appoints members to any additional committee ordered by the

court.144

In virtually all mass tort bankruptcies to date, U.S. trustees or bankruptcy courts have appointed at least one committee for the tort claimants,

in addition to the official committee of unsecured creditors whose members

are typically trade creditors, institutional lenders, and bondholders.145

 140. 11 U.S.C. § 1102(a)(1) (2000).

141. Id. The interests of future tort claimants are represented in mass tort bankruptcy cases,

not by committees, but by future claims representatives. See infra section III.G.

142. See infra section III.D.

143. 11 U.S.C. § 1102(a)(2) (2000).

144. Id.

145. See, e.g., In re Armstrong World Indus., Inc., 320 B.R. 523, 525 (D. Del. 2005); In re

A.H. Robins Co., 88 B.R. 742, 744 (E.D. Va. 1988), aff’d sub nom. Menard-Sanford v. Mabey

(In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989); Gibson, supra note 64, at 71, 220 (discussing the appointment of tort claimant committees in the A.H. Robins and Dow Corning bankruptcies).
III. Structuring the Committees

39

Thus, courts have recognized that the interests of the tort claimants and

those of the commercial unsecured creditors are sufficiently distinct or even

adverse to require separate representation.146 In some mass tort bankruptcy

cases, multiple creditors’ committees have been sought because of the diversity of interests within the large group of unsecured creditors. For example, in the Dow Corning case, foreign tort claimants, physicians, health

insurers, vendors, and employees sought the appointment of separate

committees in addition to the Official Committee of Unsecured Creditors

and the Official Committee of Tort Claimants.147 Only the physicians’

motion was granted. In asbestos bankruptcy cases, property damage claimants, codefendants, tort claimants with liquidated claims, and tort claimants

alleging injuries that were due to non-asbestos products have sought separate representation. Generally only property damage claimants have been

successful in obtaining an official committee.148

Such requests for the appointment of additional creditors’ committees

require the judge or U.S. trustee to determine whether the interests in question can be adequately represented by the existing committees or by other

means and to consider the costs, monetary and otherwise, that will result

from the appointment of additional committees. No bright-line rules guide

this analysis; instead, the decision must be based on a careful balancing of

competing concerns.

A judge ruling on a request for an additional committee under section

1102(a) should apply a presumption against such an appointment. As one

court noted, “The reconciliation of differing interests of creditors within a

single committee is the norm, and the appointment of a separate committee

is an extraordinary remedy.”149 One reason courts have been disinclined to

appoint multiple committees is their recognition that the existence of varying interests and potential conflicts on a committee of creditors is inevitable

and perhaps even desirable. Viewing a committee as “a catalyst for negotiation and compromise,” one court reasoned that the inclusion of creditors

with diverse interests “within one committee may facilitate the consensual

resolution of the conflicting priorities among the holders of unsecured

 146. See Houser, supra note 46, at 465–66.

147. See In re Dow Corning Corp., 194 B.R. 121, 127–28 (Bankr. E.D. Mich. 1996), rev’d

in part on other grounds, 212 B.R. 258 (E.D. Mich. 1997).

148. See, e.g., In re Armstrong World Indus., 320 B.R. at 525.

149. In re Trans World Airlines, Inc., Bankr. No. 92-115, 1992 WL 168152, at *3 (Bankr.

D. Del. Mar. 20, 1992).
Judicial Management of Mass Tort Bankruptcy Cases

40

claims and thereby facilitate the negotiation of a consensual plan.”150 The

existence of multiple committees, in contrast, may lead to greater divisiveness and increased complexity of the negotiation process, as well as to the

added administrative costs of each official committee’s retaining professionals at estate expense.151

At what point does the diversity of interests among creditors become so

great as to make the appointment of separate committees appropriate? The

statute says that point is reached when an additional committee is needed

“to assure adequate representation of creditors.”152 Some courts have interpreted that statutory standard pragmatically. Separate committees are called

for when “there exists conflict among the unsecured creditors which is so

profound as to impede the [c]ommittee’s ability to function”153 or when the

conflicts among creditors “impair the ability of the unsecured creditors

committee to reach a consensus.”154 A leading treatise has suggested that the

following factors be taken into consideration in ruling on a request for an

additional committee:

• the “added complexity and added expense” that will result;

• “whether different groups of creditors are likely to be classified separately and treated differently under a plan”; and

• “whether having differently situated creditors on a single committee

will create gridlock that would effectively render the committee unable to play a meaningful role in the case, particularly in plan negotiations.”155

Because of the increased complexity of mass tort bankruptcy cases and

the distinctive nature of the unsecured claims in such cases, judges might

question whether special considerations should come into play in determining the appropriate number of creditors’ committees. To some extent,

the answer appears to be yes. As noted above, the appointment of an additional committee for tort claimants has been the uniform practice. Because

 150. In re Hills Stores Co., 137 B.R. 4, 7 (Bankr. S.D.N.Y. 1992).

151. See Harvey R. Miller, The Changing Face of Chapter 11: A Reemergence of the Bankruptcy Judge as Producer, Director, and Sometimes Star of the Reorganization Passion Play, 69 Am.

Bankr. L.J. 431, 462 (1995).

152. 11 U.S.C. § 1102(a)(2) (2000). The language quoted in text is the statutory standard

for the appointment of additional committees by the court. The Bankruptcy Code also provides that

a U.S. trustee may appoint an additional committee “as the U.S. trustee deems appropriate.” Id.

§ 1102(a)(1).

153. In re Hills Stores, 137 B.R. at 7.

154. In re McLean Indus., Inc., 70 B.R. 852, 861 (Bankr. S.D.N.Y. 1987).

155. 7 Alan N. Resnick et al., Collier on Bankruptcy ¶ 1102.02[4][b] (15th ed. rev. 2004).
III. Structuring the Committees

41

one of the major and potentially most divisive issues in mass tort bankruptcy cases is the determination of the value of the tort claims in relation

to the commercial debt, the appointment of separate committees of tort

claimants and commercial unsecured creditors has become routine. A combined unsecured creditors’ committee is likely to result in gridlock.

But are additional unsecured creditors’ committees needed to adequately represent the different types of tort debt asserted in a mass tort

bankruptcy? In the mass tort class action context, for example, the Supreme

Court has insisted upon a strict alignment of class members’ interests and

the interests of those who represent them in the class suit. Interpreting

Federal Rule of Civil Procedure 23(a) and (b), the Court has indicated

that subclasses may have to be created for claimants with different diseases

and different degrees of manifestation of injury and with different entitlements to insurance coverage, and that each subclass must have its own

counsel.156 The named plaintiffs of a single class cannot be allowed to represent all of the varied tort claimants. Should the same requirements apply

in the bankruptcy context to creditors’ committee representation?157

The role of creditors’ committees is sufficiently distinguishable from

that of class representatives that the answer to that question is probably no.

The precise categorization and separate representation of different tort interests required in the class action context is not required in the creditors’

committee context because creditors’ committees—unlike class representatives—do not have the authority to enter into settlements that are binding

on those represented. Creditors’ committees serve merely as negotiating

agents for the creditors they represent.158 The plan proponent must submit

the terms of any plan negotiated by a committee and the debtor to the

creditor body for a vote.159 Moreover, while confirmation of a plan does not

require unanimity, the Bankruptcy Code does provide substantive protections for those who are outvoted.160 Thus, the requirements for adequacy of

 156. See Ortiz v. Fibreboard Corp., 527 U.S. 815, 856–57 (1999); Amchem Prods., Inc. v.

Windsor, 521 U.S. 591, 626–27 (1997).

157. To the extent that the Court in Ortiz and Amchem was applying the requirements of Rule

23, the decisions are clearly inapplicable to the creditors’ committee context in bankruptcy cases, a

matter governed by different statutory authority. But those decisions are relevant to the representation of tort claimants by creditors’ committees to the extent that the Court’s reasoning was influenced by due process considerations. See, e.g., Ortiz, 527 U.S. at 846–47; Amchem, 521 U.S. at

623, 626 n.20.

158. See Epstein et al., supra note 64, § 10–11; Tabb, supra note 95, at 67.

159. See 11 U.S.C. § 1126 (2000).

160. See id. § 1129(a), (b).
Judicial Management of Mass Tort Bankruptcy Cases

42

representation may be less demanding in the creditors’ committee context

than in the class action context because fairness is ensured by other

means.161

Judges presiding over mass tort bankruptcies to date have often rejected

requests for a proliferation of tort-related committees. Typically two official

committees have been appointed: a committee for the tort claimants and a

committee for other unsecured creditors (usually named something like

“unsecured creditors’ committee,” “trade creditors’ committee,” or “commercial creditors’ committee”). In some cases in which the court found it

appropriate to do so, it ordered the appointment of an additional committee for such groups as shareholders,162 property damage claimants,163 or

physician claimants.164

A request for the appointment of an official committee should be denied if the judge determines that the group already has an adequate opportunity to have a meaningful voice in the bankruptcy case. Members of the

group may already be represented on one of the official committees.165

Moreover, creditors may form unofficial committees that may participate in

hearings, advise constituents, and negotiate on behalf of their groups, although they are not assured of having their expenses reimbursed from the

estate.166 Likewise, even without the formation of a committee, official or

otherwise, any party in interest is authorized by section 1109 of the Bankruptcy Code to be heard on any matter.167 If the judge determines that an

unofficial committee or a party has made a “substantial contribution” to the

case, the judge can allow the reimbursement of actual, necessary expenses,

including attorneys’ fees, as an administrative expense.168

 161. See Ortiz, 527 U.S. at 846 (citing bankruptcy as a “‘special remedial scheme’” that permissibly “‘foreclos[es] successive litigation by nonlitigants’”); id. at 860 n.34 (referring to the

“protections for creditors built into the Bankruptcy Code”).

162. See, e.g., In re A.H. Robins Co., 88 B.R. 724, 744 (E.D. Va. 1988), aff’d sub nom.

Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989).

163. See, e.g., In re Celotex Corp., 204 B.R. 586 (Bankr. M.D. Fla. 1996).

164. See, e.g., In re Dow Corning Corp., 194 B.R. 121, 146 (Bankr. E.D. Mich. 1996),

rev’d in part on other grounds, 212 B.R. 258 (E.D. Mich. 1997).

165. See, e.g., In re Hills Stores Co., 137 B.R. 4, 7 (Bankr. S.D.N.Y. 1992); In re ShafferGordon Assocs., Inc., 40 B.R. 956, 959 (Bankr. E.D. Pa. 1984).

166. See, e.g., Hills Stores, 137 B.R. at 8; Kenneth N. Klee & K. John Shaffer, Creditors’

Committees Under Chapter 11 of the Bankruptcy Code, 44 S.C. L. Rev. 995, 1032 (1993).

167. 11 U.S.C. § 1109(b) (2000).

168. Id. § 503(b)(3)(D), (b)(4).
III. Structuring the Committees

43

C. Membership of the Tort Claimants’ Committee

In some mass tort bankruptcy cases, lawyers representing persons with tort

claims against the debtor have served on the tort claimants’ committee,

rather than or in addition to actual claimants.169 This practice has raised the

question whether membership on a creditors’ committee by a creditor’s

lawyer is statutorily authorized. The question is complicated by the issue of

the bankruptcy judge’s authority to review committee appointments made

by a U.S. trustee, since the lawyer-versus-claimant issue may be raised by

motion to the court following a U.S. trustee’s appointment of plaintiffs’

lawyers to a tort claimants’ committee. The issue of judicial review of committee appointments is discussed below.170 This section discusses the issue

of statutory requirements for membership on a creditors’ committee, regardless of which official has the ultimate authority to approve the appointment.

The Bankruptcy Code in section 1102(a)(1) provides for the appointment of a “committee of creditors holding unsecured claims”171 and in section 1102(b)(1) states that a committee appointed under subsection (a)

“shall ordinarily consist of the persons, willing to serve, that hold the seven

largest claims against the debtor of the kinds represented on such committee.”172 Reading the phrase “committee of creditors” as meaning a committee

“consisting of” or “made up of” creditors, some courts and commentators

have concluded that the Code mandates that only unsecured creditors

themselves be appointed to a creditors’ committee.173 They find support for

 169. See, e.g., Van Arsdale v. Clemo, 825 F.2d 794, 796 (4th Cir. 1987) (describing membership of Dalkon Shield claimants’ committee in A.H. Robins case as including two non-claimant

plaintiffs’ attorneys); In re Dow Corning Corp., 212 B.R. 258 (E.D. Mich. 1997) (upholding

U.S. trustee’s appointment of attorneys to tort claimants’ committee); In re UNR Indus, Inc., 30

B.R. 613, 614 (Bankr. N.D. Ill. 1983) (listing attorneys appointed to asbestos-related plaintiffs’

committee); Notice of Appointment of Injury Claimants’ Committee, In re Eagle-Picher Indus.,

Inc., Consol. Case No. 1-91-00100 (Bankr. S.D. Ohio Jan. 14, 1991) (listing attorneys representing asbestos claimants appointed to injury claimants’ committee).

170. See infra section III.D.

171. 11 U.S.C. § 1102(a)(1) (2000). The appointing official under this provision is the U.S.

trustee.

172. Id. § 1102(b)(1). The provision does not specify whether extraordinary circumstances

might justify the appointment of persons who do not hold claims against the debtor or merely the

appointment of creditors who do not hold the largest claims.

173. In re Dow Corning Corp., 194 B.R. 121, 138 (Bankr. E.D. Mich. 1996), rev’d, 212

Bankr. 258 (E.D. Mich. 1997) (ordering “the United States trustee to appoint a new T[ort]

C[laimants’] C[ommittee]—made up of persons who have claims against the Debtor”); In re Celotex Corp., 123 B.R. 917, 922 (Bankr. M.D. Fla. 1991) (finding that “the present committee is

made up of legal representatives of selected members of the committee and does not comply with
Judicial Management of Mass Tort Bankruptcy Cases

44

this reading in section 1102(b)(1)’s instruction concerning who “ordinarily” should be appointed to such a committee; here the Code speaks only of

those holding claims against the debtor. Moreover, some note that section

101(10) of the Bankruptcy Code excludes from the definition of “creditor”

a creditor’s “agent, attorney, or proxy,” as section 1(11) of the Bankruptcy

Act had provided, thereby reinforcing the view that a creditor’s agent or

representative is not eligible for appointment to a committee of creditors.174

Other courts have read the Bankruptcy Code as “provid[ing] no standards regarding who may serve on a [c]ommittee established pursuant to

section 1102”175 and as thus allowing great flexibility—at least in situations

that are not “ordinary”—concerning who may be appointed.176 Under this

more flexible reading of section 1102, representatives of creditors are eligible for appointment. This reading of the statute is consistent with the fact

that when a corporate creditor is appointed to committees, a corporate agent

necessarily has to be designated to actually serve on the committee on the

creditor’s behalf; it is generally thought that the Code’s language does not

prohibit such committee service by the representative, regardless of whether

that person is a lawyer, accountant, or officer or employee of the corporation.177 Furthermore, outside the mass tort context, courts have approved

the appointment to creditors’ committees of union representatives on behalf

of their members178 and indenture trustees on behalf of bondholders they

 Section 1102 of the Bankruptcy Code”); Klee & Shaffer, supra note 166, at 1010 (“[T]he Code’s

definitions of “creditor” and “claim” suggest that only actual creditors, and not their representatives

and agents, may sit on a creditors’ committee . . . .”).

174. See, e.g., In re Dow Corning Corp., 194 B.R. at 137; In re Altair Airlines, Inc., 25 B.R.

223, 224 (Bankr. E.D. Pa. 1982), rev’d, 727 F.2d 88 (3d Cir. 1984); Klee & Shaffer, supra note

166, at 1010.

175. See e.g., In re Northeast Dairy Coop. Fed’n, Inc., 59 B.R. 531, 533 (Bankr. N.D.N.Y.

1986).

176. See In re Dow Corning, Inc., 212 B.R. 258, 264 (E.D. Mich. 1997) (“It could be interpreted that in a matter that is not an ‘ordinary’ case, such as a mass tort case, the United States

Trustee may appoint members who are not the largest creditors. . . . Nowhere in Section 1102 does

it indicate that a person must be an actual creditor to be appointed by the United States Trustee to a

committee of creditors.”).

177. See 7 Collier on Bankruptcy, supra note 155, ¶ 1102.02[2][a][iii] (“Despite the lack of

a specific reference in the Code to representatives, representatives of creditors have routinely been

permitted to serve on committees. Indeed, a creditor that is not an individual, such as a corporation,

will by definition have to designate an individual to represent it on the committee.”) (footnote omitted); Klee & Shaffer, supra note 166, at 1009 (“In certain districts, creditors’ committees are commonly comprised not of actual creditors, but rather of their representatives or agents, typically attorneys, financial advisors, and indenture trustees.”).

178. E.g., In re Northeast Dairy Coop. Fed’n, Inc., 59 B.R. at 531; In re Schatz Fed. Bearings

Co., 5 B.R. 543 (Bankr. S.D.N.Y. 1980).
III. Structuring the Committees

45

represent.179 Thus, there is precedent in other types of bankruptcy cases for

non-creditor representatives being appointed to and serving on creditors’

committees.

Some courts and commentators have objected, however, that lawyers

representing tort claimants face disqualifying conflicts of interest when they

are appointed to tort claimants’ committees. In particular, they contend that

a lawyer committee member will have potentially conflicting duties of loyalty: one duty to his or her specific clients and another duty to the tort

claimants as a whole, whom the committee represents.180 As other courts

and commentators have noted, however, this potential conflict is not all that

different from the conflict actual creditors appointed to committees face;

they too may have to choose between acting in their self-interest and acting

in the interests of the creditor group as a whole.181 Moreover, such a conflict exists anytime a representative of an institutional creditor serves on a

committee on behalf of the institution.182

Although committee members owe a fiduciary duty to the creditors the

committee represents, the proper functioning of a creditors’ committee may

be for each member to act in his or her self-interest, and thereby serve the

interests of the creditor group as a whole, while seeking to arrive at a consensus with others on the committee. As one author has explained, credi-

 179. E.g., In re McLean Indus., Inc., 70 B.R. 852, 862 (Bankr. S.D.N.Y. 1987); In re Charter Co., 42 B.R. 251 (Bankr. M.D. Fla. 1984).

180. See, e.g., In re Dow Corning Corp., 194 B.R. 121, 135 (Bankr. E.D. Mich. 1996),

rev’d, 212 B.R. 258 (E.D. Mich. 1997) (“[A]llowing attorneys to serve on committees in . . . [a

representative] capacity places them in the unacceptable position of concurrently serving two masters

with contrary interests.”); In re Celotex Corp., 123 B.R. 917, 921–22 (Bankr. M.D. Fla. 1991)

(“Each legal representative who sits on the committee has a fiduciary duty to its own client/member

as well as a fiduciary duty to the committee and each of its constituents.”); Klee & Shaffer, supra

note 166, at 1011 (“[A] representative or agent may be disqualified from serving on a creditors’

committee due to the agent’s conflicting loyalties to his or her own client’s particular interests and to 

the constituency of the creditors’ committee as a whole.”).

181. See In re Dow Corning Corp., 212 B.R. at 264; cf. Carl A. Eklund & Lynn W. Roberts,

The Problem with Creditors’ Committees in Chapter 11: How to Manage the Inherent Conflicts Without Loss of Function, 5 Am. Bankr. Inst. L. Rev. 129, 131 (1997) (referring to the need to balance

“committee members’ unavoidable self-interest with the committee’s fiduciary obligations”).

182. See Daniel J. Bussel, Coalition-Building Through Bankruptcy Creditors’ Committees, 43

UCLA L. Rev. 1547, 1590 n.178 (1996). Bussel suggests that a so-called conflict is inevitable with

institutional committee members, since their “representatives always owe fiduciary duties to the

institution’s own constituents, who may have an interest that differs in some respect from that of all

creditors ‘represented’ by the committee.” He considers such a conflict to be a false one, however.

He contends that “[a]ny ‘fiduciary’ obligation of a committee member should be consistent with

asserting positions in the best interests of holders of the kind of claim the committee member

holds.” Id.
Judicial Management of Mass Tort Bankruptcy Cases

46

tors’ committees are better explained by a quasi-legislative model than by a

fiduciary model:

True protection for nonmember creditors is not in appointing and holding

other creditors to a position of trust, but in the balance of power created by:

(i) the appointment of a committee that consists of members from the key

constituencies and that employs competent professionals to advise it; (ii) the

general supervisory role of the bankruptcy court over administration of the

estate; (iii) creditors’ rights to obtain relevant information and to vote their

claims before confirmation of a plan that impairs their legal rights; and (iv)

court review of the plan to ensure it meets with the substantiverequirements

of the Bankruptcy Code.

183

According to this view of a committee member’s role, a lawyer representing the interests of his or her tort claimant clients could also properly

fulfill the role given to him or her as a member of the tort claimants’ committee. Of course, if a lawyer’s representation of multiple tort claimants

with differing interests presents a conflict of interest outside of bankruptcy,

that same conflict would exist in bankruptcy. The issue addressed here,

however, is whether a conflict of interest is created merely by the appointment of a lawyer to the creditors’ committee.

Whether or not the Bankruptcy Code limits committee membership to

actual creditors, the key lawyers involved in the tort litigation against the

debtor will need to be actively involved in the negotiation of a reorganization plan. For a consensual plan regarding the tort claims to be achieved,

the lawyers representing a large percentage of the claimants will have to

support it. Even if actual claimants are appointed to the tort claimants’

committee, they will most likely participate through their lawyers, and the

lawyers will become the major players in the negotiations with the debtor

over the terms of a reorganization plan. The court’s direct appointment of

lawyers themselves, rather than the creditor clients, has the advantage of

providing greater assurance that all of the key players are represented in the

negotiations.184 It also makes explicit the role that the lawyers are playing in

the case.

 183. See id. at 1567. Bussel, although noting differences between legislative bodies and creditors’ committees, explains that “at their cores, both the legislative process and the committee process

are deliberative and function by compromising conflicting interests in light of practical realities and

the general interest.” Id.

184. See Bussel, supra note 182, at 1624 (suggesting that the U.S. trustee “should attempt to

craft a committee with members ‘representative’ of the key constituencies, allocating seats on the

committee in rough proportion to size and economic importance of each constituency”).
III. Structuring the Committees

47

D. Court’s Role in Committee Appointments

Congress has given primary responsibility for the appointment and supervision of creditors’ committees to the U.S. trustee. Section 1102(a)(1) of

the Bankruptcy Code directs the U.S. trustee to appoint an unsecured

creditors’ committee “as soon as practicable after the order for relief” in a

chapter 11 case, and 28 U.S.C. § 586(a)(3)(e) includes among the duties

of a U.S. trustee the “monitoring [of] creditors’ committees appointed under title 11.” Congress has not always been clear, however, about the bankruptcy judge’s authority over committee appointments. As a result, courts

have disagreed over whether and under what circumstances the bankruptcy

judge is authorized to review and reverse the U.S. trustee’s decisions concerning the membership and size of an appointed committee.185 A recent

amendment to section 1102(a), however, should help to clarify this issue.

As previously discussed,186 the Bankruptcy Code does give the bankruptcy court clear authority to order the appointment of committees in addition to the unsecured creditors’ committee appointed by the U.S. trustee

“if necessary to assure adequate representation of creditors or of equity security holders.”187 The Code grants this judicial authority in addition to the

authority given to the U.S. trustee to “appoint additional committees of

creditors or of equity security holders as the U.S. trustee deems appropriate.”188 Because of this dual authority to appoint “additional committees,” it

has been suggested that a party seeking such an appointment first seek relief

from the U.S. trustee before requesting relief from the court.189 However,

courts have generally declined to read an exhaustion requirement into the

statute.190 Thus, a bankruptcy court, when presented with a request of a

party in interest, may determine de novo whether the existing committee or

committees provide adequate representation of the creditors or shareholders

 185. One source states that “[n]o issue involving creditors’ committees has been the subject of

as much concern as the ability to alter the composition of a committee. . . . [N]o other body of law

governing creditors’ committees appears to be in such a current state of disarray.” Klee & Shaffer,

supra note 166, at 1032.

186. See supra section III.B.

187. 11 U.S.C. § 1102(a)(2) (2000).

188. Id. § 1102(a)(1).

189. See 7 Collier on Bankruptcy, supra note 155, ¶ 1102.07[1].

190. See, e.g., In re McLean Indus., Inc., 70 B.R. 852, 857 (Bankr. S.D.N.Y. 1987) (“It thus

does not appear that Congress, in amending section 1102(a), had any intention of requiring a

movant under section 1102(a)(2) to exhaust administrative remedies or to limit the bankruptcy

court’s consideration of the issues under section 1102(a)(2) to a review of the determination made

by U.S. trustees.”).
Judicial Management of Mass Tort Bankruptcy Cases

48

whose interests are in question and, if they do not, order the appointment

of an additional committee.191 The statute directs that the U.S. trustee make

the actual appointment of members to the new committee.192

From 1986 to 2005, section 1102 of the Bankruptcy Code failed to

make clear the extent to which a bankruptcy judge had authority to review

U.S. trustee committee appointments or to alter the makeup of a committee

short of ordering the appointment of an additional committee. This uncertainty resulted from Congress’s amendment of the Bankruptcy Code in

1986.193 At that time Congress implemented the U.S. trustee system on a

nationwide basis and transferred committee appointment authority from

bankruptcy judges to those officials. Congress also deleted section

1102(c),194 which had authorized the bankruptcy court to “change the

membership or the size of a committee [previously] appointed [by the

court] . . . if the membership of such committee [was] not representative of

the different kinds of claims or interests to be represented.”195 This deletion

provoked conflicting decisions about the scope of judicial authority over

committee appointments.

Some courts concluded that bankruptcy courts were left with no

authority to review and change the composition of committees the U.S.

trustee appointed.196 Under their reading of the Bankruptcy Code, the appointment of committees was primarily an administrative task to be performed by the U.S. trustee, and the court’s authority was limited to ordering the appointment of additional committees when needed for adequate

representation. Because courts that adopted this view read section 1102 as

intentionally eliminating most judicial oversight of committee appointments, they declined to find any such authority under either section

105(a) or the court’s inherent powers.197

 191. See, e.g., id. at 857–58; In re Dow Corning Corp., 212 B.R. 258, 264 (E.D. Mich.

1997); In re Sharon Steel Corp., 100 B.R. 767, 785 (Bankr. W.D. Pa. 1989).

192. 11 U.S.C. § 1102(a)(2) (2000).

193. Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986,

Pub. L. No. 99-554, 100 Stat. 3088.

194. Id. § 221.

195. 11 U.S.C. § 1102(c) (1982).

196. See, e.g., Smith v. Wheeler Tech., Inc. (In re Wheeler Tech., Inc.), 139 B.R. 235, 239

(B.A.P. 9th Cir. 1992); In re Dow Corning Corp., 212 B.R. 258, 264 (E.D. Mich. 1997); In re

New Life Fellowship, Inc., 202 B.R. 994, 996–97 (Bankr. W.D. Okla. 1996); In re McLean Indus., Inc., 70 B.R. 852, 856 n.2, 860 (Bankr. S.D.N.Y. 1987).

197. See, e.g., Smith, 139 B.R. at 239; In re New Life Fellowship, 202 B.R. at 997.
III. Structuring the Committees

49

Other courts, however, concluded that they retained broad authority to

alter the size and membership of committees U.S. trustees appointed.198

Their explanations of the scope of and basis for this authority varied. Some

courts reasoned that section 1102(a)(2)’s conferral of authority to appoint

an additional committee necessarily included authority for the “lesser included remedy” of altering the membership of an existing committee.199

Others found such authority conferred by section 105(a) or included in

the court’s inherent powers.200 Generally, according to this view of the judicial role in committee appointments, the court was not required to give

deference to the decisions of the U.S. trustee.201

A third group of courts took a middle view. Rejecting the conclusion

that Congress intended the U.S. trustee’s appointment of committees to be

unreviewable, these courts held that they had authority to alter the size or

membership of a committee if they found that the U.S. trustee committed

an abuse of discretion or acted arbitrarily or capriciously in appointing the

committee.202 Courts generally cited section 105(a) of the Bankruptcy

Code as the source of their authority to review the U.S. trustee’s appointment decisions.203

The Bankruptcy Abuse Prevention and Consumer Protection Act of

2005 restores to the bankruptcy court the authority to change the composition of a creditors’ committee under certain circumstances. It adds section

1102(a)(4), which authorizes the court, “[o]n request of a party in interest

and after notice and hearing,” to order the U.S. trustee “to change the

membership of a committee appointed under this subsection, if the court

determines that the change is necessary to ensure adequate representation of

 198. See, e.g., In re Dow Corning Corp., 194 B.R. 121, 132 (Bankr. E.D. Mich. 1996),

rev’d, 212 B.R. 258 (E.D. Mich. 1997); In re Sharon Steel Corp., 100 B.R. 767, 772–73 (Bankr.

W.D. Pa. 1989); In re Public Serv. Co., 89 B.R. 1014, 1021 (Bankr. D.N.H. 1988); In re Texaco 

Inc., 79 B.R. 560, 566 (Bankr. S.D.N.Y. 1987).

199. See In re Dow Corning Corp., 194 B.R. at 131; In re Public Serv. Co., 89 B.R. at 1021.

200. See In re Sharon Steel, 100 B.R. at 774; In re Public Serv. Co., 89 B.R. at 1021.

201. See, e.g., In re Sharon Steel, 100 B.R. at 786 (“[T]he provisions of the APA do not apply

to the actions of the U.S. Trustee taken pursuant to § 1102 of the Bankruptcy Code and . . . court

review of the U.S. Trustee’s actions is de novo.”).

202. See, e.g., Bodenstein v. Lentz (In re Mercury Fin. Co.), 240 B.R. 270, 277 (N.D. Ill.

1999); In re Fas Mart Convenience Stores, Inc., 265 B.R. 427, 431 (Bankr. E.D. Va. 2001); In re

Trans World Airlines, Inc., Bankr. No. 92-115, 1992 WL 168152 (Bankr. D. Del. 1992); In re

Columbia Gas Sys., Inc., 133 B.R. 174, 176 (Bankr. D. Del. 1991).

203. See, e.g., In re Fas Mart, 265 B.R. at 431.
Judicial Management of Mass Tort Bankruptcy Cases

50

creditors or equity security holders.”204 This amendment, which takes effect

in October 2005,205 does not give the bankruptcy judge complete discretion to alter the composition of a committee, but it should go a long way

toward resolving the conflict among the courts concerning judicial authority over committee composition. It is possible, however, that courts will

continue to express differing views concerning the extent of their authority

under section 105(a) to change the committee membership for reasons

other than adequacy of representation.

E. Communication Between Tort Claimants’ Committee

and Tort Claimants

A tort claimants’ committee typically represents the interests of thousands

of persons who reside throughout the United States or even the world—

often persons lacking sophisticated business experience or a familiarity with

the bankruptcy process. Although many of the tort claimants may be represented by personal injury lawyers, some claimants whose interests will be

affected by the bankruptcy may be unrepresented. Because of the tort

claimants’ remoteness from the bankruptcy proceedings, it is important

that the committee representing them make special efforts to establish an

effective means of communication with them. When the committee is composed primarily of lawyers, rather than claimants themselves,206 communication between the committee and the claimants is especially important to

ensure that the committee is truly serving the claimants’ interests and not

just the interests of the lawyers.

In considering how it might effectively communicate with its constituents, a tort claimants’ committee needs to respect the need for confidentiality of certain matters that come before it.207 Not everything the committee

members are made privy to can be shared with their constituents. Moreo-

 204. Pub. L. No. 109-8, § 405(a), 119 Stat. 23, 105 (2005). The amendment also specifically

authorizes the court to order the addition of a small business creditor to a creditors’ committee “if

the court determines that the creditor holds claims (of the kind represented by the committee) the

aggregate amount of which, in comparison to the annual gross revenue of that creditor, is disproportionately large.” Id.

205. Id. § 1501(a), 119 Stat. at 216.

206. See supra section III.C.

207. See 7 Collier on Bankruptcy, supra note 155, ¶ 1103.05[2](a) (“If confidential information [shared with the committee] is disseminated to persons not entitled to receive it, the debtor’s

operations could be potentially damaged to the detriment of the constituency represented by the

committee.”).
III. Structuring the Committees

51

ver, the means of communications the committee selects must not expose

information from or about the claimants to persons who should not have

access to it. Thus, for example, an Internet chat room established by the

committee for tort claimants might inappropriately provide information to

the debtor or other non-claimants who are able to access it.

It is not uncommon for a creditors’ committee in a chapter 11 case to

periodically send status reports to the creditors it represents in order to

keep them informed about the case’s progress and any significant developments.208 Once a reorganization plan is proposed and approved for submission to a creditor vote, the committee may inform its constituents of its

position on the plan. When the committee is a supporter or proponent of

the plan, it can include a letter to this effect in the solicitation package.209

When it opposes the plan, the creditors’ committee is permitted to explain

the reasons for its opposition in a separate mailing.210

Because of the large number of tort claimants typically represented by a

tort claimants’ committee, the cost of frequent mailings may be prohibitive.

A more feasible means of communication might be a Web site created by

the committee for the creditors it represents; such a site would be in addition to any Web site created by the court or the debtor for the case. In the

Dow Corning bankruptcy, the tort claimants’ committee created such a Web

site.211 It included the following:

• a section on frequently asked questions;

• information about developments in the case and subsequent appeals;

• access to plan documents and orders concerning confirmation;

• links to key opinions in the case;

• information about claims processing procedures; and

• a means of e-mailing questions and comments to the committee.

 208. For an example of a creditors’ committee status report, see Chapter 11 Theory and Practice, supra note 130, at 10:163–10:167.

209. See id. at 10:75 (“When the plan is consensual, the committee will usually include a letter

in the solicitation package urging creditors to vote in favor of the plan.”); §§ 10:169–10:174 (including sample letters from a creditors’ committee recommending acceptance of plan).

210. See id. at 10:175–10:176 (including a sample letter from a creditors’ committee recommending rejection of a plan).

211. See http://www.tortcomm.org/ (last visited Aug. 22, 2005). The site is currently managed by the Claimants’ Advisory Committee, which serves as the postconfirmation representative of

the tort claimants’ interests.
Judicial Management of Mass Tort Bankruptcy Cases

52

For the Web site to be an effective means of communication, of course, the

committee should inform tort claimants of its existence early in the case.

Congress has recently addressed the need for improved communications between creditors’ committees and the creditors they represent. The

2005 Bankruptcy Code amendments added a provision to section

1102(b) that requires a creditors’ committee to “provide access to information” to its constituents, to “solicit and receive comments” from them, and

to “be subject to a court order that compels any additional report or disclosure to be made to the creditors” represented by the committee.212 This

statutory requirement underscores that a committee’s duty of care to its

constituents includes keeping them informed and advising them of their

rights.213 The court should ensure that this duty is carried out.

F. Containment of Costs Incurred by Committees

High costs are one of the chief concerns about using bankruptcy as a mass

tort litigation device.214 To the extent that these costs are borne by the estate

as administrative expenses, they diminish payments to tort claimants and

other unsecured creditors and reduce the value, if any, left for shareholders.

The expenses and professional fees incurred by the official committees in

the case are significant sources of these costs. The bankruptcy court therefore needs to keep a close eye on these costs to ensure that estate assets are

not unnecessarily depleted. Because the focus of this part of the manual is

on the structuring of committees, the discussion concerns containing the

fees and expenses incurred by the official committees. Some of the discussion is also applicable to containing the debtor in possession’s costs.

1. Number of committees

One way to contain committee costs is to limit the number of committees

appointed. As previously discussed, in a mass tort bankruptcy case it is

likely that a number of groups will seek the appointment of additional

committees (in addition to the official committee of unsecured creditors).215

While the judge or U.S. trustee will consider several factors when deciding

 212. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8,

§ 405(b), 119 Stat. 23, 105.

213. See Chapter 11 Theory and Practice, supra note 130, at 10:51.

214. See, e.g., Gibson, supra note 64, at 25–26 (discussing the higher costs of resolving mass

torts by means of bankruptcy than by limited fund class actions).

215. See supra section III.B.
III. Structuring the Committees

53

whether to appoint another committee,216 one consideration should be the

additional costs that will result. With the appointment of an additional

committee comes the appointment of committee counsel and perhaps other

professionals, as well as travel and other expenses of the committee members. Accordingly, the judge or U.S. trustee should consider whether there

are other, less costly methods of providing adequate representation for the

constituency that seeks its own committee. These methods might include

recognizing unofficial committees, making appointments to existing committees, and providing opportunities for individual parties in interest to be

heard.

2. Judicial control over committee fees and expenses

For the official committees that are appointed, the Bankruptcy Code gives

the bankruptcy court an important oversight role with respect to the committees’ costs. Section 330(a)(1) of the Bankruptcy Code gives the court

the authority to award to a professional person employed by a chapter 11

official committee “reasonable compensation for actual, necessary services

rendered” and “reimbursement for actual, necessary expenses.” Section 331

authorizes the court to allow and disburse interim compensation and reimbursement to professionals during a chapter 11 case. Courts have read the

Code as giving the bankruptcy court not only the power to review fee applications, but an inescapable duty to do so—even in the absence of objection by the U.S. trustee, the debtor, or any party in interest.217 As the

Third Circuit has explained, this duty “derives from the court’s inherent

obligation to monitor the debtor’s estate and to serve the public interest.”218

a. Eligibility for compensation and reimbursement. As noted above, professional persons employed by chapter 11 committees are permitted to seek

compensation and reimbursement of their expenses from the court; such

payments are made by the estate as administrative expenses.219 These professional persons are committee counsel, accountants, investment advisors,

and any others whose employment the court approves pursuant to section

 216. See id.

217. See, e.g., In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 841 (3d Cir. 1994); In re

Martin, 817 F.2d 175, 180 (1st Cir. 1987); In re Wonder Corp. of Am., 82 B.R. 186, 191 (D.

Conn. 1988).

218. In re Busy Beaver, 19 F.3d at 841.

219. 11 U.S.C. § 503(b)(2) (2000) (including as an administrative expense “compensation

and reimbursement awarded under section 330(a)”).
Judicial Management of Mass Tort Bankruptcy Cases

54

1103(a).220 The Bankruptcy Code now also authorizes reimbursement of

committee members for the expenses they incur “in the performance of the

duties of such committee.”221 This provision, added by Congress in

1994,222 resolved a split among the courts concerning the entitlement of

committee members to reimbursement of their out-of-pocket costs as an

administrative expense.223

Courts continued to disagree, however, over whether committee members were entitled to recover the compensation they paid their individually

retained attorneys in connection with their service on the committee.224 After section 503 was amended in 1994, it appeared to allow such expenditures as administrative expenses,225 but this result seemed inconsistent with

other provisions of the Bankruptcy Code.226 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 included an amendment

that resolves this issue and makes clear that committee members are not

eligible for recovery of attorneys’ and accountants’ fees.227

b. Timing and procedure for compensation and reimbursement of professionals. As is true in all large, complex bankruptcies, professional fees and

 220. Id. § 330(a)(1) (authorizing award of compensation and reimbursement of expenses to,

among others, “a professional person employed under section . . . 1103”).

221. Id. § 503(b)(3)(F).

222. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 110, 108 Stat. 4106, 4113

(adding subsection (F) to § 503(b)(3)).

223. See H.R. Rep. No. 103-835, at 40 (1994) (noting that “the courts have split on the question of allowing reimbursement” and citing conflicting decisions).

224. Compare, e.g., First Merchs. Acceptance Corp. v. J.C. Bradford & Co. (In re First

Merchs. Acceptance Corp.), 198 F.3d 394 (3d Cir. 2000) (reading section 503(b)(3) and (b)(4)

to allow reimbursement of committee members’ attorneys’ fees), with In re Firstplus Fin., Inc., 254

B.R. 888 (Bankr. N.D. Tex. 2000), and In re County of Orange, 179 B.R. 195 (Bankr. C.D.

Cal. 1995) (concluding that Congress did not intend to allow reimbursement of committee members’ legal fees as an administrative expense).

225. The 1994 amendments to section 503(b)(3) added committee members to the list of persons eligible to recover their “actual, necessary expenses” as administrative expenses. By doing so,

the amendment made committee members eligible for reimbursement of attorney and accountant

fees under section 503(b)(4). See 11 U.S.C. § 503(b)(3), (b)(4) (2000).

226. The court does not have to approve in advance the hiring of an attorney or accountant by

an individual committee member, unlike the retention of professionals by a committee. See id.

§1103(a). Thus, there is no opportunity for the court to consider possible conflicts of interest or

the competence of the professional. Furthermore, if the court allowed individual committee members

to hire their own professionals at the expense of the estate, it could result in large expenditures for

overlapping or unnecessary services.

227. See Pub. L. No. 109-8, § 1208, 119 Stat. 23, 194 (amending section 503(b)(4) to 

eliminate committee members from the list of persons eligible to recover professional compensation

as an administrative expense).
III. Structuring the Committees

55

expenses in a mass tort bankruptcy case mount rapidly.228 It is especially

important therefore for the court to authorize a procedure that

• will provide professionals with frequent opportunities for compensation and reimbursement so that they are not forced to finance the

bankruptcy themselves;

• will allow the judge and others sufficient time to scrutinize fee and

expense applications to ensure that estate funds are not improperly

paid out; and

• will not itself create an undue burden on the court and professionals.

The court should authorize such a procedure in the early stages of a mass

tort bankruptcy case so that from the outset all parties and professionals

involved have a clear understanding of the requirements for seeking interim

compensation and reimbursement.229

Congress recognized that having to wait until the end of a lengthy

bankruptcy case to obtain any compensation would discourage lawyers and

other professionals from providing their services to debtors, trustees, and

creditors’ committees. Thus, in section 331 of the Bankruptcy Code, it

authorized courts to allow interim compensation and reimbursement of

expenses “not more than once every 120 days after an order for relief . . . or

more often if the court permits.”230 Generally, courts presiding over mass

tort bankruptcy cases have authorized such applications to be made on a

more frequent basis, typically monthly, in order to reduce the financial

burden on the professionals and to ease cash-flow problems for the debtor.

One bankruptcy court has also pointed out that allowing monthly payment

of interim fees in a large chapter 11 case eliminates the need for large

prepetition retainers for the debtor’s professionals and has the potential for

alerting the court and parties “to an administratively insolvent debtor earlier than in the case where fees are allowed and paid less frequently.”231

 228. For discussions of the issue of handling professional fees and expenses in bankruptcy

mega-cases, see generally Gibson, supra note 3, at 18–22; Conference on Large Chapter 11 Cases,

supra note 3, at 27–33; Case Management Manual, supra note 3, at 345–46; see also MCL 4th,

supra note 3, at 183–207; Alan Hirsch & Diane Sheehey, Awarding Attorneys’ Fees and Managing

Fee Litigation (Federal Judicial Center, 2d ed. 2005).

229. Cf. MCL 4th, supra note 3, § 14.21 (discussing establishment of guidelines and ground

rules regarding fees at the outset of the case); Hirsch & Sheehey, supra note 228, at 107 (describing a judge’s practice of requiring an estimated budget of professional fees). For an example of

guidelines used by a U.S. trustee’s office, see Hirsch & Sheehey, supra note 228, at 123–33.

230. 11 U.S.C. § 331 (2000).

231. In re Mariner Post-Acute Network, Inc., 257 B.R. 723, 728 (Bankr. D. Del. 2000).
Judicial Management of Mass Tort Bankruptcy Cases

56

In especially complex bankruptcy cases, including those involving

mass torts, courts have developed interim compensation procedures designed to reduce the administrative burden on the court and parties, while

still permitting careful judicial scrutiny of fee applications.232 Although

specific procedural details vary from court to court, in their administrative

fee orders, these courts authorize interim payments to be made on a

monthly basis, subject to subsequent court approval.233 Typically, the approved procedure allows a professional entitled to seek interim compensation under section 331 to submit monthly statements to the debtor and

provide copies to the U.S. trustee and official committees. The debtor is

authorized to pay a certain percentage of the requested fees, as well as all

expenses to which no objection is made. The professional then must seek

the court’s allowance of the interim compensation and expenses by submitting a formal fee application on a periodic (often quarterly) basis. The

court, in ruling on the interim fee application, may allow the entire amount

requested, thereby confirming the payment already made and authorizing

the payment of the percentage held back, or it may allow a reduced amount,

thereby approving payment of only some of the amount held back or even

requiring disgorgement of a portion of the payments previously made.

While some courts have concluded that the Bankruptcy Code does not

permit payment of interim compensation prior to any court approval,234

others have found implicit authority for such a conditional interim payment in section 328.235 Courts approving such a procedure, however, have

stressed the need to restrict its availability to a limited set of cases.236

Ruling on fee applications imposes a significant judicial burden in

large chapter 11 cases, but judges can enlist the assistance of others in this

 232. See, e.g., In re Order Establishing Procedures for Monthly Compensation and Reimbursement of Expenses of Professionals (Bankr. S.D.N.Y. Jan. 24, 2000), available at

http://www.nysb.uscourts.gov/orders/m219.pdf.

233. See, e.g., id.; In re Pittsburgh Corning Corp., 255 B.R. 162 (Bankr. W.D. Pa. 2000).

234. See, e.g., In re Commercial Fin. Serv., Inc., 231 B.R. 351, 356 (Bankr. N.D. Okla.

1999); Pennsylvania v. Cunningham & Chernicoff, P.C. (In re Pannebaker Custom Cabinet

Corp.), 198 B.R. 453, 458 (Bankr. M.D. Pa. 1996).

235. See, e.g., U.S. Tr. v. Knudsen Corp. (In re Knudsen Corp.), 84 B.R. 668, 671 (B.A.P.

9th Cir. 1988) (noting that section 328(a) authorizes retainers as part of compensation agreements

and reasoning that “[i]t makes little sense that the court could allow payment of a lump sum or

periodic retainer before fees are earned, but not after”).

236. See id. at 672–73 (listing circumstances in which a court in a “rare case” can authorize

conditional payment of interim compensation prior to allowance); Mariner Post-Acute Network,

257 B.R. at 730–31 (accepting Knudsen rationale but recognizing that additional factors might also

support such an administrative fee order).
III. Structuring the Committees

57

task. Review of fee applications is one of the statutorily assigned duties of

the U.S. trustees, and the Executive Office for U.S. Trustees is developing

software that can assist in this process.237 In addition, the judge may require the professionals themselves to provide assistance by preparing their

fee applications according to a standard, court-specified format.238 Some

judges have designated court-appointed fee examiners, creditors’ committees, budget committees, or financial employees of the debtor to review fee

applications and make recommendations.239 Some judges delegate narrow

tasks, such as categorizing elements of a request or applying clear guidelines, to a law clerk or secretary.240 Regardless of the person chosen to review the fee applications, it is important that the judge continue to exercise

his or her nondelegable duty to carefully review the fee applications before

ruling on them.

c. Relationship between fee allowance and progress in the case. Sometimes

judges presiding over complex chapter 11 cases have used their authority

over allowance of fees as a case management tool. When the parties have not

made satisfactory progress in the case, these judges have used the threat or

actual act of a fee holdback or fee moratorium to get the parties’ attention

and to encourage greater efforts.241 While the withholding of compensation

may be called for in some rare situations, it is generally not appropriate. It

punishes the earnest lawyer acting in good faith along with the obstructionist. Allowance or disallowance of fees on an individual basis is preferable.

A judge can perhaps exert a greater impact on the progress of the

case—and thus the ultimate reduction of costs—by ruling promptly on

matters brought before the court. While withholding judgment can sometimes cause the parties to reach a settlement among themselves and eliminate appeals, the judge’s decision of key issues can contribute to the progress of the parties’ negotiations. As long as the resolution of an issue

remains uncertain, the parties may be unwilling to commit themselves to a

position, and they can use the absence of that ruling as an excuse for their

 237. See 28 U.S.C. § 586(a)(3)(A) (2000); Conference on Large Chapter 11 Cases, supra

note 3, at 31.

238. See Hirsch & Sheehey, supra note 228, at 107–08 (discussing requirement that lawyers

group activities by category).

239. See Conference on Large Chapter 11 Cases, supra note 3, at 30–33; Chapter 11 Theory

and Practice, supra note 130, § 12:07; Hirsch & Sheehey, supra note 228, at 114–15.

240. See MCL 4th, supra note 3, at 207.

241. See, e.g., In re UNR Indus., Inc., 72 B.R. 796, 798 (Bankr. N.D. Ill. 1987) (referring

to the bankruptcy court’s imposition of an interim fee and expense moratorium three and a half

years into the mass tort bankruptcy case).
Judicial Management of Mass Tort Bankruptcy Cases

58

lack of progress. Because the judge cannot know all that is taking place

among the parties outside of court, he or she will generally be unable to

predict whether withholding a decision will lead to compromise rather than

stalemate. The judge’s best course therefore is to go ahead and rule on the

matters that have been properly presented.

G. Representation of Future Claimants

Undoubtedly the most challenging issue presented by mass tort bankruptcies is how the bankruptcy court should deal with future claims against the

debtor during the case and in the reorganization plan. Because most mass

tort bankruptcies are precipitated by the debtor’s desire to achieve a global

resolution of all of the tort claims that have been or will be asserted against

it, the debtor will seek to discharge not only the claims of persons who are

presently sick or injured by the debtor’s product, but also the claims of

persons who have been exposed to the offending product but have not yet

manifested any injury. The debtor may also attempt to discharge the claims

of persons who have not yet been exposed to the debtor’s product but who

will be exposed in the future and will suffer injury as a result. Judges presiding over mass tort bankruptcies have had to determine, with relatively

little statutory guidance, whether such persons who have not yet suffered

injury hold claims that may be discharged in the bankruptcy case and

whether and under what circumstances the discharge of such claims can

satisfy the requirements of due process.

Although many of the legal issues presented by the treatment of future

claims in mass tort bankruptcies have not been definitively resolved, over

time courts have developed procedures for handling future claims that have

resulted in the elimination of the debtor’s liability for these claims after

confirmation of a reorganization plan. To some extent these procedures

have been statutorily endorsed. This section reviews some of the statutory

and constitutional issues presented by the debtor’s attempt to discharge

future claims in a mass tort bankruptcy and then discusses the procedures

that courts have generally used to protect the interests of future claimants.

1. Legal issues concerning future claims

a. Do future claimants have “claims”? Judges presiding over the early

mass tort bankruptcy cases struggled over the question whether persons

who had not yet manifested any injury from exposure to the debtor’s
III. Structuring the Committees

59

product could be dealt with in the bankruptcy proceedings.242 The specific 

legal issue presented was whether such persons were “creditors” in the case

who held “claims” that, within the meaning of the Bankruptcy Code, could

be discharged at the end of the case.243 In the early cases, some courts expressed strong doubts that unknown persons who could not yet sue the

debtor under state law had claims that were cognizable in bankruptcy.

These doubts arose from an uncertainty that such persons had a “right to

payment” as required by the statutory definition of “claim,” as well as from

practical and constitutional concerns about how such persons’ rights might

be affected by the bankruptcy without their active participation in the proceedings.244 The conclusion that persons who would become sick in the

future were not currently persons with claims meant that in a liquidation,

these persons would not be eligible to participate in the distribution of assets245—a result unfavorable to future claimants—and that in a reorganization, their claims would not be subject to discharge246—a result unfavorable to the debtor and perhaps other creditors.

Eventually courts concluded that, in order for a mass tort bankruptcy

case to result in an effective reorganization of the debtor, the mass tort

 242. See, e.g., In re Amatex Corp., 755 F.2d 1034 (3d Cir. 1985) (reversing denial by bankruptcy court, affirmed by district court, of request for appointment of representative for future asbestos claimants); In re Johns-Manville Corp., 36 B.R. 743 (Bankr. S.D.N.Y. 1984) (granting

motion for appointment of future claims representative); In re UNR Indus., Inc., 29 B.R. 741

(N.D. Ill. 1983) (denying application for appointment of a future claims representative), appeal

dismissed, 725 F.2d 1111 (7th Cir. 1984).

243. The Bankruptcy Code defines “creditor” as an “entity that has a claim against the debtor

that arose at the time of or before the order for relief concerning the debtor . . . .” 11 U.S.C.

§ 101(10)(A) (2000). “Claim” is defined, in part, to mean “right to payment, whether or not such

right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” Id. § 101(5). Section 1141 provides

that the confirmation of a plan in a chapter 11 case “discharges the debtor from any debt that arose

before the date of such confirmation.” Id. § 1141(d)(1)(A). “Debt,” in turn, is defined by section

101 as “liability on a claim.” Id. § 101(12).

244. See, e.g., In re UNR Indus., Inc., 29 B.R. at 745 (“The putative claimants—who have

been exposed to asbestos some time in their lives but do not now have or do not know that they have

an asbestos-related disease—have no claims under state law, and therefore do not have claims cognizable under the Code.”); id. at 747 (“It would be impossible for one legal representative to represent adequately the claims of tens of thousands of future claimants. . . . The practical and legal problems of notifying those who the legal representative would be able to bind . . . are insurmountable.”).

245. Under 11 U.S.C. § 726(a), the U.S. trustee is directed to distribute the property of the

estate in payment of several categories of “claims.”

246. Id. §§ 1141 (specifying scope of chapter 11 discharge), 101(12) (defining “debt”).
Judicial Management of Mass Tort Bankruptcy Cases

60

claims that the debtor would face in the future could not be ignored.247

Some courts also reasoned that the bankruptcy proceedings would necessarily have an impact on these future claimants even if their claims were not

formally recognized and dealt with.248 Thus, courts began to conclude that,

at the very least, these future claimants were “parties in interest” who had a

right to be heard in the proceedings and who were entitled to representation.249 As a result, courts began appointing future claims representatives to

represent in the bankruptcy proceedings the interests of those persons who

would be injured by the debtor’s product sometime in the future. Often

left unresolved by court decision was whether at the end of the bankruptcy

the claims of these future claimants could be discharged.250 Instead, the

parties resolved the discharge issue themselves by negotiating a plan that

was accepted by most tort claimants and the future claims representative

and that required future claimants to proceed against a trust established to

pay present and future tort claims; the confirmed plan eliminated the future claimants’ rights against the reorganized debtor and related entities.

Congress partially validated the approach taken by the courts when it

amended section 524 of the Bankruptcy Code in 1994 to add subsections

(g) and (h).251 This amendment, which was limited in its application to

chapter 11 asbestos cases, authorizes courts, in connection with an order

 247. See, e.g., In re UNR Indus., Inc., 725 F.2d 1111, 1119 (7th Cir. 1984) (“If future

claims cannot be discharged before they ripen, UNR may not be able to emerge from bankruptcy

with reasonable prospects for continued existence as a going concern.”); In re Johns-Manville Corp.,

36 B.R. at 749 (“Any plan not dealing with [future claimants’] interests precludes a meaningful and

effective reorganization and thus inures to the detriment of the reorganization body politic.”).

248. See, e.g., In re Amatex Corp., 755 F.2d at 1041 (“Whether or not future claimants have

claims in the technical bankruptcy sense that can be affected by a reorganization plan, such individuals clearly have a practical stake in the outcome of the proceedings.”).

249. See, e.g., id. at 1042; In re Forty-Eight Insulations, Inc., 58 B.R. 476, 478 (Bankr. N.D.

Ill. 1986); In re Johns-Manville Corp., 36 B.R. at 749.

250. See, e.g., In re Amatex Corp., 755 F.2d at 1043 (“At this juncture, . . . we do not know

whether future claimants can or should be considered ‘creditors’ under the Code, whether constitutionally adequate notice can be provided to such a class, and how best to solve a whole host of other

problems which have not been briefed.”); In re UNR Indus., Inc., 46 B.R. 671, 676 (Bankr. N.D.

Ill. 1985) (“The determination of whether putative asbestos disease victims are creditors of these

estates, or whether their interests could be represented in these proceedings in a manner analogous

to a class action, or whether these parties would be entitled to vote on a plan of reorganization, or

whether their claims might be discharged in this bankruptcy proceeding, are all questions which can

be properly addressed after putative asbestos disease victims commence actual participation in these

cases.”); In re Johns-Manville Corp., 36 B.R. at 754 (“[I]t is unnecessary for this Court to face the

dischargeability issue at this time in order to decide whether these claimants are parties in interest.”).

251. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 111, 108 Stat. 4106,

4113–17.
III. Structuring the Committees

61

confirming a reorganization plan, to issue an injunction that requires

claimants—present and future—to proceed only against the tort claimant

trust established by the plan.252 Significantly, the amendment does not resolve the question whether previously exposed, yet currently uninjured,

persons have “claims” as defined by the Code; instead, it refers to future

“demands,” which it defines in part as demands for payment that did not

constitute claims during the bankruptcy proceedings.253 For a channeling

injunction to be valid and enforceable against future claimants, section

524(g) requires, among other things, that the court appoint during the

bankruptcy proceedings “a legal representative for the purpose of protecting

the rights of persons that might subsequently assert demands of such

kind.”254 Thus, embracing the approach previously arrived at by the

courts, the amendment provides for the appointment of future claims representatives.

Although section 524(g) provides one framework for dealing with future mass tort claims in an asbestos bankruptcy, it leaves a number of questions unanswered. First, as noted above, it fails to clarify at what point a

person exposed to a debtor’s dangerous product acquires a “claim” against

the debtor within the meaning of the Bankruptcy Code. Moreover, because

the term demand is used nowhere else in the Code, the statutory recognition that a person has or will have a demand, but presently lacks a claim,

confers on that person no legal rights of participation or substantive protection in the bankruptcy proceedings.255

Second, because of the limited applicability of section 524(g), questions remain concerning the appropriate treatment of future claims in mass

tort bankruptcies that involve a product other than asbestos, in chapter 7

liquidations, and in cases that create a payment mechanism other than a

trust having the characteristics described in that provision. Among the remaining uncertainties in such cases are the following:

• whether future claimants may participate in the bankruptcy proceedings either directly or through a court-appointed representative;

 252. 11 U.S.C. § 524(g) (2000).

253. Id. § 524(g)(4)(B), (g)(5).

254. Id. § 524(g)(4)(B)(i). For a discussion of the requirements of section 524(g), see infra

section VI.E.1.

255. See Nat’l Bankr. Rev. Comm’n, Bankruptcy: The Next Twenty Years: National Bankruptcy Review Commission Final Report 321 (1997) [hereinafter NBRC Report] (“depriving

demand holders of ‘claim’ status in the bankruptcy process strips parties with asbestos injuries of

the other protections of the Bankruptcy Code”).
Judicial Management of Mass Tort Bankruptcy Cases

62

• whether the rights of such persons may be dealt with by a reorganization plan;

• whether such persons are entitled to payment in a liquidation distribution; and

• whether the rights of such persons to proceed against the reorganized debtor and related entities may be terminated by the plan or a

court-issued injunction.256

Additionally, even in chapter 11 asbestos cases, it is unclear whether section 524(g) provides the exclusive method for dealing with future claims

or whether other methods may be used. The act amending section 524

included a provision stating that the amendment “shall not be construed to

modify, impair, or supersede any other authority the court has to issue

injunctions in connection with an order confirming a plan of reorganization.”257 But the scope of that authority was unclear before the amendment,

and uncertainties remain concerning the existence of any other authority to

enjoin future claimants.

Finally, as a statutory provision, section 524(g) does not and cannot

resolve the constitutional issues raised by the treatment of future claims in a

mass tort bankruptcy. The next section discusses some of these due process

concerns.258

b. May the rights of future claimants be affected by a mass tort bankruptcy

consistent with the requirements of due process? The touchstone of procedural

due process is the requirement that before a person’s rights can be affected

by a judicial proceeding, the person must be given notice of the proceeding

and an opportunity to be heard.259 While this entitlement to one’s day in

 256. See id. at 320–22.

257. Pub. L. No. 103-394, § 111(b), 108 Stat. 4106, 4117.

258. The Subcommittee on Mass Torts of the Judicial Conference Committee on the Administration of the Bankruptcy System issued a report in 2003 analyzing the National Bankruptcy Review Commission’s recommendations regarding mass torts. This report discusses the due process

issues presented by the inclusion of future claims in a mass tort bankruptcy case. It is reprinted as

an appendix to Georgene Vairo, Mass Tort Bankruptcies: The Who, the Why, and the How, 78 Am.

Bankr. L.J. 93, 131–50 (2004). See also Laura B. Bartell, Due Process for the Unknown Future

Claim in Bankruptcy—Is This Notice Really Necessary?, 78 Am. Bankr. L.J. 339 (2004).

259. See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950) (“Many

controversies have raged about the cryptic and abstract words of the Due Process Clause but there

can be no doubt that at a minimum they require that deprivation of life, liberty or property by adjudication be preceded by notice and an opportunity for hearing appropriate to the nature of the

case.”).
III. Structuring the Committees

63

court is subject to some exceptions,260 the constitutionality of an attempt to

affect the legal rights of thousands of future mass tort claimants in a bankruptcy proceeding is far from obvious. Until the Supreme Court definitively addresses these due process concerns, they will lurk in the shadows

of any mass tort bankruptcy resolution that terminates the rights of future

claimants to proceed against any entities they believe are responsible for

their injuries and that confines their collective recovery to an amount established without their consent or participation.

One of the unresolved due process issues is whether constitutionally

adequate notice can be provided to future claimants. The Supreme Court

has given conflicting signals. In Mullane v. Central Hanover Bank & Trust

Co.,261 the Court took a pragmatic approach to the notice requirement. It

recognized that due process does not require personal notice to every person

whose rights might be affected by a judicial proceeding, and it found that

in situations in which no form of notice is “reasonably certain to inform

those affected,” due process is satisfied if “the form chosen is not substantially less likely to bring home notice than other of the feasible and customary substitutes.”262 Thus, the Court held in Mullane that notice by publication in a single newspaper was sufficient with respect to “beneficiaries

whose interests or addresses are unknown to the trustee.”263 The Court’s

conclusion relied in part on the belief that “notice reasonably certain to

reach most of those interested in objecting is likely to safeguard the interests

of all, since any objection sustained would inure to the benefit of all.”264

However, it will frequently be unlikely that any form of notice will be

“reasonably certain to reach most” future mass tort claimants. As the Supreme Court itself stated in Amchem Products, Inc. v. Windsor in the context of class action notice:

Many persons in the exposure-only category . . . may not even know of their

exposure, or realize the extent of the harm they may incur. Even if they fully

appreciated the significance of class notice, those without current afflictions

 260. See Ortiz v. Fibreboard Corp., 527 U.S. 815, 846 (1999) (discussing as exceptions to 

the day-in-court requirement lawsuits in which a non-party is “represented by someone with the

same interests who is a party” and “special remedial scheme[s] . . . expressly foreclosing successive

litigation by nonlitigants”).

261. 339 U.S. 306 (1950).

262. Id. at 315.

263. Id. at 318.

264. Id. at 319.
Judicial Management of Mass Tort Bankruptcy Cases

64

may not have the information or foresight needed to decide, intelligently,

whether to stay in or opt out.

265

Thus, the Court stated in Amchem that it “recognize[d] the gravity of the

question whether class action notice sufficient under the Constitution and

Rule 23 could ever be given to legions so unselfconscious and amorphous.”266 Whether it is possible to provide constitutionally adequate notice to future claimants in the bankruptcy context similarly remains an

open question.

Most commentators who have supported the treatment of future claims

in mass tort bankruptcies have concluded that the appointment of a future

claims representative, not merely notice, is the key to satisfying due process.267 As previously noted, the traditional practice in mass tort bankruptcies involving future claimants has been for the court to appoint a representative for the future claimants. The person appointed then participates in

plan negotiations, appears in court, and raises objections on behalf of those

persons who may in the future manifest injuries as a result of the debtor’s

prepetition conduct. Does the appointment of such a representative, in addition to the provision of constructive notice, suffice to satisfy due process?

Again, the issue is unresolved.

Several factors give rise to this constitutional uncertainty. First is the

relatively unprecedented nature of the future claims representative’s relationship with the persons represented. The court appoints the future

claims representative without the consent of the class of persons represented; thus, the representative is not like a true agent acting on a principal’s behalf.268 Nor is the representative like a guardian appointed for a

minor or incompetent, since most of the persons represented possess the

legal capacity to appear on their own behalf.269 Moreover, unlike the named

plaintiffs in a class action, the representative is invariably a lawyer who does

not claim to be threatened with the same injury that the future claimants

face. Accordingly, there is no similarity of interests so as to ensure “‘that the

 265. 521 U.S. 591, 628 (1997).

266. Id.

267. See, e.g., NBRC Report, supra note 255, at 329–34; Kathryn R. Heidt, Future Claims in

Bankruptcy: The NBC Amendments Do Not Go Far Enough, 69 Am. Bankr. L.J. 515, 515 (1995);

Resnick, supra note 46, at 2079.

268. See Frederick Tung, The Future Claims Representative in Mass Tort Bankruptcy: A Preliminary Inquiry, 3 Chap. L. Rev. 43, 59 (2000).

269. But see Bartell, supra note 258, at 355–67 (arguing that future mass tort claimants are

“functionally incompetent” for purposes of the bankruptcy case and thus the future claims representative is similar to a guardian ad litem).
III. Structuring the Committees

65

interests of the class members will be fairly and adequately protected in

their absence.’”270

In addition, due process concerns might be raised about possible conflicts of interest within the class of future claimants. In other representational situations, the Supreme Court has insisted on a careful alignment

between the interests of the representative and the interests of those represented and has prohibited the grouping together of class members with

potentially adverse interests.271 A similar insistence in the bankruptcy context might require, contrary to the prevailing practice, that more than one

future claims representative be appointed so that, for example, the interests

of seriously injured future claimants can be advocated separately from the

interests of those who will suffer minor injury or assert weak legal claims.272

Finally, even if the appointment of a representative is sufficient in theory to satisfy the demands of due process, attention must be given to the

quality of representation under current practice. In particular, it has been

suggested that the representatives appointed in most mass tort cases have

acted less as zealous advocates for the future claimants and more as honest

brokers striving for a reorganization.273 However, it should be recognized

that a future claims representative may properly conclude that a successful

reorganization, rather than a chapter 7 liquidation, is in the best interests of

the future claimants.

Discussion of these legal issues concerning future claims is not meant

as a prediction that the Supreme Court will one day prohibit their inclusion in the resolution of a mass tort bankruptcy. Instead, it is possible that

the Court will eventually rule that the commands of due process are sufficiently flexible to accommodate what may be the best and fairest means

available for resolving a mass tort. In the meantime, however, judges presiding over mass tort bankruptcies do not have the luxury of waiting for

 270. Amchem, 521 U.S. at 626 n.20 (quoting Gen. Tel. Co. of Southwest v. Falcon, 457 U.S.

147, 157–58 n.13 (1982)).

271. See id. at 625–28; Ortiz v. Fibreboard Corp., 527 U.S. 815, 856–57 (1999).

272. See S. Elizabeth Gibson, A Response to Professor Resnick: Will This Vehicle Pass Inspection?, 148 U. Pa. L. Rev. 2095, 2114–15 (2000); see also In re Combustion Eng’g, Inc., 391 F.3d

190, 244 (3d Cir. 2004) (noting that “non-malignant claimants” may have interests “adverse to 

those of claimants with more severe injury”).

273. See Tung, supra note 268, at 70–71 (“A judge—and certainly parties in interest—might

be less interested in finding a person to provide zealous representation for future claimants than one

who understands the paramount goal of reorganization. The ideal candidate may be one who will

provide ‘adequate’ representation, understanding and subscribing to the ultimate aim of reorganizing the debtor.”).
Judicial Management of Mass Tort Bankruptcy Cases

66

these difficult legal issues to be finally resolved. They have to proceed with

the cases before them, drawing on the practices developed in earlier cases

while being mindful of the constitutional, statutory, and practical issues

presented by any effort to include the future claims within the bankruptcy

resolution.

2. Appointment of future claims representatives

Because neither the Bankruptcy Code nor the Bankruptcy Rules set forth

any procedures for the appointment of a future claims representative, courts

and parties have had to devise them for themselves on a case-by-case basis.

Typically, the debtor initiates the process by filing a motion requesting that

the court appoint a future claims representative.274 Occasionally, other participants in the bankruptcy have requested the appointment.275 In chapter

11 reorganization cases in which it appears that the debtor faces significant

tort liability long into the future based on its prebankruptcy activity, the

appointment of a future claims representative has become the standard

practice.276 In contrast, the request for such an appointment in a mass tort

liquidation277 or in a case in which the existence of future tort liability is

disputed278 is likely to provoke opposition from parties already represented

in the bankruptcy, and the judge will need to conduct a hearing before de-

 274. See, e.g., In re Amatex Corp., 755 F.2d 1034, 1036 (3d Cir. 1985) (referring to the

debtor’s application for the appointment of a guardian ad litem to represent future asbestos claimants on all issues before the court); In re UNR Indus., Inc., 46 B.R. 671, 673 (Bankr. N.D. Ill.

1985) (referring to the debtors’ application for a legal representative for unknown putative asbestosrelated claimants).

275. See, e.g., Locks v. U.S. Tr., 157 B.R. 89, 90 (W.D. Pa. 1993) (referring to a motion for

the appointment of a future claims representative filed by a plaintiffs’ attorney who was a member of

the unsecured creditors’ committee); In re Johns-Manville Corp., 36 B.R. 743, 744 (Bankr.

S.D.N.Y. 1984) (referring to a motion filed by Keene Corp., a codefendant of the debtor, to appoint a legal representative for asbestos-exposed future claimants).

276. See, e.g., Tung, supra note 268, at 55 (describing the appointment of a future claims representative as an element of the “traditional approach” of mass tort bankruptcies).

277. In the H.K. Porter asbestos bankruptcy, for example, which was a chapter 11 liquidation,

the bankruptcy court initially denied a motion to appoint a future claims representative, which was

filed by a member of the unsecured creditors’ committee. See Locks, 157 B.R. at 91. The district

court affirmed the denial, holding that “appointment of a Futures representative is not mandatory in

a Chapter 11 liquidation . . . [due to] the divergent goals of liquidations versus reorganizations

. . . .” Id. at 96. Eventually, however, the bankruptcy court acted sua sponte and ordered the appointment of such a representative. In re H.K. Porter Co., 156 B.R. 16 (Bankr. W.D. Pa. 1993).

278. See In re Dow Corning Corp., 211 B.R. 545, 598 n.55 (Bankr. E.D. Mich. 1997) (discussing the denial of a motion to appoint a representative for future breast implant claimants on the

ground that all such claimants were aware of their implants and thus were present, not future, claimants).
III. Structuring the Committees

67

ciding whether to order the appointment. The judge’s decision should be

based on an assessment of the likely impact the bankruptcy will have on

persons who in the future will suffer injuries of the same nature as those of

the present tort claimants.

Unlike the appointment of creditors’ committees, for which the U.S.

trustee is given the primary responsibility, the appointment of a future

claims representative rests with the court. Although some judges have designated persons of their own choosing to serve as future claims representatives,279 generally judges have looked to the U.S. trustee to present names of

qualified individuals, usually after seeking suggestions from the debtor and

creditors’ committees.280 In deciding whom to appoint, judges should look

for persons with the training and experience needed to deal competently

with the tort, bankruptcy, corporate, financial, and constitutional issues

that will be involved in representing the interests of future claimants. To

avoid conflicts of interest, judges should limit their appointments to persons who do not represent any current claimants.281

3. Role of the future claims representative in the bankruptcy case

Although the Bankruptcy Code provides in some circumstances for the

appointment of a future claims representative, it does not specify what role

such a representative is to play in the bankruptcy proceedings, other than

by its provision that refers to “protecting the rights of persons that might

subsequently assert demands of such kind.”282 Because no other provision

of the Code deals with the future claims representative’s participation in the

proceedings, the way in which the representative protects the rights of future claimants has evolved through practice. The National Bankruptcy Review Commission sought to formalize the rights and duties of future

claims representatives. Its 1997 report called for amendments to the Code

that would allow future claims representatives to file claims on behalf of

classes of future mass tort claimants, cast votes on reorganization plans on

 279. See Richard B. Sobol, Bending the Law 110 (1991) (describing the district judge’s selection of the future claims representative appointed in the A.H. Robins bankruptcy case).

280. See, e.g., In re H.K. Porter Co., 156 B.R. at 19; In re Forty-Eight Insulations, Inc., 58

B.R. 476, 478 (Bankr. N.D. Ill. 1986); In re UNR Indus., Inc., 46 B.R. at 677.

281. See Ortiz v. Fibreboard Corp., 527 U.S. 815, 856 (1999) (“[I]t is obvious after Amchem that a class divided between holders of present and future claims . . . requires division into 

homogeneous subclasses . . ., with separate representation to eliminate conflicting interests of counsel.”); NBRC Report, supra note 255, at 333 n. 825 (“This tension between present and future

claimants is what also precludes the use of one representative for both groups.”).

282. 11 U.S.C. § 524(g)(4)(B)(i) (2000).
Judicial Management of Mass Tort Bankruptcy Cases

68

behalf of the future claimants, and exercise all of the powers of a creditors’

committee.283 The proposed legislation was not enacted, however, leaving

the role that the future claims representative is to play in the case for the

court and parties to determine.

The primary role of the future claims representative in cases to date has

been that of a negotiator.284 Gaining the assent of the representative has

been essential for arriving at a consensual plan of reorganization. Typically

the debtor, the tort claimants’ committee, the future claims representative,

and the unsecured creditors’ committee negotiate, in varying combinations,

in an effort to arrive at an agreement concerning the ratio of tort debt to

other unsecured debt; the division of tort debt between present and future

claims; the terms for liquidation and payment of the tort claims; the percentage of payment for unsecured claims; and the amount, if any, to be

provided to equity.285 In cases in which the parties have not been able to

reach agreement, future claims representatives have participated in claims

estimation hearings, presenting their own experts concerning the value of

the future claims.286

Contrary to the practices called for by the National Bankruptcy Review

Commission, future claims representatives have not filed claims or voted

on plans on behalf of the future claims they represent. Instead, their influence in the case has come through their persuasive abilities (both in court

and in negotiations) and the likely concerns of other parties about the feasibility and legitimacy of confirming a plan to which the future claims representative objects. There is evidence that this potential veto power, as well as

the representative’s advocacy in court, has resulted in the improved treatment of future claimants in some reorganization plans.287

 283. NBRC Report, supra note 255, at 329–30.

284. See, e.g., Tung, supra note 268, at 44 (describing the future claims representative’s

“mandate” as “to negotiate on behalf of future claimants”).

285. See, e.g., In re UNR Indus., Inc., 212 B.R. 295, 298 (Bankr. N.D. Ill. 1997) (describing the negotiation history of the UNR asbestos bankruptcy); Gibson, supra note 64, at 90–91

(describing the negotiation history of the Eagle-Picher asbestos bankruptcy).

286. See, e.g., In re A.H. Robins Co., 88 B.R. 742, 747 (E.D. Va. 1988), aff’d sub nom.

Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989) (describing the

evidence presented at the claims estimation hearing by the expert for the future claims representative); In re Eagle-Picher Indus., Inc., 189 B.R. 681, 687–88 (Bankr. S.D. Ohio 1995) (same).

287. See, e.g., In re Nat'l Gypsum Co., 219 F.3d 478, 481 (5th Cir. 2000) (referring to the

future claims representative’s successful objection to a permanent injunction that would have prevented future claimants from seeking recovery from the debtor’s successor); Gibson, supra note 64,

at 208–09 (describing the successful efforts of the future claims representative in the A.H. Robins
III. Structuring the Committees

69

One commentator has raised concerns that because future claims representatives are appointees of the court whose appointments have been sought

and names suggested by other parties, they are more likely to take on the

role of honest brokers seeking consensual reorganizations than that of zealous advocates for the interests of future claimants.288 A judge appointing a

future claims representative can diminish such concerns about adequacy of

representation in a number of ways. First, in selecting the person to be appointed, the judge should value qualifications and experience that indicate

the person’s ability to be an effective advocate over those that indicate that

the person was a team player in earlier cases. When a potential future

claims representative has previously served in that capacity, the judge

should consider the results the representative achieved for his or her constituents in the prior case. Second, for the representative to be effective, the

court needs to define the class of persons represented as clearly as possible.

The court needs to answer such questions as

• Is the future claims representative expected to act on behalf of persons injured only by a certain type of product manufactured by the

debtor, or persons injured by multiple products?

• Is the representative acting on behalf of only persons exposed to the

product prior to plan confirmation or on behalf of those exposed

later as well?

• Is the representative expected to represent those who will suffer only

slight or questionable injury as well as those who will be able to

demonstrate serious injury?

Finally, the representative needs to be equipped to represent the constituency of future claimants with the same expertise as the creditors’ committees possess. Thus, despite the additional costs, the court should authorize

the future claims representative to hire counsel and financial experts as appropriate for the needs of the case.

 bankruptcy to amend the proposed plan to allow payment for future claimants who did not file a

claim in the bankruptcy proceedings by the bar date).

288. See Tung, supra note 268, at 70–71.
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IV. Handling the Tort Claims

A. Overview

Part IV addresses issues presented by the vast numbers of tort claims that

must be dealt with in the bankruptcy case:

• Establishment of a bar date: Is the court required to set a bar date for

the filing of proofs of claim by the tort claimants, and is there any

reason not to do so? What considerations go into the selection of a

bar date for the tort claims?

• Information to be provided in tort claimants’ proofs of claim: Should

the court approve a special proof of claim form for tort claimants in

place of the official form? If so, how much information should a

claimant have to provide?

• Notice of the bar date: What are the due process requirements with

respect to providing notice of the bar date to the tort claimants?

How as a practical matter is it accomplished? What should the court

consider in ruling on the sufficiency of a notice plan?

• Resolution of causation and other liability issues: If the debtor objects

to large numbers of tort claims on the ground that it is not liable

for the claimants’ alleged injuries, when and how should these defenses be resolved? How can the court feasibly rule on thousands of

objections? Can the objections be resolved on an aggregated basis?

Under what circumstances can a judicial resolution be avoided?

• Estimation of tort claims: Does the bankruptcy judge have authority

to estimate the value of personal injury tort claims? Does the statute

authorize the estimation of the total tort liability? How can an accurate value be placed on present and future unliquidated tort claims?

Should the claims estimation process be used as a means of litigating causation and other liability issues? Under what circumstances

can a judicial estimation proceeding be avoided? How can the court

assist the parties in negotiating an estimated value of the tort claims?

• Use of court-appointed experts and advisors: What authority does a

bankruptcy judge have to appoint an expert or advisor to provide

assistance in a mass tort bankruptcy case? What role may such an

expert play? What procedural protections must the judge provide

in appointing and communicating with its expert or advisor?
Judicial Management of Mass Tort Bankruptcy Cases

72

B. Establishment of a Bar Date

Most of the tort claims in a mass tort bankruptcy are unliquidated and disputed by the debtor; accordingly, the Bankruptcy Code requires the holders of these claims to file proofs of claim in order for their claims to be allowed.289 The debtor will ask the court to establish a bar date for the filing

of these proofs of claim, and any claims filed after that date will be disallowed. The tort claimants’ committee often opposes such a request as being

unnecessary or unfair.290 Although judges presiding over some of the earliest asbestos bankruptcies declined to establish a bar date for the personal

injury tort claims,291 courts in some subsequent cases have imposed a bar

date for all present personal injury claims, that is, those held by persons

with manifest injuries, or for property damage claims, or for both.292

Federal Rule of Bankruptcy Procedure 3003(c)(3) provides that in a

chapter 11 case, the “court shall fix and for cause shown may extend the

time within which proofs of claim or interest may be filed.” It thus appears

from the rule’s language that the imposition of a bar date is mandatory.

Some courts, however, have read the rule as not imposing an absolute requirement on the court, but as creating “something in the nature of a presumption that a bar date will be set,”293 which can be overcome “upon good

cause shown” for not setting a bar date.294

Courts imposing a bar date have justified its establishment in chapter

11 cases on the ground that it promotes certainty as to the identity of the

 289. 11 U.S.C. § 1111(a) (2000) (stating that a claim that is scheduled as disputed, contingent, or unliquidated is not “deemed filed”); id. § 502(a) (stating that a claim, proof of which is

filed, is “deemed allowed” unless an objection is made).

290. See, e.g., In re Babcock & Wilcox Co., No. 00-0558, slip op. at 3 (E.D. La. Aug. 25,

2000); In re Eagle-Picher Indus., Inc., 137 B.R. 679, 680 (Bankr. S.D. Ohio 1992). See also infra

text accompanying notes 296–97.

291. See, e.g., Kane v. Johns-Manville Corp., 843 F.2d 636, 641 (2d Cir. 1988) (explaining

that a combined proof of claim and voting form was used for asbestos health claims “only for voting”); In re UNR Indus., Inc., 71 B.R. 467, 476 n.21 (Bankr. N.D. Ill. 1987) (discussing action

that could have been taken “[h]ad a bar date for the filing of claims been set in these proceedings”)

(emphasis added).

292. See, e.g., Vancouver Women’s Health Collective Soc’y v. A.H. Robins Co., 820 F.2d

1359, 1360 (4th Cir. 1987); Notice of Bar Date . . . For Filing Proofs of Claim on Account of

Damage Caused by Asbestos to Property in the U.S. & Canada, In re Federal-Mogul Global, Inc.,

No. 01-10578 (Bankr. D. Del. June 13, 2002); In re Babcock & Wilcox Co., No. 00-0558, slip

op. at 7–8 (E.D. La. Oct. 30, 2000); In re Dow Corning Corp., 211 B.R. 545, 554 (Bankr. E.D.

Mich. 1997); In re Celotex Corp., 204 B.R. 586, 593 (Bankr. M.D. Fla. 1996); In re EaglePicher Indus., Inc., 137 B.R. at 681.

293. See, e.g., In re Eagle-Picher Indus., Inc., 137 B.R. at 681.

294. Id. at 680.
IV. Handling the Tort Claims

73

creditors participating in the bankruptcy and the nature of their claims. As

the Second Circuit has explained,

A bar order serves the important purpose of enabling the parties to a bankruptcy case to identify with reasonable promptness the identity of those

making claims against the bankruptcy estate and the general amount of the

claims, a necessary step in achieving the goal of successful reorganization. To

be sure, the amount of the claims may not be finally determined until adversary proceedings have been concluded, but establishing the identities and interests of the participants so that the claims-allowance process may begin is

an essential function served by a bar order. Thus, a bar order does not “function merely as a procedural gauntlet,” but as an integral part of the reorganization process.

295

Representatives of tort claimants have opposed bar orders in mass tort

bankruptcies on the ground that the filing in the bankruptcy case of proofs

of claim by a specified date is unnecessary because tort claimants will eventually be paid pursuant to a trust mechanism with its own filing requirements, rather than directly from the bankruptcy estate.296 They have also

argued that the establishment of such a deadline for the filing of claims will

result in the inequitable exclusion from payment of deserving claimants.297

Even though payment of tort claimants will eventually be made according

to procedures set up by the trust, identifying the universe of present tort

claimants in the bankruptcy case serves two important purposes: It provides a starting point for placing an aggregate value on the present claims,

and it permits identification of those persons who will be eligible to vote on

the reorganization plan.298 Moreover, imposing a deadline for filing, when

applied only to present claimants, is no more inequitable than a statute of

limitations or any other deadline that a litigant must observe in order to

preserve his or her rights.299

When a judge issues a bar order in a mass tort bankruptcy case, the

judge must take several factors into account in selecting the date by which

claims must be filed. First, the judge must consider the amount of time

that will be required to get notice of the bar date to potential claimants. The

judge therefore will not be able to set a specific bar date until he or she ap-

 295. First Fid. Bank, N.A. v. Hooker Invs., Inc. (In re Hooker Invs., Inc.), 937 F.2d 833,

840 (2d Cir. 1991).

296. See, e.g., In re Babcock & Wilcox Co., No. 00-0558, slip op. at 5–6 (E.D. La. Aug. 25,

2000); In re Eagle-Picher Indus., Inc., 137 B.R. 679, 681 (Bankr. S.D. Ohio 1992).

297. See, e.g., In re Eagle-Picher Indus., Inc., 137 B.R. at 681.

298. See, e.g., In re Babcock & Wilcox Co., slip op. at 6–8.

299. See, e.g., In re Eagle-Picher Indus., Inc., 137 B.R. at 682.
Judicial Management of Mass Tort Bankruptcy Cases

74

proves the debtor’s notice plan. This consideration may lead the judge to

select a later bar date for the personal injury claims than for the other

claims, because of their large number and geographic dispersion.300 Moreover, U.S. claimants may be required to file sooner than claimants in other

countries.301 The judge also needs to consider the urgency of the need for

information about the universe of tort claims. A judge, for example, might

impose an earlier bar date for tort claims than for other claims in order to

facilitate the parties’ negotiations over the value of the tort claims. Finally,

the judge needs to take into account the amount of information that the tort

claimants will be required to provide in their proofs of claim. If, as discussed below,302 the court requires claimants to provide supporting information—such as diagnoses, medical reports, and work histories—in addition to the basic information on the official form,303 it will need to give

claimants greater time to complete and file their proofs of claim.304

Imposition of a bar date does not necessarily mean that all claims filed

after that date will be disallowed. Individual tort claimants seeking to file

late claims may argue that their failure to file was due to excusable neglect.

Relying on the factors articulated by the Supreme Court in Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership—“the danger

of prejudice to the debtor, the length of the delay and its potential impact

on judicial proceedings, the reason for the delay, including whether it was

within the reasonable control of the movant, and whether the movant acted

in good faith”305—the judge will have to decide whether the creditor has

made a sufficient showing to justify the tardy filing.306 The judge may also

determine that there is cause to allow a particular category of tort claims—

 300. See, e.g., In re Celotex Corp., 204 B.R. 586, 592–593 (Bankr. M.D. Fla. 1996) (stating

that the general claims bar date was Aug. 25, 1992, the asbestos property damage bar date was July

29, 1993, and the asbestos bodily injury bar date was Mar. 15, 1996).

301. See, e.g., In re Dow Corning Corp., 211 B.R. 545, 554 (Bankr. E.D. Mich. 1997)

(stating that the bar date for U.S. claimants was Jan. 15, 1997, and for foreign claimants, it was Feb.

14, 1997).

302. See infra section IV.C.

303. Official Bankr. Form 10.

304. See, e.g., In re Babcock & Wilcox Co., No. 00-0558, slip op. at 29 (E.D. La. Aug. 25,

2000) (rejecting debtor’s request for a bar date five months from the bar date order and imposing a

bar date nine months from the order “because of the extent of the information to be supplied, the

large number of claims, and because a small number of law firms represents thousands of claimants”).

305. 507 U.S. 380, 395 (1993).

306. In Pioneer, the Court explained that whether excusable neglect for a late filing exists within

the meaning of Bankruptcy Rule 9006(b)(1) is ultimately an equitable determination. Id. at 395.
IV. Handling the Tort Claims

75

for example, those based on injury becoming manifest after the bar date

but before plan confirmation—to be filed after the deadline.307

C. Information To Be Provided in Tort Claimants’ Proofs

of Claim

The Bankruptcy Code provides for creditors’ filing of proofs of claim308

but is silent as to the information that must be provided. That issue is governed by Federal Rule of Bankruptcy Procedure 3001(a), which states that

a proof of claim “is a written statement setting forth a creditor’s claim.” The

rule provides that a proof of claim “shall conform substantially to the appropriate Official Form,” which at the present time is Official Bankruptcy

Form 10. That one-page form calls for basic information about the identity

of the creditor and the nature, basis, and amount of the claim. It also requires the attachment of copies of supporting documents.

Most creditors who file a proof a claim, then, merely have to fill out a

few lines on a form, check a few information boxes, and attach a document

or two. Upon filing that form with the court, they have done all that they

need to do to have an allowed claim in the bankruptcy.309 In a mass tort

bankruptcy case, however, the debtor is likely to ask the court to require the

submission of a more detailed proof of claim by the mass tort claimants.

The debtor will argue that it needs more information than is required by

Official Bankruptcy Form 10 in order to assess the validity of each tort

claim. In ruling on such a request, the judge will have to determine

whether and to what extent Rule 3001(a) permits the court to impose such

special proof of claim requirements on mass tort claimants.

In a number of mass tort bankruptcy cases, courts have approved

debtors’ requests for special forms for proofs of claim. The length of these

forms and the amount of information required of the tort claimants have

varied. In the A.H. Robins case, the district court devised a two-step claimsfiling process.310 First, claimants were required to file a statement with the

 307. See, e.g., Order Confirming Amended Joint Plan of Reorganization as Modified at 5, In

re Dow Corning Corp., No. 95-20512 (Bankr. E.D. Mich. Nov. 30, 1999), aff’d, 255 B.R. 445

(E.D. Mich. 2000), rev’d in part on other grounds, 280 F.3d 648 (6th Cir. 2002).

308. 11 U.S.C. § 501 (2000).

309. See 11 U.S.C. § 502(a) (2000) (“A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed unless a party in interest . . . objects.”); Fed. R. Bankr. P.

3001(f) (“A proof of claim executed and filed in accordance with these rules shall constitute prima

facie evidence of the validity and amount of the claim.”).

310. In re A.H. Robins Co., 862 F.2d 1092, 1093 (4th Cir. 1988).
Judicial Management of Mass Tort Bankruptcy Cases

76

court that provided the claimant’s name and address and indicated that the

claimant was “‘making a Dalkon Shield claim.’”311 Then, the court sent to

all persons who had filed the required statement of claim by the deadline a

two-page questionnaire that requested basic identification information and

information about the claimant’s use of the Dalkon Shield, including the

dates of insertion and removal of the device, the nature of the injuries allegedly suffered, and the names of physicians and clinics consulted. The

claimant was not required to submit any medical records or physician

statements with the completed questionnaire.312

In the Babcock & Wilcox bankruptcy case, the district judge approved a

three-page proof of claim form for asbestos personal injury claimants that

was accompanied by six pages of instructions.313 The form required a

claimant to provide identifying information; medical information, including specification of the type of asbestos-related injury alleged, year of diagnosis, and lung test results; and information concerning the claimant’s history of exposure to asbestos from equipment manufactured by the debtor.

The claimant was also required to attach copies of all diagnostic reports

supporting the claimed asbestos-related medical condition.314

As a final example, in the Federal-Mogul case, the bankruptcy court

approved a special proof of claim form for asbestos property damage

claims.315 This three-page form, accompanied by three pages of instructions, requested information about each building or site that was the basis

of an asbestos property damage claim, the type and brand name of the asbestos-containing product installed there, the dates of installation and removal of that product, and the damages incurred as a result. The claimant

was also required to attach copies of all supporting documents, such as

“purchase orders, invoices, contracts, specifications, architectural drawings,

appraisals, environmental reports, [and] product samples or test results.”316

 311. Id. (quoting the notice to claimants approved by the district court).

312. Id.

313. Order Regarding Debtors’ Motion for Entry of an Order Establishing a Bar Date, Approving the Proof of Claim Form, and Approving the Form and Manner of Notice, In re Babcock

& Wilcox Co., No. 00-0558 (E.D. La. Oct. 30, 2000).

314. Id. at Ex. B.

315. Order (A) Establishing Bar Date for Filing Proofs of Claim on Account [of] AsbestosRelated Damage to Property Located in the United States and Canada; (B) Approving Proposed

Proof of Claim Form for Such Asbestos-Related Property Damage Claims; and (C) Approving

Scope and Manner of Notice of Bar Date for Asbestos-Related Property Damage Claims, In re

Federal-Mogul Global, Inc., No. 01-10578 (Bankr. D. Del. June 4, 2002).

316. Id. at Ex. C.
IV. Handling the Tort Claims

77

If those documents were too voluminous to attach, the claimant could instead provide a summary of the documents, including an indication of

their location, and a consent to their production upon request by the

debtor.317

For a judge to authorize the use of a special proof of claim form for

mass tort claimants, he or she must conclude both that the Official Form

10 is inappropriate for the types of claims those creditors hold—thus justifying a departure from the norm—and that the special form “conform[s]

substantially to the . . . Official Form.”318 Form 10 requires that, in order

to set forth the basis for a claim, a creditor check the appropriate box describing the nature of the claim (such as “Personal injury/wrongful

death”). Form 10 also states that the creditor “must attach to this proof of

claim form copies of documents that show the debtor owes the debt

claimed.”319 The form provides an illustrative list of the types of documents

called for: “promissory notes, purchase orders, invoices, itemized statements of running accounts, contracts, court judgments, mortgages, security

agreements, and evidence of perfection of lien.”320 Because mass tort claims

rarely lend themselves to documentary proof of this type, a judge might

reasonably conclude that a more specific request for information is appropriate.

If a judge does authorize the use of a special claim form designed specifically for mass tort claims, he or she should ensure that the task of supplying the requested information does not impose an undue burden on the

tort claimants. To conform substantially to Official Form 10, the special

claim form should elicit basic information about the nature and basis of the

claim without creating an obstacle that will discourage persons from filing

legitimate claims. As did the district judge in In re Babcock & Wilcox,321

the judge should consider each of the non-standard requests for information in the proposed claim form and weigh the need for that information

against the claimant’s burden of producing it. A proof of claim is not the

exclusive means by which a debtor can obtain information about a creditor’s claim; discovery is also available.322 A proof of claim is, however, the

 317. Id.

318. Fed. R. Bankr. P. 3001(a).

319. Official Bankr. Form 10 (Instructions for Proof of Claim Form).

320. Id. at item 8.

321. In re Babcock & Wilcox, No. 00-0558, slip op. at 19–27 (E.D. La. Aug. 25, 2000).

322. See Fed. R. Bankr. P. 9014(c) (making discovery rules applicable to contested matters

unless the court otherwise directs); Fed. R. Bankr. P. 2004 (authorizing the examination of any
Judicial Management of Mass Tort Bankruptcy Cases

78

exclusive means by which a claimant with a disputed or unliquidated claim

becomes eligible for participation in the bankruptcy case.323 The judge

should therefore guard against an overzealous attempt at information gathering at this stage of the case.

D. Notice of the Bar Date

If the court imposes a bar date, failure to file a proof of claim by the deadline will generally lead to the disallowance of an unscheduled or unliquidated tort claim324 and ultimately to the claim’s discharge without payment.325 Due process therefore requires that the debtor give tort claimants

adequate notice of the bar date and of their need to file a proof of claim.326

In mass tort bankruptcy cases, which may involve hundreds of thousands

of claimants dispersed throughout the United States or even throughout the

world, compliance with this constitutional requirement will be costly. The

court nevertheless should ensure that the debtor’s plan for providing notice

of the bar date to tort claimants, many of whom will be unknown to the

debtor, fully satisfies the requirements of due process enunciated by the

Supreme Court.

The leading decision on the due process requirement of notice is Mullane v. Central Hanover Bank & Trust Co.,327 which the Supreme Court

issued in 1950 and has relied on ever since.328 The Court held that “[a]n

elementary and fundamental requirement of due process in any proceeding

which is to be accorded finality is notice reasonably calculated, under all the

circumstances, to apprise interested parties of the pendency of the action

and afford them an opportunity to present their objections.”329 In very

 entity relating to the liabilities of the debtor or to any matter that may affect the administration of the

debtor’s estate).

323. See 11 U.S.C. § 1111(a) (2000) (stating that a claim that is scheduled as disputed, contingent, or unliquidated is not “deemed filed”); id. § 502(a) (stating that a claim, proof of which is

filed, is “deemed allowed” unless an objection is made).

324. See id. § 502(b)(9).

325. See id. § 1141(d)(1)(A).

326. In re Babcock & Wilcox, slip op. at 9–10; Waterman S.S. Corp. v. Aguiar (In re Waterman S.S. Corp.), 157 B.R. 220, 221 (S.D.N.Y. 1997); Bailey v. Jamesway Corp. (In re Jamesway Corp.), Nos. 95 B 44821, 96/8389A, 1997 WL 327105, at *8 (Bankr. S.D.N.Y. June 12,

1997).

327. 339 U.S. 306 (1950).

328. See, e.g., Dusenbery v. United States, 534 U.S. 161, 168 (2002) (“Since Mullane was

decided, we have regularly turned to it when confronted with questions regarding the adequacy of

the method used to give notice.”).

329. Mullane, 339 U.S. at 314.
IV. Handling the Tort Claims

79

pragmatic terms, the Court explained that “[t]he means employed [for

providing notice] must be such as one desirous of actually informing the

absentee might reasonably adopt to accomplish it.”330 How that task is actually carried out depends upon whether the person to be notified is someone

“whose interests or addresses are [known or] unknown” to the person required to give notice.331 In Mullane, the Court held that it was constitutionally insufficient to provide notice by publication to present beneficiaries

with addresses known by the trustee. These beneficiaries were required to

be notified directly by mail.332 In contrast, with respect to persons whose

identities, interests, or addresses were unknown, the Court held that due

process was satisfied if “the form chosen [to provide notice was] not substantially less likely to bring home notice than other of the feasible and customary substitutes.”333 Thus, even if notice by publication most likely will

not reach the intended recipient, such notice is constitutionally sufficient so

long as “it is not reasonably possible or practicable to give more adequate

warning.”334

Following this instruction from the Supreme Court, debtors in mass

tort bankruptcies have mailed bar date notices directly to potential claimants whose names and addresses were known to them, as well as to plaintiffs’ attorneys involved in the litigation.335 Because of prior litigation and

settlement efforts, these debtors already had the names and addresses of

thousands of such claimants. In some cases the list of known claimants was

augmented by names supplied by plaintiffs’ attorneys upon the court’s

direction.336 Although mailing notices to large numbers of tort claimants is

costly, it does not generally involve any logistical or legal difficulties.

The provision of notice to the universe of unknown potential tort

claimants, however, is a much more complex and costly endeavor. In the

 330. Id. at 315.

331. Id. at 318.

332. Id.

333. Id. at 315.

334. Id. at 317.

335. See, e.g., Order Regarding Debtors’ Motion for Entry of an Order Establishing a Bar

Date, Approving the Proof of Claim Forms, and Approving the Form and Manner of Notice, In re

Babcock & Wilcox Co., No. 00-0558 (E.D. La. Oct. 30, 2000); Order Setting Bar Date (Asbestos-Related Claims), In re Eagle-Picher Indus., Inc., No. 1-91-00100 (Bankr. S.D. Ohio June 11,

1992).

336. See, e.g., Order Setting Bar Date, Ex. 1, In re Eagle-Picher Indus., Inc. (Bar Date Notice

Plan requiring direct mailed notice to “all persons (and their attorneys) whose names were furnished to the debtors prior to the date hereof in response to the First Meeting Order, or in response

to any notice, order or letter of this court directing that names be furnished”).
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80

A.H. Robins bankruptcy case, for example, the debtor engaged in a $4 million (in 1986 dollars) notice campaign337 that involved running paid ads

in eight magazines and 233 newspapers in the United States; broadcasting

television announcements on network and cable television over a three-week

period; and using press conferences, press releases, and public service announcements to media outlets, public health officials, and U.S. embassies

to reach potential claimants in ninety foreign countries.338 The 1996 notice

effort in the Dow Corning bankruptcy case cost some $8 million.339 It “included press releases, public relations initiatives, television and print advertising, direct mail, targeted mailings to specific interest groups, internet

postings, and a toll-free telephone number.”340

The court’s role in this notification process is not to dictate the means

of providing notice of the bar date to known and unknown tort claimants,

but to rule on the adequacy of the debtor’s proposed plan for giving notice.

Mass tort debtors typically hire media or noticing consultants to devise a

notice dissemination plan. That plan will describe the target audience for

the notice campaign, identifying the characteristics of the group likely to

include potential claimants, and then set forth a strategy for reaching that

target audience, using an array of media. In the Babcock & Wilcox asbestos

bankruptcy case, for example, the notice dissemination plan described the

target audience as all adults, but especially “men 35+, with a further emphasis on the core audience of men 55+.”341 The plan then set forth a notice program using “paid notices on national television and [in] well-read

national magazines, as well as [in] more than 900 newspapers in large cities

and small towns via Sunday newspaper supplements.”342 In addition, notices in Spanish were planned for Puerto Rico, and further exposure was to

be achieved by means of news articles, on-line communications, and the

use of third-party organizations.343

The debtor’s notification plan needs to provide sufficient detail to enable the judge to determine that the method of giving notice is “reasonably

 337. Vancouver Women’s Health Collective Soc’y v. A.H. Robins Co., 820 F.2d 1359, 1361

(4th Cir. 1987).

338. Id.

339. In re Dow Corning Corp., 211 B.R. 545, 554 (Bankr. E.D. Mich. 1997).

340. Id.

341. Order Regarding Debtors’ Motion for Entry of an Order Establishing a Bar Date, Approving the Proof of Claim Forms, and Approving the Form and Manner of Notice (Ex. G), In re

Babcock & Wilcox Co., No. 00-0558 (E.D. La. Oct. 30, 2000).

342. Id.

343. Id.
IV. Handling the Tort Claims

81

calculated, under all the circumstances, to apprise interested parties” of the

bar date. For that reason, the bankruptcy judge presiding over the EaglePicher case insisted that the debtor provide a plan with greater specificity,

“including identification of media, with an explanation for why such media

are to be utilized, and why other media are not to be utilized, the frequency

of any publication and/or broadcast, and a program based on real lead

times for the particular media involved as to when the program is to begin.”344

Courts approving such notice plans have not insisted on perfection,

however, just reasonableness under the circumstances. As the Fourth Circuit explained in the A.H. Robins case:

The court must balance the needs of notification of potential claimants with

the interests of existing creditors and claimants. A bankrupt estate’s resources

are always limited and the bankruptcy court must use discretion in balancing

these interests when deciding how much to spend on notification.

345

Accordingly, courts have approved bar date notice plans that were projected

to reach approximately 90% of the target audience, rejecting arguments that

a 100% projection should be required.346

As previously discussed,347 any attempt to give notice to persons who

have not yet manifested any injuries from the debtor’s product raises difficulties of an even greater magnitude. The Supreme Court itself has questioned whether “notice sufficient under the Constitution . . . could ever be

given to legions so unselfconscious and amorphous.”348 For that reason, in

mass tort bankruptcy cases involving future claimants, the bar date has

generally not been used as a barrier to relief for persons whose injuries have

not become manifest by that deadline; instead, those persons have been

allowed to seek recovery from trusts when they do experience injuries, even

though they did not file proofs of claim.349

 344. In re Eagle-Picher Indus., Inc., 137 B.R. 679, 682 (Bankr. S.D. Ohio 1992).

345. Vancouver Women’s Health Collective Soc’y v. A.H. Robins Co., 820 F.2d 1359, 1364

(4th Cir. 1987).

346. In re Babcock & Wilcox, No. 00-0558, slip op. at 13–14 (E.D. La. Aug. 25, 2000).

347. See supra section III.G.1.b.

348. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 628 (1997).

349. See, e.g., In re Babcock & Wilcox, No. 00-0558, slip op. at 5 (E.D. La. Aug. 25, 2000)

(“Debtors do not seek a bar date for any future asbestos-related claims . . . .”); Order Setting Bar

Date (Asbestos-Related Claims), In re Eagle-Picher Indus., Inc., No. 1-91-00100 (Bankr. S.D.

Ohio June 11, 1992) (“The Bar Date has no applicability to future asbestos-related claimants.”).
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82

E. Resolution of Causation and Other Liability Issues

As previously discussed,350 one of the advantages of bankruptcy as a mass

tort resolution device is that it centralizes the previously dispersed litigation

in one court, where it can be resolved on a global basis. Once that litigation

has been brought into the bankruptcy court, chapter 11 offers a process

that promotes negotiation among the various constituencies with the goal of

arriving at a consensual plan of reorganization. But what if the parties to the

tort litigation—the debtor and the tort claimants—fundamentally disagree

over the validity of all or a large portion of the hundreds of thousands of

tort claims that are asserted against the debtor, and as a result, they are unable to negotiate a settlement? How does the court resolve the overarching

liability issues in a way that is efficient (or at least feasible) and that also

satisfies the due process rights of all of the parties? Unfortunately, there

exists little precedent to guide courts facing these questions, and the answers are not spelled out any more clearly in the bankruptcy context than

they are in the non-bankruptcy litigation context.

When the first wave of asbestos bankruptcies were filed, the litigation

against the debtors had already matured to the point that the debtors did

not seriously dispute the general causation issue in the bankruptcy proceedings; that is, they did not seek to establish that asbestos did not cause

the types of diseases the claimants alleged.351 The major liability issue in

these bankruptcies, therefore, was the total amount of liability, not whether

the debtors were liable at all.352 Determination of the amount of that liability, whether by judicial estimation or the parties’ negotiations, was largely

based on historical settlement values.353 Individual causation issues—

whether a particular claimant had been exposed to the debtor’s asbestos

product and whether the claimant suffered from an asbestos-related disease

or impairment—were left to the postconfirmation, claims-payment phase of

 350. See supra section II.D.

351. See In re Dow Corning Corp., 211 B.R. 545, 554 (Bankr. E.D. Mich. 1997) (“The

present case is perhaps the first mass tort bankruptcy where liability has been disputed by a

debtor.”) (emphasis added).

352. See id. (“In substantially all of the mass tort bankruptcy cases which preceded this one,

the major questions were how much would be needed to satisfy the thousands of tort claims; how

best to raise the money; and what would be the best methodology to fairly apportion those funds

among the claimants.”).

353. See, e.g., In re Eagle-Picher Indus., Inc., 189 B.R. 681, 691 (Bankr. S.D. Ohio 1995)

(“Valuation of claims should be based upon settlement values for claims close to the filing date of the

bankruptcy case . . . .”).
IV. Handling the Tort Claims

83

the case. Accordingly, the judges presiding over those bankruptcy cases

were generally not called upon to resolve significant causation or other liability issues.

In some of the more recent mass tort bankruptcies, however, debtors

have argued against using prebankruptcy settlement values as the basis for

valuing the tort claims.354 Instead, they have argued that the amounts that

they paid in the past to settle cases included a premium for disposing of

the cases on a low transaction-cost basis without regard to the merits of the

claims; therefore, those settlement values do not reflect the amount that

such cases are actually worth. Furthermore, they contend, they have valid

defenses to the tort claims as a whole or to large categories of claims, which

they seek to have the court resolve in their favor. For example, some debtors have argued that scientific evidence does not support the claim that

their product caused some of the diseases alleged by claimants355 or that

large groups of claims are barred by applicable statutes of repose, the government contractor defense, or other defenses.356 They have thus called

upon the judges presiding over their bankruptcy cases to rule on their defenses and to eliminate large numbers of allegedly unmeritorious tort

claims before any value is placed on their tort liability as a whole.

Despite these vigorous attempts by debtors to reduce their tort liability

by challenging the validity of large numbers of claims, courts have generally refrained from ruling on the asserted defenses, leaving the evaluation of

the claims to the parties’ negotiations.357 Settlements leading to consensual

plans in several cases have eliminated the need for judicial rulings on the

debtor’s defenses, as well as the appeals that would surely follow any such

rulings.358

 354. E.g., In re USG Corp., 290 B.R. 223, 224 (Bankr. D. Del. 2003) (explaining debtor’s

proposal to challenge validity of asbestos claims by “unimpaired” claimants and alternative proposal

by Asbestos Claimants’ Committee to estimate claims based on the debtor’s “prepetition settlements

and litigation history”); B&W’s Report to the Court Regarding Asbestos Developments Generally

and the Proofs of Claim Filed Here at 26, In re Babcock & Wilcox Co., No. CIV.A .00-0558

(E.D. La. Oct. 18, 2001) (“B&W’s pre-petition settlement program did not determine B&W’s

true tort liability because it was designed to settle large numbers of claims at minimal transaction

costs. B&W did not seek to ‘separate the wheat from the chaff’ . . . .”).

355. E.g., In re USG Corp., 290 B.R. at 225; In re Dow Corning Corp., 211 B.R. 545, 554

(Bankr. E.D. Mich. 1997).

356. E.g., In re Babcock & Wilcox Co., No. CIV.A. 00-0558, 2000 WL 422372, at *4

(E.D. La. Apr. 17, 2000).

357. See, e.g., In re Dow Corning Corp., 211 B.R. at 593.

358. See, e.g., Findings of Fact & Conclusions of Law Regarding Core Matters & Proposed

Findings of Fact, Conclusions of Law & Recommendations to the Dist. Ct. with respect to Non-
Judicial Management of Mass Tort Bankruptcy Cases

84

A judge, therefore, who is presented with a debtor’s request to adjudicate defenses to tort claims filed in a mass tort bankruptcy case should carefully consider the need for such litigation in the bankruptcy proceedings. If

prior to bankruptcy the debtor was unsuccessful in litigating the defenses

that it now raises, claimants may argue that it is now estopped from asserting them. If that occurs, the judge will have to determine whether the applicable state law precludes the debtor from raising those defenses against

other claimants pursuant to the doctrine of offensive, nonmutual issue preclusion.359 If it does, the full faith and credit statute requires a federal court

to give the resolution of those issues the same preclusive effect that the

courts of the rendering state would give it.360 Absent new evidence361 or

other facts supporting an exception to issue preclusion,362 the bankruptcy

court should not allow the debtor to relitigate the issues.

If, however, issue preclusion is not asserted or is determined not to

apply, then the judge must consider whether it is necessary for the court

and parties to incur the substantial costs and delay involved in such litigation. On the one hand, if the debtor asserts defenses to claims filed in the

bankruptcy that it is not precluded from litigating, then section 502(b) of

the Bankruptcy Code requires a ruling on those defenses in order to determine the allowability of the claims.363 On the other hand, if other developments in the case might eliminate the need for a judicial determination

of the validity of numerous defenses involving thousands of claims, then

the judge would avoid unnecessary costs and delay by refraining from ruling on the defenses until it becomes necessary. In the USG bankruptcy

 core Matters at 6–7, In re Babcock & Wilcox Co., No. 00-10992 (Bankr. E.D. La. Oct. 8, 2004)

(discussing settlement among debtor, tort claimants’ committee, and future claims representative);

Gibson, supra note 64, at 223 (discussing the consensual resolution of the Dow Corning bankruptcy case).

359. The Supreme Court in Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329 (1979), recognized the availability of this doctrine in appropriate cases as a matter of federal common law, id., and

a number of state courts have accepted the doctrine as well.

360. 28 U.S.C. § 1738 (2000).

361. See Restatement (Second) of Judgments § 29(8) (1982) (including as a reason not to apply issue preclusion in subsequent litigation with others the existence of “[o]ther compelling circumstances mak[ing] it appropriate that the party be permitted to relitigate the issue”); id. at cmt. j

(“Important among such other circumstances is the disclosure that the prior determination was

plainly wrong or that new evidence has become available that could likely lead to a different result.”).

362. See id. §§ 28, 29.

363. 11 U.S.C. § 502(b)(1) (2000) (“[T]he court . . . shall allow such claim . . . except to the

extent that . . . such claim is unenforceable against the debtor and property of the debtor, under any

agreement or applicable law, for a reason other than because such claim is contingent or unmatured[.]”).
IV. Handling the Tort Claims

85

case, for example, the judge declined to rule on the debtor’s defenses to the

non-cancer claims that had been asserted against it, including the claims of

the so-called unimpaired claimants, because of the possibility that the cancer claims alone would be sufficient to render the debtor insolvent.364 If

that were the case, the judge reasoned, “existing equity will get nothing under any plan of reorganization[,] . . . [and] [t]he debtors-in-possession will

have no stake, and presumably no interest, in pressing for the elimination

of the majority of the claims they now argue are invalid.”365 Thus, the court

determined that “it is far more practical to estimate the universe of cancer

claimants by themselves than to undergo a merit-based estimation of all the

tort claimants.”366 Likewise, a judge might refrain from ruling on a debtor’s

proffered defenses if the judge believes that the parties are likely to reach a

consensual resolution of the value and method of compensation of the tort

claims.367

If it becomes necessary for the judge to resolve causation and other defenses in a mass tort bankruptcy case, the Bankruptcy Code and Rules suggest alternative contexts in which these liability issues might be litigated

and resolved. This preconfirmation litigation might be undertaken as part

of the claims allowance process, and the judge would rule on the debtor’s

objections to specific tort claims either individually or on an aggregated

basis.368 Or the debtor might raise its defenses and seek their resolution as

part of the process of estimating the value of the debtor’s tort liability.369

Either resolution method presents an issue concerning who has authority to

make such a determination. Normally the allowance of claims and their

 364. In re USG Corp., 290 B.R. 223, 226 (Bankr. D. Del. 2003).

365. Id.

366. Id.

367. See In re Dow Corning Corp., 211 B.R. 545, 593 (Bankr. E.D. Mich. 1997) (“If it becomes clear to this Court that hope for a consensual plan is lost and liquidation of claims through

litigation becomes necessary, we will recommend that the District Court schedule staggered consolidated general causation trials.”) (emphasis added).

368. See 11 U.S.C. § 502(b)(1) (2000); Fed. R. Bankr. P. 3007; see also In re Babcock &

Wilcox Co., No. CIV.A. 00-0558, 2000 WL 422372, at *2, *4 (E.D. La. Apr. 17, 2000) (noting

the debtor’s intention to file objections to proofs of claim filed by tort claimants in order to challenge the validity of the claims); cf. MCL 4th, supra note 3, § 22.315 (discussing application of a

test-case approach to mass tort litigation); id. § 22.93 (discussing possible mass tort trial structures).

369. See 11 U.S.C. § 502(c) (2000); see also In re USG Corp., 290 B.R. 223, 227 (Bankr.

D. Del. 2003) (“[T]he Court will hold an estimation hearing under 11 U.S.C. § 502(c). At this

time, debtors will be permitted to present their defenses.”).
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86

estimation are core matters that the bankruptcy judge may determine.370

The special statutory provisions concerning wrongful death and personal

injury tort claims,371 however, have led some courts to conclude that the

district judge must rule on potentially dispositive defenses to such

claims.372

Regardless of which judge presides over the proceedings to determine

the validity of the debtor’s defenses, the judge must consider devising a

feasible means for litigating the large number of claims involved. Federal

Rule of Civil Procedure 42, which is incorporated into the Bankruptcy

Rules,373 provides that when actions pending in the same court involve a

common question of law or fact, the court “may order a joint hearing or

trial of any or all the matters in issue in the actions,” and “it may make

such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.”374 The court might use this procedural device to resolve common issues presented by a debtor’s objections to multiple claims.

Resolving these issues in a way that avoids unwieldy litigation yet satisfies

the due process rights of the claimants will require care and creativity on

the part of the parties and the court. Unlike the class action rule, Rule 42

provides no express authority for a court to appoint a single group of lawyers to represent all of the claimants in the consolidated proceedings,375 nor

does the tort claimants’ committee necessarily have this right.376 Therefore,

 370. 28 U.S.C. § 157(b)(2)(B) (2000).

371. Id. (excluding from the list of core matters “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”); id. at (b)(5) (“The district court shall order that personal injury

tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is

pending, or in the district court in which the claim arose, as determined by the district court in

which the bankruptcy case is pending.”); id. § 1411(a) (“[T]his chapter and title 11 do not affect

any right to trial by jury that an individual has under applicable nonbankruptcy law with regard to a

personal injury or wrongful death tort claim.”).

372. See In re Babcock & Wilcox, 2000 WL 422372, at *3 (collecting conflicting decisions).

373. Fed. R. Bankr. P. 7042 (making Rule 42 applicable in adversary proceedings); id. at

9014(c) (making Rule 7042 applicable in contested matters unless the court directs otherwise). See

also MCL 4th, supra note 3, § 10.123 (discussing consolidation under Rule 42(a) of related litigation, including adversary proceedings in bankruptcy court); id. § 11.63 (discussing structure of

trials, including consolidated trials); id. § 22.31 (discussing criteria for aggregating mass tort

claims).

374. Fed. R. Civ. P. 42(a).

375. See id.; see also MCL 4th, supra note 3, § 14.211 (discussing district court’s authority to 

appoint counsel to represent claimants in class actions and in multidistrict consolidated litigation).

376. See 11 U.S.C. § 1103(c) (2000) (listing powers of a committee appointed under section

102 of the Code).
IV. Handling the Tort Claims

87

each claimant might be able to insist on the participation of his or her lawyer in the common-issues hearing, since the hearing will affect the allowance of his or her individual claim. If so, the consolidation could yield an

unmanageable proceeding if a single trial is used. Estimation proceedings,

on the other hand, might be conducted on an aggregated basis, and the tort

claimants’ committee could represent all of the tort claimants.377 It therefore

may be more manageable to litigate broadly applicable defenses in that context, assuming that the Bankruptcy Code provides authority for estimation

of a group of claims, rather than individual claims.378

To date, a variety of aggregative approaches have been suggested in

mass tort bankruptcies for resolving common issues or liquidating tort

claims prior to confirmation;379 none has actually been used, however. Efforts outside bankruptcy to adjudicate large numbers of tort claims or defenses on a group basis have encountered many procedural and constitutional obstacles.380 Efforts to litigate mass tort claims in the bankruptcy

 377. See, e.g., In re Eagle-Picher Indus., Inc., 189 B.R. 681, 683 (Bankr. S.D. Ohio 1995)

(referring to Injury Claimants’ Committee’s role at the estimation hearing).

378. See infra section IV.F.

379. For example, in the Dow Corning bankruptcy, the debtor proposed that a trial be conducted as part of the claims estimation process on the issue of the disease-causing potential of silicone gel. Only scientific evidence meeting the Daubert standard would have been admissible. “Based

upon the admissible scientific evidence, the Court would estimate the total aggregate value of all

contingent breast implant claims.” In re Dow Corning Corp., 211 B.R. 545, 555 (Bankr. E.D.

Mich. 1997). In addition, the debtor reserved the right to have a “single common-issue causation

trial before the District Court, seeking disallowance of some or all of the breast implant claims.” Id.

at 556. The tort claimants’ committee in the case proposed an alternative plan, under which a series

of summary jury trials would have been conducted at four different locations, and “[d]ata obtained

through the summary jury trials would be used by the Court to assist in estimating the total value

of all nondisease breast implant claims.” Id. at 559. The committee proposed that the value of the

breast implant disease claims be estimated on the basis of prebankruptcy settlements and verdicts.

Id. See also In re USG Corp., 290 B.R. 223, 226 (Bankr. D. Del. 2003) (describing debtors’

proposal “to litigate their defenses in relation to a sample of one percent of claimants, and extrapolate

the results over the entire claimant pool to arrive at an estimated total allowed claim”); Debtors’

Motion for a Case Management Order Establishing a Protocol for Litigating Asbestos PersonalInjury Claims at 17–18, In re Babcock & Wilcox Co., No. CIV.A.00-0558 (E.D. La. Oct. 18,

2001) (describing debtors’ proposal to file an objection and move for summary judgment with

regard to a small number of “exemplar claimants in a particular category” and then, if the court

sustained its defenses to the exemplar claims, to file “omnibus objections/summary judgment motions applicable to all similarly situated claimants,” and the claimants would bear the burden of

showing cause why their claims should not be disallowed). See also MCL 4th, supra note 3,

§ 22.93 (discussing structure of mass tort trials).

380. See, e.g., Cimino v. Raymark Indus., Inc., 151 F.3d 297 (5th Cir. 1998) (holding that

individual jury determinations of liability, injury, and damages are required by the Seventh

Amendment in asbestos mass tort personal injury context); In re Chevron U.S.A., Inc., 109 F.3d

1016 (5th Cir. 1997) (overturning district court plan to use the results of a bellwether trial of 30
Judicial Management of Mass Tort Bankruptcy Cases

88

court face the same obstacles. A consensual resolution that would eliminate

the need for uncharted procedures followed by lengthy appeals is thus

strongly preferable.

F. Estimation of Tort Claims

One of the biggest challenges presented by a mass tort bankruptcy case is

quantifying the debtor’s mass tort liability. Even if a bar date is imposed

for the filing of tort claims, the claims for which a proof of claim is filed

will generally be unliquidated and disputed; thus, the face amount demanded will not be accepted as the allowed amount. Furthermore, most

mass tort bankruptcies will require a valuation of the debtor’s future tort

liability, and for these claims generally no proofs of claim will be filed. Because this mass tort liability is usually the factor that precipitated the bankruptcy, being able to put a dollar value on it will be essential to the parties’

negotiation of a reorganization plan.381 Likewise, the court will need a basis

for judging the amount of the tort liability in order to confirm the reorganization plan: feasibility, the best interests test, whether the plan is fair

and equitable, and whether it discriminates unfairly against a nonaccepting

class all may depend on the aggregate amount of the tort liability.

The challenge, of course, is to find a cost- and time-efficient, but accurate, way to value the tort claims. Because the need to efficiently determine

the value of unliquidated and disputed claims is not unique to mass tort

bankruptcy cases, the Bankruptcy Code provides a possible solution: estimation. Section 502(c) provides that “[t]here shall be estimated for purpose

of allowance under this section—(1) any contingent or unliquidated claim,

the fixing or liquidation of which, as the case may be, would unduly delay

 cases to determine 3,000 others because the selected cases were not sufficiently representative); In re

Fibreboard, 893 F.2d 706 (5th Cir. 1990) (holding that, as a matter of Texas law, plaintiffs must

show specific causation and individual injuries to establish a claim). But see Hilao v. Marcos, 103

F.3d 767 (9th Cir. 1996) (holding that, on balance, in an “extraordinarily unusual” case involving

10,000 injury claims, the use of statistical sampling and extrapolation to determine individual personal injury recoveries did not violate due process). See generally MCL 4th, supra note 3, § 22.93.

381. In re A.H. Robins Co., 880 F.2d 709, 720 (4th Cir. 1989) (“As a basis for any plan of

reorganization it was necessary that an estimation be made of the unliquidated claims against the

debtor under Section 502(c) of the Bankruptcy Code . . . .”); In re Eagle-Picher Indus., Inc., 189

B.R. 681, 682 (Bankr. S.D. Ohio 1995) (“All of the parties herein understand that the purposes of

estimation of asbestos claims are, first, so that a proper allocation of plan funding assets can be made

as between the unsecured creditors and the PI Trust created by the plan, and, second, whether there

is any equity available for equity security holders.”).
IV. Handling the Tort Claims

89

the administration of the case . . . .”382 Commentators often cite the availability of estimation of total liability as one of the advantages of using bankruptcy to resolve mass tort claims.383

Congress, however, has excluded from the scope of core proceedings

that a bankruptcy judge is permitted to hear and determine “the liquidation

or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a [bankruptcy] case.”384 Section 157 of title 28 provides that personal injury tort

and wrongful death claims shall be tried in the district court, rather than in

the bankruptcy court,385 and section 1411 of title 28 preserves the right to

a jury trial for such claims.386 In the end, though, courts and commentators generally agree that these statutory restrictions do not prevent a bankruptcy judge from estimating the value of tort claims for purposes of the

negotiation and confirmation of a reorganization plan, even if the maximum aggregate payment to tort claimants will be based on this estimate.387

In mass tort bankruptcy cases to date, the practical effect of the statutory

limitations has been minimal because the parties have for the most part

agreed to resolve claims by creating a trust; few claims end up being litigated in the courts.

Section 502(c) provides for the court’s estimation of individual unliquidated claims in order to avoid undue delay in the administration of the

bankruptcy case. In mass tort bankruptcies, however, courts have relied on

this provision as providing them with authority to estimate the total

amount of all the tort claims, present and future, that will be dealt with under the plan.388 The Fourth Circuit concluded that “‘Congress’ goals

would be achieved equally well by assigning a dollar value to the whole of

the asbestos plaintiffs’ claims as by assigning a dollar value to each individual claim.’”389 The court further concluded that allowing the bankruptcy

court to estimate the aggregate tort liability is consistent with the statutory

 382. 11 U.S.C. § 502(c) (2000) (emphasis added).

383. See, e.g., Houser, supra note 46, at 471; Resnick, supra note 46, at 2056–58.

384. 28 U.S.C. § 157(b)(2)(B) (2000) (emphasis added).

385. Id. § 157(b)(5).

386. Id. § 1411(a).

387. See, e.g., Roberts v. Johns-Manville Corp. (In re Johns-Manville Corp.), 45 B.R. 823,

826 (S.D.N.Y. 1984); Houser, supra note 46, at 468.

388. See, e.g., In re Eagle-Picher Indus., Inc., 189 B.R. 681, 692 (Bankr. S.D. Ohio 1995).

389. In re A.H. Robins Co., 880 F.2d 709, 720 n.13 (4th Cir. 1989) (quoting Note, The

Manville Bankruptcy: Treating Mass Tort Claims in Chapter 11 Proceedings, 96 Harv. L. Rev.

1121, 1132–33 (1983) (emphasis omitted)).
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requirements for district courts to determine the recovery rights of individual tort claimants.390

Just because the bankruptcy court has the authority to estimate the

debtor’s tort liability does not mean that it does so in every mass tort case.

In most cases to date, the key parties—the debtor, the tort claimants’ committee, the future claims representative, and the unsecured creditors’ committee—have negotiated the value of the tort claims in the course of arriving

at a jointly proposed plan, and the judge has confirmed the plan on the

basis of the evidence submitted without conducting a separate estimation

proceeding.391 Even under those circumstances, however, the judge needs

to understand the basis for the tort liability figure the parties arrived at in

order to determine whether to confirm the plan.

If a judicial estimation is required, neither section 502(c) nor any provision of the Bankruptcy Rules provides any guidance about the method

the judge should use. As a result, courts have held that the estimation

method to be used is left to the bankruptcy court’s discretion.392 In bankruptcy cases not involving mass torts, a variety of approaches have been

suggested and used.393 In mass tort cases, however, courts have traditionally

used the historical settlement values for different categories of the tort

claims and a prediction based on epidemiological data of the incidence and

types of future claims.394 The judicial estimation process used in two mass

tort bankruptcy cases—A.H. Robins and Eagle-Picher—illustrates this traditional approach.

The A.H. Robins case, filed in 1985, was precipitated by the assertion

of thousands of claims against the debtor arising from the use of its birth

 390. Id.

391. See, e.g., Gibson, supra note 64, at 170–72 (discussing the negotiation of the value of the

tort claims in the UNR case and confirmation of the plan based on that value); id. at 224–27 (same

for the Dow-Corning case).

392. See, e.g., Addison v. Langston (In re Brints Cotton Mktg., Inc.), 737 F.2d 1338, 1341

(5th Cir. 1984); Bittner v. Borne Chem. Co., 691 F.2d 134, 135 (3d Cir. 1982); In re Thomson

McKinnon Sec., Inc., 143 B.R. 612, 619 (Bankr. S.D.N.Y. 1992); In re Baldwin-United Corp.,

55 B.R. 885, 899 (Bankr. S.D. Ohio 1985).

393. Included among these methods are the ultimate merits test, the present probability test,

the forced settlement model, the use of arbitration awards, the market value approach, the summary

jury trial approach, and even the full jury trial of the claim. See generally Alison J. Brehm et al., To

Be or Not to Be: The Undiscovered Country of Claims Estimation in Bankruptcy, 8 J. Bankr. L. &

Prac. 197, 248–55 (1999).

394. See Fred S. Hodara & Robert J. Stark, Protecting Distributions for Commercial Creditors

in Asbestos-Related Chapter 11 Cases, 10 J. Bankr. L. & Prac. 383, 398–99 (2001).
IV. Handling the Tort Claims

91

control device, the Dalkon Shield.395 The court began the process of placing

a value on the tort claims with the setting of a bar date for Dalkon Shield

claims. Almost 200,000 claimants completed the two-step process required

for filing a proof of claim.396 The court then appointed an expert to compile

a database of information about the claims. All tort claimants were required

to complete a two-page questionnaire, and 6,000 of the tort claimants were

sent a fifty-page questionnaire requesting detailed information about their

use of the product, their injuries, and the evidence supporting their

claims.397 Researchers also compiled information about the Dalkon Shield

claims that were resolved prior to bankruptcy. Based on that information,

they were able to determine the historical monetary values of different types

of Dalkon Shield claims.398

This data-gathering process lasted over a year and a half and cost some

$5 million. The database was then made available to the debtor, the official

committees, the future claims representative, the debtor’s insurer, and their

experts for their use in connection with the claims estimation hearing.399

The district judge presiding over the bankruptcy case had determined that

“only an estimation of the personal injury claims en masse would bring

forth additional prospective purchasers or those interested in merging with

Robins[,]” because of the need to set a cap on the tort liability.400 Accordingly, he granted the request of the debtor and the equity security holders’

committee to estimate the aggregate value of the tort claims.

The estimation hearing extended over a period of seven days. Robins,

the official committees, the future claims representative, and the insurer

each presented their own experts, who testified as to their estimates of the

total tort liability. Their estimates ranged from a low of $800 million

(Robins) to a high of $7 billion (tort claimants’ committee).401 The expert

for the future claims’ representative testified only as to the value of the future claims ($660 million).402 These experts presented “extensive medical,

 395. In re A.H. Robins Co., 880 F.2d 709, 717 (4th Cir. 1989).

396. In re A.H. Robins Co., 88 B.R. 742, 745 (E.D. Va. 1988), aff’d sub nom. MenardSanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989).

397. Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694, 699 (4th Cir.

1989).

398. Francis E. McGovern, Resolving Mature Mass Tort Litigation, 69 B.U. L. Rev. 659, 682–

84 (1989).

399. In re A.H. Robins, 88 B.R. at 746.

400. Id.

401. Id. at 747.

402. Id.
Judicial Management of Mass Tort Bankruptcy Cases

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statistical, epidemiological, and other expert testimony.”403 During the estimation hearing, the district judge “requested experts for the various parties in interest to recalculate their estimates using various assumptions, different from those used by those experts in their original analyses.”404

The court announced its finding that “the sum of $2.475 billion, payable over a reasonable period of time, is sufficient to pay in full all Dalkon

Shield personal injury claims as well as expenses of the Trusts established

to administer the claims.”405 The court gave no explanation of its basis for

reaching this conclusion, and the figure the court selected was not one that

any of the experts had suggested. It is therefore impossible to tell the exact

methodology the court used in making its estimate. The finding nevertheless was upheld by the Fourth Circuit as not being clearly erroneous.406

The basis for the estimate of tort liability in the Eagle-Picher bankruptcy case was more transparent; in fact, the estimation decision in that

case represents the most detailed judicial opinion on the estimation of

claims in a mass tort bankruptcy.407 In that asbestos bankruptcy case, the

court granted the debtor’s motion to estimate the asbestos-related liability

after the debtor, tort claimants’ committee, and future claims representative

had negotiated a value of $1.5 billion for those claims. The unsecured

creditors’ committee, however, insisted that the tort liability amount was

much less, and it refused to support a plan based on the negotiated figure.

All of the parties therefore agreed that a judicial estimation was required.408

Unlike the Robins case, Eagle-Picher involved no additional information

gathering regarding individual claims before the estimation hearing. The

bankruptcy court denied the motion of the unsecured creditors’ committee

for the initiation of information-gathering procedures, concluding that “because of the depth of information provided by debtors’ closed claims database, reliable information for the valuation of claims is available without

further information.”409

At the estimation hearing, each of the key constituencies—debtor, tort

claimants’ committee, future claims representative, unsecured creditors’

 403. Id. at 746–47.

404. Id. at 747.

405. Id.

406. Menard-Sanford v. Mabey, (In re A.H. Robins Co.), 880 F.2d 694, 700 (4th Cir.

1989).

407. See In re Eagle-Picher Indus., Inc., 189 B.R. 681 (Bankr. S.D. Ohio 1995).

408. Id. at 682.

409. Id. at 692.
IV. Handling the Tort Claims

93

committee, and equity committee—presented expert testimony concerning

the value of the tort claims. As in the Robins case, the expert for the future

claims representative testified only as to the value of the future claims. Even

though three of the parties (debtor, tort claimants’ committee, and future

claims representative) had previously agreed on the $1.5 billion valuation

of the claims, they each presented their own experts, who expressed different conclusions as to the estimated value.

All of the experts who testified, except the expert for the equity committee, based their valuations of the open prepetition claims asserted against

the debtor on analyses of the claims that had been resolved before bankruptcy.410 The debtor’s expert, for example, identified six disease categories

among the closed claims, determined an average settlement amount for each

category, and then applied those closed-case averages to each of the open

prepetition claims by category. He arrived at an estimate of $353 million

(in 1990 dollars).411 The expert for the tort claimants’ committee expanded

on this approach by performing a number of analyses that took into account different variables, such as disease type, occupation, claimant’s state,

law firm representing the claimant, and year the claim was filed. His estimate of the open claims was $492 million (in 1991 dollars).412

The expert for the equity committee rejected this closed-case analysis.

He instead based his estimate of the prepetition claims on the experience of

the trust fund created by the UNR asbestos bankruptcy case, noting that

78% of the claims filed in the Eagle-Picher case by the bar date were in the

UNR trust database. His estimate was $201 million for all of the open

prepetition claims and those additional claims filed by the bar date.413

In evaluating the expert testimony, the bankruptcy judge concluded

that “it is sound to value the open prepetition claims based upon the closed

prepetition claims of the debtors[,]” because “the only sound approach is,

if possible, to begin with what is known.”414 He elaborated:

To begin without utilizing information known about these debtors and

their history in the handling of claims which have been asserted against them

in the past, and their disposition, is to ignore a valuableexperiential resource.

Debtors have a database containing detailed information about each of the

closed claims. From the database it is possible to associate with each claim

 410. Id. at 684–85.

411. Id. at 684.

412. Id.

413. Id. at 686.

414. Id.
Judicial Management of Mass Tort Bankruptcy Cases

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characteristics such as occupation of the claimant, nature of the disease, the

amount which was paid to the claimant, as well as a number of other factors

. . . . Because much of the same information is known about the open prepetition claims . . . , it is possible to ascertain with some degree of accuracy

what the settlement figures for those claims would be had they been resolved

prepetition.

415

The judge therefore rejected the testimony of the equity committee’s

expert. He found that the opinion of the expert for the tort claimants’

committee “rest[ed] on the soundest basis” because of the large number of

variables he took into account.416 After discounting that expert’s estimate to

the value as of the petition filing date, the judge estimated the open prepetition claims to be worth $478 million.417

A bigger challenge was the bankruptcy court’s need to estimate the future claims (which the court defined as all claims that had been or would

be asserted against the debtor after the bankruptcy petition date). As the

court stated, “estimation of the value of future claims requires a leap into

the unknown.”418 All of the experts, again except for the one the equity

committee presented, relied on the work of an epidemiologist in projecting

the number and type of claims that would be asserted in the future.419

While the experts differed as to the expected ending date for the asbestos

claims, all except the equity committee’s expert used the closed-claims values for each disease category in computing an estimate of the total future

claims liability.420 There were variations in the analyses of these experts.

The debtor’s expert, for example, adjusted the forecast of the number and

types of future claims based on the actual claims experience of the Manville

and UNR trusts,421 and the tort claimants’ expert made adjustments to take

into account filing trends against other defendants during the previous five

years.422 The expert for the equity committee again based his estimate of the

future claims on the values paid out by the UNR trust.423 The estimates of

 415. Id.

416. Id.

417. Id.

418. Id. at 687.

419. Id.

420. Id. at 687–90.

421. Id. at 689.

422. Id.

423. Id. at 690.
IV. Handling the Tort Claims

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the future claims liability by the various experts ranged from $125 million

(equity committee) to $2.6 billion (tort claimants).424

The judge again rejected the equity committee expert’s testimony,

which was based on UNR trust payouts. He stated that “the amount that

the UNR Trust actually paid out to claimants . . . is simply not the same

thing as estimating the value of future claims as of the filing date of the

bankruptcy case.”425 The court had previously held that it was the value of

the claims themselves, as “distinguished from estimating the value which

claimants might take in satisfaction of their claims,” that was to be estimated

under section 502(c).426

The Eagle-Picher opinion listed seven factors that should be taken into

account in estimating future claims:

• claims history of the debtor, with possible adjustment to take into account general trends in therate of claims filing;

• estimate of number of future claims;

• categorization of claims by disease, occupation, and other factors;

• settlement values just prior to the bankruptcy filing;

• indemnification increase over time;

• lag time between filing and payment; and

• discount rate to determine value as of bankruptcy filing.

427

The bankruptcy judge concluded that the estimate of the debtor’s expert came closest to satisfying the listed criteria. Because his estimate stated

a value in 1995 dollars, however, the judge discounted it to the value as of

the filing date, arriving at a figure of just over $2 billion.428

When the judge added the estimate for prepetition claims to the estimate for the future claims, he reached a total figure for the aggregate tort

liability of $2.5 billion.429 That amount exceeded by $1 billion the figure

that the debtor, tort claimants’ committee, and future claims representative

had previously agreed to and that the unsecured creditors’ committee had

rejected as too large. Eventually the four constituencies reached agreement

on a plan based on a $2 billion estimate of the tort liability.430

 424. Id. at 688–90.

425. Id. at 692.

426. Id. at 683.

427. Id. at 690–91.

428. Id. at 692.

429. Id.

430. In re Eagle-Picher Indus., Inc., 203 B.R. 256, 262 (S.D. Ohio 1996).
Judicial Management of Mass Tort Bankruptcy Cases

96

The estimation approach of the equity committee’s expert in EaglePicher, which the bankruptcy court rejected, in some ways foreshadowed

the approach debtors have suggested in more recent mass tort cases. That

is, both the equity committee in Eagle-Picher and more recently several asbestos defendant-debtors have argued that the amounts for which the companies previously were willing to settle large numbers of claims in order to

avoid the costs of litigation overstated the actual value of those claims.431

They have contended that an estimation under section 502(c) requires consideration of the actual strength of the claims on the merits.432 The EaglePicher expert sought to do such an evaluation by considering the payments

actually made for what he argued were equivalent claims in another bankruptcy case. Debtors in cases such as Dow Corning, Babcock & Wilcox, and

USG Corporation sought to do so by seeking to litigate various defenses that

could eliminate large categories of claims.433

As previously discussed,434 a mass tort debtor may seek to litigate such

defenses either by objecting to specific claims that tort claimants have filed

or by seeking a court ruling on the defenses as part of a claims estimation

procedure. Regardless of the procedural context, the court may have to determine whether the debtor is precluded by prior litigation from raising

the defenses against new claimants. If the debtor can no longer assert those

defenses because of issue preclusion, then they should not be a basis for

disallowing claims or for discounting the overall amount of tort liability. If,

however, the debtor is not precluded under the governing law, then the

debtor (or equity committee) should be entitled to raise and seek a judicial

determination of the validity of the defenses as part of a judicial estimation

process.435 The possibility that large numbers of unmeritorious claims have

been asserted in the bankruptcy case against the debtor or are likely to be

asserted in the future bears directly on the aggregate amount of the debtor’s

tort liability. If there are in fact serious defenses the debtor is still legally

entitled to assert against large numbers of claims, then they must be resolved in some manner—either by negotiation or by judicial ruling—

 431. See supra note 354.

432. See In re Eagle-Picher Indus., Inc., 189 B.R. at 685.

433. See supra notes 351, 354.

434. See supra section IV.E.

435. See Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15, 20 (2000) (“The ‘basic federal rule’ in

bankruptcy is that state law governs the substance of claims, Congress having ‘generally left the

determination of property rights in the assets of a bankrupt’s estate to state law.’”) (citations omitted) (quoting Butner v. Ill. Dep’t of Revenue, 440 U.S. 48, 54 (1979)).
IV. Handling the Tort Claims

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before a fair determination can be made of the extent to which the tort

claimants as a group are entitled to assets that would otherwise go to other

unsecured creditors or be retained by shareholders.

The traditional use of historical settlement values as a basis for estimating present and future tort liability rests on the assumption that the

amount by which claims were resolved in the past approximates the value

that claims will have in the future. If, however, current and future claims

are significantly different from prebankruptcy claims or if the amount the

debtor previously paid to settle claims does not accurately reflect their actual

value, then an estimate of the debtor’s present and future tort liability

should not be based exclusively on those historical values. A debtor or the

tort claimants’ committee should have the opportunity prior to a judicial

estimation to establish the invalidity of past settlement values as a basis for

valuing present and future claims.

In estimating the debtor’s present and future tort liability in the

Owens-Corning bankruptcy, the district judge concluded that “the claims

are to be appraised on the basis of what would have been a fair resolution of

the claims in the absence of bankruptcy.”436 That conclusion, however, did

not mean that “historical results can properly be extrapolated into the future.”437 Instead, the judge noted, “some of the past results have been

skewed by factors which can and should be avoided in the future.”438 The

court identified the following factors as ones “unlikely to be replicated”:

• venue shopping;

• mass screenings;

• erroneous x-ray interpretations;

• overpayments to unimpaired claimants;

• group lawsuits;

• global settlements; and

• punitive damages.439

The judge found most credible the expert witnesses whose testimony properly reflected these changed circumstances.440

In many mass tort cases the parties themselves have resolved these issues by negotiation, and they have proposed a reorganization plan that is

 436. Owens Corning v. Credit Suisse First Boston, 322 B.R. 719, 722 (D. Del. 2005).

437. Id.

438. Id. at 722–23.

439. Id. at 723.

440. Id. at 725.
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structured around an agreed-upon value of the tort liability. As one court

explained, referring to the Armstrong World Industries bankruptcy, “In that

and other cases, the value of asbestos liability is based upon the private parties’ own assessment of that liability, as adjusted by mutual, self-interested

compromise. The ultimate result is no less legitimate, however, than one

imposed by the Court.”441 A negotiated solution is preferable to a judicially

imposed one, because it eliminates costly and time-consuming litigation

and appeals. Thus, a judge should refrain from ruling on the debtor’s

proffered defenses and from conducting an estimation proceeding until it

becomes clear that no consensual resolution is possible.

Some courts have appointed a mediator to assist the parties in resolving

the issue of the value of the tort claims.442 Although the Bankruptcy Code

and Rules contain no express authorization for the appointment of a mediator, courts have relied on several Code provisions in making such appointments. Some courts have appointed an examiner pursuant to section

1104(c) to serve as a mediator, although that role might be seen as going

beyond the scope of the investigatory duties described for an examiner in

sections 1104 and 1106. Some other courts have instructed the future

claims representative to serve in this capacity. It is preferable, however, for

the court to appoint a neutral person who does not represent any of the

interests with a stake in the estimation. The court may make such an appointment pursuant to section 105 of the Code443 or, in some districts,

pursuant to local rules providing for court-ordered mediation. Whatever

the legal authority it relies on for the appointment, the court needs to appoint someone it has confidence in and the parties can trust. It is also important for the court to set out clearly the ground rules for the mediation,

including the duties of the parties with respect to the mediation, the

authority of the mediator, the rules concerning communications with the

mediator and among the parties, and provisions for the mediator’s communication with the court.444

If, even with the intervention of a mediator, the parties are unable to

arrive at a consensual resolution of the value of the tort claims (or of the

ratio of the tort claims to the other unsecured claims), the court will have to

 441. In re USG Corp., 290 B.R. 223, 225 n.2 (Bankr. D. Del. 2003).

442. See, e.g., Gibson, supra note 64, at 75 (discussing the appointment of a mediator in the

Eagle-Picher bankruptcy case); id. at 224 (discussing the appointment of a mediator in the DowCorning bankruptcy case).

443. See 7 Collier on Bankruptcy, supra note 155, ¶ 1104.03[6][b].

444. See also infra section V.B (discussing use of a mediator to facilitate plan negotiation).
IV. Handling the Tort Claims

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estimate the amount of the tort liability. At that point the judge will have to

rule on any defenses the debtor raises that could affect the overall value of

the claims. An adjudication of this type is fraught with procedural complexities. As one court pointed out, litigation of the debtor’s defenses to

thousands of claims, even if limited to a statistically reliable sample, raises

both constitutional and logistical questions.445 The court noted that proceeding in this manner raises questions about impairing the right to a jury

trial and that even a sample of “one percent of the debtor’s 190,000 claimants [would] still [be] an unmanageable 1,900 individual litigants, each of

whom presumably would insist on exercising the full panoply of discovery

and trial rights.”446

It appears, however, that the claims estimation process offers a more

flexible procedure for the resolution of such defenses than does the claims

objection and allowance process. No individual claims need to be disallowed as a result of the court’s ruling. Instead, the court’s acceptance or

rejection of the various defenses would be considered at this point only in

estimating the aggregate amount of the tort liability. For example, if the

court sustained a defense applicable to 15% of the present claims, the parties’ experts and then the court could take that reduction into account in

arriving at an estimate of the value of the present claims. Because the defenses would be litigated in the aggregate, the tort claimants’ committee

could conduct the estimation litigation, and the thousands of tort claimants

and their lawyers would not participate individually.

Even if the debtor does not seek to litigate defenses to large numbers of

the tort claims, the task of placing an accurate value on thousands of present

claims as well as claims expected to arise for years into the future presents a

huge challenge for the court. As one bankruptcy judge explained: “Given

the numerous variables involved in estimating exposure, latency periods,

products identification, etc., any estimation of asbestos liabilities is problematical, to say the least. Assumptions must be made that result in huge

ranges of possible results. Predicting the future is always uncertain . . . .”447

Another bankruptcy judge presiding over a mass tort case asserted that estimation of mass tort liability “rests on the shaky foundation that judges

 445. In re USG Corp., 290 B.R. 223, 226 (Bankr. D. Del. 2003).

446. Id.

447. In re Babcock & Wilcox Co., 274 B.R. 230, 262 (Bankr. E.D. La. 2002).
Judicial Management of Mass Tort Bankruptcy Cases

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can accurately estimate the results of a series of extremely speculative problems.”448

Regardless of the difficulty of the task, courts have in the past and will

in the future be called upon to make such estimations. A judge faced with

such a task must therefore approach it as the judge would any other complex scientific or technical problem. The judge must hear the evidence presented by all the parties, including expert testimony, and must judge its

credibility and scientific validity. Then the judge should base his or her

findings and conclusions on a clearly articulated set of principles, as the

judge did in the Eagle-Picher case.449 Finally, the judge should announce

the court’s estimates of the debtor’s present and future tort liability and

explain how those amounts were determined. As is discussed in the next

section, the judge might consider appointing an expert to provide useful

assistance in making this estimation.

G. Use of Court-Appointed Experts and Advisors

Judges presiding over mass tort lawsuits and over mass tort bankruptcy

cases have in several instances appointed persons to serve in the case who

had expertise that was valuable to the court in the handling of the tort

claims. Judges have used court-appointed experts to evaluate scientific evidence concerning a product’s causation of particular diseases,450 to provide

a neutral opinion concerning the likely volume and type of future tort

claims,451 and to generally advise the judge on various aspects of the mass

tort litigation.452

In some cases, judges have appointed experts pursuant to Federal Rule

of Evidence 706(a) and in other cases, pursuant to the court’s inherent

authority. While there is therefore precedent and authority for a judge presiding over a mass tort bankruptcy case to appoint one or more experts or

advisors, the judge should carefully determine the need for such an expert

before making an appointment and should ensure that the proper roles of

the judge and the parties are maintained.

 448. In re Dow Corning Corp., 211 B.R. 545, 562 n.16 (Bankr. E.D. Mich. 1997).

449. See In re Eagle-Picher Indus., Inc., 189 B.R. 681, 690–91 (Bankr. S.D. Ohio 1995).

450. See In re Silicone Gel Breast Implant Prods. Liab. Litig., MDL No. 926, Order 31 (N.D.

Ala. May 30, 1996).

451. See In re Joint E. & S. Dists. Asbestos Litig., 830 F. Supp. 686, 689–91 (E.D.N.Y. &

S.D.N.Y. 1993).

452. See In re Kensington Int’l Ltd., 368 F.3d 289 (3d Cir. 2004).
IV. Handling the Tort Claims

101

Mass tort bankruptcy cases present courts with “problems of unusual

difficulty, sophistication, and complexity, involving something well beyond the regular questions of fact and law with which judges must routinely grapple”; therefore, these cases are appropriate for the appointment of

experts.453 If the judge decides to appoint one or more experts or advisors,

the court’s precise authority for doing so depends on the role that the expert is to play in the bankruptcy case. Federal Rule of Evidence 706(a),

which applies to cases and proceedings under the Bankruptcy Code,454

authorizes the court on its own motion or on the motion of any party to

appoint “expert witnesses.” These experts “may be called to testify by the

court or any party” and are “subject to cross-examination by each party.”455

Experts appointed under this rule therefore are expected to be witnesses at

trial, providing evidence that augments that provided by the parties’ experts.456

The judge might also appoint experts for roles other than providing

testimony at trial. Sometimes referred to as technical advisors or consultants, these experts might perform such tasks as “analyzing and evaluating

reports prepared by the parties’ experts or attorneys”457 or more broadly

educating the court or serving as a “sounding board for the judge.”458 In

appointing such experts, who are not intended to serve as witnesses, a

judge should rely on the court’s “inherent authority to appoint persons

unconnected with the court to aid [the] judge[] in the performance of specific judicial duties.”459

In non-jury cases, district courts have sometimes appointed special

masters under Federal Rule of Civil Procedure 53 in order to obtain expertise in a particular field, rather than appointing experts pursuant to Rule

706(a) or their inherent authority.460 Such an appointment, however, is

not an option in a mass tort bankruptcy case. Federal Rule of Bankruptcy

Procedure 9031 provides that Federal Rule of Civil Procedure 53 is inap-

 453. Reilly v. United States, 863 F.2d 149, 157 (1st Cir. 1988).

454. Fed. R. Evid. 1101(a); Fed. R. Bankr. P. 9017.

455. Fed. R. Evid. 706(a).

456. See Reilly, 863 F.2d at 155 (“[T]he grasp of Rule 706 is confined to court-appointed expert witnesses; the rule does not embrace expert advisors or consultants.”). But see MCL 4th, supra

note 3, § 11.52 (stating that a special master might be appointed pursuant to Rule 706(a) “even

though the master will not testify”).

457. MCL 4th, supra note 3, § 11.51.

458. Reilly, 863 F.2d at 158.

459. Ex parte Peterson, 253 U.S. 300, 312 (1920).

460. See MCL 4th, supra note 3, § 11.52.
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plicable in “cases under the Code.” The advisory committee note explains

that “[t]his rule precludes the appointment of masters in [bankruptcy]

cases and proceedings.” The prohibition applies regardless of whether a

bankruptcy judge or a district judge is exercising jurisdiction.461

Before making an appointment, a judge should carefully consider

whether there is a need for a court-appointed expert in the case that cannot

be satisfied by the parties and their experts. He or she should also weigh

the possible advantages and disadvantages of such an appointment.462 For

example, on the issue of the number or value of present and future tort

claims, an expert appointed by the court may provide a neutral view that

will assist the judge in evaluating the widely varying testimony of the parties’ experts. Such an appointment may also create a climate in which a negotiated resolution is more likely or the range of expert views is narrowed.463 However, waiting for the expert to form an opinion and produce

findings or a report may result in costs to the estate and delay in the proceedings. Because the mass tort claims may involve a field in which the

range of expertise is narrow, it may also be difficult for the judge to identify

someone with the requisite expertise who is in fact neutral.464

Federal Rule of Evidence 706 prescribes several procedural safeguards

in the appointment of experts pursuant to its authority. If the court is going to appoint an expert witness under Rule 706(a), it must proceed by

means of an order to show cause, giving the parties an opportunity to show

why an expert should not be appointed. The judge may seek names of experts from the parties and may appoint someone agreed upon by them or

someone of the judge’s own choosing. The expert must agree to serve in the

case. The judge must either provide the expert with a written order specifying his or her duties, which must be filed with the clerk, or must inform

the expert of the duties at a conference in which the parties have a right to

participate. If the expert makes findings, they must be made available to the

 461. See R. Spencer Clift III, Should the Federal Rules of Bankruptcy Procedure Be Amended

to Expressly Authorize United States District and Bankruptcy Courts to Appoint a Special Master in

an Appropriate and Rare Bankruptcy Case or Proceeding?, 31 U. Mem. L. Rev. 353, 366 (2001).

462. See generally MCL 4th, supra note 3, § 11.51 (discussing use of court-appointed experts

and technical advisors); see also id. § 22.56 (discussing possible use of court-appointed expert for

estimating mass tort claims); id. § 22.87 (discussing use of court-appointed experts to assist with

evaluation of scientific evidence).

463. See Karen Butler Reisinger, Note, Court-Appointed Expert Panels: A Comparison of Two

Models, 32 Ind. L. Rev. 225, 234–35 (1998).

464. But see In re Kensington Int’l Ltd., 368 F.3d 289, 321 (3d Cir. 2004) (Fuentes, J., dissenting) (“Any person with expertise in a given field invariably forms opinions about that field.”).
IV. Handling the Tort Claims

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parties, and the expert is subject to being deposed by any party, as well as

being cross-examined at trial by any party.

If an expert or advisor is appointed, not pursuant to Rule 706, but

pursuant to the court’s inherent power, the procedural requirements of

Rule 706 are not directly applicable.465 That does not mean, however, that

the appointment may be made without concern for the rights of the parties.466 As a matter of fundamental fairness, a court appointing an advisor

or nontestifying expert should

• advise the parties of the name of the expert to be appointed and the

role that expert is to play;

• give the expert and parties written instructions concerning the expert’s duties in the case; and

• require that the expert either prepare a written report or submit an

affidavit at the conclusion of his or her duties attesting to the expert’s compliance with the court’s instructions.467

Regardless of whether experts are appointed by the court pursuant to

Rule 706(a) or pursuant to the court’s inherent authority, the judge

should be especially cautious about engaging in ex parte communications

with them. Ex parte communications “are always suspicious” and should

be engaged in only rarely.468 Because such conversations with the judge are

typically not recorded, there is no basis for parties to know whether they

exceeded proper bounds and no way for an appellate court to provide

meaningful review.469 Furthermore, it is inconsistent with our adversarial

system of justice to deprive parties of their right “to challenge, to comment

upon, or even to know what the judge is being told.”470

If experts are appointed pursuant to Rule 706(a), “the parties must be

afforded the opportunity to evaluate the[ir] report and test its validity.”471

The experts should submit their evidence to the court in a manner that

allows the parties to cross-examine them, as the rule requires. The judge

 465. Reilly v. United States, 863 F.2d 149, 156 (1st Cir. 1988) (“Rule 706, while intended to

circumscribe a court’s right to designate expert witnesses, was not intended to subsume the judiciary’s inherent power to appoint technical advisors.”).

466. Id. at 159.

467. See id. at 159–60; MCL 4th, supra note 3, § 11.51.

468. MCL 4th, supra note 3, § 11.51.

469. In re Kensington Int’l Ltd., 368 F.3d 289, 309–10 (3d Cir. 2004).

470. Michael J. Saks, Court-Appointed Experts: Defining the Role of Experts Appointed Under

Federal Rule of Evidence 706, 35 Jurimetrics J. 233, 240 (1995) (book review).

471. In re Joint E. & S. Dists. Asbestos Litig., 830 F. Supp. 686, 694 (E.D.N.Y. &

S.D.N.Y. 1993).
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should not meet privately with the experts to preview their findings and

conclusions. In one case, a judge held an ex parte meeting with a panel of

experts and discussed with them the validity of their methodology; in the

case on appeal, the court of appeals removed the judge because he had obtained “personal knowledge of disputed evidentiary facts.”472

When an expert is appointed to advise the court or to serve as a

“sounding board” for the judge, courts have recognized the need for “the

judge and the advisor [to] be able to communicate informally, in a frank

and open fashion.”473 It is important, however, that the judge not discuss

the merits of the case with the expert474 or allow the expert to usurp the

judicial role.475 The judge should document in some way his or her conversations with the expert so that the parties can be made aware of the substance of the advice and have an opportunity to respond.476

Because of the important role that court-appointed experts and advisors

can play in a mass tort bankruptcy case, a judge should exercise care in selecting the individuals to appoint. An expert appointed under Rule 706(a)

should be someone “whose fairness and expertise in the field cannot reasonably be questioned and who can communicate effectively as a witness.”477 As Rule 706(a) suggests, the judge should ask the parties to provide names of experts who should be considered for appointment, and

should attempt to select someone who is acceptable to the major participants in the bankruptcy case. When the judge appoints advisors or consultants, it is likely that these experts will have close contact with the judge.

It is therefore especially important that these experts be free of any conflict

of interest that might give rise to questions about the judge’s impartiality.

The court should also ensure that the past and ongoing activities of the advisors do not present any conflict of interest with their advisory duties.478

 

472. In re Edgar, 93 F.3d 256, 258 (7th Cir. 1996) (relying on 28 U.S.C. § 455(b)).

473. Reilly v. United States, 863 F.2d 149, 160 n.8 (1st Cir. 1988).

474. See In re Kensington Int’l Ltd., 368 F.3d 289, 307 (3d Cir. 2004) (“[W]hen ex parte

discussions between the judge and the panel [of advisors] veer into the merits, recusal may follow.”).

475. See Reilly, 863 F.2d at 157–58.

476. See Kensington, 368 F.3d at 305.

477. MCL 4th, supra note 3, § 11.51.

478. See Kensington, 368 F.3d at 303–06. In Kensington, the Third Circuit ordered the recusal

of a district judge in three asbestos bankruptcy cases because it concluded that his impartiality might

reasonably be questioned. The court reached this conclusion after determining that two courtappointed advisors had a conflict of interest that could not be disassociated from the judge and that

the judge’s ex parte communications with the advisors constituted an abuse of discretion. Id. at 318.
105

V. Negotiating the Plan

A. Overview

Part V addresses the steps that the judge can take to facilitate the parties’

negotiation of a consensual plan in a mass tort bankruptcy case. It also addresses the issues the judge may face when all parties in interest do not

achieve a settlement.

• Plan negotiations in a free-fall bankruptcy: What actions can the

bankruptcy judge take to reduce the time needed to negotiate a consensual plan? How might the judge use a mediator effectively? How

are negotiations affected by the timing of the court’s rulings?

• Extension of exclusivity: How can the judge use his or her rulings on

requests to extend the debtor’s period of exclusivity to encourage

progress in the case? What factors should the judge take into account in deciding whether to terminate exclusivity?

• Handling of prepackaged bankruptcies: What special issues must the

judge be alert to when the debtor seeks confirmation of a prepackaged mass tort bankruptcy plan of reorganization? Should the judge

appoint in the bankruptcy case the future claims representative who

participated in the prebankruptcy negotiations? May the judge confirm a plan that provides less favorable treatment to tort claimants

than was received by other tort claimants just prior to the bankruptcy filing?

• Dealing with insurance issues: Where should litigation concerning

the debtor’s insurance coverage take place, and when should coverage issues be resolved? Are the debtor’s insurers parties in interest

who may vote on the plan, object to confirmation, or appeal from

confirmation?

B. Plan Negotiations in a Free-Fall Bankruptcy

Most mass tort bankruptcy cases are eventually resolved by means of negotiation and settlement rather than litigation and judicial resolution of competing positions.479 The key terms of the plan of reorganization, particularly

 479. See, e.g., Gibson, supra note 64, at 170 (discussing negotiated resolution of key issues in

the UNR bankruptcy); id. at 224 (discussing settlement in the Dow Corning bankruptcy). But see
Judicial Management of Mass Tort Bankruptcy Cases

106

those concerning the value and treatment of the tort claims, are usually the

result of a negotiated agreement among most, if not all, of the major constituencies.480 When a mass tort debtor seeks bankruptcy protection without prenegotiating the terms of its plan—a so-called “free-fall” situation—

this process of arriving at a consensual solution during the bankruptcy case

can be lengthy and expensive. The presiding judge therefore needs to consider what role he or she might play in encouraging and facilitating an expeditious negotiated resolution.

Typically in mass tort bankruptcy cases, after an extended period of

contentiousness, the debtor and the tort claimants (represented by the tort

claimants’ committee and the future claims representative) attempt to reach

an agreement concerning (1) the value of the tort claims in relation to other

unsecured claims and (2) the treatment that those claims will receive under

the plan.481 The participants in these negotiations may also include parent

or affiliated companies that will be contributing to the plan and insurers

with whom the debtor is attempting to reach a settlement concerning its

coverage and partial funding of the plan. Because the tort claimants group

is not monolithic, considerable effort may be required to arrive at terms

that will be acceptable to all present and future claimants. Once those parties reach an agreement on a joint plan, they then negotiate with other constituencies (e.g., unsecured creditors’ committee, banks, equity interest

holders, government creditors) in an effort to arrive at a plan that can be

confirmed consensually, thereby avoiding claims estimation proceedings,

litigation, and appeals.482 If all of the constituencies cannot be brought on

board, those parties that have settled will jointly propose a plan and seek a

cramdown of any dissenting classes.483

Since settlement among most of the key constituencies in the case is the

likely outcome, what can a bankruptcy judge do to reduce the time needed

to reach such a resolution? Although there are no hard and fast rules for

facilitating a settlement, and the circumstances of particular mass tort bank-

 In re Armstrong World Indus., Inc., 320 B.R. 523, 527–28 (D. Del. 2005) (discussing unsecured creditors’ committee’s objection to confirmation of plan that it had previously supported,

along with the debtor and the tort claimants).

480. See, e.g., Gibson, supra note 64, at 170, 224.

481. See, e.g., id. at 90–91 (discussing negotiations between the debtor and representatives of

present and future claimants in the Eagle-Picher bankruptcy).

482. See, e.g., id.

483. See, e.g., id. at 235 (discussing confirmation process in the Dow Corning bankruptcy case

and cramdown of three dissenting classes).
V. Negotiating the Plan

107

ruptcies will vary, there are actions the judge can take to influence the negotiation’s success:

1. Unwillingness to accept unproductive acrimony and squabbling

among the parties 

As a result of the debtor’s prebankruptcy litigation, there may be a significant amount of animosity among the parties at the outset of the bankruptcy

case. Such hard feelings can produce entrenched positions that favor litigation over consensual resolutions.484 However, often many of the lawyers

and other professionals in the case will have been involved in other mass

tort bankruptcy cases in which settlements were successfully negotiated.

That experience means that they come into the bankruptcy case with a

framework for engaging in negotiations on a reorganization plan. The judge

presiding over the case should therefore encourage serious settlement discussions sooner rather than later in the case. He or she should indicate at

the outset of the case that unreasonable positions and unnecessary litigation

will not be tolerated.

2. Decisions on the extension or lifting of exclusivity 

As is discussed more fully in the next section,485 the court’s ruling on exclusivity can significantly affect the parties’ willingness to engage in negotiations over a plan. If the debtor’s exclusive right to file a plan remains in

effect, other parties know that their best opportunity to enhance their treatment under the plan comes through negotiating with the debtor. Lifting

exclusivity, in contrast, will give rise to competing plans, litigation, and

appeals.486 The judge therefore needs to give the debtor sufficient time at

the beginning of the case to negotiate a consensual plan. Such an effort will

invariably require some extension of the exclusivity period, although recent

amendments to the Bankruptcy Code will significantly reduce the court’s

authority to grant such extensions.487 The judge can condition continued

extensions on demonstration of progress in negotiations.

 484. See, e.g., id. at 70–75 (discussing “ill will” in the initial phase of the Eagle-Picher bankruptcy case that was “displayed in frequent litigation . . . and a disinclination to compromise”).

485. See infra section V.C.

486. See, e.g., In re UNR Indus., Inc., 72 B.R. 789, 792–93 (Bankr. N.D. Ill. 1987).

487. See infra text accompanying notes 510–13.
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3. Appointment of a mediator 

In a number of mass tort bankruptcy cases, courts have appointed a neutral

third party to assist the parties in reaching a consensual resolution.488 Because of the complexity and multifaceted nature of the required negotiations, it is not feasible for the presiding judge or another judge to serve in

this capacity; an outside mediator should be appointed. Often the debtor

or other parties have requested that the court appoint a mediator, sometimes at a point several years into the case. The court has authority, however, to make such an appointment sua sponte pursuant to local bankruptcy or district court rules.489 Rather than waiting to be asked, therefore,

the judge should determine early in the case whether the appointment of a

mediator might enable the parties to engage in serious negotiations and

avoid expending time and resources on litigation.490 In some situations it

might even be advisable to consider appointing more than one mediator.491

If such an appointment were to be made, the members of the mediation

team could concentrate on different issues, engage in mediation with different combinations of parties, or use different mediation approaches in a vigorous attempt to arrive at a consensual resolution.

Although the judge presiding over one mass tort bankruptcy case appointed an experienced mediator with no prior mass tort experience,492 several other judges have appointed an individual with extensive expertise in

 488. See, e.g., Order Appointing Mediator Nunc Pro Tunc to May 1, 2002 and Directing Mediation, In re Owens Corning, No. 00-3837 (Bankr. D. Del. July 22, 2002); Joint Disclosure

Statement at 97, In re Babcock & Wilcox Co., No. 00-10992 (Bankr. E.D. La. Dec. 19, 2002)

(discussing appointment of a mediator “to assist the Debtors, the ACC, and the FCR in their attempts to move the case towards a consensual resolution”); Order Appointing Mediator, In re Eagle-Picher Indus., Inc., No. 1-91-00100 (Bankr. S.D. Ohio June 5, 1992); Gibson, supra note

64, at 224 (discussing appointment of a mediator in the Dow Corning bankruptcy to assist the

debtor, shareholders, and tort claimants in negotiating a settlement).

489. See 11 U.S.C. § 105(a), (d) (2000); 28 U.S.C. § 651(b) (2000); In re Sargeant Farms,

Inc., 224 B.R. 842, 847 (Bankr. M.D. Fla. 1998) (“[I]t is quite apparent the bankruptcy court has

the authority and power to promulgate rules associated with court-annexed mediation and, where

necessary, to require parties to participate in the same.”); David B. Young, Alternative Dispute Resolution in Bankruptcy, 861 PLI/Comm 863, 894–900 (2004); see, e.g., Del. Local Bankr. R. 9019-

1(a), 9019-3 (authorizing the court to refer any matter arising in a bankruptcy case to mediation

without the parties’ consent).

490. See Civil Litigation Management Manual 68–70 (Federal Judicial Center 2001).

491. This suggestion was included in a proposal to the Federal Judicial Center for a demonstration project on the “focused processing” of asbestos-driven bankruptcy cases. The proposal,

developed by attorney Deanne Siemer, was never implemented. Proposal for a Demonstration Project: Focused Processing for Asbestos-Driven Bankruptcy Cases (Draft submitted 9/6/02).

492. See Order Appointing Mediator, In re Eagle-Picher Indus., Inc., No. 1-91-00100

(Bankr. S.D. Ohio June 5, 1992).
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109

mediating mass tort bankruptcy cases.493 There is an advantage to bringing

in someone who is already knowledgeable about the pertinent issues that

need to be addressed and how they have been resolved in other cases, and

is familiar with many of the parties who will be involved in the negotiations. However, using a repeat player as a mediator may alienate any parties

who believe they received unfair treatment in the earlier cases, and it may

confine discussions unnecessarily to the way things were done in other

cases. Therefore, after seeking suggestions of mediators from the parties, the

judge will need to balance those competing considerations in making an

appointment.

The order appointing a mediator should specify the terms of the appointment, including the amount and timing of compensation and the

length of the appointment. The order should also designate the issues on

which mediation is sought, the frequency of mediation sessions if not left

up to the mediator, the judge’s expectations concerning confidentiality and

reports, and the impact, if any, of the negotiations on other proceedings in

the case.

4. Timing of rulings on key issues 

The court’s ruling, or failure to rule, on key issues in the bankruptcy case

can have a significant effect on the success of the negotiations. The parties

may not be willing to engage in serious negotiations so long as there are

important unresolved issues. For example, they may say that they cannot

negotiate a plan until the court rules on omnibus objections to the tort

claims, motions for the substantive consolidation of related debtors’ cases,

fraudulent transfer actions, or insurance coverage disputes. However, the

bankruptcy court’s ruling on these important issues may lead to appeals

that will engender even more delay and expense before the parties are willing to negotiate the value and treatment of the tort claims and other terms

of a plan. Moreover, a number of mass tort bankruptcy cases have been

resolved by settlement without the court ruling on issues that were said to

be crucial to one or more of the parties.494

 493. See, e.g., Order Appointing Mediator Nunc Pro Tunc to May 1, 2002 and Directing Mediation, In re Owens Corning, No. 00-3837 (Bankr. D. Del. July 22, 2002); Joint Disclosure

Statement at 97, In re Babcock & Wilcox Co., No. 00-10992 (Bankr. E.D. La. Dec. 19, 2002)

(discussing appointment of the same individual as mediator); Gibson, supra note 64, at 224 (discussing appointment of the same mediator in the Dow Corning bankruptcy).

494. See, e.g., Gibson, supra note 64, at 223 (discussing consensual resolution of the Dow

Corning bankruptcy case without the issuance of a ruling on the debtor’s omnibus objection to

claims based on lack of causation); see also Ex Parte Unopposed Joint Motion to Further Continue
Judicial Management of Mass Tort Bankruptcy Cases

110

So how will a judge know whether making a ruling or withholding a

ruling will be more likely to encourage settlement? The judge will not

know for sure, unfortunately. Although the parties will want as much certainty as possible, uncertainty can create pressure to settle. Moreover, the

goal in settlement is to avoid the costs of obtaining a judicial resolution of

ultimate issues. The judge therefore needs to consider whether an issue

raised by one of the parties is a fundamental one whose resolution is necessary for the parties to structure a settlement or whether it is one on which

the parties may be able to arrive at a compromise.495

If a judge believes, however, that with encouragement it may be possible to achieve a negotiated settlement early in a mass tort case, he or she

might consider staging the case by focusing the parties’ efforts initially on

mediation of the tort claims. All litigation could be put on hold for a stated

period of time while the parties attempt to arrive at the basic terms of a consensual plan. At the end of the mediation period, the judge could consider

whether to extend the period further, allow the litigation of some issues

while continuing the mediation effort, or abandon the mediation effort altogether. At least for some cases in which the mass tort is fully mature and

patterns for resolution in bankruptcy have been well established, such as

those involving asbestos, this approach might significantly reduce the time

required for a resolution.496

C. Extension of Exclusivity

In a chapter 11 case in which no trustee is appointed, section 1121(b) of

the Bankruptcy Code gives the debtor the exclusive right to file a reorganization plan in the case for a period of 120 days after the date of the order

for relief. If the debtor files a plan within that time period, then it has the

exclusive right to obtain acceptances of its plan until 180 days after the date

of the order for relief.497 The court may reduce or increase both of these

 and Reschedule Hearing on Debtors’ Joint Motion for Entry of a Case Management Order(s)

Respecting Procedures Governing the Debtors’ First Omnibus Objections to Asbestos Related

Claims, In re Babcock & Wilcox Co., No. 00-0558 (E.D. La. Feb. 5, 2004) (seeking further

continuation of hearing on omnibus objection because the previously filed consensual plan might

render the objections moot).

495. See generally MCL 4th, supra note 3, § 13.11.

496. The idea of staging a mass tort bankruptcy case by initially focusing on settlement efforts

was at the core of Ms. Siemer’s proposal for a demonstration project on focused processing of asbestos bankruptcy cases. See supra note 491.

497. 11 U.S.C. § 1121(c)(3) (2000).
V. Negotiating the Plan

111

time periods, however, for cause.498 A recent amendment to section 1121,

which takes effect in October 2005, will significantly restrict the court’s

authority to extend both time periods.499

A debtor seeking an extension of the exclusivity period bears the burden of establishing cause for granting its motion.500 Determination of cause

is left to the bankruptcy court’s discretion, based on the particular facts and

circumstances of the case before it. Courts have frequently identified the

following factors to be considered in determining whether there is cause to

increase the period of exclusivity:

• the size and complexity of the case;

• the necessity of sufficient time to permit the debtor to negotiate a

plan of reorganization and to prepare adequate information;

• the existence of good faith progress toward reorganization;

• the debtor’s payment of its bills as they become due;

• the debtor’s demonstration of reasonable prospects for its filing a

viable plan;

• the debtor’s progress in negotiations with its creditors;

• the time that has elapsed in the case;

• concern that the debtor is seeking an extension of exclusivity in order to pressure creditors to submit to the debtor’s reorganization

demands; and

• the existence of an unresolved contingency.501

In ruling on motions to extend exclusivity, judges are guided by the

congressional intent underlying section 1121.502 In particular, judges have

pointed to legislative history indicating that “‘an extension should not be

 498. Id. § 1121(d).

499. See infra text accompanying notes 510–13.

500. See, e.g., In re Dow Corning Corp., 208 B.R. 661, 663 (Bankr. E.D. Mich. 1997); In

re Homestead Partners, Ltd., 197 B.R. 706 (Bankr. N.D. Ga. 1996).

501. In re Express One Int’l, Inc., 194 B.R. 98, 100 (Bankr. E.D. Tex. 1996); see also In re

Gibson & Cushman Dredging Corp., 101 B.R. 405, 409–10 (E.D.N.Y. 1989); In re Dow Corning, 208 B.R. at 664–65.

502. See generally Tabb, supra note 95, at 809 (describing congressional compromise underlying section 1121, “which gives the debtor the first chance to put an acceptable plan together,” thus

avoiding deterring the debtor from “filing for needed chapter 11 relief, and at the outset [requiring]

all parties . . . to sit down together at the bargaining table,” while not giving the debtor “the power

to stall creditors into submission”).
Judicial Management of Mass Tort Bankruptcy Cases

112

employed as a tactical device to put pressure on parties in interest [to] yield

to a plan they consider unsatisfactory.’”503

In mass tort bankruptcy cases, courts typically grant several extensions

of the debtor’s exclusivity period. Some sources cite six years as the average

duration of an asbestos bankruptcy case.504 The fact that the debtor has generally retained exclusivity throughout these cases means that numerous extensions have been granted. In some cases bankruptcy courts have granted

successive motions to extend exclusivity to a definite date;505 in other cases

they have extended exclusivity for an indefinite period and the extension is

dependent upon continuing progress in the case.506 In cases in which the

court has granted an indefinite or lengthy extension of exclusivity, it has

placed the burden on non-debtor parties who seek to reduce or terminate

the debtor’s exclusivity period to show cause under section 1121(d).507

The complexity of mass tort bankruptcy cases has been the primary

justification for repeated extensions of exclusivity. Unless a plan is negotiated in advance of bankruptcy, it is unrealistic to think that the debtor will

be able to file a consensual plan within a matter of months. Thus, courts

have been willing to give debtors years, rather than months, to file a plan.

Although courts have been concerned about the mounting costs engendered by these lengthy cases, they have been even more concerned about

the greater harms that could result from terminating exclusivity. One court

explained its decision to continue exclusivity as follows:

 503. Official Unsecured Creditors’ Comm. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher

Indus., Inc.), 176 B.R. 143, 147 (Bankr. S.D. Ohio 1994) (quoting S. Rep. No. 95-989, at 118

(1978)).

504. See, e.g., In re Owens Corning, No. 00-3837, 2004 Bankr. LEXIS 78, at *122 (Bankr.

D. Del. Feb. 2, 2004); Stephen J. Carroll et al., RAND Inst. for Civil Justice, Asbestos Litigation

118 (2005).

505. See, e.g., In re UNR Indus., Inc., 72 B.R. 789, 796 (Bankr. N.D. Ill. 1987) (“The time

in which UNR shall have the exclusive right to file plans of reorganization is hereby extended for an

additional 60 days, until July 31, 1987, or until such other date as the Court shall, upon notice to

the parties, determine.”).

506. See, e.g., In re Dow Corning Corp., 208 B.R. 661, 662–63 (Bankr. E.D. Mich. 1997)

(“The May 16, 1996, order extended the Debtor’s exclusive period to file a plan until 21 days after

the Court ruled on the competing estimation motions and also extended the Debtor’s exclusivity

period to seek acceptances to that plan ‘until further order of the Court.’”); Official Unsecured

Creditors’ Comm., 176 B.R. at 146 (“[T]he court has upon timely motion extended that [exclusive]

period, and pursuant to our mediation order, exclusivity is to continue at least until 60 days after

impasse is declared.”).

507. In re Dow Corning Corp., 208 B.R. at 663 (“As a general rule, the party seeking to terminate or modify a debtor’s exclusivity period bears the burden of proof since it is the moving party

who seeks to change the status quo.”).
V. Negotiating the Plan

113

In the opinion of this Court a negotiated, consensual plan of reorganization is the best route to take. The alternative which might be brought on if

the exclusive period were ended could be disastrous. The claims in this case

could very well exceed the value of the corporation, leaving nothing or very

little for equity shareholders. With everything to lose, the equity shareholders

have every incentive to litigate those legal issues which have a bearing on

UNR’s solvency. . . . At best, these matters could be resolved in five years. Realistically, after all the appeals are taken, it could take a decade to resolve these

matters. If the UNR bankruptcy has to be resolved through litigation there

would be few winners, if any.

508

As another court put it, “The end of exclusivity would result in competing plans . . . . The problems and complexities in the slow and painful

process of building this consensus . . . would exponentially explode in the

context of competing plans advanced by parochial interests.”509

The Bankruptcy Abuse Prevention and Consumer Protection Act of

2005 includes an amendment to section 1121(d) that will significantly

restrict the court’s authority to grant repeated extensions of the debtor’s

period of exclusivity.510 According to new section 1121(d)(2), which takes

effect in October 2005,511 a court may not extend the 120-day exclusivity

period “beyond a date that is 18 months after the date of the order for relief,”512 and the 180-day period may not be extended beyond 20 months

after the order for relief.513 It remains to be seen whether the impact of this

amendment in mass tort bankruptcy cases will be to expedite the parties’

negotiations and reduce the time required for plan confirmation or, alternatively, to give rise to competing plans, increased litigation, and an increased

time for resolution.

To facilitate the negotiation of a consensual plan, some courts have

coupled the extension of exclusivity with the appointment of a mediator or

examiner to assist the parties in resolving their differences.514 The court has

 508. In re UNR Indus., Inc., 72 B.R. at 792–93; see also In re Dow Corning Corp., 208 B.R.

at 669–70 (taking into account the “chaos factor” caused by terminating exclusivity); Official Unsecured Creditors’ Comm., 176 B.R. at 148 (expressing view that terminating exclusivity would undermine prospects for prompt resolution of the case).

509. Manville Corp. v. Equity Security Holders Comm. (In re Johns-Manville Corp.), 66

B.R. 517, 537 (Bankr. S.D.N.Y. 1986).

510. Pub. L. No. 109-8, § 411, 119 Stat. 23, 106–07 (2005).

511. Id. § 1501(a), 119 Stat. at 216.

512. Id. § 411, 119 Stat. at 106.

513. Id., 119 Stat. at 107.

514. See, e.g., In re Keene Corp., 188 B.R. 903, 912 n.11 (Bankr. S.D.N.Y. 1995) (“Following an evidentiary hearing in connection with Keene’s motion to extend exclusivity, we appointed an

examiner to supervise plan negotiations and report back to the Court. To ensure that supervised
Judicial Management of Mass Tort Bankruptcy Cases

114

then tied the continuation of exclusivity to continued progress in the negotiations and directed the mediator to report back to the court periodically.515

This technique is one that a judge should consider using in a mass tort

bankruptcy case.

The court’s control over exclusivity should be seen as a means to an

end. When the court is asked to extend or terminate the debtor’s exclusive

period for filing a plan, “the primary consideration should be whether . . .

doing so would facilitate moving the case forward.”516 If the court can strike

a proper balance between giving the debtor time to negotiate a consensual

plan and preventing the case from languishing unnecessarily, the prospects

for a successful conclusion of the bankruptcy will be enhanced.

D. Handling of Prepackaged Bankruptcies

A recent development in the evolution of mass tort bankruptcies has been

the use of so-called prepackaged chapter 11 plans.517 Companies’ attempts

to use these plans to resolve mass tort liability have raised a number of legal

issues that have received only limited appellate court guidance. However,

these plans offer the promise of a more expeditious and less expensive

means of confirming a reorganization plan that relieves the debtor from

further tort liability and establishes a trust for payment of present and future tort claims.518 In considering the confirmation of such plans, judges

should ensure that the interests of those groups without a direct voice in

the prepetition negotiations, including future tort claimants and insurers,

are not unfairly treated by the plan’s terms.

The statutory authority for prepackaged mass tort bankruptcies is section 1126(b) of the Bankruptcy Code.519 That provision permits the court

to consider in the confirmation process votes on the plan by creditors and

 negotiations took place, we directed the parties to meet every Thursday afternoon from at least 2:00

p.m. to 5:00 p.m., and gave them the option to meet more frequently.”).

515. See, e.g., id.; Official Unsecured Creditors’ Comm., 176 B.R. at 146.

516. In re Dow Corning Corp., 208 B.R. at 670.

517. See Ronald Barliant et al., From Free-fall to Free-for-all: The Rise of Pre-Packaged Asbestos Bankruptcies, 12 Am. Bankr. Inst. L. Rev. 441 (2004).

518. The Third Circuit recently vacated the confirmation of one mass tort prepackaged chapter

11 plan, but in doing so suggested that “pre-packaged bankruptcy may yet provide debtors and

claimants with a vehicle for the general resolution of asbestos liability.” In re Combustion Eng’g,

Inc., 391 F.3d 190, 201 (3d Cir. 2004).

519. Some bankruptcy courts have issued administrative orders establishing procedural guidelines for prepackaged chapter 11 cases. See, e.g., Admin. Order 201 (Bankr. S.D.N.Y. Feb. 2,

1999); Gen. Order No. 03-11 (Bankr. S.D. Ind. Sept. 18, 2003).
V. Negotiating the Plan

115

shareholders taken before the commencement of the bankruptcy case, so

long as the voting was preceded by adequate disclosure as defined by either

section 1125(a) of the Code or applicable nonbankruptcy law. Because the

plan has already been negotiated and voted on when the debtor files for

bankruptcy, the case can proceed directly to the confirmation stage. Depending on the court’s calendar, it is possible that just a few weeks into the

case the court can hold a hearing at which it considers both the adequacy of

the prepetition disclosure and whether the plan should be confirmed. If

used in a mass tort case, this process can shorten to a few weeks or months

what typically would be a case that lasts several years. However, until the

appellate courts definitively resolve the legal issues surrounding a mass tort

prepackaged bankruptcy, the pursuit of appeals by parties who object to the

plan confirmation order may delay plan implementation for an extended

period, thus reducing some of the hoped-for benefits of this method.

The first prepackaged mass tort bankruptcy was filed in 1998 by

Fuller-Austin Installation Company in the District of Delaware.520 Less

than a year before the filing, the company initiated negotiations with a

group of attorneys representing a large number of asbestos claimants. These

attorneys agreed to cease filing new cases against Fuller-Austin while the

negotiations were pending, although they proceeded with already-filed

cases. The company, its parent, the group of plaintiffs’ attorneys, and a

representative selected by the company to represent future claimants negotiated a reorganization plan that provided for a trust to pay present and future asbestos claims.521 The trust was to be funded by insurance proceeds

and a cash contribution from the parent company. The debtor submitted

the plan, accompanied by disclosure materials, to creditors for approval.

The vote was overwhelmingly favorable.522

Fuller-Austin then filed a chapter 11 petition on September 4, 1998.

At that time it also filed with the bankruptcy court the disclosure statement,

the plan of reorganization, the notice to creditors, and an affidavit of accountants certifying the results of the voting on the plan. It also obtained

court approval of the legal representative of future claimants and retention

of counsel for the representative, along with other first-day orders. Ten

days after filing, the company sought approval of its disclosure statement

 520. In re Fuller-Austin Insulation Co., No. 98-2038-JJF (D. Del. filed Sept. 4, 1998).

521. Joseph F. Rice & Nancy Worth Davis, The Future of Mass Tort Claims: Comparison of

Settlement Class Action to Bankruptcy Treatment of Mass Tort Claims, 50 S.C. L. Rev. 405, 449

(1999).

522. Id. at 450.
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116

and confirmation of the plan of reorganization.523 A group of insurers objected to approval of the disclosure statement and confirmation, stating that

the plan would “‘summarily adjudicate the[ir] liability . . . under excess

insurance policies’” and thus affect the resolution of pending coverage litigation against the debtor.524 They contended that the plan sought to bind

them to a determination of liability contrary to the terms of their insurance

agreements with the debtor.

In response to the insurers’ objections, the debtor amended the plan to

add a provision stating that all claims and defenses of the insurers would

be resolved in the coverage litigation and that the insurers’ rights under the

insurance policies would be unaffected by the plan and confirmation order.

In light of that change, the district court held that the insurers were not

parties in interest with standing to object to confirmation or approval of the

disclosure statement. The court therefore dismissed their objections525 and

later confirmed the plan.

In some of the more recently filed prepackaged asbestos bankruptcy

cases, the payment of the tort claims has been structured differently than it

was in the Fuller-Austin case.526 In these cases, the debtor company, often

with its parent corporation, negotiated with a group of plaintiffs’ lawyers a

two-part structure for the resolution of asbestos claims. A prebankruptcy

trust was established to pay a large group of existing claims according to a

schedule negotiated with the lawyers representing the plaintiffs. Some of the

claims were paid in full, others received only partial payment, and the rest

were to be paid in bankruptcy.527 The debtor and the plaintiffs’ lawyers

then negotiated a plan of reorganization with the added participation of a

designated future claims representative. The plan provided for the creation

of a bankruptcy trust under the authority of section 524(g) of the Bankruptcy Code, which would be used to pay the remaining present claims

and all future claims. Often full funding of the bankruptcy trust was left to

rest on the outcome of coverage litigation with the debtor’s insurers. Fol-

 523. In re Fuller-Austin Insulation, No. 98-2038-JJF, 1998 WL 812388 (D. Del. Nov. 10,

1998) at *1.

524. Id. (quoting insurers’ objections).

525. Id. at *3.

526. See generally Mark D. Plevin et al., Pre-Packaged Asbestos Bankruptcies: A Flawed Solution, 44 S. Tex. L. Rev. 883, 889–906 (2003).

527. See In re Combustion Eng’g, Inc., 391 F.3d 190, 205, 238 (3d Cir. 2004) (describing

structure of prebankruptcy settlement trust, which provided payments to asbestos claimants ranging

from 37.5% to 95% of the liquidated value of their claims, and left the unpaid portion to be paid by

the bankruptcy trust).
V. Negotiating the Plan

117

lowing overwhelming approval of the plan by asbestos claimants, the

debtor filed a chapter 11 bankruptcy and promptly sought approval of the

disclosure statement and confirmation of the plan.

Confirmation in several of these cases was opposed by insurance companies that had not settled with the debtor and by some asbestos claimants

whose lawyers had not participated in the prebankruptcy negotiations.528 In

the Combustion Engineering529 and J.T. Thorpe530 cases, the plans were confirmed, but the Third Circuit vacated the confirmation order in Combustion Engineering.531 In the ACandS case, the bankruptcy court denied confirmation.532

Because of the novelty of this means of resolving mass tort liabilities,

prepackaged plans present a number of yet-to-be-resolved legal issues. The

following discussion highlights some of these issues.

1. Role of the future claims representative

As previously discussed,533 the appointment of a future claims representative is essential to the protection of the due process rights of future claimants. Moreover, the appointment of such a representative is statutorily required for the issuance of a channeling injunction pursuant to section

524(g) of the Bankruptcy Code.534 The judge presiding over a mass tort

bankruptcy case must therefore make a careful decision concerning whom

to appoint to this important position. In a prepackaged bankruptcy, however, a future claims representative is designated prior to the bankruptcy

filing and thus by someone other than the judge. Once the bankruptcy case

is filed, the judge will be asked to appoint the previously designated representative as the future claims representative in the case. The bankruptcy

judge at that point will have to either approve the person who has already

served in that position or deny the request and appoint someone new. The

 528. See, e.g., id. at 213–14 (listing groups of insurers and cancer claimants who appealed

from confirmation of the prepackaged plan); In re Fuller-Austin, 1998 WL 812388 at *1 (noting

that insurers filed objections to confirmation); In re ACandS, Inc., 311 B.R. 36, 41 (Bankr. D.

Del. 2004) (stating that an insurer “raised numerous objections to the plan under § 1129”).

529. In re Combustion Eng’g, Inc., 295 B.R. 459 (Bankr. D. Del. 2003), vacated & remanded, 391 F.3d 190 (3d Cir. 2004).

530. In re J.T. Thorpe Co., 308 B.R. 782 (Bankr. S.D. Tex. 2003), aff’d, 2004 WL 720263

(S.D. Tex. 2004).

531. In re Combustion Eng’g, Inc., 391 F.3d 190 (3d Cir. 2004).

532. In re ACandS, Inc., 311 B.R. 36 (Bankr. D. Del. 2004).

533. See supra section III.G.1.b.

534. 11 U.S.C. § 524(g)(4)(B)(i) (2000).
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118

latter choice permits an independent future claims representative to review

the plan previously agreed to by the prepetition representative,535 but it will

necessarily cause significant delay in the confirmation process. The debtor

might contend that because only a small group of lawyers serve as future

claims representatives in the asbestos bankruptcies, the person it selected to

negotiate a prepackaged plan on behalf of the future claimants is likely to be

among those whom the court would appoint in any event. Even if that is

so, the fact that the prepetition representative was selected and paid directly

by the debtor, rather than being an appointee of the court, raises concerns

that the court must consider in deciding whether to appoint that person as

the future claims representative in the bankruptcy case.536

Of perhaps even greater significance than the issue of who initially appoints the future claims representative is the issue of the role the representative is allowed to play in the negotiations leading up to the prepackaged

plan. Courts and commentators have raised concerns about the fact that in

some of the recent prepackaged cases the future claims representative was

designated after the debtor and the plaintiffs’ attorneys had negotiated the

terms of settlement of their existing cases and after the debtor had transferred substantial assets to the prebankruptcy trust.537 Thus, “the hands of

the person chosen by the debtor to negotiate plan terms on behalf of future

claimants are tied by the terms of the deal already negotiated by the debtor

and [attorneys for present claimants].”538 Furthermore, because the negotiations take place outside the judicial process, the future claims representative

 535. See Resnick, supra note 46, at 2080–81 (“A new, independent legal representative appointed after the filing of the bankruptcy case, with sufficient time to review any proposed estimation

or settlement and an opportunity to vote on the proposed plan on behalf of future claimants, should

be required.”).

536. See Barliant et al., supra note 517, at 453 (“[W]here the FCR is selected and compensated by his adversaries, the bargain agreed to is questionable.”); Plevin et al., supra note 526, at

916–17 (“[B]ecause the person representing future claimants is not a court appointee when the

negotiations are taking place, the debtor has the ability to terminate him or her if the negotiations

get too tough.”).

537. See In re Combustion Eng’g, Inc., 391 F.3d 190, 245 (3d Cir. 2004) (noting possible

due process concerns presented by the fact that “the first phase of the integrated global settlement—

the establishment of the CE Settlement Trust—included neither representation nor funding for

future and other non-participating claimants”).

538. Plevin et al., supra note 526, at 915. But see In re Combustion Eng’g, Inc., 391 F.3d at

206 (noting that during the negotiations the future claims representative insisted that the debtor’s

parent corporation increase its financial contribution to the plan).
V. Negotiating the Plan

119

does not have access to discovery to compel the debtor to turn over information that it does not choose to reveal.539

The serious due process issues presented by the inclusion of future

claimants within the scope of any bankruptcy resolution of mass tort claims

are exacerbated by the use of a prepackaged plan.540 Therefore, when presented with such a plan and a request to approve the future claims representative who was involved with its negotiation, a bankruptcy judge should

not only carefully scrutinize the representative’s qualifications, but also examine the role the representative played in negotiating the plan to determine the adequacy of representation of future claimants’ interests.

2. Inequality of treatment of claims

A noticeable difference between prepackaged asbestos bankruptcy cases and

traditional asbestos bankruptcy cases is the two-trust-fund structure of the

recent prepackaged cases. The result of establishing a prebankruptcy trust

to pay some of the present claims and a postbankruptcy trust to pay the

other present claims and all future claims is that similar claims may end up

being treated very differently. Some asbestos claimants will be paid in full,

while other claimants with similar diseases and similar evidence of exposure may be paid very little or nothing at all. This disparity of treatment

was one of the reasons that the Third Circuit overturned the confirmation

order in the Combustion Engineering case.541

The difference in treatment of similar claims in the J.T. Thorpe prepackaged case was summarized by a commentator as follows:

[S]ome current claimants were paid in full, right before the filing of the

bankruptcy case, by the pre-petition trust; other current claimants received

full or partial security interests for their claims against the post-petition trust;

still other current claimants did not receive any security, and faced the prospect of being paid only pennies on the dollar by the post-petition trust (and,

in contrast to those current claimants paid before the bankruptcy case was

filed, would be paid only after a considerable delay). . . . Since future claimants cannot qualify for payment by the pre-petition trusts, they will receive

much lower recoveries than current claimants with similar diseases or conditions.

542

 539. Plevin et al., supra note 526, at 916. If the future claims representative were to be denied

information that he or she sought, a serious question would be presented as to whether the prebankruptcy disclosure was adequate.

540. See In re Combustion Eng’g, Inc., 391 F.3d at 245.

541. See id. at 239.

542. Plevin et al., supra note 526, at 911.
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In the ACandS case, differences in treatment of similar claims led the

bankruptcy judge to deny confirmation of the plan.543 The judge concluded that the plan discriminated between present and future claims and

even among present claims, not because of medical differences, but “rather

because, for whatever reason, the[] [favored claimants] were first in line and

able to carve out seemingly unassailable security interests.”544 Such discrimination, he held, was inconsistent with section 524(g)(2)(B)(ii)(V) of

the Bankruptcy Code, and thus the plan did not comply with the applicable provisions of title 11, as required by section 1129(a)(1). The judge

also concluded that the plan was not proposed in good faith, as required by

section 1129(a)(3), because it was “fundamentally unfair that one claimant

with non-symptomatic pleural plaques will be paid in full, while someone

with mesothelioma runs the substantial risk of receiving nothing.”545

Similarly, the Third Circuit concluded in the Combustion Engineering

case that “the pre-petition payments to the CE Settlement Trust participants

and the use of stub claims to secure confirmation votes may violate the

Bankruptcy Code and the ‘equality among creditors’ principle that underlies it.”546 The court of appeals expressed concern that the debtors’ “prepetition side agreement with a privileged group of asbestos claimants”547

might have “impermissibly discriminate[d] against certain asbestos personal injury claimants,”548 might have constituted an avoidable preference,549 and might have violated the good faith requirement of section

1129(a)(3).550 The court vacated the confirmation order and remanded the

case to the district court for fact finding on all of these and other issues.

 543. In re ACandS, Inc., 311 B.R. 36, 42 (Bankr. D. Del. 2004). Cf. MCL 4th, supra note 3,

§ 22.923 (discussing criteria for approval of a class action settlement, including avoiding dissimilar

treatment for class members with similar claims).

544. Id.

545. Id. at 43.

546. In re Combustion Eng’g, Inc., 391 F.3d at 202. The court noted expert testimony stating

that “while CE Settlement Trust participants recover, on average, 59% of the liquidated value of

their claims, future claimants would recover 18% of the liquidated value of their claims under the

Asbestos PI Trust.” Id. at 242.

547. Id. at 244.

548. Id. at 239. The court of appeals also agreed with appellants that the use of stub claims,

which allowed claimants paid by the prebankruptcy trust to vote on the bankruptcy plan based on

the unpaid portion of their claims, may have constituted “artificial impairment” under section

1129(a)(10). Id. at 242–45.

549. Id. at 240. Combustion Engineering transferred some $400 million in assets to the prebankruptcy trust eighty-seven days before it filed its bankruptcy petition, and thus the transfer fell

within the preference period. Id. at 238.

550. Id. at 247.
V. Negotiating the Plan

121

Some courts, however, have confirmed prepackaged plans that provided less favorable treatment for claimants paid by the postbankruptcy

trust than was received by those paid by the prebankruptcy trust.551 In

support of that position, section 524(g) only requires that “the trust [created by the confirmed plan] . . . value, and be in a financial position to

pay, present claims and future demands that involve similar claims in substantially the same manner.”552 It does not require that payments from the

bankruptcy trust be substantially similar to payments that were made before

bankruptcy. The Bankruptcy Code therefore might be read as permitting

in this context, as in bankruptcy generally, less favorable treatment for

claimants who are paid pursuant to a confirmed plan than was received by

other claimants prior to bankruptcy, so long as the prebankruptcy payments were made outside the preference period and cannot otherwise be

avoided.

Whether or not a court finds the two-trust structure of the prepackaged

asbestos bankruptcies to violate section 524(g) or more general bankruptcy

policy favoring equality of treatment depends on how the court views the

debtor’s proposed resolution of the tort claims. If the court views the plan

creating the postbankruptcy trust in isolation, then only that trust has to

provide even-handed treatment to the claims it pays. If the court views the

plan as one element of a package of negotiations leading up to a dual-trust

structure, then the court is likely to conclude that similar claims should

receive similar treatment regardless of which trust pays them. The Third

Circuit in Combustion Engineering took the latter, more realistic view, and,

as a result, vacated confirmation of the plan.553

3. Self-dealing of prepetition committee

A concern closely related to the inequality of treatment of similar claims

involves the role played by the prepetition committee of plaintiffs’ counsel

who negotiate the prepackaged plan with the debtor. Critics have com-

 551. See In re J.T. Thorpe Co., 308 B.R. 782 (Bankr. S.D. Tex. 2003), aff’d, 2004 WL

720263 (S.D. Tex. 2004); In re Combustion Eng’g, Inc., 295 B.R. 459 (Bankr. D. Del.), vacated

& remanded, 391 F.3d 190 (3d Cir. 2004).

552. 11 U.S.C. § 524(g)(2)(B)(ii)(V) (2000) (emphasis added).

553. See In re Combustion Eng’g, Inc., 391 F.3d at 241 (“[W]e consider the bankruptcy

scheme as an integrated whole in order to evaluate whether Plan confirmation is warranted.”); id. at

241 n.55 (“Only after analyzing the totality of circumstances surrounding a reorganization plan can

the court exercise the informed, independent judgment which is an essential prerequisite for confirmation of a plan.”) (internal quotation marks omitted); id. at 242 (referring to the “interdependent,

two-trust framework”).
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122

plained that this handpicked group negotiates favorable settlement terms

for its own clients, leaving other present and all future claimants to seek

compensation under less favorable terms from the postbankruptcy trust.554

Unlike an official committee of unsecured creditors appointed during a

chapter 11 case, these attorneys owe no fiduciary duty to claimants other

than their clients.555

The “obvious self-dealing” of the prepetition committee was one of the

chief factors that led the bankruptcy judge in the ACandS case to decline to

confirm the plan on the ground of lack of good faith.556 In another case, the

plaintiffs’ lawyer who negotiated the prepackaged plan with the debtor and

then encouraged other plaintiffs’ attorneys to support it received a payment

of $20 million from the debtor’s parent corporation for his efforts. The

bankruptcy court determined that the attorney had an actual conflict of interest as a result of the payment and barred him from any further participation with the postbankruptcy trust. The court concluded, however, that the

prepetition solicitation and vote were not tainted by this conflict and that

the plan could be confirmed.557

A judge presented with a prepackaged mass tort plan needs to be fully

informed about the circumstances surrounding the prepetition negotiations

in order to determine whether the process has been tainted by conflicts of

interest or self-interested actions by the participants. This information may

affect the judge’s ruling on a number of critical issues, including the adequacy of prepetition disclosure and the effect of the prepetition vote, the

adequacy of representation of future claimants, the membership of any

postpetition tort claimants’ committee, and the fairness of any differences in

treatment of similar claims.

E. Dealing with Insurance Issues

In some mass tort bankruptcy cases, a critical issue in the negotiation of the

reorganization plan will be the amount of insurance that will be available

for compensation of the tort claimants. If the prepetition tort litigation did

not already exhaust the debtor’s available insurance, the debtor and other

 554. See, e.g., Plevin et al., supra note 526, at 910–11. See also In re Combustion Eng’g, Inc.,

391 F.3d at 245 (“[A] disfavored group of asbestos claimants, including the future claimants and

the Certain Cancer Claimants, were not involved in the first phase of this integrated settlement.”).

555. Plevin et al., supra note 526, at 910.

556. In re ACandS, Inc., 311 B.R. 36, 43 (Bankr. D. Del. 2004).

557. In re Combustion Engineering, Inc., 295 B.R. 459 (Bankr. D. Del. 2003), vacated &

remanded on other grounds, 391 F.3d 190 (3d Cir. 2004).
V. Negotiating the Plan

123

parties may look to the insurers to play a significant role in the funding of

the tort claimant trust. The insurers, however, may very well dispute the

existence and scope of their liability under their respective policies with the

debtor if those issues were not resolved prior to the debtor’s bankruptcy.

They may also challenge the methods the debtor and others propose for

resolving the tort claims, as well as the total value attributed to those claims.

And those insurers that do agree to contribute to the funding of the trust

will expect in return to receive protection from further litigation related to

the debtor’s product, which may raise issues about the court’s authority to

authorize such protection.

Because of the critical role that insurance may play, a judge presiding

over a mass tort bankruptcy should ascertain in the early stages of the case

the amount of the debtor’s unexhausted insurance coverage and whether

coverage is disputed. This information will help the judge determine

whether resolution of insurance issues is likely to be a key to the successful

negotiation of the plan and how directly involved the bankruptcy court

needs to be in promoting a resolution of those issues.

1. Coverage litigation

At the time that a mass tort debtor files for bankruptcy, lawsuits may already be pending in state or federal court between the debtor and insurers

to determine the scope of insurance coverage for the tort claims. Any such

suits brought by an insurer against the debtor will be halted by the automatic stay,558 which may lead the insurer to seek relief from the stay in the

bankruptcy court so that the issue can be resolved in the non-bankruptcy

court.559 A prepetition coverage suit brought by the debtor will not be

stayed, and the debtor may seek to remove or transfer any pending coverage

litigation to the bankruptcy court presiding over its chapter 11 case.560 Furthermore, whether or not prepetition coverage suits are pending, the debtor

may initiate an adversary proceeding in the bankruptcy court to determine

the existence and scope of insurance coverage.561 The bankruptcy court

 558. See 11 U.S.C. § 362(a)(1) (2000) (providing that the filing of a bankruptcy petition operates as a stay of “the commencement or continuation . . . of a judicial . . . proceeding against the

debtor that was . . . commenced before the commencement of the [bankruptcy] case”).

559. See id. § 362(d)(1) (authorizing the court to grant relief from the stay “for cause”).

560. See, e.g., Certain Underwriters at Lloyd’s London v. ABB Lummus Global, Inc., No. 03

Civ. 7248(JGK), 2004 WL 224505 (S.D.N.Y. 2004).

561. See, e.g., U.S. Brass Corp. v. Aetna Cas. & Sur. Co. (In re U.S. Brass Corp.), 173 B.R.

1006 (Bankr. E.D. Tex. 1994).
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therefore may have to determine where and when these coverage issues

should be resolved.

Whether in response to a request for relief from the stay or a motion to

remand or abstain, the bankruptcy judge’s determination of where the coverage issues should be resolved will require that the bankruptcy judge consider a number of factors, including the following:

• the importance of the coverage issue to the plan negotiations;

• the novelty and complexity of the state insurance law issues;

• the likely time frame for a resolution in the non-bankruptcy court;

and

• whether the judge wants to directly oversee the resolution of the

coverage issues.562

Although there is some disagreement among courts over whether a coverage

dispute between a debtor and its insurer is a core or non-core proceeding,563 it clearly comes within section 1334(b)’s conferral of bankruptcy

jurisdiction, since it is at least related to the bankruptcy case.564 Thus, the

bankruptcy court has authority to hear the proceeding if it so chooses. That

decision may, however, be affected by the timing issue.

All insurance coverage issues do not necessarily have to be resolved

prior to plan confirmation.565 Litigation over some policies might be deferred because the debtor assigns its rights under the policies to the trust,

which following confirmation will pursue litigation to determine the extent

of coverage.566 Alternatively, the plan may provide that the debtor will continue to prosecute coverage actions, and the insurance proceeds resulting

from any successful suits will go to either the debtor or the trust.567 De-

 562. See, e.g., U.S. Brass Corp. v. Cal. Union Ins. Co., 198 B.R. 940, 947–49 (N.D. Ill.

1996), aff’d, 110 F.3d 1261 (7th Cir. 1997).

563. Compare, e.g., U.S. Lines, Inc. v. Am. S.S. Owners Mut. Prot. & Indem. Assoc. (In re

U.S. Lines), 197 F.3d 631 (2d Cir. 1999) (holding that a coverage suit was a core proceeding),

with In re U.S. Brass Corp., 110 F.3d 1261 (7th Cir. 1997) (holding that coverage suits were

non-core proceedings).

564. See, e.g., In re U.S. Brass Corp., 110 F.3d at 1268–69.

565. See, e.g., Harbison-Walker Refractories Co. v. Ace Prop. & Cas. Ins. Co. (In re Global

Indus. Techs., Inc.), 303 B.R. 753, 759 n.10 (Bankr. W.D. Pa. 2004) (“[A]t some point insurance companies who do not settle with the debtors will have an opportunity to resolve coverage

issues in an appropriate forum and within the parameters of either the bankruptcy case or the postbankruptcy Asbestos PI Trust and the corresponding Trust Distribution Procedures.”), vacated &

modified in part on other grounds, 2004 WL 555418 (Bankr. W.D. Pa. Feb. 3, 2004).

566. See, e.g., In re Fuller-Austin Insulation, No. 98-2038-JJF, 1998 WL 812388 at *2 (D.

Del. Nov. 10, 1998).

567. See, e.g., UNR Indus., Inc. v. Cont’l Cas. Co., 942 F.2d 1101 (7th Cir. 1991).
V. Negotiating the Plan

125

pending on the clarity of the governing state law and on the importance of

these postconfirmation suits to implementation of the plan, the bankruptcy

judge may decide that the suits should be resolved in the bankruptcy court

or that their resolution is appropriately left to the non-bankruptcy courts in

which they were originally filed.

In cases in which the disputed insurance proceeds will be essential for

the funding of the tort claimant trust, however, it may not be possible to

negotiate and confirm a plan until the coverage issues are resolved. In such

cases, the bankruptcy court will want to ensure as expeditious a resolution

as possible, and, for that reason, may decide to exercise jurisdiction itself

over any coverage action that has been transferred to it or brought before it

as an adversary proceeding. As with other issues critical to the plan negotiations, the judge should consider actions he or she can take to promote the

parties’ settlement of coverage issues, thereby eliminating the need for

costly litigation, which is likely to be followed by time-consuming appeals.

Among the steps the judge should consider is the appointment of a mediator to facilitate a settlement between the debtor and its insurers.568

If the debtor does reach a settlement with one or more insurers,

whether in connection with a proceeding in the bankruptcy court or elsewhere, the bankruptcy court will have to approve the settlement pursuant

to Federal Rule of Bankruptcy Procedure 9019. The debtor must give notice of its request for approval to creditors and the U.S. trustee, and it is

possible that some tort claimants will object to the amount of the settlement

or to the terms of payment of the insurance proceeds to the trust.569 To approve the settlement, the bankruptcy judge will have to determine that it is

fair and equitable and in the best interests of the estate.570 The judge will

have to make an independent judgment after becoming familiar with the

underlying facts and considering such factors as the following:

• the likely outcome of the litigation as compared with the benefits

provided by the settlement;

• the cost and delay that the litigation would involve if the settlement

were not approved;

• the support for the settlement by the affected class;

• the experience and knowledge of counsel supporting the settlement;

 568. See supra section V.B.3.

569. See, e.g., In re Dow Corning Corp., 198 B.R. 214, 221 (Bankr. E.D. Mich. 1996).

570. See, e.g., id. at 222.
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126

• the benefits members of the class would receive as a result of the settlement;

• the nature and scope of releases to be granted in exchange for the

settlement; and

• the extent to which the settlement resulted from arm’s-length bargaining.571

The terms of the settlement, if approved, will most likely be included in

the debtor’s reorganization plan in order to enhance its binding effect on all

parties to the bankruptcy proceedings.

2. Possible objections by insurers to the use of insurance proceeds to

fund the tort claimant trust

If the debtor does not enter into settlements with all of its insurers, some of

the non-settling insurers may seek to object to confirmation of the plan and

to appeal from the confirmation order if they believe that the plan adversely

affects their rights under their policies with the debtor. In past cases insurers have objected that the assignment to the tort claimant trust of the

debtor’s rights under the policies violates anti-assignment provisions of the

policies572 and that the combination of insurance proceeds into a single

fund without insurer consent impermissibly applies proceeds to noncovered claims.573 Insurers have also objected that the plan fails to preserve

coverage defenses under their policies or their rights against non-debtors.574

They have been especially concerned that future litigation will attempt to

bind them to the estimated value of the tort claims the court relied on in

establishing the trust and confirming the plan.575

Courts have not always found insurers to have standing to object to

confirmation or to other rulings in the bankruptcy case or to appeal from

the order confirming the plan.576 Generally the issue has turned on

 571. See id. at 223; In re Texaco Inc., 84 B.R. 893, 902 (Bankr. S.D.N.Y. 1988).

572. See, e.g., In re Combustion Eng’g, Inc., 391 F.3d 190, 218 (3d Cir. 2004).

573. See, e.g., Robert B. Millner & Mark D. Plevin, Insurance Coverage in the New Millennium, SG004 ALI-ABA 79, 100–01 (2001).

574. See, e.g., id. at 100–02.

575. This concern is based on the Seventh Circuit’s decision in UNR Indus., Inc. v. Cont’l

Cas. Co., 942 F.2d 1101 (7th Cir. 1991). In that case, the court held that UNR’s bankruptcy and

confirmed plan resulted in a “judgment or settlement” against the debtor-insured in the amount of

$254 million, the negotiated value of the asbestos claims, and that that valuation was binding on the

insurer.

576. See, e.g., In re Combustion Eng’g, Inc., 391 F.3d at 220 (holding that insurers were not

“persons aggrieved” who could challenge on appeal most aspects of the plan and its confirmation);

In re Fuller-Austin Insulation, No. 98-2038-JJF, 1998 WL 812388 at *3 (D. Del. Nov. 10, 1998)
V. Negotiating the Plan

127

whether the insurers can show that their interests are adversely affected by

the plan or ruling. To head off challenges by non-settling insurers, some

debtors have included provisions in their plans disavowing any intent to

affect the rights of those insurers under their policies or prepetition settlements.577 These provisions have been effective in preventing the insurers

from being able to vote on the plan,578 object to confirmation,579 or challenge on appeal certain provisions of the confirmed plan.580 However, if

adequate trust funding is dependent on the insurance proceeds the debtor

seeks from these insurers, preservation of all of the insurers’ rights and

defenses may undermine plan feasibility or at least the equality of treatment

of future claimants.581

3. Protection of insurers against further litigation

Insurance companies that do settle with the debtor during plan negotiations will want protection from further litigation in exchange for their contribution of insurance proceeds to fund the trust. Insurers will seek this

protection because their main motivation in settling is likely to be the desire to achieve a final resolution of their involvement in the debtor’s mass

tort litigation. In a mass tort bankruptcy case involving asbestos, such protection is permitted under section 524(g)(2)(B) of the Bankruptcy Code if

a detailed set of conditions is satisfied. In other mass tort bankruptcies,

however, the authority of the court to approve provisions insulating nondebtors such as the insurers from further liability or to enter channeling

injunctions having that effect is less certain, and the issue is one on which

the courts are divided.582

 (holding that insurers were not parties in interest with standing to object to plan confirmation or

approval of the disclosure statement).

577. See Harbison-Walker Refractories Co. v. Ace Prop. & Cas. Ins. Co. (In re Global Indus. Techs., Inc.), 303 B.R. 753, 761 n.11 (Bankr. W.D. Pa. 2004) (“In the asbestos cases pending before this court, the proposed plans of reorganization typically preserve insurers’ rights to 

contest claims that are to be paid under the Asbestos PI Trusts created under the plans.”), vacated &

modified in part on other grounds, 2004 WL 555418 (Bankr. W.D. Pa. Feb. 3, 2004).

578. See, e.g., In re Combustion Eng’g, Inc., 295 B.R. 459, 474 (Bankr. D. Del. 2003), vacated and remanded on other grounds, 391 F.3d 190 (3d Cir. 2004).

579. See, e.g., In re Fuller-Austin Insulation, 1998 U.S. Dist. LEXIS 18340, at *13.

580. See, e.g., In re Combustion Eng’g, Inc., 391 F.3d at 220.

581. See Plevin et al., supra note 526, at 920.

582. A discussion of these issues is presented in section VI.E.2, infra.
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VI. Plan Confirmation

A. Overview

Part VI addresses the following issues that might arise in a mass tort bankruptcy case in connection with the confirmation of the plan:

• Voting by tort claimants: How can the court efficiently manage voting by large numbers of tort claimants? May lawyers vote for their

clients? How are the unliquidated tort claims valued for purposes of

voting? Are tort claimants eligible to vote if no bar date was imposed and they did not file proofs of claim?

• Confirmation hearing: Under what circumstances should a bankruptcy judge and a district judge jointly preside over a confirmation

hearing? What role does each judge play at such a hearing?

• Confirmation issues: What objections are likely to be raised at the

confirmation hearing in a mass tort bankruptcy case?

• Scope of the discharge and channeling injunction: In an asbestos mass

tort bankruptcy, what are the requirements for obtaining an injunction that protects non-debtors as well as the debtor from further tort

liability? Does the court have authority to extend similar protection

to non-debtors in non-asbestos cases? Does it have jurisdiction to

enjoin litigation between non-debtor parties?

B. Voting by Tort Claimants

Central to the confirmation process in chapter 11 is the debtor’s submission of the plan of reorganization, along with an approved disclosure statement, to impaired classes of creditors and shareholders for their vote. Section 1126(a) of the Bankruptcy Code provides that the holder of an

allowed claim or interest may accept or reject a plan. Subsection (c) of that

provision specifies the voting requirements for acceptance by a class of

creditors: approval by more than one-half in number of those voting in the

class and by those holding at least two-thirds in amount of the claims held

by the voting creditors. In an asbestos mass tort chapter 11 case, an additional voting requirement is imposed by section 524(g) if a channeling

injunction is to be issued. For such an injunction to be valid, the class of
Judicial Management of Mass Tort Bankruptcy Cases

130

mass tort claimants must approve the plan by a vote of at least 75% of

those voting in the class.583

Voting in a mass tort bankruptcy case presents both legal and logistical

problems. If the court has imposed a bar date, many thousands of tort

claimants may have filed claims that are unliquidated and disputed. How

are these claims to be valued for voting purposes? And if no bar date has

been imposed, the universe of eligible tort claimants is undefined. Who are

the claimants who are eligible to vote? How can the court efficiently handle

the voting process by such a large group?

In cases in which the court has imposed a bar date for the filing of

proofs of claim by tort claimants, voting should be limited to claimants

who filed by that deadline, even if other present and future claimants may

be permitted eventually to recover from the trust created by the plan if it is

confirmed. Only those claimants who filed proofs of claim, or who had

them filed on their behalf, have allowed claims entitling them to vote.584 A

claimant’s lawyer may, however, be able to cast a vote on the claimant’s behalf. It is a common practice in mass tort bankruptcy cases to send master

ballots directly to all lawyers known to be representing persons with tort

claims against the debtor and to allow them to vote to accept or reject the

plan on behalf of each client who has authorized them to do so.585 This

practice, which facilitates voting by large numbers of claimants, is authorized by Federal Rule of Bankruptcy Procedure 3018(c). That rule permits

voting by “an authorized agent” for a creditor or equity security holder.586

Claimants who have not authorized attorney voting or who have personally

signed proofs of claim should be sent solicitation packages directly for individual voting.

If a bar date has not been imposed for mass tort claims, there will not

be a finite list of eligible voters. Nevertheless, in some cases of this type,

courts have used master ballots for voting by tort claimants. Courts have

sent ballots to attorneys who have represented plaintiffs in cases filed

against the debtor prior to bankruptcy and to tort claimants’ lawyers who

 583. 11 U.S.C. § 524(g)(2)(B)(ii)(IV)(bb).

584. See id. § 1126(a); Fed. R. Bankr. P. 3003(c)(2).

585. See, e.g., In re Combustion Eng’g, Inc., 391 F.3d 190, 245 n.66 (3d Cir. 2004) (noting

that “the entire solicitation and voting process was conducted through a small group of law firms

who collectively represented hundreds of thousands of individual claimants”); Gibson, supra note

64, at 80 (describing voting process in the Eagle-Picher bankruptcy).

586. See In re Combustion Eng’g, Inc., 391 F.3d at 245 n.66 (“Where the voting process is

managed almost entirely by proxy, it is reasonable to require a valid power of attorney for each

ballot to ensure claimants are properly informed about the plan and that their votes are valid.”).
VI. Plan Confirmation

131

have participated in the bankruptcy case. These attorneys then have identified and cast votes on behalf of each client who has given them authority to

vote. In addition, courts have sent solicitation packages directly to additional claimants identified by themselves or by their attorneys as persons

desiring to vote on their own behalf.587

According to section 1126(a), however, only holders of claims “allowed under section 502” are authorized to vote to accept or reject a plan.

For a claim to be allowed—if it is not scheduled by the debtor as undisputed, non-contingent, and liquidated—proof of the claim must be

filed.588 Thus, Federal Rule of Bankruptcy Procedure 3003(c)(2) provides

that any creditor whose claim is not scheduled or is scheduled as disputed,

contingent, or unliquidated and who does not file a timely proof of claim

“shall not be treated as a creditor with respect to such claim for the purposes of voting.” Allowing voting by holders of unliquidated tort claims

who have not filed proofs of claim, therefore, is contrary to the Bankruptcy

Code and Rules. Although Rule 3018(a) authorizes the bankruptcy court

to temporarily allow a claim for voting purposes, that rule deals with the

situation in which an objection is made to a filed claim.589 It does not address the situation in which no proof of claim has been filed.

In a case in which no bar date for tort claims has been imposed, the

debtor may attempt to comply with the allowed claim requirement for voting by including in the solicitation package a proof of claim form along

with the ballot and disclosure statement.590 That practice is also of questionable validity. Even if the claimant could be deemed to have filed the proof

of claim just seconds before submitting the ballot and then to have had the

claim automatically allowed, this practice eliminates the opportunity for a

party in interest to object to the claim.591 Although “creative voting

scheme[s]” such as this one have been implemented in some mass tort

 587. See, e.g., Ballot Solicitation and Tabulation Procedures, In re Armstrong World Indus.,

Inc., No. 00-4471 (Bankr. D. Del. 2003), at http://www.armstrong.com/common/uscorp/content/files/4195.pdf (last visited Jan. 8, 2005).

588. 11 U.S.C. §§ 1111(a), 502(a) (2000).

589. “Notwithstanding objection to a claim or interest, the court after notice and hearing may

temporarily allow the claim or interest in an amount which the court deems proper for the purpose

of accepting or rejecting a plan” (emphasis added).

590. See, e.g., Kane v. Johns-Manville Corp., 843 F.2d 636, 646 (2d Cir. 1988) (describing

voting procedure in which “proofs of claims and votes were simultaneously solicited from present

claimants in a combined mailing form”).

591. 11 U.S.C. § 502(a) (2000); Fed. R. Bankr. P. 3007.
Judicial Management of Mass Tort Bankruptcy Cases

132

bankruptcy cases,592 compliance with the Bankruptcy Code and Rules requires imposition of a bar date and the filing of proofs of claim before voting on a plan is undertaken.

Even if a bar date for mass tort claims has been set and proofs of claim

have been filed, most of the claims will be unliquidated at the time the plan

of reorganization is voted on. The resulting uncertainty about claim

amounts presents difficulties for vote tabulation. How can it be determined

for the class of tort claimants whether there was satisfaction of section

1126(c)’s requirement that “at least two-thirds in amount” of the voting

claims approved the plan? If the court can only determine satisfaction of

that requirement by liquidating all of the thousands of tort claims, voting

by the tort claimant class will be infeasible.593

Courts have devised two ways of dealing with the problem of tort claim

value for voting purposes. A number of courts have temporarily allowed all

tort claims within a single class at the same amount, typically one dollar.594

As a result of this equal weighting of all of the claims, the class of tort

claimants will have accepted the plan under section 1126(c) if at least twothirds of the votes have been cast in favor of the plan. Determination of

individual claim amounts can then await the trust distribution process.

Although Federal Rule of Bankruptcy Procedure 3018(a) permits a court

to “temporarily allow [a] claim or interest in an amount which the court

deems proper for the purposes of accepting or rejecting a plan,” allowing all

tort claims at the same amount runs the risk of giving too great a relative

weight to insubstantial claims to the possible detriment of more serious

claims.595

In some other mass tort cases, all involving asbestos, courts have approved a special voting procedure for the personal injury claimants that

assigns a claim amount for voting purposes based on the disease category

the claimant’s alleged injury falls within. At the time of voting, a tort

 592. Kane, 843 F.2d at 646.

593. See, e.g., In re A.H. Robins Co., 88 B.R. 742, 747 (E.D. Va. 1988) (“Any attempt to

evaluate each individual claim for purposes of voting on the Debtor’s Plan of Reorganization would,

as a practical matter, be an act of futility, and would be so time consuming as to impose on many,

many deserving claimants further intolerable delay all not only to their detriment, but to the detriment of the financial well being of the estate as well.”), aff’d sub nom. Menard-Sanford v. Mabey (In

re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989).

594. See, e.g., Kane, 843 F.2d at 646; In re A.H. Robins Co., 88 B.R. at 747; Gibson, supra

note 64, at 80, 225 (describing voting in the Eagle-Picher and Dow Corning cases).

595. See S. Elizabeth Gibson, A Response to Professor Resnick: Will This Vehicle Pass Inspection?, 148 U. Pa. L. Rev. 2095, 2112 (2000).
VI. Plan Confirmation

133

claimant indicates on the ballot which type of disease is alleged, and a dollar value is assigned based on that designation. Claim amounts under such

a classification system ranged in the Armstrong World Industries case from

$400 to $130,500,596 and in the Babcock & Wilcox case from $0 to

$90,000.597 Because this voting procedure uses the disease categories and

average values that will eventually apply in the trust distribution process, it

more accurately aligns voting strength with ultimate claim value.

In most, if not all, of the decided mass tort bankruptcy cases, tort

claimants have approved the plan of reorganization by overwhelming

numbers.598 This result is not surprising, since the cases have been resolved by the debtor’s negotiation and settlement with the tort claimants’

committee, and that committee has jointly proposed the plan with the

debtor and urged its approval. As a result of the overwhelming support by

tort claimants, however, the voting procedures typically used in these cases

have received virtually no appellate scrutiny. Challenges, for example, to

the validity of simultaneous claims filing and voting and to allowance of all

claims at the same nominal amount have escaped serious appellate review,

because courts have concluded that any error these voting procedures might

involve would be harmless.599 Bankruptcy judges presiding over mass tort

cases therefore will most likely have the ultimate responsibility for ensuring

that the voting procedures used for the tort claimants comply with the

Bankruptcy Code and Rules.

C. Confirmation Hearing

The confirmation hearing in a mass tort case proceeds for the most part in

the same manner as a confirmation hearing in any chapter 11 case. Section

1128 of the Bankruptcy Code requires the court, after notice, to hold a

 596. Ballot for Accepting or Rejecting Armstrong World Industries, Inc.’s Plan of Reorganization for Individual Holders of Class 7 Asbestos Personal Injury Claims at 2, In re Armstrong

World Indus., Inc., No. 00-4471 (Bankr. D. Del. 2003).

597. Memorandum from Motley Rice LLC, to Motley Rice Co-Counsel 4–6 (July 29,

2003), available at http://bankruptcy.motleyrice.com/babcockandwilcox/Voting%20Procedures

%20Memo%20for%20Co-Counsel%207-25-03.doc.

598. See, e.g., Gibson, supra note 64, at 81 (noting approval by over 96% of the class of asbestos and lead personal injury claimants in the Eagle-Picher bankruptcy case); id. at 172 (noting

approval of over 96% of asbestos claimants in the UNR bankruptcy); id. at 198 (noting approval

by over 94% of tort claimants in the A.H. Robins bankruptcy); id. at 225 (noting approval by

95.5% of U.S. breast implant claimants in the Dow Corning bankruptcy).

599. Kane v. Johns-Manville Corp., 843 F.2d 636, 647 (2d Cir. 1988); Menard-Sanford v.

Mabey (In re A.H. Robins Co.), 880 F.2d 694, 698 (4th Cir. 1989).
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hearing on confirmation of a chapter 11 plan, and it permits any party in

interest to object to confirmation.600 In cases in which no objection has

been filed, Federal Rule of Bankruptcy Procedure 3020(b)(2) provides

that the court does not have to receive evidence concerning whether the plan

was proposed in good faith and not by any means forbidden by law. By

implication, the rule requires the court to conduct a confirmation hearing

and receive evidence on the other statutory requirements for confirmation.601 Thus, in a mass tort case, as in more routine chapter 11 cases, the

court receives evidence from proponents of the reorganization plan seeking

to establish that the requirements of section 1129 have been satisfied, and

it hears from any parties in interest that have filed timely objections to plan

confirmation.

There is one important way in which the confirmation hearing in some

mass tort bankruptcy cases has differed from the norm: The hearing has

been conducted jointly by the bankruptcy judge who has been presiding

over the case and a district judge. There are several reasons why this procedure has been followed. In one case in which a joint hearing was used, the

district judge had at the outset of the case withdrawn the reference of jurisdiction to the bankruptcy judge with respect to many of the issues involving the mass tort claims, and both judges had jointly presided over proceedings throughout the case.602 They followed the same procedure with the

confirmation hearing, after which both judges entered the confirmation

order.603 In another mass tort case, which involved claims of injury from

asbestos products, the judge used the joint hearing procedure to shorten

the time needed for compliance with 11 U.S.C. § 524(g). Under that provision, a channeling injunction in a mass tort bankruptcy case involving

asbestos is not valid and enforceable unless the confirmation order is “issued or affirmed by the district court that has jurisdiction over the reorganization case.”604 A joint hearing and a jointly issued confirmation order

in the Eagle-Picher case shortened the time required for obtaining the dis-

 600. 11 U.S.C. § 1128(a) & (b) (2000).

601. See Lawrence R. Ahern III & Nancy Fraas MacLean, Bankruptcy Procedure Manual

§ 3020.03 (2004).

602. See Ackles v. A.H. Robins Co. (In re A.H. Robins Co.), 59 B.R. 99, 105–07 (Bankr.

E.D. Va. 1986) (attaching as Ex. A the order withdrawing the reference), aff’d sub nom. Beard v.

A.H. Robins Co., 828 F.2d 1029 (4th Cir. 1987).

603. In re A.H. Robins Co., 88 B.R. 742 (E.D. Va. 1988), aff’d sub nom. Menard-Sanford v.

Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989).

604. 11 U.S.C. § 524(g)(3)(A) (2000).
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135

trict court’s approval of confirmation and resulted in significant tax savings

to the debtor.605

Collapsing the confirmation and appeal processes into one step that

results in a joint order by the bankruptcy judge and the district judge allows for a significant time savings in the case, as it eliminates one layer of

decision making and permits direct review of the confirmation order by the

court of appeals should an objector appeal. As previously discussed in another chapter of this manual, however, if both a bankruptcy judge and a

district judge are presiding at the same hearing, they need to clarify the

roles that each is playing and the authority each is exercising.606 If the

bankruptcy judge is exercising original jurisdiction pursuant to 28 U.S.C.

§ 157, then the district judge’s exercise of appellate jurisdiction needs to

be clarified. If the district judge is exercising original jurisdiction, having

withdrawn the reference as to confirmation of the case, then the bankruptcy

judge’s role needs to be explained.

D. Confirmation Issues

Section 1129(a) of the Bankruptcy Code allows a bankruptcy court to confirm a chapter 11 plan only if all of the requirements it sets forth are satisfied. These statutory requirements are therefore the focus of any chapter 11

confirmation hearing, including those conducted in mass tort cases. Additionally, in mass tort cases involving asbestos, the requirements of section

524(g) will have to be satisfied in order for the court to issue a valid and

enforceable channeling injunction protecting non-debtor third parties, and

therefore the confirmation hearing will also concern the satisfaction of those

requirements. Because most mass tort bankruptcy cases are eventually resolved by negotiation among the key constituencies, the major players in

these cases—the debtor, tort claimants’ committee, future claims representative, unsecured creditors’ committee—typically support the plan and join

in submitting evidence at the hearing in support of confirmation. Objection to confirmation, therefore, is left to dissenting groups or individuals,

such as tort claimants who were in the small minority that voted against the

plan, shareholders whose interests in the debtor company are to be elimi-

 605. In re Eagle-Picher Indus., Inc., 203 B.R. 256 (S.D. Ohio 1996).

606. See supra section II.C.1.
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136

nated, commercial creditors who rejected the settlement reached regarding

the treatment of tort claims, or non-settling insurers.607

Objections to confirmation of reorganization plans in mass tort bankruptcy cases have typically raised some combination of the following challenges:

• whether the plan has been proposed in good faith;608

• whether the plan can be crammed down on any rejecting classes;609

• whether the best-interests-of-creditors test is satisfied (that is,

whether objecting creditors are receiving under the plan at least as

much as they would have received in a chapter 7 liquidation);610

and

• whether the plan is feasible.611

The latter two objections often challenge the inclusion of future claims

within the plan’s coverage (which reduces assets available to pay present

unsecured claims) and the accuracy of the claims estimation and the sufficiency of the trust funding.612 Objectors may also raise a variety of other

legal issues by asserting, pursuant to section 1129(a)(1) and (2), that the

proponent of the plan or the plan itself does not comply with the applicable provisions of the Bankruptcy Code.613

In confirming a plan, the court’s duty to determine that each of the

applicable statutory requirements set forth in section 1129 has been satisfied exists whether or not objections have been raised as to specific re-

 607. See, e.g., Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning

Corp.), 280 F.3d 648 (6th Cir. 2002) (noting that certain tort claimants who voted against the

plan, including the United States, appealed from the confirmation order); Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694, 696 (4th Cir. 1989) (noting that certain personal

injury claimants who voted against the plan appealed from the confirmation order); In re FullerAustin Insulation, No. 98-2038-JJF, 1998 WL 812388 (D. Del. Nov. 10, 1998) at *1 (noting that

insurers filed objections to confirmation); In re Eagle-Picher Indus., Inc., 203 B.R. 256 (S.D.

Ohio 1996) (listing the objecting parties as a general unsecured creditor who voted against the plan,

stockholders whose interests were cancelled by the plan, and a preference defendant).

608. See, e.g., Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d 636,

649 (2d Cir. 1988).

609. See, e.g., In re Armstrong World Indus., Inc., 320 B.R. 523 (D. Del. 2005) (denying

plan confirmation because of the plan’s failure to satisfy the cramdown requirement of 11 U.S.C.

§ 1129(b)(2)(B)(ii)); In re Eagle-Picher Indus., Inc., 203 B.R. at 277.

610. See, e.g., id. at 274–75; In re Dow Corning Corp., 244 B.R. 721 (Bankr. E.D. Mich.

1999).

611. See, e.g., Kane, 843 F.2d at 650; In re Dow Corning Corp., 244 B.R. at 732–33.

612. See, e.g., Kane, 843 F.2d at 649–50; In re Eagle-Picher Indus., Inc., 203 B.R. at 274–75.

613. See, e.g., Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning

Corp.), 280 F.3d 648, 661–63 (discussing challenge to the classification of claims).
VI. Plan Confirmation

137

quirements and even if objectors have not presented evidence opposing the

showing made by the proponents.614 The court’s findings on these issues

should provide sufficient discussion of or reference to the underlying evidence to permit meaningful appellate review.615

E. Scope of the Discharge and Channeling Injunction

In a mass tort bankruptcy case, the proposed plan will most likely provide

for the release of entities in addition to the debtor from liability for the tort

claims, and the debtor will seek a “channeling injunction” prohibiting efforts to recover on the tort claims except those that follow procedures established by the plan. If approved, these protective provisions will preclude

present and future tort claimants from attempting to expand liability beyond the debtor to related entities that might be liable because of successor

liability, fraudulent transfer, piercing of the corporate veil, or other legal

theories.616 The debtor will insist on these protective provisions for a number of reasons:

• to protect non-debtor entities in order to prevent the assertion of

claims against them that could lead to indemnification claims

against the debtor itself;

• to protect other parties, such as insurers or parent companies, in

order to induce them to contribute substantial assets to the tort

claimant trust; and

• to protect asset purchasers in order to achieve a higher sales price.

Whatever the motivation behind these provisions, the expansion of the

discharge to cover non-debtor parties is a controversial issue that has divided the courts of appeals. However, Congress has provided express statutory authority for channeling injunctions in asbestos-related mass tort

bankruptcies if a complex set of conditions is satisfied.

 614. 7 Collier on Bankruptcy, supra note 155, ¶ 1129.02[5].

615. See Class Five Nev. Claimants, 280 F.3d at 658 (remanding case for further findings

where existing findings “were no more than conclusory statements that restated elements of the test

in the form of factual conclusions . . . [and] provided no explanation or discussion of the evidence

underlying these findings”).

616. See Susan Power Johnston & Katherine Porter, Extension of Section 524(g) of the Bankruptcy Code to Nondebtor Parents, Affiliates, and Transaction Parties, 59 Bus. Law. 503, 503–510

(2004) (discussing legal theories for expanding mass torts liability beyond the actual manufacturer

of the injury-causing product).
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138

1. Channeling injunctions in asbestos cases

In 1994, Congress amended the Bankruptcy Code to provide authority for

channeling injunctions in chapter 11 cases involving claims against the

debtor for “personal injury, wrongful death, or property-damage . . . allegedly caused by the presence of, or exposure to, asbestos or asbestoscontaining products.”617 The provisions, which were codified in section

524(g) of the Code, were modeled on the claims resolution procedures

adopted in the Johns-Manville bankruptcy case618 and as a result are quite

specific and complex. If all of the statutory requirements are met, section

524(g)(1)(B) permits the issuance of an “injunction . . . [preventing] entities from taking legal action for the purpose of . . . recovering . . . with respect to any claim or demand that, under a plan of reorganization, is to be

paid in whole or in part by a trust” of the type described elsewhere in the

provision.

To qualify for the protection that section 524(g) offers, the trust created

by a plan of reorganization must satisfy the following requirements:619

• the trust must assume the debtor’s liability for damages arising out

of exposure of claimants to the debtor’s asbestos or asbestoscontaining products;620

• the trust must be funded by securities of the debtor and by the

debtor’s obligation to make future payments to the trust, including

dividends;621

• the trust must own a majority of the voting shares of the debtor

company or of a parent or subsidiary of the debtor;622 and

• the trust must use its assets to pay claims of present tort claimants

and “demands”623 of future tort claimants.624

 

617. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 111, 108 Stat. 4106, 4114

(1994).

618. H.R. Rep. No. 103-835, at 40 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3348.

619. See also In re Combustion Eng’g, Inc., 391 F.3d 190, 234 n.45 (3d Cir. 2004) (discussing the statutory requirements for a section 524(g) injunction).

620. 11 U.S.C. § 524(g)(2)(B)(i)(I) (2000).

621. Id. § 524(g)(2)(B)(i)(II). The Third Circuit in dicta concluded that the “implication of

this requirement is that the reorganized debtor must be a going concern, such that it is able to make

future payments into the trust to provide an ‘evergreen’ funding source for future asbestos claimants.” In re Combustion Eng’g, Inc., 391 F.3d at 248.

622. 11 U.S.C. § 524(g)(2)(B)(i)(III) (2000).

623. Section 524(g) uses the term demands, which is not used elsewhere in the Bankruptcy

Code. It defines demand to “mean a demand for payment, present or future, that—(A) was not a

claim during the proceedings leading to the confirmation of a plan of reorganization; (B) arises out
VI. Plan Confirmation

139

In addition to these requirements for the trust, section 524(g) requires

that the court make the following findings in order for the channeling injunction to be valid:

• the debtor is likely to be subject to substantial future demands for

payment as a result of exposure to its asbestos products;625

• the timing, amount, and numbers of the future demands cannot be

determined;626

• the pursuit of these future demands outside of the compensation

procedure created by the reorganization plan would most likely

threaten the plan’s purpose to provide equitable treatment of present claims and future demands;627

• the terms of the channeling injunction were set forth in the reorganization plan and in the disclosure statement;628

• the affected tort claimant class approved the reorganization plan by a

vote of at least 75% of those voting;629 and

• the trust will operate in a way that provides reasonable assurance

that it will value and pay present claims and future demands in

substantially the same manner.630

Furthermore, for the channeling injunction to be enforceable against future

demands, the court, during the chapter 11 case, must appoint a legal representative to protect the rights of future claimants.631 The court must also

determine that including the debtor or third parties within the protection

of the channeling injunction is fair and equitable with respect to the future

claimants in light of the benefits to be provided the trust on behalf of the

protected parties.632

If all of the above requirements are satisfied, the court may enter a valid

channeling injunction. It will take effect after the time for appeal from the

 of the same or similar conduct or events that gave rise to the claims addressed by the injunction

issued under [this provision], and pursuant to the plan, is to be paid by a trust described in [this

provision].” Id. § 524(g)(5).

624. Id. § 524(g)(2)(B)(i)(IV).

625. Id. § 524(g)(2)(B)(ii)(I).

626. Id. § 524(g)(2)(B)(ii)(II).

627. Id. § 524(g)(2)(B)(ii)(III).

628. Id. § 524(g)(2)(B)(ii)(IV)(aa).

629. Id. § 524(g)(2)(B)(ii)(IV)(bb).

630. Id. § 524(g)(2)(B)(ii)(V).

631. Id. § 524(g)(4)(B)(i).

632. Id. § 524(g)(4)(B)(ii).
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140

district court’s order either confirming the reorganization plan or affirming

the bankruptcy court’s confirmation order.633 The injunction may be revoked or modified only on direct appeal,634 and the district court that issues or affirms the injunction has exclusive jurisdiction over any proceeding involving its “validity, application, construction, or modification.”635

A channeling injunction entered pursuant to section 524(g) is enforceable against “all entities that it addresses,”636 and, notwithstanding section

524(e), it may protect from liability non-debtor third parties identified by

name or group if the basis of their alleged liability is one of the following

relationships:

• ownership of a financial interest in the debtor, of an affiliate of the

debtor, or of a predecessor in interest of the debtor;637

• involvement in the management of the debtor or a predecessor in

interest or service as an officer, director, or employee of the debtor

or related party;638

• provision of insurance to the debtor or a related party;639 or

• involvement in a transaction changing the corporate structure or affecting the financial condition of the debtor or a related party.640

The entry of a valid channeling injunction also protects successors in

interest, transferees, and lenders. An entity that pursuant to the plan or

thereafter becomes a successor to or transferee of any assets of the debtor or

of the trust is protected from any liability resulting from that status, and no

lender to the debtor, to the trust, to a successor, or to a transferee shall be

held liable as a result of making the loan.641

Since the enactment of section 524(g), numerous companies with asbestos liability have used chapter 11 to obtain a global resolution of the tort

claims against them and affiliated companies.642 Their plans of reorganization have established trusts according to the specifications of section 524(g)

 

633. Id. § 524(g)(3)(A)(i).

634. Id.

635. Id. § 524(g)(2)(A).

636. Id. § 524(g)(4)(A)(i).

637. Id. § 524(g)(4)(A)(ii)(I).

638. Id. § 524(g)(4)(A)(ii)(II).

639. Id. § 524(g)(4)(A)(ii)(III).

640. Id. § 524(g)(4)(A)(ii)(IV).

641. Id. § 524(g)(3)(A)(ii), (iii).

642. See, e.g., Fred S. Hodara & Robert J. Stark, Protecting Distributions for Commercial

Creditors in Asbestos-Related Chapter 11 Cases, 10 J. Bankr. L. & Prac. 383, 399–409 (2001)

(discussing asbestos-related mass tort bankruptcy cases).
VI. Plan Confirmation

141

to assume the debtor’s asbestos liability and to provide compensation to

present and future claimants. Part of the confirmation process in these cases

has involved a demonstration to the court that all of section 524(g)’s requirements have been satisfied and that a channeling injunction can therefore be validly entered, and courts entering these injunctions have made the

findings required by section 524(g).643

As debtors have become more creative in their attempts to obtain the

protection of section 524(g) for a broad group of affiliated entities, courts

have had to resolve issues concerning the scope and meaning of some of the

statutory requirements. For example, in the Combustion Engineering case,

the debtor sought a release and injunctive relief for its affiliates with respect

to their own asbestos liability that was independent of and unrelated to activities of the debtor.644 The Third Circuit agreed with the bankruptcy

court that section 524(g) does not authorize such protection, because it

“limits the situations where a channeling injunction may enjoin actions

against third parties to those where a third party has derivative liability for

the claims against the debtor.”645 In reaching this conclusion, the court of

appeals relied on the language of section 524(g)(4)(A)(ii), which authorizes a channeling injunction to protect certain third parties who are “alleged

to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor,” not for their independent liability.646 The court also

noted that the statute allows this protection only for entities with certain

defined relationships with the debtor, which the affiliates in this case did

not satisfy. Because section 524(g) did not authorize a channeling injunction to protect the affiliates against non-derivative claims, the Third Circuit

further held that the bankruptcy court lacked authority under 11 U.S.C.

§ 105(a) to grant that relief.647

Section 524(g)(2)(B)(i)(III) requires that the trust own or under certain circumstances be entitled to own a majority of the voting shares of the

debtor, the debtor’s parent, or a subsidiary of the debtor. Because of the

disjunctive language used in this provision, the bankruptcy court in Combustion Engineering rejected the argument that the trust had to own a majority of the voting shares of the debtor’s parent corporation. Ownership of

 643. See, e.g., In re Eagle-Picher Indus., Inc., 203 B.R. 256, 279–281 (S.D. Ohio 1996).

644. In re Combustion Eng’g, Inc., 391 F.3d 190, 204, 210 (3d Cir. 2004).

645. Id. at 234.

646. 11 U.S.C. § 524(g)(4)(A)(ii) (2000) (emphasis added).

647. In re Combustion Eng’g, Inc., 391 F.3d at 233–34.
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a majority interest in the debtor was sufficient.648 That conclusion might

seem to pave the way for inadequately funded trusts. For example, a debtor

of limited value might seek to use chapter 11 and section 524(g) to discharge its asbestos liability and that of wealthier non-debtor affiliates by

contributing only the debtor’s stock. Such an effort, however, is unlikely to

succeed. First, the debtor would have to persuade at least 75% of the voting

tort claimants to accept the plan. Furthermore, although section 524(g)

does not mandate that the trust own a majority interest in other companies,

it does require that the court determine that inclusion of the affiliates within

the protection of the channeling injunction is “fair and equitable with respect to [future claimants], in light of the benefits provided, or to be provided, to such trust on behalf of . . . such third party.”649 If the court

deems the trust to be inadequately funded with respect to future claims, it

can deny injunctive relief to third parties if they have not provided sufficient benefits to the trust.

As was discussed in another section of this manual,650 some companies

facing asbestos liability have used prepackaged chapter 11 plans in order to

gain the protection offered by section 524(g) without incurring the large

cost and lengthy duration of a typical “free fall” bankruptcy. By its terms,

section 524(g) is equally applicable to both types of asbestos bankruptcies.

The dual-trust structure, however, that has been used in some of the prepackaged asbestos bankruptcy cases raises questions about compliance with

the requirement that present claims and future demands be paid in substantially the same manner.651

2. Mass tort cases in which section 524(g) does not apply

Section 524(g)’s limitation in scope to chapter 11 cases in which claims are

asserted for asbestos-related injuries or property damage means that it does

not apply to mass tort bankruptcy cases involving other products. In those

cases if the plan seeks to release non-debtors from tort liability, the court

will have to determine whether it has authority to approve such relief.

Congress’s enactment of an asbestos-specific provision that confers such

authority does not necessarily preclude the discharge of third parties in all

other circumstances, however. An uncodified provision of the act that

 648. In re Combustion Eng’g, Inc., 295 B.R. 459, 489 n.47 (Bankr. D. Del. 2003), vacated

& remanded on other grounds, 391 F.3d 190 (3d Cir. 2004).

649. 11 U.S.C. § 524(g)(4)(B)(ii) (2000).

650. See supra section V.D.

651. See discussion at section V.D.2 supra.
VI. Plan Confirmation

143

added section 524(g) to the Bankruptcy Code stated that the provision’s

enactment should not “be construed to modify, impair or supersede any

other authority the court has to issue injunctions in connection with an

order confirming a plan of reorganization.”652

The issue therefore that is squarely presented is whether the court has

authority outside of section 524(g) to enjoin tort claimants from pursuing

claims against entities other than the debtor. The courts of appeals are divided over whether such authority exists. The Ninth and Tenth Circuits

have held that bankruptcy courts lack authority in non-asbestos cases to

release third parties from liability and to permanently enjoin efforts to collect from them.653 These courts have relied on section 524(e), which provides that the “discharge of a debt of the debtor does not affect the liability

of any other entity on, or the property of any other entity for, such debt.”

They have read that provision as prohibiting the bankruptcy court from

exercising its equitable authority under section 105(a) to enter injunctive

relief that would effectively extend the discharge to non-debtor parties.654 In

conflict with these decisions are those of the Second, Fourth, and Sixth Circuits.655 These courts have read section 524(e) as being merely declarative

of the effect of the discharge itself656 and have found authority in section

105(a) for the bankruptcy court under “unusual circumstances” to supplement the discharge by permanently enjoining collection efforts against

non-debtors.657 Other courts of appeals have rendered decisions that fall

 652. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 111(b), 108 Stat. 4106, 4117

(1994). The Third Circuit, without citing this provision, held that section 524(g) “limits the situations where a channeling injunction may enjoin actions against third parties to those where a third

party has derivative liability for the claims against the debtor.” In re Combustion Eng’g, Inc., 391

F.3d 190, 234 (3d Cir. 2004). Concluding that “§ 105(a) cannot trump specific provisions of the

Bankruptcy Code,” the court held that the bankruptcy court had no authority under that provision

to enter an injunction protecting third parties that would not be permitted under section 524(g). Id.

at 236, 237. The court expressly limited its holding, however, to asbestos cases, offering no opinion

on the limits of section 105(a) in cases in which section 524(g) does not apply. Id. at 237 n.50.

653. Resorts Int’l, Inc. v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394 (9th Cir. 1995);

Landsing Diversified Props.-II v. First Nat’l Bank & Trust Co. (In re W. Real Estate Fund, Inc.),

922 F.2d 592 (10th Cir. 1990), modified sub nom. Abel v. West, 932 F.2d 898 (10th Cir. 1991);

Am. Hardwoods, Inc. v. Deutsche Credit Corp., 885 F.2d 621 (9th Cir. 1989).

654. See, e.g., Am. Hardwoods, Inc., 885 F.2d at 626.

655. Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Inc.), 280 F.3d

648 (6th Cir. 2002); Sec. & Exch. Comm’n v. Drexel Burnham Lambert Group, Inc. (In re

Drexel Burnham Lambert Group, Inc.), 960 F.2d 285 (2d Cir. 1992); Menard-Sanford v. Mabey

(In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989); MacArthur v. Johns-Manville Corp. (In

re Johns-Manville Corp.), 837 F.2d 89 (2d Cir. 1988).

656. See, e.g., In re Dow Corning Corp., 280 F.3d at 657.

657. See, e.g., id. at 658.
Judicial Management of Mass Tort Bankruptcy Cases

144

somewhere in the middle.658 Concluding that section 524(e) is not necessarily dispositive of the issue, they have left open the possibility that there

might be circumstances under which a bankruptcy court could authorize

the release of third parties with accompanying injunctive relief.659

a. Subject-matter jurisdiction. Some courts have concluded that a request

to enjoin litigation against non-debtor third parties presents a question not

only of the court’s substantive authority to do so, but also of the court’s

jurisdiction.660 Because the bankruptcy court is being asked to take action

with respect to suits in which non-debtors are suing other non-debtors,

these courts have examined whether the affected suits fall within the bankruptcy court’s “related-to” jurisdiction under 28 U.S.C. § 1334(b). If not,

then they have concluded that the court lacks jurisdiction to enter the

channeling injunction, even if that relief is an element of the debtor’s reorganization plan.661

The Third Circuit’s Combustion Engineering opinion contains the most

detailed appellate examination of the bankruptcy court’s jurisdiction to enter channeling injunctions to protect non-debtors. The court held that the

record in that case lacked sufficient findings to support the bankruptcy

court’s exercise of related-to jurisdiction in entering a channeling injunction under section 105(a) to protect non-debtor corporations from their

own independent asbestos liability.662 It concluded that jurisdiction was

not established by the lateral corporate relationship of the companies with

the debtor,663 the fact that the parent corporation’s financial contribution to

the plan depended upon the protection of these companies,664 the theoretical possibility that the companies might seek indemnification from the

 658. Gillman v. Cont’l Airlines (In re Cont’l Airlines), 203 F.3d 203 (3d Cir. 2000); Feld v.

Zale Corp. (In re Zale Corp.), 62 F.3d 746 (5th Cir. 1995); In re Specialty Equip. Cos., 3 F.3d

1043 (5th Cir. 1993).

659. See, e.g., Gillman, 203 F.3d at 214 (“The hallmarks of permissible non-consensual releases—fairness, necessity to the reorganization, and specific factual findings to support these conclusions—are all absent here.”).

660. See, e.g., In re Combustion Eng’g, Inc., 391 F.3d 190, 224 (3d Cir. 2004); Feld v. Zale

Corp. (In re Zale Corp.), 62 F.3d 746, 751 (5th Cir. 1995).

661. See, e.g., In re Combustion Eng’g, Inc., 391 F.3d at 225 (“‘Related to’ jurisdiction must

therefore exist independently of any plan provision purporting to involve or enjoin claims against

non-debtors.”).

662. See id. at 202.

663. See id. at 227–28. The court noted, however, that “[s]uch an affiliation could be relevant

to the jurisdictional inquiry if supported by factual findings demonstrating that a suit against [one

of the protected companies] would deplete the estate or affect its administration.” Id. at 228.

664. See id. at 228 (“[T]he boundaries of bankruptcy jurisdiction cannot be extended simply

to facilitate a particular plan of reorganization.”).
VI. Plan Confirmation

145

debtor,665 or the parties’ assertion that the companies and the debtor shared

insurance coverage with a single cap.666 While the court’s remand for further findings might have established the existence of related-to jurisdiction,

such a remand became unnecessary because the court went on to hold that

the bankruptcy court lacked authority under the Bankruptcy Code to grant

the requested relief.667

As is discussed in the next subsection, courts that have approved the

entry of channeling injunctions under section 105(a) to protect non-debtor

parties from mass tort liability have done so only under narrow circumstances in which there is a close identity between the protected entities and

the debtor. Although the jurisdictional analysis is distinct from the question of the court’s equitable authority to grant the relief, some of the factors

supporting the issuance of the injunction under section 105(a) may also

support the existence of related-to jurisdiction.668 The Combustion Engineering decision, however, illustrates that a broad application of that equitable authority might exceed the jurisdictional reach of the bankruptcy

court.

b. Authority under section 105(a). Courts of appeals that have upheld

the authority of bankruptcy courts to enter injunctions under section

105(a) to protect third parties have done so in the context of non-asbestos

mass tort and other complex bankruptcies. The most recent of these decisions was the Sixth Circuit’s decision in the Dow Corning case.669 In that

case, the debtor’s plan sought to release the debtor’s insurers and shareholders from further liability for silicone-implant products liability claims

and to enjoin claimants from suing those parties on such claims. These

provisions were included in the plan in exchange for the insurers’ and

shareholders’ contributions to the $2.35 billion fund established to pay

the tort claims.670 The bankruptcy court approved the non-debtor releases,

but felt compelled to interpret them as only applying to consenting claim-

 665. See id. at 230. The court noted that cases in which courts had “exercis[ed] ‘related to’ jurisdiction over personal injury claims against non-debtors based on the potential for indemnification claims against the debtor ha[d] . . . involved either express indemnification obligations . . . or

derivative liability.” Id. at 231.

666. See id. at 233.

667. See id.

668. See id. at 224 n.35 (discussing possible relevance of “identity of interest” inquiry under

section 105(a) to analysis of related-to jurisdiction).

669. Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Inc.), 280 F.3d

648 (6th Cir. 2002).

670. Id. at 655.
Judicial Management of Mass Tort Bankruptcy Cases

146

ants—that is, those who had voted to accept the plan.671 The district court

rejected the bankruptcy court’s narrowing interpretation and upheld the

court’s authority to approve the provisions even with respect to nonconsenting claimants.672 In the case on appeal, the Sixth Circuit agreed with

the district court that “under certain circumstances, a bankruptcy court may

enjoin a non-consenting creditor’s claim against a non-debtor to facilitate a

Chapter 11 plan of reorganization,”673 but remanded the case for further

findings needed to support the injunction.674

The Sixth Circuit held that under appropriate circumstances, sections

105(a) and 1123(b)(6) authorize a bankruptcy court to enjoin nonconsenting creditors’ claims against non-debtors in order to facilitate a reorganization plan under chapter 11675 and that such relief is not prohibited

by section 524(e) or by any non-bankruptcy law limitation on the bankruptcy court’s equity power.676 Then relying on decisions of the Second

and Fourth Circuits that had upheld permanent injunctions in mass tort

cases protecting non-debtor parties from collection efforts, the court of appeals explained the “unusual circumstances” under which such injunctive

relief is appropriate:

We hold that when the following seven factors are present, the bankruptcy

court may enjoin a non-consenting creditor’s claims against a non-debtor:

(1) There is an identity of interests between the debtor and the third party,

usually an indemnity relationship, such that a suit against the non-debtor is,

in essence, a suit against the debtor or will deplete the assets of the estate;

(2) The non-debtor has contributed substantial assets to the reorganization;

(3) The injunction is essential to reorganization, namely, the reorganization

hinges on the debtor being free from indirect suits against parties who would

have indemnity or contribution claims against the debtor; (4) The impacted

class, or classes, has overwhelmingly voted to accept the plan; (5) The plan

provides a mechanism to pay for all, or substantially all, of the class or classes

affected by the injunction; (6) The plan provides an opportunity for those

 671. Id.

672. Id. at 655–56.

673. Id. at 653.

674. Id. at 658.

675. Id. at 656–657.

676. Id. at 657–58. The Sixth Circuit rejected the bankruptcy court’s reading of Grupo Mexicano de Desarrollo v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999), as limiting the court’s equitable powers under the Bankruptcy Code to the granting of traditional equitable relief. Grupo Mexicano was distinguishable, said the court of appeals, because the bankruptcy court had statutory

authority to enter the type of injunctive relief at issue and thus was “not confined to traditional equity jurisprudence available at the enactment of the Judiciary Act of 1789.” 280 F.3d at 657.
VI. Plan Confirmation

147

claimants who choose not to settle to recover in full; and (7) The bankruptcy

court made a record of specific findings that support its conclusions.

677

Upon remand of the case, the district court entered the required findings of

fact and upheld the channeling injunction protecting the debtor’s corporate

shareholders, insurers, and certain affiliates.678

If, then, a non-asbestos mass tort bankruptcy case is filed within a circuit that recognizes a bankruptcy court’s authority under unusual circumstances to approve non-debtor releases and channeling injunctions, the

court, in ruling on the confirmation of a plan containing these provisions,

will need to determine whether the circumstances presented by the case

support an exercise of equitable discretion to grant that relief. If the court

does approve the release provisions and enters a channeling injunction, the

judge should make specific findings that the required circumstances are

present.

 677. Id. at 658. The Sixth Circuit’s list of factors supporting the granting of injunctive relief

protecting third parties expanded upon the factors that were articulated by the bankruptcy court in

In re Master Mortgage Inv. Fund, Inc., 168 B.R. 930, 934–37 (Bankr. W.D. Mo. 1994).

678. In re Dow Corning Corp., 287 B.R. 396 (E.D. Mich. 2002).
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149

VII. Postconfirmation Jurisdiction

A. Overview

Part VII addresses the scope of the bankruptcy court’s jurisdiction following the confirmation of the plan in a mass tort bankruptcy case. It discusses

the following issues:

• Postconfirmation jurisdiction generally: What is the source of the

bankruptcy court’s jurisdiction following confirmation of a plan? Is

its jurisdiction diminished once the estate is terminated?

• Judicial supervision of the trust and claims facility operation: What actions may the bankruptcy court take with respect to the tort claimant

trust and the payment of tort claimants?

B. Postconfirmation Jurisdiction Generally

The scope of a bankruptcy court’s jurisdiction following the confirmation

of a chapter 11 plan is a question that has confounded courts and commentators and produced a variety of answers in even routine bankruptcy contexts.679 The answers are no more certain in a mass tort bankruptcy case.

Nevertheless, some generally accepted principles can be stated that might

guide a court’s decision whether to exercise authority over matters that arise

following plan confirmation.

First and most important is the fact that the source of the bankruptcy

court’s jurisdiction does not change after plan confirmation. Sections 1334

and 157 of title 28 of the United States Code remain the basis for the exercise of bankruptcy jurisdiction by the district and bankruptcy courts.

Thus, even after plan confirmation, a bankruptcy court can exercise jurisdiction over any civil proceedings arising under title 11 or any civil proceedings arising in or related to the bankruptcy case.680

Although the statutory source of bankruptcy jurisdiction remains the

same, the fact of plan confirmation may affect the scope of that jurisdiction.

The Third Circuit, for example, explained that the postconfirmation context of a dispute may affect the determination of whether it falls within re-

 679. See generally Frank R. Kennedy & Gerald K. Smith, Postconfirmation Issues: The Effects of

Confirmation and Postconfirmation Proceedings, 44 S.C. L. Rev. 621, 622–44 (1993).

680. See 8 Collier on Bankruptcy, supra note 155, ¶ 1142.04[1]. As the Collier treatise

points out, however, even if the bankruptcy court has jurisdiction over a postconfirmation proceeding, it should consider whether abstention is more appropriate than exercising jurisdiction itself.
Judicial Management of Mass Tort Bankruptcy Cases

150

lated-to jurisdiction, because “bankruptcy court jurisdiction ‘must be confined within appropriate limits and [not be permitted to] extend indefinitely . . . .’”681 The court held, however, that “though the scope of bankruptcy court jurisdiction diminishes with plan confirmation, bankruptcy

court jurisdiction does not disappear entirely.”682 Instead, because the

bankruptcy estate ceases to exist upon plan confirmation, the inquiry shifts

from the proceeding’s impact on the estate to “whether there is a close

nexus to the bankruptcy plan or proceeding sufficient to uphold bankruptcy court jurisdiction over the matter.”683 The Third Circuit explained

that “[m]atters that affect the interpretation, implementation, consummation, execution, or administration of the confirmed plan will typically have

the requisite close nexus.”684

Second, although the statutes actually conferring bankruptcy jurisdiction on the federal courts are set forth in title 28 of the United States Code,

substantive provisions of the Bankruptcy Code may be read as confirming

the existence of postconfirmation jurisdiction. Several provisions give the

court authority to take action following the confirmation of a chapter 11

plan,685 and it can be inferred that Congress intended the courts to have

jurisdiction to exercise this authority. Some courts cite these provisions as

conferring jurisdiction on them. It is more accurate, however, to view these

provisions as demonstrating Congress’s intent that the conferral of jurisdiction in 28 U.S.C. § 1334 not cease upon plan confirmation. Moreover,

if a postconfirmation claim is based on any of these provisions of the Bankruptcy Code, the resulting proceeding is one that “arises under title 11”

and thus one that the court can hear pursuant to section 1334(b).

Finally, because only Congress can confer jurisdiction on the federal

courts, neither the parties themselves nor the court can create postconfirmation jurisdiction through the terms of a chapter 11 plan or a confirmation

order. Provisions retaining jurisdiction may be useful in clarifying the existence of jurisdiction provided by section 1334, but they may not extend

the scope of postconfirmation jurisdiction beyond the statutory grant. Logically, the absence of such retention provisions should not negate the juris-

 681. Binder v. Price Waterhouse & Co. (In re Resorts Int’l, Inc.), 372 F.3d 154, 164 (3d

Cir. 2004) (quoting Donaldson v. Bernstein, 104 F.3d 547, 553 (3d Cir. 1997)).

682. Id. at 165.

683. Id. at 166–67.

684. Id. at 167.

685. See, e.g., 11 U.S.C. §§ 1112(b)(6)–(9), 1123(b)(3)(B), 1127(b), 1142(b), 1144

(2000).
VII. Postconfirmation Jurisdiction

151

diction that Congress has conferred, but some courts have held that a retention-of-jurisdiction provision in a plan is required for their exercise of

postconfirmation jurisdiction.686 Others disagree.687

Despite conflicting decisions about the precise scope of postconfirmation jurisdiction, there is ample authority to support the court’s exercise of

jurisdiction over proceedings requiring the interpretation of a confirmed

plan of reorganization or seeking to implement its provisions,688 seeking

postconfirmation conversion or dismissal of the bankruptcy case or the

revocation of confirmation,689 or seeking enforcement of a court order.690

On the other hand, courts have generally been reluctant to exercise postconfirmation jurisdiction over proceedings involving the corporate affairs of

a reorganized debtor.691

C. Judicial Supervision of the Trust and Claims Facility

Operation

Courts presiding over mass tort bankruptcy cases have continued to exercise jurisdiction after plan confirmation over proceedings involving or affecting the trust or other facility that was established to pay the tort claims.

The following are some examples of postconfirmation matters over which

bankruptcy or district courts have exercised jurisdiction in mass tort cases:

• removal of trustees;692

• limitation of fees for claimants’ attorneys;693

• entry of orders governing procedures for litigated and arbitrated

claims against the trust;694

 686. See, e.g., Hosp. & Prop. Damage Claimants v. Johns-Manville Corp. (In re JohnsManville Corp.), 7 F.3d 32, 34 (2d Cir. 1993).

687. See, e.g., U.S. Tr. v. Gryphon at the Stone Mansion, Inc., 216 B.R. 764, 769 (W.D. Pa.

1997), aff’d, 166 F.3d 552 (3d Cir. 1999).

688. See, e.g., U.S. Brass Corp. v. Travelers Ins. Group (In re U.S. Brass Corp.), 301 F.3d

296, 304 (5th Cir. 2002).

689. See, e.g., Ogden v. Ogden Modulars, Inc. (In re Ogden Modulars, Inc.), 180 B.R. 544

(Bankr. E.D. Mo. 1995).

690. See, e.g., United States v. Mourad, 289 F.3d 174, 180 (1st Cir. 2002).

691. See, e.g., In re Jr. Food Mart of Ark., Inc., 161 B.R. 691 (Bankr. E.D. Ark. 1993).

692. See Blum v. Unnamed Claimants (In re A.H. Robins Co.), 880 F.2d 779 (4th Cir.

1989).

693. See Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364

(4th Cir. 1996).

694. See Vairo, supra note 64, at 647 (discussing administrative order entered by district court

in Robins case).
Judicial Management of Mass Tort Bankruptcy Cases

152

• interpretation of confirmed plans and confirmation orders;695

• enforcement of channeling injunctions;696

• oversight of continued funding of the trust;697

• receipt of annual reports and financial statements of the trust and

settlement of accounts of trustees;698 and

• claimants’ suits against the trust or litigation facility.699

Frequently courts have taken these postconfirmation actions with little

discussion of the source of their jurisdictional authority, other than a reference to retention-of-jurisdiction provisions in the confirmed plans. When

bankruptcy courts have engaged in a statutory jurisdictional analysis, however, they have generally determined that either “arising-in” or “related-to”

jurisdiction gives them authority to hear a proceeding involving or affecting

the administration of a trust established by a confirmed plan to pay tort

claimants. In the A.H. Robins case, for example, the Fourth Circuit held

that the district court (which had withdrawn the reference) had arising-in

jurisdiction to limit the fees paid to attorneys for claimants who had received a pro rata distribution of surplus trust funds. This matter was one

that arose in the bankruptcy case, said the court, because “[w]ithout the

bankruptcy, there would have been no pro rata distribution. This is

unique to this bankruptcy proceeding.”700

More frequently courts have concluded that related-to jurisdiction extends to proceedings involving the tort claimant trust. Viewing the trust as

the successor to the estate, these courts have applied the Pacor test701 and

upheld the exercise of jurisdiction over proceedings that could affect the

 695. See id. at 651 (discussing postconfirmation proceeding in which district court in Robins

case interpreted the plan term “unreleased claim”).

696. See Order Enforcing the Plan and the Confirmation Order to Stay Actions of James and

Patricia Grant, In re Eagle-Picher Indus., Inc., No. 1-91-00100 (Bankr. S.D. Ohio Apr. 1, 1998).

697. See In re Nat’l Gypsum Co., 257 B.R. 184, 222 (Bankr. N.D. Tex. 2000).

698. See Order Approving Annual Report and Account of the Trustees . . . of the Eagle-Picher

Indus., Inc. Personal Injury Settlement Trust for the Period from November 14, 1996 through

December 31, 1996, In re Eagle-Picher Indus., Inc., No. 1-91-00100 (Bankr. S.D. Ohio June 16,

1997).

699. See In re Dow Corning Litig., No. Civ.A. 00-CV-00001, 2004 WL 2282909, at *1

(E.D. Mich. Sept. 29, 2004).

700. Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364,

372 (4th Cir. 1996).

701. See Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (“[T]he test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding

could conceivably have any affect on the estate being administered in bankruptcy.”).
VII. Postconfirmation Jurisdiction

153

way in which the trust administers its assets.702 The Third Circuit, applying a slightly different analysis, has approved of the exercise of related-to

jurisdiction in such cases because “where there is a close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution, or administration of a confirmed

plan or incorporated litigation trust agreement, retention of postconfirmation bankruptcy court jurisdiction is normally appropriate.”703

All postconfirmation proceedings involving a tort claimant trust have

not been found to come within bankruptcy jurisdiction, however. One

district court found that it lacked jurisdiction over an action brought by an

asbestos claimant trust against cigarette manufacturers seeking contribution

for the injuries to some of the tort claimants caused by the manufacturers.

The district judge held that the court did not have related-to jurisdiction

because the action would not affect the discharged debtor, the administration of the already terminated bankruptcy case, the terminated estate, or the

distribution to creditors, since the claimants were no longer creditors of the

estate.

704 The court’s “power to supervise the Trust,” said the judge, “does

not provide a general jurisdictional grant enabling the bankruptcy court to

entertain any litigation that involves an entity that is a product of the

Plan.”705 The court’s analysis rested on a narrower interpretation of postconfirmation related-to jurisdiction than was applied in cases treating the

trust as the successor to the estate. The Third Circuit has reconciled these

decisions by noting that the suit against the cigarette manufacturers “would

have had no impact on any integral aspect of the bankruptcy plan or proceeding.”706 Thus, according to the Third Circuit, the suit lacked the close

nexus required for postconfirmation jurisdiction.

 702. See, e.g., id.; Nat’l Gypsum Co. v. NGC Settlement Trust (In re Nat’l Gypsum Co.),

No. CIV. A. 398-CV-1032P, 1999 WL 354230, at *3 (N.D. Tex. 1999) (“The outcome of this

suit will impact the way the Trust handles and administers the bankruptcy estate and could alter the

Trust’s rights, liabilities, options, or freedom of action . . . .), rev’d on other grounds, 219 F.3d 478

(5th Cir. 2000).

703. Binder v. Price Waterhouse & Co. (In re Resorts Int’l, Inc.), 372 F.3d 154, 168–69 (3d

Cir. 2004).

704. Falise v. Am. Tobacco Co., 241 B.R. 48 (E.D.N.Y. 1999).

705. Id. at 62.

706. Binder, 372 F.3d at 168.
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155

Table of Cases

ACandS,Inc.,In re, 311 B.R. 36 (Bankr. D. Del. 2004), 117, 120, 122

Ackles v. A.H. Robins Co. (In re A.H. Robins Co.), 59 B.R. 99 (Bankr. E.D. Va. 1986),

aff’d sub nom. Beard v. A.H. Robins Co., 828 F.2d 1029 (4th Cir. 1987), 11, 134

Addison v. Langston (In re Brints Cotton Mktg.,Inc.), 737 F.2d 1338 (5th Cir. 1984),

90

A.H. Robins Co., In re, 880 F.2d 709 (4th Cir. 1989), 88, 89, 90

A.H. Robins Co., In re, 88 B.R. 742 (E.D. Va. 1988), aff’d sub nom. Menard-Sanford v.

Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989), 13, 38, 42, 68, 91,

92, 132, 134

A.H. Robins Co., In re, 862 F.2d 1092 (4th Cir. 1988), 75

A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir. 1986), 19, 20–21, 23, 24, 26, 27,

28, 31, 32

Altair Airlines, Inc.,In re, 25 B.R. 223 (Bankr. E.D. Pa. 1982),rev’d, 727 F.2d 88 (3d

Cir. 1984), 44

Amatex Corp.,In re, 755 F.2d 1034 (3d Cir. 1985), 59, 60, 66

Amchem Prods.,Inc. v. Windsor, 521 U.S. 591 (1997), 41, 63–64, 65

Am. Hardwoods, Inc. v. Deutsche Credit Corp., 885 F.2d 621 (9th Cir. 1989), 143

Am.Imaging Servs.,Inc. v. Eagle-Picher Indus.,Inc. (In re Eagle-Picher Indus.,Inc.),

963 F.2d 855 (6th Cir. 1992), 27, 29, 30, 31, 32

AP Indus.,Inc. v. SN Phelps & Co. (In re AP Indus.,Inc.), 117 B.R. 789 (Bankr.

S.D.N.Y. 1990), 30

Apollo Molded Prods.,Inc. v. Kleinman (In re Apollo Molded Prods.,Inc.), 83 B.R. 189

(Bankr. D. Mass. 1988), 31

Armstrong World Indus.,Inc.,In re, 320 B.R. 523 (D. Del. 2005), 38, 39, 106, 136

Babcock & Wilcox Co.,In re, No. 00-0558 (E.D. La. Oct. 30, 2000), 72, 76, 79, 80

Babcock & Wilcox Co.,In re, No. 00-0558 (E.D. La. Aug. 25, 2000), 72, 73, 74, 77,

78

Babcock & Wilcox Co.,In re, No. CIV.A. 00-0558, 2000 WL 422372 (E.D. La. Apr.

17, 2000), 12, 83, 85, 86

Babcock & Wilcox Co.,In re, No. 00-10992 (Bankr. E.D. La. Oct. 8, 2004), 83–84

Babcock & Wilcox Co.,In re, 274 B.R. 230 (Bankr. E.D. La. 2002), 99

Babcock & Wilcox Co.,In re, No. 00-10992 (Bankr. E.D. La. Dec. 19, 2002), 108,

109
Judicial Management of Mass Tort Bankruptcy Cases

156

Bailey v.Jamesway Corp. (In reJamesway Corp.), Nos. 95 B 44821, 96/8389A, 1997

WL 327105 (Bankr. S.D.N.Y. June 12, 1997), 78

Baldwin-United Corp.,In re, 55 B.R. 885 (Bankr. S.D. Ohio 1985), 90

Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. RobinsCo.), 86 F.3d 364

(4th Cir. 1996), 151, 152

Binder v. Price Waterhouse & Co. (In re Resorts Int’l,Inc.), 372 F.3d 154 (3d Cir.

2004), 150, 153

Bittner v. Borne Chem. Co., 691 F.2d 134 (3d Cir. 1982), 90

Blum v.Unnamed Claimants (In re A.H. Robins Co.), 880 F.2d 779 (4th Cir. 1989),

151

Bodenstein v. Lentz (In re Mercury Fin. Co.), 240 B.R. 270 (N.D. Ill. 1999), 49

Busy Beaver Bldg.Ctrs.,Inc.,In re, 19 F.3d 833 (3d Cir. 1994), 53

Celotex Corp.,In re, 204 B.R. 586 (Bankr. M.D. Fla. 1996), 42, 72, 74

Celotex Corp.,In re, 123 B.R. 917 (Bankr. M.D. Fla. 1991), 43, 45

Celotex Corp. v. Edwards, 514 U.S. 300 (1995), 26

Certain Underwriters at Lloyd’s London v. ABB Lummus Global,Inc., No. 03 Civ.

7248(JGK), 2004 WL 224505 (S.D.N.Y. 2004), 123

Charter Co., In re, 42 B.R. 251 (Bankr. M.D. Fla. 1984), 45

Chevron U.S.A.,Inc.,In re, 109 F.3d 1016 (5th Cir. 1997), 87

Cimino v. Raymark Indus.,Inc., 151 F.3d 297 (5th Cir. 1998), 87

Citibank, N.A. v. White Motor Corp. (In re White Motor Credit), 761 F.2d 270 (6th

Cir. 1985), 21, 26

Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280

F.3d 648 (6th Cir. 2002), 136, 137, 143, 145, 146, 147

Coar v. Nat’lUnion FireIns.Co., 19 F.3d 247 (5th Cir. 1994), 23

Coker v. Pan Am. World Airways,Inc. (In re Pan Am. Corp.), 950 F.2d 839 (2d Cir.

1991), 21, 26

Columbia Gas Sys.,Inc.,In re, 133 B.R. 174 (Bankr. D. Del. 1991), 49

Combustion Eng’g,Inc.,In re, 391 F.3d 190 (3d Cir. 2004), 65, 114, 116, 117, 118,

119, 120, 121, 122, 126, 130, 138, 141, 143, 144, 145

Combustion Eng’g,Inc.,In re, 295 B.R. 459 (Bankr. D. Del. 2003), vacated & remanded, 391 F.3d 190 (3d Cir. 2004), 117, 122, 127, 142

Commercial Fin. Serv.,Inc.,In re, 231 B.R. 351 (Bankr. N.D. Okla. 1999), 56

County of Orange, In re, 179 B.R. 195 (Bankr. C.D. Cal. 1995), 54

Daubert v. Merrell Dow Pharms., 509 U.S. 579 (1993), 11–12
Table of Cases

157

Dow Corning Corp.,In re, No. 95-20512 (Bankr. E.D. Mich. Nov. 30, 1999), aff’d,

255 B.R. 445 (E.D. Mich. 2000), rev’d in part on other grounds, 280 F.3d 648 (6th

Cir. 2002), 75

Dow Corning Corp.,In re, 187 B.R. 919 (E.D. Mich. 1995), rev’d in part on other

grounds, 86 F.3d 482 (6th Cir. 1996), 18, 20

Dow Corning Corp.,In re, 287 B.R. 396 (E.D. Mich. 2002), 147

Dow Corning Corp.,In re, 255 B.R. 445 (E.D. Mich. 2000), 24

Dow Corning Corp.,In re, 212 B.R. 258 (E.D. Mich. 1997), 43, 44, 45, 48

Dow Corning Corp.,In re, 194 B.R. 121 (Bankr. E.D. Mich. 1996),rev’d in part on

other grounds, 212 B.R. 258 (E.D. Mich. 1997), 39, 42, 43, 44, 45, 49

Dow Corning Corp.,In re, No. 95-CV-72397-DT, 1996 WL 511646 (E.D. Mich.

July 30, 1996), 25

Dow Corning Corp.,In re, 244 B.R. 721 (Bankr. E.D. Mich. 1999), 136

Dow Corning Corp.,In re, 215 B.R. 526 (Bankr. E.D. Mich. 1997), 11, 12

Dow Corning Corp.,In re, 215 B.R. 346 (Bankr. E.D. Mich. 1997), 19

Dow Corning Corp.,In re, 211 B.R. 545 (Bankr. E.D. Mich. 1997), 66, 72, 74, 80, 82,

83, 85, 87, 100

Dow Corning Corp.,In re, 208 B.R. 661 (Bankr. E.D. Mich. 1997), 111, 112, 113,

114, 508

Dow Corning Corp.,In re, 198 B.R. 214 (Bankr. E.D. Mich. 1996), 125

Dow Corning Litig.,In re, No. Civ.A. 00-CV-00001, 2004 WL 2282909 (E.D.

Mich. Sept. 29, 2004), 152

Dusenbery v. United States, 534 U.S. 161 (2002), 78

Eagle-Picher Indus.,Inc.,In re, 203 B.R. 256 (S.D. Ohio 1996), 13, 20, 95, 136, 141

Eagle-Picher Indus.,Inc.,In re, No. 1-91-00100 (Bankr. S.D. Ohio Apr. 1, 1998), 152

Eagle-Picher Indus.,Inc.,In re, No. 1-91-00100 (Bankr. S.D. Ohio June 16, 1997),

152

Eagle-Picher Indus.,Inc.,In re, 189 B.R. 681 (Bankr. S.D. Ohio 1995), 20, 68, 82, 87,

88, 89, 92, 93, 94, 95, 96, 100

Eagle-Picher Indus.,Inc.,In re, 137 B.R. 679 (Bankr. S.D. Ohio 1992), 72, 73, 81

Eagle-Picher Indus.,Inc.,In re, No. 1-91-00100 (Bankr. S.D. Ohio June 11, 1992), 79,

81

Eagle-Picher Indus.,Inc.,In re, No. 1-91-00100 (Bankr. S.D. Ohio June 5, 1992), 108

Eagle-Picher Indus.,Inc.,In re, 124 B.R. 1021 (Bankr. S.D. Ohio 1991), 34, 35

Edgar,In re, 93 F.3d 2568 (7th Cir. 1996), 104

Elscint,Inc. v. First Wis. Fin.Corp. (In re Xonics, Inc.), 813 F.2d 127 (7th Cir. 1987),

23
Judicial Management of Mass Tort Bankruptcy Cases

158

Falise v. Am. Tobacco Co., 241 B.R. 48 (E.D.N.Y. 1999), 153

Fas Mart Convenience Stores,Inc.,In re, 265 B.R. 427 (Bankr. E.D. Va. 2001), 49

FCX,Inc.,In re, 60 B.R. 405 (E.D.N.C. 1986), 34

Federal-Mogul Global,Inc.,In re, 300 F.3d 368 (3d Cir. 2002), 24

Federal-Mogul Global,Inc.,In re, No. 01-10578 (Bankr. D. Del. June 4, 2002), 76, 77

Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746 (5th Cir. 1995), 144

Fibreboard,In re, 893 F.2d 706 (5th Cir. 1990), 88

First Fid. Bank, N.A. v. Hooker Invs.,Inc. (In re Hooker Invs.,Inc.), 937 F.2d 833 (2d

Cir. 1991), 73

First Merchs. Acceptance Corp. v.J.C. Bradford & Co. (In re First Merchs. Acceptance

Corp.), 198 F.3d 394 (3d Cir. 2000), 54

Firstplus Fin.,Inc.,In re, 254 B.R. 888 (Bankr. N.D. Tex. 2000), 54

Forty-Eight Insulations, Inc.,In re, 58 B.R. 476 (Bankr. N.D.Ill. 1986), 60, 67

Forty-Eight Insulations, Inc. v. Lipke (In re Forty-Eight Insulations, Inc.), 54 B.R. 905

(Bankr. N.D. Ill. 1985), 28, 30

Fuller-Austin Insulation, In re, No. 98-2038-JJF, 1998 WL 812388 (D. Del. Nov. 10,

1998), 115, 116, 117, 124, 126–27, 136

GAFCorp. v.Johns-Manville Corp. (In reJohns-Manville Corp.), 26 B.R. 405 (Bankr.

S.D.N.Y. 1983), 24, 25, 29, 30, 31

Gillman v. Cont’l Airlines (In re Cont’l Airlines), 203 F.3d 203 (3d Cir. 2000), 144

Grupo Mexicano de Desarrollo v. Alliance Bond Fund,Inc., 527 U.S. 308 (1999), 146

Gulf Air,Inc.,In re, 112 B.R. 152 (Bankr. W.D. La. 1989), 34

Harbison-Walker Refractories Co. v. Ace Prop. & Cas.Ins. Co. (In re GlobalIndus.

Techs.,Inc.), 303 B.R. 753 (Bankr. W.D. Pa. 2004), vacated & modified in part on

other grounds, 2004 WL 555418 (Bankr. W.D. Pa. Feb. 3, 2004), 124, 127

Hilao v. Marcos, 103 F.3d 767 (9th Cir. 1996), 88

Hills Stores Co.,In re, 137 B.R. 4 (Bankr. S.D.N.Y. 1992), 40, 42

H.K. Porter Co.,In re, 156 B.R. 16 (Bankr. W.D. Pa. 1993), 66, 67

Homestead Partners, Ltd.,In re, 197 B.R. 706 (Bankr. N.D. Ga. 1996), 111

Hosp. & Prop. Damage Claimants v.Johns-Manville Corp. (In reJohns-Manville

Corp.), 7 F.3d 32 (2d Cir. 1993), 151

Ionosphere Clubs,Inc.,In re, 98 B.R. 174 (Bankr. S.D.N.Y. 1989), 34

Johns-Manville Corp.,In re, 36 B.R. 743 (Bankr. S.D.N.Y. 1984), 59, 60

Johns-Manville Corp. v. Asbestos Litig. Group (In reJohns-Manville Corp.), 26 B.R.

420, 430 (Bankr. S.D.N.Y. 1983), aff’d, 40 B.R. 219 (S.D.N.Y. 1984), 27, 29, 31
Table of Cases

159

Johns-Manville Corp. v. Asbestos Litig. Group (In reJohns-Manville Corp.), 40 B.R.

219 (S.D.N.Y. 1984), 27, 30

Johns-Manville Corp. v. Asbestos Litig. Group (In reJohns-Manville Corp.), 33 B.R.

254 (Bankr. S.D.N.Y. 1983), 29

Joint E. & S. Dists. Asbestos Litig., In re, 830 F. Supp. 686 (E.D.N.Y. & S.D.N.Y.

1993), 100, 103

Jr. Food Mart of Ark.,Inc.,In re, 161 B.R. 691 (Bankr. E.D. Ark. 1993), 151

J.T. Thorpe Co.,In re, 308 B.R. 782 (Bankr. S.D. Tex. 2003), aff’d, 2004 WL 720263

(S.D. Tex. 2004), 117, 121

Kane v.Johns-Manville Corp., 843 F.2d 636 (2d Cir. 1988), 72, 131, 132, 133, 136

Keene Corp.,In re, 188 B.R. 903 (Bankr. S.D.N.Y. 1995), 113, 114

Kelley v. Nodine (In re Salem Mortgage Co.), 783 F.2d 626 (6thCir. 1986), 23

Kensington Int’l Ltd.,In re, 368 F.3d 289 (3d Cir. 2004), 100, 103, 104

K-Mart,In re, 359 F.3d 866 (7th Cir.),cert. denied, 125 S. Ct. 495 (2004), 34

Landsing Diversified Props.-II v. First Nat’l Bank & Trust Co. (In re W. Real Estate

Fund,Inc.), 922 F.2d 592 (10th Cir. 1990), modified sub nom. Abel v. West, 932

F.2d 898 (10th Cir. 1991), 143

Lindsey v. Dow Chem. Co. (In re Dow Corning Corp.), 113 F.3d 565 (6th Cir.

1997), 9, 25, 26

Lindsey v. O’Brien, Tanski, Tanzer & Young Health Care Providers (In re Dow Corning Corp.), 86 F.3d 482 (6th Cir. 1996), 9, 19, 23, 24, 26

Locks v. U.S. Tr., 157 B.R. 89 (W.D. Pa. 1993), 66

LTV Steel Co. v. Bd. of Educ. (In re Chateaugay Corp.), 93 B.R. 26 (S.D.N.Y. 1988),

30

Lynch v.Johns-Manville Sales Corp., 710 F.2d 1194 (6th Cir. 1983), 26, 29, 30

MacArthur v.Johns-Manville Corp. (In reJohns-Manville Corp.), 837 F.2d 89 (2d Cir.

1988), 143

Manville Corp. v. Equity Sec. Holders Comm. (In reJohns-Manville Corp.), 66 B.R.

517 (Bankr. S.D.N.Y. 1986), 113

Mariner Post-Acute Network, Inc.,In re, 257 B.R. 723 (Bankr. D. Del. 2000), 55, 56

Maritime Asbestosis Legal Clinic v. U.S. Lines, Inc. (In re U.S. Lines,Inc.), 216 F.3d

228 (2d Cir. 2000), 20

Martin, In re, 817 F.2d 175 (1st Cir. 1987), 53

Master MortgageInv. Fund,Inc.,In re, 168 B.R. 930 (Bankr. W.D. Mo. 1994), 147

McLean Indus.,Inc.,In re, 70 B.R. 852 (Bankr. S.D.N.Y. 1987), 40, 45, 47, 48

Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989), 91,

92, 133, 136, 143
Judicial Management of Mass Tort Bankruptcy Cases

160

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950), 62, 63, 78, 79

Murray v. Pan Am. World Airways, Inc. (In re Pan Am. Corp.), 16 F.3d 513 (2d Cir.

1994), 19

Nat’l Gypsum Co., In re, 219 F.3d 478 (5th Cir. 2000), 68

Nat’l Gypsum Co., In re, 134 B.R. 188 (N.D. Tex. 1991), 12

Nat’l Gypsum Co., In re, 257 B.R. 184 (Bankr. N.D. Tex. 2000), 152

Nat’l Gypsum Co. v. NGC Settlement Trust (In re Nat’lGypsum Co.), No. CIV. A.

398-CV-1032P, 1999 WL 354230 (N.D. Tex.June 1, 1999), rev’d on other

grounds, 219 F.3d 478 (5th Cir. 2000), 153

New Life Fellowship, Inc.,In re, 202 B.R. 994 (Bankr. W.D. Okla. 1996), 48

Northeast Dairy Coop. Fed’n,Inc.,In re, 59 B.R. 531 (Bankr. N.D.N.Y. 1986), 44

Oberg v. Aetna Cas. & Sur.Co. (In re A.H. Robins Co.), 828 F.2d 1023 (4th Cir.

1987), 28

Official Comm. of Equity Sec. Holders v. Mabey, 832 F.2d 299 (4th Cir. 1987), 32,

33

Official Comm. of Tort Claimants v. Dow Corning Corp. (In re Dow Corning

Corp.), 142 F.3d 433 (6th Cir. 1998), 9

Official Unsecured Creditors’ Comm. v. Eagle-Picher Indus.,Inc. (In re Eagle-Picher

Indus.,Inc.), 176 B.R. 143 (Bankr. S.D. Ohio 1994), 112, 113, 114

Ogden v. Ogden Modulars,Inc. (In re Ogden Modulars,Inc.), 180 B.R. 544 (Bankr.

E.D. Mo. 1995), 151

Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), 41, 42, 63, 65, 67

Owens Corning,In re, No. 00-3837, 2004 Bankr. LEXIS 78 (Bankr. D. Del. Feb. 2,

2004), 112

Owens Corning,In re, No. 00-3837 (Bankr. D. Del.July 22, 2002), 108, 109

Owens Corning v. Credit Suisse First Boston, 322 B.R. 719 (D. Del. 2005), 97

Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984), 22, 23, 24, 152

Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979), 84

Pennsylvania v. Cunningham & Chernicoff, P.C. (In re Pannebaker Custom Cabinet

Corp.), 198 B.R. 453 (Bankr. M.D. Pa. 1996), 56

Peterson, Ex parte, 253 U.S. 300 (1920), 101

Pettibone Corp. v. Easley, 935 F.2d 120 (7th Cir. 1991), 19

Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (1993), 74

Pittsburgh Corning Corp.,In re, 255 B.R. 162 (Bankr. W.D. Pa. 2000), 56

Public Serv. Co.,In re, 89 B.R. 1014 (Bankr. D.N.H. 1988), 49

Raleigh v.Ill. Dep’t of Revenue, 530 U.S. 15 (2000), 96
Table of Cases

161

Reilly v.United States, 863 F.2d 149 (1st Cir. 1988), 101, 103, 104

Related Asbestos Cases,In re, 23 B.R. 523 (N.D. Cal. 1982), 26

Resorts Int’l,Inc. v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394 (9th Cir. 1995),

143

Roberts v.Johns-Manville Corp. (In reJohns-Manville Corp.), 45 B.R. 823 (S.D.N.Y.

1984), 25, 89

Sargeant Farms, Inc.,In re, 224 B.R. 842 (Bankr. M.D. Fla. 1998), 108

Schatz Fed. Bearings Co., In re, 5 B.R. 543 (Bankr. S.D.N.Y. 1980), 44

Sec. & Exch. Comm’n v. Drexel Burnham Lambert Group,Inc. (In re Drexel Burnham

Lambert Group,Inc.), 960 F.2d 285 (2d Cir. 1992), 143

Shaffer-Gordon Assocs.,Inc.,In re, 40 B.R. 956 (Bankr. E.D. Pa. 1984), 42

Sharon Steel Corp.,In re, 100 B.R. 767 (Bankr. W.D. Pa. 1989), 48, 49

Silicone Gel Breast Implant Prods. Liab. Litig.,In re, MDL No. 926 (N.D. Ala. May

30, 1996), 100

Smith v. Wheeler Tech.,Inc. (In re Wheeler Tech.,Inc.), 139 B.R. 235 (B.A.P. 9th Cir.

1992), 48

Specialty Equip. Cos.,In re, 3 F.3d 1043 (5th Cir. 1993), 144

Sunbeam Sec. Litig.,In re, 261 B.R. 534 (S.D. Fla. 2001), 26

Texaco Inc.,In re, 84 B.R. 893 (Bankr. S.D.N.Y. 1988), 126

Texaco Inc.,In re, 79 B.R. 560 (Bankr. S.D.N.Y. 1987), 49

Thomson McKinnon Sec.,Inc.,In re, 143 B.R. 612 (Bankr. S.D.N.Y. 1992), 90

Tort Claimants’ Comm. v. Dow Corning Corp. (In re Dow Corning Corp.), 103 F.3d

129 (6th Cir. 1996), 9

Trans World Airlines,Inc.,In re, Bankr. No. 92-115, 1992 WL 168152 (Bankr. D.

Del. Mar. 20, 1992), 39, 49

United Mine Workers v. Gibbs, 383 U.S. 715 (1966), 23

United States v.Johns-Manville Corp. (In reJohns-Manville Corp.), 63 B.R. 600

(S.D.N.Y. 1986), 12, 13

United States v. Mourad, 289 F.3d 174 (1st Cir. 2002), 151

UNR Indus.,Inc.,In re, 29 B.R. 741 (N.D. Ill. 1983), appeal dismissed, 725 F.2d 1111

(7th Cir. 1984), 59

UNR Indus.,Inc.,In re, 725 F.2d 1111 (7th Cir. 1984), 60

UNR Indus.,Inc.,In re, 74 B.R. 146 (N.D. Ill. 1987), 19

UNR Indus.,Inc.,In re, 45 B.R. 322 (N.D. Ill. 1984), 19

UNR Indus.,Inc.,In re, 212 B.R. 295 (Bankr. N.D.Ill. 1997), 68
Judicial Management of Mass Tort Bankruptcy Cases

162

UNR Indus.,Inc.,In re, Bankr. No. 82B9841-9845, 1996 Bankr. LEXIS 1455 (Bankr.

N.D. Ill. Aug. 13, 1996), 20

UNR Indus.,Inc.,In re, 143 B.R. 506 (Bankr. N.D.Ill. 1992), 20, 35

UNR Indus.,Inc.,In re, 72 B.R. 796 (Bankr. N.D. Ill. 1987), 57

UNR Indus.,Inc.,In re, 72 B.R. 789 (Bankr. N.D. Ill. 1987), 107, 112, 113

UNR Indus.,Inc.,In re, 71 B.R. 467 (Bankr. N.D. Ill. 1987), 72

UNR Indus.,Inc.,In re, 46 B.R. 671 (Bankr. N.D. Ill. 1985), 60, 66, 67

UNR Indus.,Inc.,In re, 30 B.R. 613 (Bankr. N.D. Ill. 1983), 43

UNR Indus.,Inc. v.Cont’l Cas. Co., 942 F.2d 1101 (7th Cir. 1991), 124, 126

U.S. Brass Corp.,In re, 110 F.3d 1261 (7th Cir. 1997), 124

U.S. Brass Corp. v. Aetna Cas. & Sur.Co. (In re U.S. Brass Corp.), 173 B.R. 1006

(Bankr. E.D. Tex. 1994), 123

U.S. Brass Corp. v. Cal. Union Ins. Co., 198 B.R. 940 (N.D. Ill. 1996), aff’d, 110 F.3d

1261 (7th Cir. 1997), 124

U.S. Brass Corp. v. Travelers Ins.Group (In reU.S. Brass Corp.), 301 F.3d 296 (5th Cir.

2002), 151

USG Corp.,In re, 290 B.R. 223 (Bankr. D. Del. 2003), 83, 85, 87, 98, 99

U.S. Lines, Inc. v. Am. S.S. Owners Mut. Prot. & Indem. Assoc. (In re U.S. Lines), 197

F.3d 631 (2d Cir. 1999), 124

U.S. Lines, Inc. v.U.S. Lines Reorganization Trust, 262 B.R. 223 (S.D.N.Y. 2001), 19

U.S. Tr. v. Gryphon at the Stone Mansion, Inc., 216 B.R. 764 (W.D. Pa. 1997), aff’d,

166 F.3d 552 (3d Cir. 1999), 151

U.S. Tr. v. Knudsen Corp. (In re Knudsen Corp.), 84 B.R. 668 (B.A.P. 9th Cir. 1988),

56

Van Arsdale v.Clemo, 825 F.2d 794 (4th Cir. 1987), 43

Vancouver Women’s Health Collective Soc’y v. A.H. Robins Co., 820 F.2d 1359 (4th

Cir. 1987), 72, 80

Waterman S.S. Corp. v. Aguiar (In re Waterman S.S. Corp.), 157 B.R. 220 (S.D.N.Y.

1997), 78

Wedgeworth v. Fibreboard Corp., 706 F.2d 541 (5th Cir. 1983), 26, 27, 29, 30

Wonder Corp. of Am.,In re, 82 B.R. 186 (D. Conn. 1988), 53

Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir. 1986), 23

W.R. Grace & Co. v.Chakarian (In re W.R. Grace & Co.), 42 Bankr. Ct. Dec. 270

(Bankr. D. Del. 2004), 27
The Federal Judicial Center

Board

The Chief Justice of the United States, Chair

Judge Bernice B. Donald, U.S. District Court for the Western District of Tennessee

Judge Terence T. Evans, U.S. Court of Appeals for the Seventh Circuit

MagistrateJudge Karen Klein, U.S. District Court for the District of North Dakota

Judge Pierre N. Leval, U.S. Court of Appeals for the Second Circuit

JudgeJames A. Parker, U.S. District Court for the District of New Mexico

Judge Stephen Raslavich, U.S. Bankruptcy Court for the Eastern District of

Pennsylvania

Judge Sarah S. Vance, U.S. District Court for the Eastern District of Louisiana

Leonidas Ralph Mecham, Director of the Administrative Office of the U.S. Courts

Director

Judge Barbara J. Rothstein

Deputy Director

Russell R. Wheeler

About the Federal Judicial Center

The FederalJudicial Center is theresearch and education agency of the federal judicial

system. It was established by Congress in 1967 (28 U.S.C. §§ 620–629), on the recommendation of theJudicial Conference of the United States.

By statute, the Chief Justice of the United States chairs the Center’s Board, which

also includes the director of the Administrative Office of the U.S. Courts and seven

judges elected by theJudicial Conference.

The organization of the Center reflects its primary statutory mandates. The Education Division plans and produces education and training programs for judges and

court staff, including satellite broadcasts, video programs, publications, curriculum

packages for in-court training, and Web-based programs and resources. The Research

Division examines and evaluates current and alternative federal court practices and

policies. This research assists Judicial Conference committees, who request most Center research, in developing policy recommendations. The Center’s research also contributes substantially to its educational programs. The two divisions work closely with

two units of the Director’s Office—the Systems Innovations & Development Office

and Communications Policy & Design Office—in using print, broadcast, and on-line

media to deliver education and training and to disseminate the results of Center research. The Federal Judicial History Office helps courts and others study and preserve

federal judicial history. The International Judicial Relations Office provides information to judicial and legal officials from foreign countries and assesses how to inform

federal judicial personnel of developments in international law and other court systems

that may affect their work.