Bankruptcy plan doesn t toll time limit for asbestos claims

Transcription

1 Bankruptcy plan doesn t toll time limit for asbestos claims Ruling makes it tougher to tap debtor s liability policy By: Pat Murphy February 19, 2015 The terms of an asbestos manufacturer s bankruptcy reorganization plan did not indefinitely extend the three-year statute of limitations applicable to the product liability claims of a Massachusetts woman whose husband died of mesothelioma in 2002, the 1st U.S. Circuit Court of Appeals has decided. The suit against the defendant manufacturer, T&N Limited, was filed in 2011 by the Federal-Mogul Asbestos Personal Injury Trust as the agent of the widow. The trust argued that T&N s reorganization plan effectively tolled Massachusetts three-year statute of limitations for the widow s claims until the time when T&N s liability insurance becomes exhausted at some point in the future. The court disagreed. [T]he Trust s argument fails because the Plan unambiguously terminated the automatic stay without limitation or qualification and contains no provision that even remotely provides for any further tolling of the limitations period beyond that granted by the Bankruptcy Code, Judge William J. Kayatta Jr. wrote for the unanimous panel. The 22-page decision is Barraford v. T&N Limited, et al., Lawyers Weekly No The full text of the ruling can be found by clicking here. The one real effect this decision could have is certainly on the trust itself: whether this decision would bar potentially hundreds of thousands of other claims, which would then potentially render the trust underfunded if it can t sufficiently exhaust the Hercules policy. Brian, D. Gross, Partner

2 Liability insurance impact Vincent L. Greene IV is a toxic tort attorney with Motley Rice in Providence, Rhode Island. Greene currently represents T&N asbestos claimants in two cases consolidated in Rhode Island Superior Court, Gallagher v. American Insulated Wire Corp. and Podedworny v. American Insulated Wire Corp. Greene said he thinks the 1st Circuit is mistaken in essentially requiring specific language in T&N s plan tolling the statute of limitations for asbestos claims. Because of the uniqueness of the plan and the way it was structured, it is clear that the trust has the right to pursue these cases and that the stay with respect to these claims was never lifted, he said, noting that his firm represented another claimant in Barraford and joined in opposing the dismissal of the trust s claim brought on behalf of the widow, Nora Barraford. In October, the Providence Superior Court judge in Gallagher rejected T&N s motion for summary judgment on statute of limitations grounds, accepting the trust s argument that the Bankruptcy Court conditioned T&N s discharge upon the exhaustion of its liability policy, which has yet to occur. Accordingly, the judge in Gallagher concluded that T&N has not been provided with a discharge, the automatic stay has not lifted, and the statute of limitations has not begun to run. Greene pointed out that the 1st Circuit s ruling in Barraford has limited bearing on the Rhode Island cases because of the different statutes of limitations involved and the fact that the state court is not bound by the 1st Circuit s decision. That said, Greene noted that T&N has filed a motion for reconsideration in Gallagher. It s really an open question, he conceded. It s going to be a question of whether the court in Rhode Island reads [T&N s] trust distribution plan as the 1st Circuit did. Defense attorney Brian D. Gross leads the Massachusetts and Rhode Island asbestos litigation practice at Manion, Gaynor & Manning in Boston. Gross said it is noteworthy that the 1st Circuit employed different reasoning to reach the same result as the trial judge, even though both relied on the same provision of the Bankruptcy Code, 362(c)(2)(C). While the District Court judge held that, as long as there is a discharge of some claims, the automatic stay is lifted, the 1st Circuit came to the conclusion that the effect of a delayed discharge on the automatic stay did not matter because the language of the plan itself terminated the stay. It doesn t matter how you determine the effect of a delayed discharge because you have to look at the plan itself, Gross said, and the plan itself unambiguously lifts the stay by allowing the trust to sue T&N.

3 Judith A. Perritano is a toxic tort defense attorney with Pierce, Davis & Perritano in Boston. While Perritano agreed that the decision is a significant win for the defendant in the case, she said the impact of Barraford on claims against other asbestos manufacturers will probably be limited because the court s ruling was based on the specific language of T&N s reorganization plan. It does look like there s a population of people who are going to be impacted by this decision, but only as to this trust, Perritano said. Boston attorney Eric D. Green, the court-appointed legal representative for future claimants under the Federal-Mogul trust, said there is a more subtle dollars-and-cents impact to the 1st Circuit s decision relating to T&N s 500 million Hercules liability policy. According to Green, the court s decision is going to make it much more difficult for the trust to exhaust the self-insured retention under the Hercules policy so that it can actually bring claims against that policy. What the decision does do is it holds that the trust cannot, as agent for these claimants, bring these claims against the T&N Hercules insurance policy, Green said. Therefore, the effect is that it would reduce the assets available to the trust to actually pay as much to a successful claimant. Gross agreed that the impact on insurance coverage could be the most important aspect of the 1st Circuit s decision. The one real effect this decision could have is certainly on the trust itself: whether this decision would bar potentially hundreds of thousands of other claims, which would then potentially render the trust underfunded if it can t sufficiently exhaust the Hercules policy, Gross said. The lead attorney for the trust on appeal, Richard B. Levine of New York City, did not respond to a request for comment prior to deadline, nor did the lead attorney for T&N, Mark A. Perry of Washington, D.C. Asbestos claim Section 108(c)(2) of the Bankruptcy Code delays the expiration of any statute of limitations that would otherwise expire during the duration of the automatic stay in a bankruptcy case until 30 days after notice of termination of the stay. In Barraford, T&N filed for Chapter 11 bankruptcy protection in 2001, triggering the automatic stay. In 2002, Barraford s husband died of mesothelioma. Two years later, Barraford filed product liability claims against a number of asbestos manufacturers, alleging that her husband s mesothelioma was caused by his exposure to asbestos products while working as an electrician and engineer on the construction of the Prudential Center in Boston. Barraford did not name T&N as a defendant in her 2004 suit because the manufacturer was protected by the automatic stay in its bankruptcy case.

4 T&N s bankruptcy reorganization plan went into effect in December The Federal-Mogul Asbestos Personal Injury Trust was created under the terms of the plan. The plan transferred to the trust certain assets for the payment of asbestos claims brought by persons who could have sued T&N but for its bankruptcy. One T&N asset that was not transferred to the trust was the 500 million Hercules liability policy with a 690 million self-insured retention, a form of deductible. The Hercules policy was nonassignable under applicable British law. To take advantage of the Hercules policy, the reorganization plan specified that T&N s asbestos liability would continue in full until the Hercules policy was exhausted. The terms of the plan further called for the trust to bring asbestos claims against T&N as the agent of the individual claimants. Under Massachusetts law and absent the effect of the automatic stay, Barraford s asbestos claims against T&N would have expired at the latest in 2005, three years after her husband s death. The trust brought suit on behalf of Barraford in T&N argued that, under 108(c)(2) of the Bankruptcy Code, Barraford s claims became timebarred 30 days after the lifting of the automatic stay that occurred when its reorganization plan went into effect in December The trust countered that the terms of T&N s reorganization plan extended the bankruptcy stay indefinitely, meaning that Barraford s claims were not time-barred when the trust filed the suit on her behalf in The District Court judge granted T&N s motion to dismiss. Time-barred claim On appeal, the trust argued that, because the plan did not discharge the asbestos claims against T&N, the stay had not been lifted as to those claims. According to the trust, it followed that the 30- day window to bring suit triggered by the termination of the stay had not closed. T&N argued to the contrary that, under 362(c)(2)(C) of the Bankruptcy Code, the discharge of any claim in a bankruptcy case terminates the automatic stay for all claims in that case. Accordingly, T&N submitted that the discharge of the manufacturer s non-asbestos claims on the plan s effective date in December 2007 lifted the stay for all claims against T&N, meaning that Barraford s asbestos claims were time-barred under 108(c)(2). Kayatta wrote that the court did not need to decide whose interpretation of the code on that issue was correct because 362(c)(2)(C) expressly recognizes an exception to the rule that continues the automatic stay until discharge. Specifically, the statute authorizes the entry of an order under Code 362(d) terminating, annulling, modifying, or conditioning such stay.

5 Turning to the Bankruptcy Court s original order approving T&N s reorganization plan, Kayatta said it terminated the stay with respect to asbestos claims. The order plainly does so by unambiguously allowing the Trust to bring claims against T&N and by allowing, also unconditionally, for those claims to proceed in the ordinary course to judgment or settlement, he said. Thus, regardless of the effect of a delayed discharge on the automatic stay under the Code, here, the Plan itself terminated the stay, triggering the thirty-day window in Code 108(c)(2), Kayatta wrote. CASE: Barraford v. T&N Limited, et al., Lawyers Weekly No COURT: 1st U.S. Circuit Court of Appeals ISSUE: Did the terms of an asbestos manufacturer s bankruptcy reorganization plan indefinitely extend the three-year statute of limitations applicable to the product liability claims of a Massachusetts woman whose husband died of mesothelioma in 2002? DECISION: No Reprinted with kind permission of Massachusetts Lawyers Weekly All rights reserved.