In Re: Johns-Manville Corporation

Filing 13

OPINION AND ORDER: Accordingly, the July Order is AFFIRMED in part, REVERSED in part, and REMANDED to the bankruptcy court for further proceedings consistent with this Opinion and Order. The order directing the Clerk of Court to correct the docke t (Docket No. 7) is vacated. The Clerk of the Court is directed to amend the docket to remove Travelers Indemnity Company and Travelers Casualty and Surety Company as appellees and to list them as interested parties. The Clerk of Court is directed to close this appeal. (As further set forth in this Opinion) (Signed by Judge Shira A. Scheindlin on 3/14/2016) (kl)

dangers of asbestos inhalation. In response, Marsh filed a motion in the chapter 11
bankruptcy cases of the Johns-Manville Corporation (“Manville”), arguing that it
had been relieved of any liability for Parra’s claims by the release and channeling
injunction contained in the order confirming Manville’s chapter 11 plan.
The bankruptcy court issued a memorandum decision and
accompanying order granting Marsh’s motion (the “July Order”).1 Parra now
appeals from the July Order. For the reasons set forth below, the July Order is
AFFIRMED in part, REVERSED in part, and REMANDED to the bankruptcy
court for further proceedings consistent with this Opinion and Order.2

1

See In re Johns-Manville Corp., 534 B.R. 553 (Bankr. S.D.N.Y.
2015). Bankruptcy Judge Burton Lifland presided over the chapter 11 cases from
the time they were filed in August 1982 until his death in January 2014.
Bankruptcy Judge Cecelia G. Morris was then assigned to the case. Judge Morris
issued the July Order.
2

The Travelers Indemnity Company and Travelers Casualty and Surety
Company (“Travelers”) appeared in the bankruptcy court in support of Marsh’s
motion as an interested party. Parra listed Travelers as an appellee in his notice of
appeal. Travelers was not listed as an appellee on the docket, and Travelers filed
an unopposed motion to correct the docket to list Travelers as an appellee or, in the
alternative, to permit Travelers to appear as an interested party. I granted
Travelers’ motion to correct the docket. See Dkt. No. 7. I now vacate that order
and grant the alternative relief of permitting Travelers to appear as an interested
party. As Travelers’ argues, the rulings in the July Order and this Opinion and
Order could not apply to Travelers because Travelers’ rights have already been
litigated in the Manville proceedings. See Brief of Appellees the Travelers
Indemnity Company and Travelers Casualty and Surety Company at 14-15.
2

I.

BACKGROUND
A.

The Manville Bankruptcy and the 1986 Orders
“From the 1920s to the 1970s, Manville was, by most accounts, the

largest supplier of raw asbestos and manufacturer of asbestos-containing products
in the United States, and for much of that time Travelers was Manville’s primary
liability insurer.”3 Marsh served as Manville’s primary insurance broker from
1944 until 1982. Travelers’ first Manville policy was issued in 1947.4 “In 1982,
after asbestos-related health problems triggered litigation, Manville, faced with the
prospect of tremendous liability, filed a Chapter 11 petition for bankruptcy
protection and reorganization.”5
Manville sued Marsh, alleging that it failed to procure sufficient
insurance coverage. Travelers and other insurers were involved in a

3

Travelers Indem. Co. v. Bailey, 557 U.S. 137, 140 (2009).

4

See In re Johns-Manville Corp., No. 82-11656, 2004 WL 1876046, at
*5 (Bankr. S.D.N.Y. Aug. 17, 2004) (“Manville I”), aff’d in part, vacated in part,
340 B.R. 49 (S.D.N.Y. 2006) (“Manville II”), vacated, 517 F.3d 52 (2d Cir. 2008)
(“Manville III”), rev’d and remanded sub nom., Travelers Indem. Co. v. Bailey,
557 U.S. 137 (“Bailey”), and aff’d in part, rev’d in part and remanded sub nom.,
Travelers Cas. and Sur. Co. v. Chubb Indem. Ins. Co., 600 F.3d 135 (2d Cir. 2010)
(“Chubb”).
5

In re Johns-Manville Corp., 759 F.3d 206, 209 (2d Cir. 2014).

3

policy-coverage dispute with Manville, and contribution, indemnity, and cross
claims were asserted among the insurers. Asbestos plaintiffs filed suits against
Travelers and other insurers based on the insurers’ relationships with Manville.
On May 25, 1984, Manville announced that it had agreed in principle
to a settlement of its insurance coverage disputes. Soon after the announcement,
Manville and a group of insurers, executed a settlement agreement (the “1984
Insurance Settlement Agreement”).6 Notably, Marsh was not a party to the 1984
Insurance Settlement Agreement. In August 1984, the bankruptcy court appointed
a future claims representative (“FCR”) to represent future asbestos claimants
whose interest in the Manville Chapter 11 proceedings might arise after the
insurance settlements were approved and Manville’s reorganization was
confirmed.7 In the order appointing the FCR (the “FCR Order”), the bankruptcy
court defined the class of future claimants represented by the FCR as “those
persons who have been exposed to asbestos or asbestos products mined,
manufactured or supplied by Manville pre-petition and have manifested or will
manifest disease post-petition and who are not otherwise represented in these
6

See Appendix to the Brief of Appellant The Bogdan Law Firm, as
Counsel for Salvador Parra, Jr. (“App. App’x”), at 246-286..
7

See id. at 425-427.

4

proceedings.”8
On December 18, 1986, the bankruptcy court approved various
settlement agreements (the “Insurance Settlement Order”) among Manville and the
members of the Settling Insurer Group, including a settlement agreement between
Marsh and Manville dated October 10, 1986.9 Four days later, on December 22,
1986, the bankruptcy court confirmed Manville’s plan of reorganization (the
“Confirmation Order” and together with the Insurance Settlement Order, the “1986
Orders”). The Insurance Settlement Order was incorporated by reference into the
Confirmation Order.10
The Insurance Settlement Order established a transferred settlement
fund (the “Manville Trust”), which was funded with $770 million in settlement
payments from the Settling Insurer Group, including a $29.75 million payment by

8

Id. at 425. See Kane v. Johns-Manville Corp., 843 F.2d 636, 644 (2d
Cir. 1988) (“The Bankruptcy Court appointed the Legal Representative specifically
for the purpose of ensuring that the rights of the future claimants would be asserted
where necessary.”).
9

See Brief of Appellee Marsh USA, Inc. (“Marsh Br.”), at 6-7 (App.
App’x at 96-104).
10

See Appendix to the Brief of Appellee Marsh USA, Inc. (“Marsh
App’x”), at 3, 352-353.

5

Marsh.11 Marsh received a release of, and injunction against, the “Marsh Claims.”
The “Marsh Claims” are defined in the Insurance Settlement Order as:
any and all claims, demands, allegations, duties, liabilities and
obligations (whether or not presently known) which have been, or
could have been, or might be, asserted by any Person against
[Marsh] based upon, arising out of or relating to services (whether
acts or omissions) performed by [Marsh] for [Manville], at any
time, in connection with insurance policies issued to or for the
benefit of [Manville] . . . including, without limitation, the
negotiation, placement and securing of such policies, and attempts
to receive the proceeds of, as well as the application for, advice
concerning and any claims asserted under, such policies.12
The Insurance Settlement Order further provides for a “channeling injunction,”
which directs into the Manville Trust:
any and all claims, charges, or encumbrances which might
otherwise have been assessable or assertable by any person
against or with respect to [Manville’s] rights and interests based
upon, arising out of or related to Marsh Claims, and any and all
claims or causes of action in law, equity, admiralty or otherwise
based upon, arising out of, or related to Marsh Claims which were
or are assessable or assertable by any Person against any or all
members of the Marsh Group are transferred, and shall attach,
solely to the Transferred Settlement Fund.13
The Confirmation Order combines the injunctive provisions of the
11

See App. App’x at 101.

12

Id. at 100.

13

Id. at 103.

6

settlements into a comprehensive injunction. The Confirmation Order states that
“[a]ll Persons and Governmental Units are hereby stayed, restrained and enjoined
from . . . [c]ommencing, conducting, or continuing in any manner, directly or
indirectly, any suit, action or other proceeding” against the parties to the Insurance
Settlement Order.14 “The Trust has since paid out more than $3.2 billion to over
600,000 claimants.”15
B.

The Travelers Litigation
The 1986 Orders were affirmed by the District Court and the Second

Circuit and became final on October 28, 1988.16 In the early 2000s, Travelers
faced a series of state-law actions in which plaintiffs alleged that Travelers was
liable for its own “wrongdoing while acting as Manville’s insurer or of its misuse
of information obtained from Manville as its insurer.”17 The state-law actions
“came in two flavors: (1) ‘Statutory Direct Actions’ based on states’ statutory
regulation of insurance practices; and (2) ‘Common Law Direct Actions,’ in which

14

Marsh App’x at 3, 367-368.

15

Bailey, 557 U.S. at 141.

16

See In re Johns-Manville Corp., 78 B.R. 407 (S.D.N.Y. 1987);
MacArthur Co. v. Johns-Manville Corp. (In re Johns-Manville Corp.), 837 F.2d 89
(2d Cir. 1988).
17

Bailey, 557 U.S. at 140.
7

it was alleged that Travelers and others violated ‘duties to disclose certain
asbestos-related information [that they] learned’ as asbestos-industry insurers.”18
Travelers sought an order from the bankruptcy court enforcing the
injunction against the state-law plaintiffs. In November 2003, Travelers reached a
settlement of the claims, agreeing to pay up to $445 million into a fund. However,
Travelers’ agreement to pay $445 million into the fund was contingent upon the
bankruptcy court’s entry of an order clarifying that the claims against Travelers in
the state-law actions were — and had always been — barred by the 1986 Orders.
The bankruptcy court later entered the “Clarifying Order” which stated that the
injunction barred, among other things, “the bringing of claims against insurers that
arise out of, are based upon[,] or related to settled policies.”19
In issuing the Clarifying Order, the bankruptcy court made several
findings of fact. First, the bankruptcy court found that because “the range of
products containing Manville asbestos is extremely broad and practically
immeasurable . . . there are no industries from which claimants originate where
Manville did not provide asbestos products — either manufactured or raw

18

Chubb, 600 F.3d at 142 (quoting Manville III, 517 F.3d at 58).

19

App. App’x at 178.
8

materials.”20 Based on this, the bankruptcy court held that “the breadth and length
of Manville’s asbestos involvement compels the conclusion, as a factual matter,
that essentially all potential asbestos claimants . . . have been exposed to Manville
asbestos through Manville’s pervasive asbestos mining, processing and
manufacturing activities.”21 Second, the bankruptcy court found that, as Manville’s
primary insurer, “Travelers learned virtually everything it knew about asbestos
from its relationship with Manville.”22 The bankruptcy court found that the only
claims that were not enjoined as to Travelers were claims as to which “Travelers[’]
alleged liability or the proof required to establish Travelers[’] alleged liability is
unrelated to any knowledge Travelers gained from its insurance relationship with
Manville or acts, errors, omissions, or evidence related to Travelers[’] insurance
relationship with Manville . . . .”23
The Clarifying Order was affirmed in Manville II. In Manville III,
the Second Circuit reversed, concluding that “a bankruptcy court only has

20

Manville I, 2004 WL 1876046, at *3.

21

Id. at *5.

22

Id. at *13.

23

8/17/04 Order Approving Settlement of the Statutory, Hawaii and
Common Law Direct Actions and Clarifying Confirmation Order, Including
Insurance Settlement Order and Channeling Injunction at 6, App. App’x at 182.
9

jurisdiction to enjoin third-party non-debtor claims that directly affect the res of
the bankruptcy estate.”24 The Second Circuit held that the bankruptcy court lacked
subject matter jurisdiction to enjoin claims that “aim to pursue the assets of
Travelers[,] . . . make no claim against an asset of the bankruptcy estate, [and] do
[not] . . . affect the estate.”25
The Supreme Court reversed Manville III in Travelers Indemnity Co.
v. Bailey. The Court held that because the 1986 Orders were final and no longer
subject to appeal, res judicata prevented collateral attack of the bankruptcy court’s
subject matter jurisdiction.26 However, the Supreme Court emphasized that its
holding was narrow. First, it did “not resolve whether a bankruptcy court, in 1986
or today, could properly enjoin claims against nondebtor insurers that are not
derivative of the debtor’s wrongdoing.”27 Second, it did not “decide whether any
particular [party] is bound by the 1986 Orders . . . .”28 With regard to the second
point, the Supreme Court remanded to the Second Circuit, explaining that:
We have assumed that respondents are bound, but the Court of
24

Manville III, 517 F.3d at 66.

25

Id. at 65.

26

See 557 U.S. at 152-54.

27

Id. at 154.

28

Id.
10

Appeals did not consider this question. [Chubb Indemnity
Insurance Company (“Chubb”)], in fact, relying on Amchem
Products, Inc. v. Windsor, 521 U.S. 591 (1997), and Ortiz v.
Fibreboard Corp., 527 U.S. 815 (1999), has maintained that it
was not given constitutionally sufficient notice of the 1986
Orders, so that due process absolves it from following them,
whatever their scope. The District Court rejected this argument,
but the Court of Appeals did not reach it. On remand, the Court
of Appeals can take up this objection and any others that
respondents have preserved.29
Chubb was an asbestos-industry insurer that was one of Travelers’
co-defendants in the common law state-law actions, but it was not a party to the
1984 Insurance Settlement Agreement. Chubb sought to preserve its ability to
bring contribution and indemnity claims against Travelers relating to its potential
joint liability in the common law actions. On remand, the Second Circuit held that
Chubb did not receive sufficient notice of the 1986 Orders to satisfy due process,
and, therefore, was not bound by the terms of those Orders.30 The Circuit Court
declined to address whether the state-law plaintiffs appealing from the Clarifying
Order had received due process in connection with the 1986 Orders, because those
plaintiffs had failed to preserve the issue.31

29

Id. at 155.

30

Chubb, 600 F.3d at 158.

31

See id. at 147-48.
11

C.

Parra’s Claims Against Marsh and Marsh’s Motion
In 2009, Parra filed an action in Mississippi state court asserting state-

law claims against a number of defendants, including Marsh.32 Parra filed his First
Amended Complaint on July 8, 2010.33 According to the Complaint, Parra was
exposed to asbestos while working as an insulator at various job sites in Louisiana,
Mississippi, Oklahoma, and Texas during the late 1960s and early 1970s. The
defendants were producers, distributors, or insurers of asbestos products which,
according to Parra, “knew or should have known through industry and medical
studies . . . of the health hazards . . . inherent in the asbestos-containing
products.”34 According to Parra, the “Complaint is premised on claims of direct,
independent, and nonderivative misconduct on the part of Marsh, including claims
of negligent undertaking and claims based on Marsh’s breach of various common
law duties to Parra independent of any relationship with Manville.”35 The
Complaint alleges, “that Marsh USA, Inc. aided and abetted and conspired with
Defendants including, but not limited to, Foster Wheeler, Riley Stoker, General

32

See Marsh Br. at 15.

33

See App. App’x 487-539 (“Complaint”).

34

Complaint ¶ 12.

35

Brief of Appellant The Bogdan Law Firm, as Counsel for Salvador
Parra, Jr. (“Parra Br.”), at 13.
12

Electric, Bechtel Corporation, and other entities such as Johns Manville,
Fibreboard and The Lummus Company.”36 Furthermore, “Marsh willfully
suppressed the truth as to the risks and dangers associated with the use of and
exposure to Defendants’ (such as Foster Wheeler, Riley Stoker, General Electric
and Bechtel Corporation) and other entities (such as Johns Manville and The
Lummus Company) asbestos-containing products and/or machinery requiring or
calling for the use of asbestos and/or asbestos-containing products.”37
Parra’s primary claim against Marsh is set forth in Count Four of the
Complaint, which seeks to hold Marsh liable for its “negligent undertakings,
conspiracy, aiding, and abetting courses of conduct.”38 Count Four contains a
detailed recitation of facts outlining the nature and extent of Marsh’s insurance
relationship with Manville.39 Among other things, Parra alleges that “Marsh had a
relationship with . . . Johns-Manville for over forty years,”40 that Marsh
“functioned not only as a broker but as Johns-Manville’s insurance department,”41
36

Complaint ¶ 8(l).

37

Id. ¶ 33.

38

Id. ¶ 34.

39

See id. ¶¶ 55-86.

40

Id. ¶ 53.

41

Id. ¶ 62.
13

and that Marsh’s relationship with Manville was “unique.”42
On August 6, 2010, Marsh filed a motion in the bankruptcy court to
enforce the 1986 Orders. Marsh argued that the claims asserted in the Complaint
fall “squarely within” the injunction contained in the 1986 Orders.43 According to
Marsh:
It is apparent from the face of the [Complaint] that whatever
theory of liability [Parra] asserts . . . his allegations fall within the
scope of the 1986 Orders. Whether couched in terms of a duty to
speak out about the ills associated with asbestos, a duty not to
defend Manville to the detriment of [Parra], or a duty to warn
[Parra] of the perils associated with Manville’s asbestos, these
state-law actions assert claims or duties against Marsh that are
based upon, arising out of, or relating to the services performed by
Marsh for Manville. Accordingly, they are barred by the 1986
Orders.44
Parra filed a response that raised four principal arguments: (1) the Motion is
procedurally defective because Marsh failed to file an adversary proceeding; (2)
the Motion is premature because Parra should be allowed to conduct discovery in
preparation for an evidentiary hearing; (3) on the merits, Parra’s claims against
Marsh are not subject to the 1986 Orders; and (4) even if his claims are subject to

42

Id. ¶ 65.

43

July Order, 534 B.R. at 558 (internal quotation marks omitted).

44

Id. at 558-59 (internal quotation marks omitted).
14

the 1986 Orders, Parra did not receive constitutionally sufficient notice of the
proceedings because the FCR did not represent him with respect to his claims
against Marsh for Marsh’s independent misconduct.45 Marsh filed a reply. In
November 2010, Travelers filed a submission as an interested party. Travelers
took no position on whether Parra’s claims were barred by the 1986 Orders.
Instead, Travelers asked to be heard solely to oppose Parra’s “remarkable
suggestion” that he is not bound by the 1986 Orders on due process grounds.46
The matter was held in abeyance for several years pending the
conclusion of the litigation involving Travelers. Ultimately, Judge Morris held that
(1) Marsh could proceed by motion rather than adversary proceeding; (2) Parra was
not entitled to discovery; (3) Parra’s claims are barred by the plain language of the
1986 Orders; (4) Parra’s due process rights were not violated; and (5) Parra was
not barred from amending his Complaint to assert claims not barred by the 1986
Orders. On appeal, Parra argues that the bankruptcy court erred with respect to
items (1) through (4).
II.

LEGAL STANDARD
A district court functions as an appellate court in reviewing orders
45

See id. at 559.

46

App. App’x at 448.
15

entered by bankruptcy courts.47 Findings of fact are reviewed for clear error,
whereas findings that involve questions of law, or mixed questions of fact and law,
are reviewed de novo.48 A bankruptcy court’s interpretation of its own order
“warrants customary appellate deference [because t]he bankruptcy court [is] in the
best position to interpret its own orders.”49
III.

APPLICABLE LAW
Due process requirements apply in bankruptcy cases.50 Thus, a party

that does not receive adequate notice of a bankruptcy case cannot be bound by

47

See In re Sanshoe Worldwide Corp., 993 F.2d 300, 305 (2d Cir.

1993).
48

See In re Adelphia Commc’ns Corp., 298 B.R. 49, 52 (S.D.N.Y. 2003)
(citing In re United States Lines, Inc., 197 F.3d 631, 640-41 (2d Cir. 1999)).
49

In re Casse, 198 F.3d 327, 333 (2d Cir. 1999) (internal quotation
marks omitted).
50

See Chubb, 600 F.3d at 154 (“‘[W]here a special remedial scheme
exists expressly foreclosing successive litigation by nonlitigants, as for example in
bankruptcy or probate, legal proceedings may terminate preexisting rights if the
scheme is otherwise consistent with due process.’”) (emphasis in the original)
(quoting Martin v. Wilks, 490 U.S. 755, 762 n.2 (1989)); United States v. Security
Indus. Bank, 459 U.S. 70, 75 (1982) (holding that however “rational the exercise of
the bankruptcy power may be, that inquiry is quite separate from the question
whether the enactment takes property within the prohibition of the Fifth
Amendment”) (citing Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555,
589 (1935) (“The bankruptcy power, like the other great substantive powers of
Congress, is subject to the Fifth Amendment.”)).
16

orders issued during that case.51 Notice must be “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.”52 “Where notice cannot be
given because the party sought to be affected is not yet known, such as a person
who will later suffer injury from a product previously manufactured by the debtor,
due process generally prevents the party from being adversely affected by the
order.”53
A special notice problem arises in asbestos cases, where the unknown
51

See DPWN Holdings (USA), Inc. v. United Air Lines, Inc., 747 F.3d
145, 150 (2d Cir. 2014) (“[A] claim cannot be discharged if the claimant is denied
due process because of lack of adequate notice.”); Chubb, 600 F.3d at 153-54
(same); Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus., Inc.),
467 B.R. 694, 706 (S.D.N.Y. 2012) (“[F]or due process reasons, a party that did
not receive adequate notice of bankruptcy proceedings [can] not be bound by
orders issued during those proceedings.”).
52

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314
(1950). “[W]hether notice comports with due process requirements turns on the
reasonableness of the notice, a flexible standard that often turns on what the debtor
or the claimant knew about the claim or, with reasonable diligence, should have
known.” DPWN Holdings (USA), Inc., 747 F.3d at 150 (internal citations omitted)
(citing Mullane, 339 U.S. at 314 and Chemetron Corp. v. Jones, 72 F.3d 341, 34546 (3d Cir. 1995)). “Generally, if the name and address of the adversely affected
party are readily ascertainable, then that party is entitled to receive actual notice by
a reasonable method of delivery; if not readily ascertainable, then notice by
publication is permitted.” 2-102 Collier on Bankruptcy P 102.02 (16th Ed.).
53

2-102 Collier on Bankruptcy P 102.02.

17

individuals may not manifest injuries — and therefore may not themselves know
they have a right to recovery — until years after plan confirmation.54 Judge
Lifland famously sought to address this problem by creating the Manville Trust,
appointing an FCR, and issuing the 1986 channeling injunction. Later, a version of
the bankruptcy court’s 1986 channeling injunction was codified at 11 U.S.C. §
524(g).55 “Section 524(g) mandates the channeling of related claims to a personal
injury trust, thereby relieving the debtor of the uncertainty of future asbestos
liabilities and helping to achieve the purpose of Chapter 11 by facilitating the

54

See, e.g., Frederick Tung, The Future Claims Representative in Mass
Tort Bankruptcy: A Preliminary Inquiry, 3 Chap. L. Rev. 43, 53-54 (2000) (“The
first and most critical problem is the inability of future claimants to participate and
protect their interests in the bankruptcy proceeding. Because their injuries have
not manifested by the time of bankruptcy, future claimants may be impossible to
identify or even describe except in general terms. Some may not even have been
born at the time of the bankruptcy filing. Even identified, many may not come
forward to participate in a proceeding whose potential effect on them is remote. It
may be difficult to convince a potential future tort victim to invest resources today
in a proceeding that will affect her, if ever, only years into the future. Whether any
type of notice would be meaningful in this situation is questionable.”).
55

It should be noted that section 524 is the only provision of the
Bankruptcy Court that explicitly authorizes a bankruptcy court to enter an order
releasing a nondebtor from liability. See In re Metromedia Fiber Network, Inc.,
416 F.3d 136, 142 (2d Cir. 2005).

18

reorganization and rehabilitation of the debtor as an economically viable entity.”56
As explained by one court,
Many of the[] requirements [of section 524] are specifically
tailored to protect the due process rights of future claimants. For
example, a court employing a § 524(g) channeling injunction must
determine that the injunction is “fair and equitable” to future
claimants, 11 U.S.C. § 524(g)(4)(B)(ii), and must appoint a
futures representative to represent their interests. 11 U.S.C. §
524(g)(4)(B)(i). The court must also determine that the plan treats
“present claims and future demands that involve similar claims in
substantially the same manner.” 11 U.S.C. § 524(g)(2)(B)(ii)(V).
Finally, the statute requires that a 75% super-majority of claimants
whose claims are to be addressed by the trust vote in favor of the
plan. 11 U.S.C. § 524(g)(2)(B)(ii)(IV)(bb).57
“Without the appointment of . . . [an FCR] to provide adequate representation to
the absent future claim holders, it is doubtful that the injunction provisions binding

56

Manville III, 517 F.3d at 67. See Tung, The Future Claims
Representative at 54 (“A failure of due process would preclude the bankruptcy
from affecting future claimants’ legal rights. That of course would frustrate the
primary purpose of the bankruptcy filing — to achieve a comprehensive and final
settlement of all future claims liability.”).
57

In re Combustion Eng’g, Inc., 391 F.3d 190, 234 (3d Cir. 2004), as
amended (Feb. 23, 2005). In addition, an injunction can be entered only after
“notice and a hearing.” 11 U.S.C. § 524(g)(1)(A) (“After notice and hearing, a
court that enters an order confirming a plan of reorganization under chapter 11 may
issue, in connection with such order, an injunction in accordance with this
subsection to supplement the injunctive effect of a discharge under this section.”).

19

them would be found to comply with the due process clause.”58 Notably, 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.’”59
IV.

DISCUSSION
A.

Marsh Was Entitled to Proceed by Motion
Parra argues that the bankruptcy court erred when it permitted Marsh

to obtain injunctive relief without filing an adversary proceeding under Federal
Rule of Bankruptcy Procedure 7007(7).60 While a proceeding to obtain an

58

4-524 Collier on Bankruptcy P 524.07. See Ann. Manual Complex
Lit. § 22.58 (4th ed.) (“Most authorities that have supported the treatment of future
claims in mass tort bankruptcies have relied on the appointment of a future claims
representative, not merely notice, as the key to satisfying due process.”).
59

Chubb, 600 F.3d at 153 (quoting Combustion Eng’g, Inc., 391 F.3d at
234). “‘A bankruptcy court only has jurisdiction to enjoin third party non-debtor
claims that directly affect the res of the bankruptcy estate.’” In re Residential
Capital, LLC, 508 B.R. 838, 848 (Bankr. S.D.N.Y. 2014) (quoting Chubb, 600
F.3d at 152). See also In re Quigley Co., 676 F.3d 45, 53 (2d Cir. 2012)
(“Bankruptcy jurisdiction is appropriate over third-party non-debtor claims that
directly affect the res of the bankruptcy estate.”) (internal quotation marks
omitted).
60

See Fed. R. Bankr. P. 7007(7) (stating that “[t]he following are
adversary proceedings: . . . a proceeding to obtain injunction or other equitable
relief”).

20

injunction must be brought as an adversary proceeding,61 “the enforcement of a
preexisting injunction” may be accomplished as a contested matter rather than
through an adversary proceeding.62 Marsh’s motion seeks to enforce the release
and injunction provisions of the 1986 Orders and not to obtain a new injunction.
Thus, the bankruptcy court did not err in considering Marsh’s request as a
contested matter rather than requiring an adversary proceeding.
B.

Parra’s Claims Fall Within the Scope of the 1986 Orders
The bankruptcy court compared the plain language of the Insurance

Settlement Order to the allegations set forth in Parra’s Complaint and determined
that the claims were “related to” Marsh’s insurance relationship with Manville and
therefore enjoined by the 1986 Orders.63 According to the bankruptcy court, “this
[was] established by, among other things, Parra’s specific and extensive allegations
regarding the ways in which Marsh learned information about the health hazards of
asbestos exposure from its relationship with Manville.”64

61

See In re St. Vincents Catholic Med. Ctrs. of N.Y., 445 B.R. 264, 270
(Bankr. S.D.N.Y. 2011).
62

Solow v. Kalikow (In re Kalikow), 602 F.3d 82, 93 (2d Cir. 2010).

63

July Order, 534 B.R. at 564.

64

Id. (citing Complaint ¶¶ 55-86).

21

Parra argues that the bankruptcy court erred by holding that his claims
were barred by the 1986 Orders without first holding an evidentiary hearing to
determine, among other things, “that there [was] a sufficient nexus between the
conduct complained of [in the Parra Complaint] and the services [Marsh] provided
to Manville.”65 He contends that “Marsh [was required to] show that its
malfeasance . . . would have necessarily been performed for Manville exclusively
and not related services performed for another client” and that the “only way
Marsh could show this was by proving that its relationship with Manville was so
intertwined that it learned everything about asbestos from Manville . . . .”66 Parra
concludes that because Marsh did not even attempt to make this showing, “the
record below was insufficient to establish the actions complained of in the Parra
Complaint were sufficiently ‘related to’ services Marsh performed on behalf of
Manville to be barred by the 1986 Orders.”67
Parra’s argument is inconsistent with how the language of the 1986
Orders have been interpreted in these proceedings and misstates the applicable law.

65

Parra Br. at 24.

66

Id. at 30.

67

Id.

22

“Court orders are construed like other written instruments, except that the
determining factor is not the intent of the parties, but that of the issuing court.”68
With respect to Marsh, the Insurance Settlement Order provides that “all Persons,
except Marsh, are restrained and enjoined from commencing and/or continuing any
action, suit, arbitration or other proceeding of any type or nature against [Marsh]
based upon, arising out of or related to Marsh Claims.” “Marsh Claims” are
defined to include:
[A]ny and all claims, demands, allegations, duties, liabilities
and obligations (whether or not presently known) which have
been, or could have been, or might be, asserted by any Person
against [Marsh] based upon, arising out of or relating to
services (whether acts or omissions) performed by [Marsh] for
[Manville], at any time, in connection with insurance policies
issued to or for the benefit of [Manville] . . . .
In Travelers Indemnity Company v. Bailey, the Supreme Court
interpreted substantially similar language with respect to the state-law claims
brought against Travelers. Specifically, the Court held that the claims were Policy
Claims enjoined “by the language of the 1986 Orders, which covered ‘claims,
demands, allegations, duties, liabilities and obligations’ against Travelers, known
or unknown at the time, ‘based upon, arising out of or relating to’ Travelers’

68

United States v. Spallone, 399 F.3d 415, 424 (2d Cir. 2005).

23

insurance coverage of Manville.”69 The Court determined that the language was
unambiguous and noted that the phrase “in relation to” is “expansive”:
Although it would be possible (albeit quite a stretch) to suggest
that a “claim” only relates to Travelers’ insurance coverage if it
seeks recovery based upon Travelers’ specific contractual
obligation to Manville, “allegations” is not even remotely
amenable to such a narrow construction and clearly reaches
factual assertions that relate in a more comprehensive way to
Travelers’ dealings with Manville.70
The Bailey court then explained that:
The Bankruptcy Court’s uncontested factual findings drive the
point home. In substance, the Bankruptcy Court found that the
Direct Actions seek to recover against Travelers either for
supposed wrongdoing in its capacity as Manville’s insurer or for
improper use of information that Travelers obtained from
Manville as its insurer. These actions so clearly involve “claims”
(and, all the more so, “allegations”) “based upon, arising out of or
relating to” Travelers’ insurance coverage of Manville, that we
have no need here to stake out the ultimate bounds of the
injunction. There is, of course, a cutoff at some point, where the
connection between the insurer’s action complained of and the
insurance coverage would be thin to the point of absurd. But the
detailed findings of the Bankruptcy Court place the Direct Actions
within the terms of the 1986 Orders without pushing the limits.71
Thus, while the Supreme Court used Manville I’s factual findings to
69

Bailey, 557 U.S. at 148.

70

Id. at 148-49.

71

Id. at 149 (internal citations omitted).

24

“drive the point home,” it did not rely on the fact that state-law claims were
“inextricably intertwined” with Travelers’ relationship with Manville. Instead,
Bailey suggests that “related to” claims fall within a spectrum between claims that
are “inextricably intertwined” and those that stretch the relationship so thin as to be
absurd. Accordingly, there is no merit to Parra’s argument that Marsh was
required to prove that Parra’s claims were “inextricably intertwined” with Marsh’s
insurance relationship with Manville in order to establish that Parra’s claims fall
within the scope of the 1986 Orders.
Further, the bankruptcy court did not abuse its discretion by
determining that Parra’s claims “related to” Marsh’s services to Manville without
allowing discovery. The allegations in Parra’s Complaint are sufficient to establish
the required nexus under Bailey.72 Accordingly, the bankruptcy court did not err in
72

The bankruptcy court found that the Complaint’s allegations were
binding judicial admissions. See July Order, 534 B.R. at 563. It is debatable
whether the doctrine applies. See Hausler v. JP Morgan Chase Bank, N.A., No. 09
Civ. 10289, 2015 WL 5236481, at *16 (S.D.N.Y. Aug. 4, 2015) (“[A] judicial
admission only binds the party that makes it in the action in which it is made.
Unless the elements of estoppel are present, in the later action the judicial
admission in the earlier action is treated as an evidentiary admission.”) (internal
quotation marks and citations omitted)). However, whether the allegations are
judicial admissions or not is beside the point. Parra has asserted claim that by their
terms falls within the scope of the 1986 Orders as interpreted by the Supreme
Court in Bailey. He has not made a showing that discovery is warranted — i.e., it
does not appear, and Parra has not provided a reason to believe, that he could assert

25

holding that Parra’s claims fell within the scope of the 1986 Orders.
C.

The Case Must be Remanded to Address Whether Parra Received
Sufficient Due Process in Connection with the Entry of the 1986
Orders
In Bailey, the Supreme Court held that the bankruptcy court’s subject

matter jurisdiction to enter the 1986 Orders could not be challenged collaterally
because the 1986 Orders were final and no longer subject to appeal.73 While Parra
cannot challenge the 1986 Orders on the basis of subject matter jurisdiction, there
is no question that the bankruptcy court exceeded its subject matter jurisdiction in
barring Parra’s claims against Marsh. According to the Second Circuit opinion in
Manville III, “a bankruptcy court only has jurisdiction to enjoin third-party
non-debtor claims that directly affect the res of the bankruptcy estate.”74 However,
Parra’s claims do not seek to collect from the assets of the estate — i.e., the
insurance policy proceeds — but seek to hold Marsh liable for its independent
wrongdoing, not Manville’s. As such, Parra’s claims do not seek to collect from
the res of the Manville chapter 11 estate, but are in personam claims for liability

a claim not covered by the 1986 Orders.
73

557 U.S. at 152-55.

74

517 F.3d at 66.

26

against Marsh.
Thus, under a broad reading of the terms “related to” in the Insurance
Settlement Order, Parra’s claims are “related to” Marsh’s insurance relationship
with Manville and are therefore subject to the injunctions in the 1986 Orders.
Furthermore, under Bailey Parra cannot challenge whether the bankruptcy court
had the subject matter jurisdiction to enter the 1986 Orders, because those Orders
are final and no longer appealable. However, as a matter of due process, the 1986
Orders are not “[]enforceable against” Parra unless he received sufficient notice
and representation in the proceedings that led to the entry of those Orders.75 The
bankruptcy court held that Parra received constitutionally appropriate
representation by virtue of the appointment of the FCR, who — from the time of
his appointment in August 1984 to the entry of the 1986 Orders — worked
vigorously on behalf of future asbestos claimants to ensure that the 1986 Orders
protected their rights. To place that holding in its proper context, it is necessary to
review the prior due process rulings in these proceedings and consider those
75

In re Motors Liquidation Co., 529 B.R. 510, 581-82 (Bankr. S.D.N.Y.
2015) (“[Chubb] must be read as having concluded that after a denial of due
process prejudicing only a single party (even if the order affects other parties, and
affecting those other parties is unthinkable), the partial denial of enforcement of
that order, insofar as it binds that party alone, is permissible.”).

27

rulings in the context of Parra’s in personam claims against Marsh.
1.

The Second Circuit’s Due Process Analysis in Chubb

The courts in Manville I and Manville II rejected the argument that
Chubb — which sought to bring contribution and indemnity claims against
Travelers — had not received sufficient notice or representation in connection with
the entry of the 1986 Orders. In Manville I, the bankruptcy court held that Chubb
was bound by the 1986 Orders after finding that Chubb’s claims fell within the
scope of both the Confirmation Order and the Insurance Settlement Order.
Specifically, the Confirmation Order barred “any suit, action or other proceeding . .
. against or affecting . . . any of the Settling Insurance Companies,” and the
Insurance Settlement Order prohibited “any suit, arbitration or other proceeding of
any type or nature for Policy Claims against any or all members of the Settling
Insurer Group.”76
76

Manville I, 2004 WL 1876046, at *33 (internal quotation marks
omitted). The state-law plaintiffs argued that their claims did not fall within the
scope of the 1986 Orders. The bankruptcy court held that “[t]he evidence in this
proceeding establishes that the gravamen of [the state-law claims] were acts or
omissions by Travelers arising from or relating to Travelers insurance relationship
with Manville. Thus, claims against Travelers based on such actions or omissions
necessarily ‘arise out of’ and [are] ‘related to’ the [Insurance] Policies.” Id. at *32.
The Supreme Court adopted these holdings in Bailey. See Chubb, 600 F.3d at 146
(explaining that the Supreme Court had “reasoned that the [state-law] [a]ctions —
and, presumably, claims by Chubb against Travelers for contribution and

28

In Manville II, the district court relied on different grounds to reject
Chubb’s due process argument. Two of them are relevant here. First, the court
cited Ortiz v. Fibreboard Corporation for the proposition that there is “an
exception to the due process concerns raised by Chubb ‘where a special remedial
scheme exists expressly foreclosing successive litigation by nonlitigants, as for
example in bankruptcy or probate.’”77 Second, the court held that the publication
notice provided in 1984 had put Chubb “on notice with regard to whatever asbestos
related claims it may have against Travelers and the other settling insurers.”78
In Chubb, after remand from the Supreme Court, the Second Circuit
considered and rejected the due process rulings in Manville I and Manville II.
With respect to the bankruptcy court’s position, Chubb explained that “the text of
the orders that were ultimately entered in 1986 does not speak to whether Chubb
was afforded due process during the proceedings that led to the entry of those
orders in the first place.”79 The Second Circuit began its discussion of Manville II

indemnity — are ‘Policy Claims’ under the 1986 Orders”).
77

Manville II, 340 B.R. at 68 (quoting Ortiz, 527 U.S. at 846).

78

Id.

79

Chubb, 600 F.3d at 149 (“In reasoning otherwise, and by grouping
together what should have been distinct inquiries regarding subject matter

29

by looking at the nature of the Common Law Direct Actions, the gravamen of
which was that “the insurance industry as a whole had a duty to warn the general
public about the dangers of asbestos.”80 As with Chubb’s contribution and
indemnity claims, such claims did not seek to collect from assets of the estate —
i.e., the insurance policy proceeds — and sought to hold Travelers liable for its
independent wrongdoing, not Manville’s.81 As such, the claims did not seek to
collect from the res of the Manville chapter 11 estate, but were in personam claims
for liability against Travelers.82
“When a court exercises in personam authority, it addresses a claim
for liability, such as one involving a claim for money damages, against a particular
party.”83 “In contrast, the bankruptcy court’s in rem authority is, for the most part,
jurisdiction and Chubb’s due process rights, the bankruptcy court put the
proverbial cart before the horse by assuming that Chubb was bound by the 1986
Orders.”).
80

Id. at 151 (internal quotation marks omitted).

81

See id. The fact that the claims were independent or non-derivative is
relevant “not as an independent jurisdictional requirement but as a factor
demonstrating . . . that [such claims] would not effect [the res of] the bankruptcy
estate.” Quigley Co., Inc., 676 F.3d at 57.
82

See Chubb, 600 F.3d at 151-53.

83

Id. at 153 n.13 (citing Restatement (Second) of Judgments § 2 cmt. b,
at 36-37; Black’s Law Dictionary 930 (9th ed. 2009) (defining “personal

30

limited to the resolution of claims against the property in the bankruptcy estate.”84
While the Second Circuit continued to believe, as it held in Manville III, that the
1986 Orders, as interpreted in 2004, exceeded the scope of the bankruptcy court’s
in rem jurisdiction, it recognized that “under Bailey, the parties who were present
or represented in the proceedings that led to the entry of the 1986 Orders are barred
from collaterally attacking” subject matter jurisdiction.85
However, Chubb found that the bankruptcy court’s interpretation of
the 1986 Orders to include in personam claims altered the due process analysis.
First, the due process “exception” discussed by the Supreme Court in Ortiz did not
apply. “[T]he Ortiz Court was discussing an in rem ‘exception’ to the due process
principles associated with in personam jurisdictional acts . . . . [but] the bankruptcy
court was not exercising its in rem power when it concluded that Chubb’s claims
were enjoined.”86 Second, because the 1986 Orders precluded Chubb’s in

jurisdiction”); Retirement Sys. of Ala. v. J.P. Morgan Chase & Co., 386 F.3d 419,
426 (2d Cir. 2004) (“[A]n in personam action involves a controversy over liability
rather than over possession of a thing.”)).
84

Id.

85

Id. at 153.

86

Id. at 153-54.

31

personam claims, the Second Circuit believed that it should look to class action
settlements in toxic tort cases rather than to in rem bankruptcy proceedings when
considering notice and representation issues.87 In the class context, “[d]ue process
requires adequate representation ‘at all times’ throughout the litigation, [and]
notice ‘reasonably calculated . . . to apprise interested parties of the pendency of
the action . . . .’”88 With respect to representation, the Second Circuit explained
that:
there is no indication in the record that the sort of claims Chubb
seeks to bring against Travelers were contemplated, much less
accounted for, during the proceedings that led to the 1986 Orders.
Neither Travelers nor the district court have suggested otherwise,
and the terms of the bankruptcy court’s August 14, 1984 Order
appointing the FCR make this point plain. The bankruptcy court
ordered the FCR to concern himself with “persons who have been
exposed to” Manville’s asbestos products and who may
87

See id. at 154-56 (discussing Amchem Prods., Inc., 521 U.S. 591 and
Stephenson v. Dow Chem. Co., 273 F.3d 249 (2d Cir. 2001)). In Amchem, which is
also an asbestos case, the Supreme Court affirmed denial of class certification
because of a failure to satisfy the predominance and representation requirements of
Federal Rule of Civil Procedure 23. The Chubb court noted that while the
Supreme Court “declined to resolve [ ] due process issue[s] in light of its holding
that the proposed class could not satisfy Rule 23, [ ] it recognized ‘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.’” Id. at 155
(quoting Amchem, 521 U.S. at 628).
88

Stephenson, 273 F.3d at 260 (quoting Phillips Petroleum Co. v.
Shutts, 472 U.S. 797, 811-12 (1985)).

32

subsequently “manifest disease post-petition.” Chubb does not
fall within that category, and its interests relating to inchoate,
non-derivative, post-petition claims against Travelers were not
spoken for in those proceedings.89
The Second Circuit also reasoned that the publication notice was constitutionally
insufficient:
In order to comprehend that the contemplated channeling
injunction would bar Chubb’s in personam non-derivative claims
against Travelers, the recipient of the Notice would have to
predict that the bankruptcy court would exceed its in rem
jurisdiction in entering the 1986 Orders. Such recipient would
also have to be presumed to know — or to be able to discern from
the 1984 Notice document — the factual extent of Travelers’
relationship with Manville, which ultimately served as the
lynchpin of the bankruptcy court’s 2004 interpretation of the 1986
Orders.90
2.

Application of Chubb to Parra’s Claims Against Marsh

Parra’s claims do not seek to collect from the res of the Manville
chapter 11 estate. They are not claims against the insurance policies. Rather, they
are in personam claims against Marsh for Marsh’s independent misconduct.
Although Chubb concerned claims for indemnity and contribution, and not claims
against an insurer or an insurance broker, the due process principles articulated in

89

Chubb, 600 F.3d at 156.

90

Id. at 157.

33

Chubb are no less relevant to Parra’s claims against Marsh.
The first principle is that the text of the 1986 Orders “does not speak
to whether [Parra] was afforded due process in the proceedings that led to the entry
of those orders in the first place.”91 The second is that “the ‘special remedial
scheme’ due process ‘exception’ relating to in rem bankruptcy proceedings” does
not apply to the extent the 1986 Orders purported to bar a future claimant from
proceeding against a non-debtor on an in personam basis.92 The third is that with
respect to in personam claims, “the better due process analogy in terms of notice
and representation principles is to class action settlements, not in rem bankruptcy
proceedings.”93
Parra’s argument both before the bankruptcy court and this Court is
that while he was a “future asbestos claimant” with respect to his claims against
Manville, the FCR was not “authorized to represent him . . . with respect to [his]
independent non-derivative claims against non-Manville third parties.”94 Viewed

91

Id. at 149.

92

See id. at 153-54.

93

Id. at 154.

94

Reply Brief of Appellant the Bogdan Law Firm, as Counsel for
Salvador Parra, Jr. at 15 (internal quotation marks omitted).

34

another way, Parra concedes that he received due process with respect to in rem
claims against Manville, but not with respect to his in personam claims against
Marsh.
The bankruptcy court thus misstated the issue when it determined that
the “sole question [was] . . . whether the [FCR] in this case was appointed to
represent the interests of future asbestos claimants as against both Manville and the
settling insurers.”95 The problem is that the bankruptcy court does not distinguish
between in rem and in personam claims. While the FCR was no doubt appointed
to represent future claimants with respect to in rem claims against settling insurers,
that does not mean that the FCR was appointed to represent future claimants with
respect to their in personam claims.
According to the bankruptcy court, “[n]othing in the Bankruptcy
court’s order appointing the future claimants’ representative limited the scope of

95

July Order, 534 B.R. at 567. In framing the issue this way, the
bankruptcy court might be viewing Parra’s claims through the lens of Judge
Lifland’s 2004 interpretation of the 1986 Orders, which did not distinguish
between in rem and in personam claims. To the extent that is the case, the
bankruptcy court is violating the first principle of Chubb — that the text of the
1986 Orders “does not speak to whether [Parra] was afforded due process in the
proceedings that led to the entry of those orders in the first place.” Chubb, 600
F.3d at 149.

35

his representation solely to claims against Manville.”96 To the extent that the
bankruptcy court is interpreting the FCR Order to be unambiguous and that its
unambiguous meaning is that the FCR was authorized to represent Parra with
respect to in personam claims against Marsh, this interpretation is rejected. While
a bankruptcy court’s interpretation of its own orders is entitled to customary
appellate deference, “such deference is only appropriate where the court drafts the
order,” as the rule of deference is “premised on the truism that the draftsman of a
document is uniquely situated to understand the intended meaning of that
document.”97 Thus, Judge Morris’ interpretation of Judge Lifland’s order is not
entitled to customary appellate deference.
The absence of language limiting the FCR’s duties does not render the
96

July Order, 534 B.R. at 567. The July Order states “[i]ndeed, courts
have held that limiting the role of a future claimants’ representative would be
‘inappropriate.’” Id. (quoting In re G-I Holdings, Inc., 292 B.R. 804, 809 (Bankr.
D.N.J. 2003)). In G-I Holdings, Inc., the debtor argued that under section 524, an
FCR could only intervene on plan-related issues. The bankruptcy court reviewed
the plain language of section 524 and the legislative history and concluded that it
would “not interpret the House Committee’s comments as limiting the legal
representative’s role to plan formation issues only” and that “limiting the role of a
legal representative is inappropriate because the facts of different cases may
require that a legal representative have a different one.” G-I Holdings, Inc., 292
B.R. at 809. G-I Holdings, Inc. is not relevant.
97

In re WestPoint Stevens, Inc., 600 F.3d 231, 251-52 (2d Cir. 2010)
(internal quotation marks and emphasis omitted).

36

FCR Order unambiguous as to the scope of the FCR’s representation. That
ambiguity is not resolved by the fact that the FCR had the “‘full panoply of rights
and duties of representation available to an official committee[,]’”98 or that the
FCR “used that authority and actually represented the interests of future asbestos
claimants in connection with the 1986 Orders”99 Those facts go to the quality of
the FCR’s representation of future claimants, not its scope. The text of the FCR
Order does not indicate whether the FCR considered the sorts of claims Parra seeks
to bring against Marsh when taking part in the proceedings that led to the 1986
Orders.100 Absent specific language directing the FCR to represent future
claimants with respect to in personam claims against a settling insurer, the FCR
would have had to “predict that the bankruptcy court would exceed its in rem
jurisdiction in entering the 1986 Orders.”101
At present, there is little support for the contention that limiting the
98

July Order, 534 B.R. at 567 (quoting In re Johns-Manville Corp., 68
B.R. 618, 626-27 (Bankr. S.D.N.Y. 1986)).
99

Id. (citing Johns-Manville, 68 B.R. at 626 (“[T]he Legal
Representative for Future Claimants has been active in the Manville reorganization
for over two years. He has been the catalyst for, if not the architect of, [the]
Plan.”).
100

See Chubb, 600 F.3d at 156.

101

Id. at 157.

37

FCR’s powers to claims affecting Manville’s policies “would have been
‘nonsensical.’”102 Travelers argued that:
at every step of the process, the FCR was directly involved in the
negotiation and approval of the settlements and of the provisions
that were ultimately incorporated into the confirmation order. The
Court’s order approving the FCR in no way limited the FCR’s role
to preclude the FCR from representing the rights of future
claimants to assert Manville-related claims against the settling
insurers. Indeed, such a limitation would have been completely
nonsensical, as it would have precluded the ability of the Court to
confirm the Manville plan at all or to fund the Trust that existed
for the very benefit of future claimants.103
Yet, it appears from the record that prior to the entry of the FCR Order in August
1984, Marsh was not a party to a settlement agreement with Manville, thereby

102

July Order, 534 B.R. at 567 (quoting 11/12/10 Submission of
Travelers Indemnity Company and Travelers Casualty and Surety Company
Concerning Motion for Order Enforcing Confirmation Order and Related Orders,
App. App’x at 455).
103

App. App’x at 454-455 (emphasis in original). In the context of
subject matter jurisdiction, the Second Circuit explained in Manville III that “[i]t
was inappropriate for the bankruptcy court to enjoin claims brought against a
third-party non-debtor solely on the basis of that third-party’s financial
contribution to a debtor’s estate. If that were possible a debtor could create subject
matter jurisdiction over any non-debtor third-party by structuring a plan in such a
way that it depended upon third-party contributions. As we have made clear,
subject matter jurisdiction cannot be conferred by consent of the parties. Where a
court lacks subject matter jurisdiction over a dispute, the parties cannot create it by
agreement even in a plan of reorganization.” 517 F.3d at 66 (internal citations
omitted).

38

undermining the assertion that the FCR represented Parra at every stage of the
proceedings.104 Furthermore, the Chubb decision cites to documents that call into
question whether the settling insurers expected to be protected from in personam
claims:
The bankruptcy court’s August 2, 1984 Notice of Hearing to
Consider Approval of Compromise and Settlement of Insurance
Litigation indicated that the parties to the Manville Chapter 11
proceedings were seeking an order enjoining all claims, “whether
or not presently known,” against the Settling Insurers “based
upon, arising out of or relating to any or all of the insurance
policies” that the Settling Insurers had issued to Manville. . . .
To the extent that the Notice document could be
interpreted to suggest that the 1984 Insurance Settlement
Agreement would bar non-derivative claims against non-debtors,
the parties publicly clarified their intentions by amending the
agreement. . . . Specifically, when certain objectors to the
settlement argued that the terms of the proposed channeling
injunction exceeded the scope of the bankruptcy court’s in rem
jurisdiction, Travelers signed a letter agreement indicating that the
objectors were wrong. The June 3, 1985 letter agreement stated
that it was intended to “clarif[y] the intent of the parties with
respect to certain provisions of the [1984 Insurance] Settlement
Agreement,” and that it was an “amendment” to the Agreement.
One portion of the letter stated that “[t]he channeling order is
intended only to channel claims against the res to the Settlement
Fund and the injunction is intended only to restrain claims against
the res (i.e., the Policies) which are or may be asserted against the

104

See 8/6/10 Declaration of Brian E. O’Connor, Marsh’s counsel, ¶ 5
(stating that Marsh first entered into a settlement agreement with Manville on
October 10, 1986).

39

Settling Insurers.”105
Far from being nonsensical, these documents suggest that the insurance settlement
that funded the Manville Trust may have depended on the clarification that the
settlement only concerned claims that affected the res of the Manville estate — i.e.,
the Policies.
Furthermore, under the Chubb principles, the relevant inquiry is
whether Parra received “adequate representation ‘at all times’ throughout the
litigation, [and] notice ‘reasonably calculated . . . to apprise [him] of the pendency
of the action . . . .’” To be sure, the text of the FCR Order does not address
whether the FCR provided adequate representation with respect to Parra’s in
personam claims against Marsh. Factual determinations need to be made to assess
whether Parra received adequate representation. That the FCR had certain powers
and exercised them with respect to in rem claims does not mean that he did so with
respect to Parra’s claims against Marsh. Whether in personam claims were
contemplated and the requisite representation was provided are fact questions.
Accordingly, this matter is remanded to the bankruptcy court for
development of the record and application of the due process principles set forth in

105

Chubb, 600 F.3d at 157-58 (emphasis added).

40

Chubb. The bankruptcy court should determine the extent to which the FCR was
charged with representing Parra (and other future asbestos claimants) with respect
to in personam claims against Marsh and, if the FCR was so charged, determine
whether the quality of that representation was sufficient to satisfy due process.
Finally, as part of its analysis on remand, the bankruptcy court may also consider
whether a denial of due process would have resulted in prejudice. While the
Second Circuit has not ruled on the issue, “no less than six [ ] Circuits have . . .
identified prejudice as an essential element of a denial of due process claim —
saying, in exactly these words or words that are very close, that ‘a party who
claims to be aggrieved by a violation of procedural due process must show
prejudice.’”106 It may appear straightforward that Parra is prejudiced if he cannot
106

Motors Liquidation Co., 529 B.R. at 561 (quoting Perry v. Blum, 629
F.3d 1, 17 (1st Cir. 2010) and citing In re Parcel Consultants, Inc., 58 Fed. App’x
946, 951 (3d Cir. 2003) (“Proof of prejudice is a necessary element of a due
process claim.”); Rapp v. U.S. Dep’t of Treasury, Office of Thrift Supervision, 52
F.3d 1510, 1520 (10th Cir. 1995) (“In order to establish a due process violation,
petitioners must demonstrate that they have sustained prejudice as a result of the
allegedly insufficient notice.”); In re New Concept Housing, Inc., 951 F.2d 932,
939 (8th Cir. 1991) (stating that “the violation of these rules constituted harmless
error, because the Debtor’s presence at the hearing would not have changed its
outcome. The Debtor had neither a legal nor factual basis for establishing that the
settlement was unreasonable.”); Cedar Bluff Broad., Inc. v. Rasnake, No. 90-1554,
1991 WL 141035, at *2 (4th Cir. Aug. 1, 1991) (creditor complaining of notice
deficiency failed to show, among other things, “that it was prejudiced by the lack
of notice to general creditors”)); Brock v. Dow Chem. U.S.A., 801 F.2d 926, 930-31

41

seek damages against Marsh for his injuries. However, the 1986 Orders resulted in
creating the Manville Trust. Parra thus had the opportunity to seek damages for his
asbestos-related injuries. Parra has not explained why he did not collect from the
Manville Trust, and why he is instead pursuing indirect claims.
V.

CONCLUSION
Accordingly, the July Order is AFFIRMED in part, REVERSED in

part, and REMANDED to the bankruptcy court for further proceedings consistent
with this Opinion and Order. The order directing the Clerk of Court to correct the
docket (Docket No. 7) is vacated. The Clerk of the Court is directed to amend the
docket to remove Travelers Indemnity Company and Travelers Casualty and

(7th Cir. 1986) (explaining in context of review of administrative order affecting
an employer where improper notice was alleged, “it must be noted that, unless the
employer demonstrates that the lack of formal notice was prejudicial, we will not
order that the charges be dismissed”).

42

- Appearances For Appellee Marsh USA, Inc.

For Appellant The Bogdan Law
Firm as Counsel for Salvador
Parra, Jr.:

Brian E. O’Connor, Esq.
Emma J. James, Esq.
Jonathan D. Waisnor, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
[phone]

Sander L. Esserman, Esq.
Peter C. D’Apice, Esq.
David J. Parsons, Esq.
Heather J. Panko, Esq.
Stutzman, Bromberg, Esserman &
Plifka, A Professional Corporation
2323 Bryan Street, Suite 2200
Dallas, TX 75201
[phone]

For Travelers Indemnity Company
and Travelers Casualty and Surety
Company
Andrew T. Frankel, Esq.
Alexander N. Li, Esq.
Tyler Z. Bernstein, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
[phone]

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