RESPONDENT:Pearlie Bailey, et al.
LOCATION: Johns-Manville Corporation
DOCKET NO.: 08-295
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Second Circuit
CITATION: 557 US (2009)
GRANTED: Dec 12, 2008
ARGUED: Mar 30, 2009
DECIDED: Jun 18, 2009
Barry R. Ostrager – for the petitioners
Jacob C. Cohn – for respondent Chub Indemnity Insurance Company
Samuel Issacharoff – for respondents Cascino Asbestos Claimants
Facts of the case
In 1986, a federal bankruptcy court granted Travelers Indemnity Co.’s (Travelers) motion to settle with three separate classes of plaintiffs in asbestos related litigation (on behalf of its insuree Johns-Manville Corp.) and enjoin non-settling parties from future litigation with Travelers for alleged misconduct unrelated to the settlement. The orders were subsequently affirmed by a New York federal district court and the U.S. Court of Appeals for the Second Circuit.
Over ten years later, the Second Circuit vacated the orders, stating that state-law actions (“Direct Actions”) against Travelers that alleged wrongdoing while it acted as Johns-Manville Corp.’s insurer were not barred by the 1986 order. The court held that the federal bankruptcy court lacked jurisdiction to prevent such lawsuits.
Did the United States Court of Appeals for the Second Circuit err in holding that bankruptcy courts do not have the power to enter orders that extend beyond matters directly related to the execution of a debtor’s estate?
Media for Travelers Indemnity Co. v. Bailey
Audio Transcription for Opinion Announcement – June 18, 2009 in Travelers Indemnity Co. v. Bailey
John G. Roberts, Jr.:
Justice Souter has the opinion of the Court today in case 08-295, Travelers Indemnity Company versus Bailey and the consolidated case.
David H. Souter:
This case comes to us on a writ of certiorari to the United States Court of Appeals for the Second Circuit.
As part of the 1986 reorganization plan of the Johns-Manville Corporation, an asbestos company, the Bankruptcy Court for the Southern District of New York approved a settlement providing that Manville’s insurers, including The Travelers Indemnity Company and related entities, would contribute to a trust to provide compensation to present and future asbestos claimants and that in exchange the insurers would be released from all of what the settlement called “Policy Claims.”
Policy Claims would instead by channelled to the Trust and the Court enjoined bringing any such claims against Travelers.
The Court orders adopting the settlement agreement and reorganization plan including the injunction were affirmed on direct appeal.
Over a decade later, however, asbestos claimants started bringing state court actions against Travelers, alleging that Travelers had itself violated state lore in connection with asbestos claims.
Travelers returned to the Bankruptcy Court arguing that the state court actions were barred by the Court’s 1986 injunction.
The parties subsequently entered into a settlement contingent on the Bankruptcy Court’s issuing order — an order clarifying that the state lore actions are and always have been barred by the 1986 injunction.
The Bankruptcy Court issued such an order and the District Court affirmed.
The Second Circuit, however, reversed.
It agreed that the actions against Travelers fall within the liberal scope of the 1986 injunction but concluded that the Bankruptcy Court had exceeded its jurisdiction in 1986 when it enjoined those claims.
In an opinion filed today with the clerk of the Court, we reverse.
We agree with the Circuit that the state actions constitute policy claims under the terms of the 1986 injunction.
The 1986 injunction defines that term broadly to include not on the claims, but even the allegations based upon arising out of or relating to Travelers’ insurance coverage of Manville.
The extensive factual findings of the Bankruptcy Court on challenge here make clear that state actions fall within the scope of the injunction.
But we part ways with the Court of Appeals at its jurisdictional analysis.
The 1986 injunction became final over two decades ago and it is res judicata to the parties who were before the Bankruptcy Court and to those in privity with them.
Whether that injunction was a proper exercise of the Bankruptcy Court subject matter jurisdiction in 1986 was not properly before the Court of Appeals in 2008 and it’s not properly before us.
There is no question that the Bankruptcy Court has jurisdiction today to enforce the terms of its prior order and that is all it did.
Our decision is a narrow one.
We do not resolve whether the Bankruptcy Court in 1986 or today could properly enjoin claims against a non-debtor, such as Travelers, for its own independent wrongdoing.
Nor do we decide whether any particular claimant or entity is in fact bound by the 1986 injunction.
Justice Stevens has filed a dissenting opinion in which Justice Ginsburg joins.