Court Opinion

ID: 204694
Source: CourtListenerOpinion
Date Created: 2011-02-14 18:27:10+00
Date Added: 2024-06-11T17:27:45.322672
License: Public Domain

Case: 10-60015 Document: 00511380757 Page: 1 Date Filed: 02/14/2011

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                         February 14, 2011

                                       No. 10-60015                        Lyle W. Cayce
                                                                                Clerk

DORIS EVERITT, Executrix of The Estate of Robert M. Everitt, Sr., Deceased;
GORDON K. ABBOTT; SAMUEL F. ABEL; LUCAS CLARENCE ABEL;
KENNETH ADAIR; ET AL,

                                                  Plaintiffs - Appellants,
v.

PNEUMO ABEX, L.L.C., Successor by merger to Pneumo Abex Corporation,

                                                  Defendant - Appellee.

                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 3:06-CV-231

Before DeMOSS, BENAVIDES, and ELROD, Circuit Judges.
PER CURIAM:*
       Plaintiffs-Appellants, a group of approximately 1300 to 1400 plaintiffs (the
Everitt Parties) filed a lawsuit in district court to enforce a settlement
agreement arising out of asbestos litigation against Defendant-Appellee Pneumo
Abex, L.L.C. (Pneumo) and certain other asbestos manufacturers, who are not
parties to this case. The district court granted summary judgment to Pneumo.

       *
         Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5th Cir.
R. 47.5.4.
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                                    No. 10-60015

The Everitt Parties appealed, and we now REVERSE and REMAND.
                                          I.
      Pneumo is a holding company that includes, among other things, the Abex
brake business, which began manufacturing products that contain asbestos in
the 1920s. Pursuant to a series of corporate transactions transferring control of
Pneumo and its predecessors, the details of which are not relevant to this case,
Pneumo was by 2001 the beneficiary of an indemnity from its parent company,
Federal-Mogul Corporation (Federal-Mogul), for all asbestos-related claims
arising from or relating to the products, assets or past conduct and operations
of the Abex brake business brought against Pneumo after August 29, 1998.
      In February 2000, the Everitt Parties filed a lawsuit in the Circuit Court
of Jefferson County, Mississippi against Pneumo and certain other asbestos
manufacturers, distributors, or sellers affiliated with Federal-Mogul seeking
recovery for injuries alleged to have resulted from their exposure to asbestos.
Hilary A. Anderson v. The Flintkote Company, No. 2000-22 (Miss Cir. Ct. Feb.
8, 2000). In September 2001, the Everitt Parties settled their claims against
Pneumo and three of the other co-defendants in that case by letter agreement.2
      The letter agreement entitles individual plaintiffs to payment for their
submitted claims at specified rates based on their particular asbestos-related
disease. It also obligates Pneumo and its co-defendants to make six quarterly
payments into a settlement fund to satisfy those claims beginning on November
1, 2001 and continuing quarterly until February 1, 2003. The agreement states
that any remaining sums to be paid to plaintiffs are to be determined on May
1, 2003, although it provides no express deadline for claims to be submitted or
paid. Individual plaintiffs may effectively opt-out of the agreement by electing

      2
       The letter agreement memorializing the settlement is dated July 6, 2001, but the
undisputed record shows that the settlement was executed in September, 2001.

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“not to accept” the settlement. The agreement states that the dismissal with
prejudice with respect to “any such plaintiff not accepting this settlement shall
be vacated.”
      Under the letter agreement, individual plaintiffs are required to provide
certain documentation prior to receiving payment, including a release of
liability, a certification of a medical doctor evidencing an asbestos-related
disease, and, where appropriate, documentation relating to estate papers and
death certificates.   The agreement is silent as to the consequences of a
bankruptcy or other reorganization of Pneumo or of Pneumo’s parent
companies, but provides each party a termination right “if federal or Mississippi
state tort reform legislation or judicial decision were to be enacted so as to cause
either party” to conclude that its continued participation in the settlement
agreement would no longer be in its best interests.
      On October 1, 2001, before any payments into the settlement trust had
come due (and before any such payments had in fact been made), Federal-Mogul
and certain of its affiliates - including all of the Anderson defendants except
Pneumo - filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the District of Delaware. Pneumo sought to intervene
in the bankruptcy proceeding as a non-debtor third party, seeking the extension
of the Federal-Mogul bankruptcy automatic stay to Pneumo and also a
channeling injunction protecting Pneumo’s assets under Section 524(g) of the
bankruptcy code. It is undisputed that the Everitt Parties did not oppose that
filing. Federal-Mogul subsequently informed Pneumo that it could no longer
satisfy its indemnity obligations.      Nor did they oppose Pneumo’s further
declaratory judgment complaint in the bankruptcy court in December 2005, as
became clear at oral argument.
      At some later time (although the record does not show precisely when),

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Pneumo withdrew its request for an automatic stay from the bankruptcy court.
Pneumo’s other requests for injunctive relief were denied by the bankruptcy
court nearly five years later, on January 20, 2006. Once it became clear that no
injunctive relief would issue from the bankruptcy court in Pneumo’s favor,
fifty-seven of the individual Everitt plaintiffs submitted claims for payment as
provided in the letter agreement. Pneumo rejected those claims as untimely on
March 28, 2006.
      Despite the fact that Pneumo’s request for injunctive relief was rejected
by the bankruptcy court, the claims against Pneumo were taken into account
in the various plans of reorganization proposed for the Federal-Mogul debtors.
In support of those plans of reorganization, Pneumo submitted a sworn
declaration to the bankruptcy court in June 2007 by its president, Steven L.
Fasman. Fasman’s declaration explained that although the claims of the
Everitt Parties were settled before Federal-Mogul’s bankruptcy, “the Debtors
stopped processing the settlement and made no further settlement payments”
after the date of the bankruptcy. As a result, Fasman explained, those “settled
but not paid” claimants filed suit against Pneumo. On November 8, 2007, the
bankruptcy court approved one of the alternative proposals for reorganization.
The so-called “Plan B” scheme the court approved awarded Pneumo $140
million in full satisfaction of the then-present and future asbestos claims for
which Federal-Mogul owed indemnity to Pneumo, but was unable to pay due to
the bankruptcy.
      The Everitt Parties filed their amended complaint in this action on
August 15, 2008, seeking enforcement of the settlement agreement. After
conducting discovery, the Everitt Parties and Pneumo filed simultaneous
motions for summary judgment. The district court denied the Everitt Parties’
motion, granted Pneumo’s motion, and dismissed the Everitt Parties’ complaint

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with prejudice. Although the district court concluded that the letter agreement
was a valid contract (rather than, as Pneumo had claimed, merely an offer that
the individual Everitt plaintiffs never accepted), it held that the Everitt Parties’
claims under the letter agreement were time barred in part because they filed
this lawsuit more than three years after Pneumo first failed to make payments
into the settlement fund on November 1, 2001. The trial court also rejected the
Everitt Parties’ substantive contractual claims, holding that the Everitt Parties’
breached the letter agreement by failing to present their claims prior to what
the court characterized as the “implicit” May 1, 2003 deadline. Moreover, the
district court rejected the Everitt Parties’ contentions that the Federal-Mogul
bankruptcy temporarily suspended performance under the agreement, that the
bankruptcy stay automatically extended to Pneumo, and that Pneumo was
equitably estopped from asserting the statute of limitations. The Everitt
Parties timely appealed.
                                        II.
      This court reviews the district court’s summary judgment de novo,
applying the same legal standards used by the district court. Sanders-Burn v.
City of Plan, 594 F.3d 366 (5th Cir. 2010). Summary judgment is proper if the
movant shows that “there is no genuine issue as to any material fact and that
the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
The parties agree that Mississippi law applies to this diversity case.
      Both of Pneumo’s chief arguments in this case, which the district court
accepted, depend on the idea that the September 2001 settlement agreement
was breached. With respect to the statute of limitations, the Everitt Parties’
claims can only be barred if in fact their claims matured when Pneumo failed
to make its installment payments as scheduled. The court’s substantive holding
is equally contingent on a breach, namely, the Everitt Parties’ failure to present

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                                  No. 10-60015

their claims by May 1, 2003. In response to Pneumo’s argument, the Everitt
Plaintiffs dispute that May 1, 2003 constituted a claims deadline, and argue
that in any event, the automatic stay arising from the Federal-Mogul
bankruptcy applied to Pneumo, and tolled the time to submit any claims under
the letter agreement and under the Mississippi statute of limitations.
      We need take no position on those questions to resolve the issues here.
Rather, our judgment turns on the parties’ behavior. It is a general rule of
contract interpretation under Mississippi law that “[w]here a contract is to be
construed by its terms alone, it is the duty of the court to interpret it; but where
its meaning is obscure, . . . the question of interpretation should be submitted
to the jury.” Baylot v. Habeeb, 147 So. 2d 490, 494 (Miss. 1962).
      The settlement agreement here made no provision for the bankruptcy of
Federal-Mogul. Faced with that ambiguity, the record on this appeal shows
that both parties consistently acted as if the bankruptcy delayed
implementation of their settlement.          Most important, immediately after
Federal-Mogul filed its Chapter 11 petition, Pneumo sought a declaratory
judgment with the Everitt Parties’ cooperation seeking the extension of the
Federal-Mogul automatic stay to claims against itself. The Everitt Parties
acquiesced again when Pneumo filed a further complaint for declaratory
judgment in December 2005. When questioned directly at oral argument,
Pneumo’s counsel never denied the fact of that cooperation, and was unable to
pinpoint any date in this record before the bankruptcy court’s January 2006
determination that the parties’ cooperative paths diverged. On this record, no
reasonable actor in either Pneumo’s or the Everitt Parties’ positions would
believe the settlement agreement was operative. Indeed, had the Everitt
Parties then filed their claims against Pneumo, they would have been in the
anomalous position of potentially violating the very automatic stay to which

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they had acquiesced.     Moreover, proceeding against Pneumo during the
pendency of Pneumo’s application for an automatic stay would have disrupted
the complex and ongoing bankruptcy negotiations seeking to secure a global
settlement of Pneumo’s asbestos liability indemnity claims against
Federal-Mogul and its predecessors in interest. Such action, by putting into
jeopardy Pneumo’s rights to recover indemnity funds from Federal-Mogul,
would also have been unreasonable in the circumstances.
      The parties’ course of conduct following Pneumo’s initial filing in the
bankruptcy court was equally consistent with an intent to delay
implementation of the settlement agreement until the resolution of the
Federal-Mogul reorganization. When the November 1, 2001 deadline for the
first installment payment into the settlement fund arrived, Pneumo chose not
to pay. The Everitt Parties made no protest, as one would expect from a hostile
party expecting payment. Nor did the individual plaintiffs exercise their
contractual right to opt-out of the settlement. Rather, they waited to see the
outcome of the bankruptcy stay proceedings, and made their claims
expeditiously a few months after the bankruptcy court denied relief in January
2006. In turn, Pneumo raised no objections to the individual Everitt plaintiffs’
failure to present their claims until March 28, 2006, almost three years after
the purported May 1, 2003 deadline. To the contrary, as late as 2007 and well
after Pneumo says the Everitt claims expired, the Fasman declaration
characterized the Everitt claims as “settled but not paid,” ascribing their
delayed processing to the Federal-Mogul bankruptcy. Pneumo’s suggestion that
this concession should be discounted because it does not “reflect that [Fasman]
even read the settlement agreement upon which the claims are based” strains
credibility. As Fasman himself swore in the same declaration, one of his
primary responsibilities for the past twelve years had been supervising the

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                                No. 10-60015

defense of approximately 240,000 asbestos claims against Pneumo. As a result,
he had “become very familiar with the corporate and litigation history” of
Pneumo and its asbestos-related liabilities.
      That there is ambiguity in the interpretation of the settlement agreement
does not mean that the Everitt Parties will ultimately prevail. It may be, upon
further proceedings in the district court, that Pneumo can adduce evidence
showing that no understanding between the parties delayed implementation of
the settlement agreement, or that the parties negotiated a different resolution
to the problem of the Federal-Mogul bankruptcy. Pneumo may also have access
to various other defenses to the Everitt Parties’ contractual claims. On the
current record, however, this court cannot find that the settlement agreement
is clear enough to justify the forfeiture of the individual Everitt plaintiffs’
claims. See Monsanto Co. v. Cochran, 180 So.2d 624, 630 (Miss. 1965) (“equity
abhors a forfeiture and is disposed to seize on slight circumstances to avoid a
forfeiture”).
                                     III.
      For the foregoing reasons, the judgment is REVERSED and
REMANDED.

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