# Opposition Brief — Piccinin v. A. H. Robins Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1986
- **Citation:** 479 U.S. 876

## Text

Supreme Court, U.S.
FILED *

SEP 8 1966

No. 86-216

IN THE JOSEPH F. SPANIOL, JR,
SUPREME COURT OF THE UNITED STATES —

October Term, 1986

COMMITTEE OF REPRESENTATIVES OF
DALKON SHIELD CLAIMANTS,
Petitioner,
ls
A.H. ROBINS COMPANY, INCORPORATED, ET AL.,
Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

RESPONDENT AETNA CASUALTY & SURETY
COMPANY'S BRIEF IN OPPOSITION
TO PETITION FOR WRIT OF CERTIORARI

John G. Harkins, Jr.*
Jan Z. Krasnowiecki
Edmund B. Spaeth, Jr.
James M. Beck
PEPPER, HAMILTON & SCHEETZ
2001 The Fidelity Building
123 South Broad Street
Philadelphia, PA 19109-1083
(215) 893-3000
Attorneys for Respondent
Aetna Casualty & Surety Company

*Counsel of record for Respondent Aetna Casualty & Surety
Company upon whom service is to be made
PACKARD PRESS / LEGAL DIVISION, 10th & SPRING GARDEN STREETS, PHILA., PA. 19123 (215) 236-2000

a ets iediiiaa, , bee

QUESTION PRESENTED

This is a bankruptcy case in which there are now pending
some 300,000 claims by persons who allege they were injured by
the debtor's product, the Dalkon Shield intrauterine contracep-
tive device. When the bankruptcy petition was filed, approxi-
mately 5,000 of these claims were also pending in various federal!
and state court actions. About half of these actions named other
defendants besides the debtor, including some that named re-
spondent Aetna Casualty & Surety Company (“Aetna’), an in-
surer of the debtor. The question presented is:

Did the District Court, acting as a bankruptcy court, prop-
erly determine that claims pending against Aetna were “related
to’ the bankruptcy and should be transferred to its jurisdiction

from the various courts in which they had originally been filed?

TABLE OF CONTENTS

Page

OURSTION PRESENTED... .2:.2.25 3 eee i

TABLE OF CASES AND AUTHORITIES............. iil

STATEMENT OF THE CASE: oso 5 eee ]

REASONS FOR REFUSING THE PETITION......... 3
1. The Petition Seeks Review Of A Question Which Is

Devoid Of Any Practical Effect ................ 3

bo

. The District Court Has Not Abused Its Discretion
In Temporarily And Conditionally Transferring All
Dalkon Shield Claims To The Eastern District Of

WIR a ix 5 5 A eae ce 4
RAPICLIISROON 6 gees it) OY ee 7
FEE RNG 6556 SN i has RRR Oe eee A-]

Appendix A: Statutes Involved ..................... A-]
Agena Bo cas oe ee A-2

In re A.H. Robins Co., No. 85-01307-R, Order For
Preliminary Injunction (E.D. Va. Oct. 11, 1985)... A-2

In re A.H. Robins Co., Nos. 85-01307-R, 85-1006-R.
Order Pursuant To 28 U.S.C. Sections 157(b)(5) And
1334(b) And 11 U.S.C. Section 105(a) (E.D. Va.

NOV, © 2000). 33 ha6e ee eee A-9
A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir.
A ko ke 54d oO eee A-]]

Breland v. Aetna Casualty & Surety Co., No. 86-0315-
R, Initial Pretrial Order (E.D. Va. Jul. 9, 1985)... A-52

Appendix C: Listing Of Corporate Affiliations Pre-
scribed by Rule 28.1 Of The Rules Of The
Supreme Court Of The United States... . . 4-53

TABLE OF CASES AND AUTHORITIES
Cases:
AH. Robins Co. t. Piccinin, 788 F.2d 994 4th Cir.

ee ha gdssg ide kein ss Sey Dy

Boeing Co. v. Van Gemert, 444 U.S. 472 (1980) ......-.
In re White Motor Credit, 76) F.2d 270 (6th Cir. 1985). .

Northern Pipeline Construction Co. t. Marathon Pipe Line
| ee

Piccinin t. A-H. Robins Co., October Term, 1956, No.
gE ar

Rice v. Sioux City Cemetery, Inc., 349 U.S. 70 (1955) .
Statutes, Rules and Regulations
gates teen ee se ees
i 3,
a a a

3,

Ul

bo

ul

bo

No. 86-216

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1986

COMMITTEE OF REPRESENTATIVES OF
DALKON SHIELD CLAIMANTS,
Petitioner,
v.
A.H. ROBINS COMPANY, INCORPORATED, ET AL...
Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

RESPONDENT AETNA CASUALTY & SURETY
COMPANY’S BRIEF IN OPPOSITION
FO PETITION FOR WRIT OF CERTIORARI

STATEMENT OF THE CASE

This case arises from a Chapter 11 bankruptcy petition filed
in August 1985 by A.H. Robins Company, Incorporated
(“Robins”). The petition was Robins’ response to what the Court
of Appeals accurately described as “an avalanche of actions filed
in various state and federal courts throughout the United States
by citizens of this country as well as of foreign countries seeking
damages for injuries allegedly sustained by the use of an
intrauterine contraceptive device known as a Dalkon Shield,”
which was manufactured by Robins. A.H. Robins Co. vt.

|

2

Piccinin, 788 F.2d 994, 996 (4th Cir. 1986) (A. 12-51). By the time
Robins filed for protection, over $500 million had been spent in
defending and settling thousands of such actions. Id. at 996 n.4
(A. 14). Petitioner, the Committee of Representatives of Dalkon
Shield Claimants (“Committee”), is an official committee ap-
pointed by the bankruptcy trustee to represent the interests of
those who have personal injury tort claims against Robins arising
from the sale or use of the Dalkon Shield.

Robins is not the only defendant named in many of the ac-
tions; plaintiffs have named other defendants, including Robins’
liability insurer, respondent Aetna Casualty & Surety Company
(Aetna). After Robins filed its petition, plaintiffs in a number of
the multi-defendant actions sought to sever Robins and proceed
solely against the remaining defendant(s). In response, Robins
began an adversary proceeding in the United States District
Court for the Eastern District of Virginia, the district where the
Robins bankruptcy case is pending. Robins sought (1) declaratory
relief adjudging Aetna’s liability policy to be an asset of Robins’
estate in which al] Dalkon Shield claimants had an interest, and
(2) injunctive relief staying the prosecution of actions against
non-debtor co-defendants, such as Aetna. Aetna intervened in
the proceeding as a party plaintiff, and the Committee inter-
vened as a party defendant.

After a hearing, the District Court, Judge Robert R.
Merhige, Jr. presiding,! granted both the requested declaratory
relief and the stay by Order dated October 11, 1985 (A.2-5). Nei-
ther of these actions was challenged by the Committee on ap-
peal. On November 9, 1985, the District Court entered the
order that is the subject of this petition. The District Court, by
Order Pursuant to 28 U.S.C. Sections 157(b)(5) And 1334(b) And
11] U.S.C. Section 105(a) (A.9-10), found that Dalkon Shield
claims were “related to” the Robins Chapter 11 proceeding and
directed that such claims be transferred to the Eastern District

1. Judge Merhige, an Article III judge, conducted the hearing exercising
his bankruptcy powers in order to avoid the jurisdictional obstacles that would

have confronted a bamkruptey judge in ruling on state law tort claims. See
Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50,
87 (1982) (plurality opinion).

of Virginia and there assigned for pretrial proceedings and pos-
sible trials. Order, para. 1-3 (A.9-10). The District Court's Order
was expressly temporary and conditional. The court carefull
provided that nothing in its Order affected its power “to abstain
from hearing... or remanding any particular proceedings.” Id...
para. 4 (A. 10).

It is only the District Court's Order of November 9, 1955
that the Committee appealed to the Court of Appeals for the
Fourth Circuit. The facts of the case, the decision by the Court
of Appeals and the further proceedings that have taken place
before the District Court are fully described in Aetna’s briet in
opposition to the petition for certiorari in Piccinin v. A.A. Robins
Co.. October Term, 1986, No. 86-211 (U.S.), which Aetna in-
corporates herein by reference, except that only those facts rel-
evant to the District Court's November 9, 1955 Order are
pertinent to this petition.

REASONS FOR REFUSING THE PETITION

This case presents no occasion for the issuance of a writ of
certiorati for the reasons fully set forth by the District Court, by
the Court of Appeals for the Fourth Circuit, and in Aetna’s brief
in opposition to the Piccinin certiorari petition. October Term,
1986, No. 86-211. Rather than repeat arguments made in oppo-
sition to the Piccinin petition, Aetna incorporates its brief in
Piccinin by reference, and will limit its arguments here to tea-
tures peculiar to the Committee s petition.

|. The Petition Seeks Review Of A Question Which Is Devoid
Of Any Practical Effect.

By its petition, the Committee is seeking to have this Court
answer an abstract legal question, which would have no impact
on the course of this proceeding As noted, the District Court
entered two separate orders. The first Order, entered October
11, 1985, staved all proceedings in all Dalkon Shield cases

throughout the country, including those against Aetna (A.7), The
Committee did not appeal this stay. A.H. Robins, supra, 755
F.2d at 997 (A.16). Rather, the Committee appealed only from

the District Court's second Order, entered November 9, 1955,
transferring Dalkon Shield claims to the Eastern District of Vir-
ginia. Id. at 998 (A.17).

The Committee's petition is therefore untenable. By failing
to appeal the District Court's Order of October 11, 1955, the
Committee has assented to all proceedings being stayed.? Given
that all proceedings are stayed, this petition presents a purely
theoretical issue, for whether a stayed proceeding is docketed in
California, Virginia or anywhere else is of no practical effect.
Wherever the proceeding is, it will not go forward until the stay
is lifted. This Court “does not sit to satisfy a scholarly interest”
in abstract questions simply because they “may present an in-
tellectually interesting . . . problem.” Rice v. Sioux City Cem-
etery, Inc., 349 U.S. 70, 74 (1955) (dismissing certiorari as
improvidently granted).

2. The District Court Has Not Abused Its Discretion In Tem-
porarily And Conditionally Transferring All Dalkon Shield
Claims To The Eastern District Of Virginia.

The Committee does not now contend, and did not contend
before the Court of Appeals,* that the District Court lacked the
statutory authority to issue its Order of November 9, 1985, trans-
ferring all Dalkon Shield claims, including those against Aetna
to the Eastern District of Virginia. In any event, the contention
would be incorrect, for such authority is expressly conferred
upon the District Court:

The district court shall order that personal injury tort
and wrongful death claims shall be tried in the district court
in which the bankruptcy case is pending, or in the district
court in the district in which the claim arose, as determined

2. As the Committee did not appeal the stay, its contention that the stay
denies claimants their right to a jury trial has been waived, and is not properly
before this Court. Boeing Ce. v. Van Gemert, 444 U.S. 472, 479 n.5 (1980)

3. See 788 F.2d at 1010 (“We do not understand the appellants to contend
that under [28 U.S.C. §157(b\(5)) the district court did pot have authority un-
der this statute to issue an order fixing the venue.) (A.39

———————E—E

by the district court in which the bankruptcy case is pend-
ing.
28 U.S.C. §$157(b\(5).4 Tho Committee's only contention is that
the District Court should not have transferred such cases to it-
self, but instead should have exercised its admitted discretion in
favor of transferring them to the district courts throughout thi
nation in which the claims arose. This contention has no merit
According to the Committee, 28 U.S.C. §157(b)(5) “mani-
festly is designed to decentralize the adjudication of personal
injury claims.” Petition at 7. Nothing in 28 U.S.C. 8157(b)5
itself manifests such a design. To the contrary, the section ex-
pressly gives a district court the power to select venue without
stating any preference for centralization or decentralization.
There being no basis for the Committee's argument in the
language of the statute, the Committee purports to find support
for decentralization of claims from the legislative history of
$157(b)\(5) and from In re White Motor Credit, 761 F.2d 270 (6th
Cir. 1985). The Court of Appeals has analyzed and rejected the
Committee's arguments so fully that no further comment. is

needed:

'Appellants| argue, however, that the sense of the sec
tion, if not its precise language, was to decentralize the trial
of these tort claims and to permit their continuance for trial
in the court in which the complaints were filed and that the
ruling of the district judge in this case fixing venue in the
district court in which the bankruptcy petition was filed flies
in the face of this congressional purpose. They refer to the
language of Senator Dole in commenting on the Senate
Conference Report on the 1954 amendments and construe
it as suggesting that tort claims were to be tried in the court
in which those claims were originally filed. Senator Dole, in
the language to which appellants refer and out of which the
appellants arrive at their finding of the sense of the Con

gress, actually restated simply the language of the statute

t. Aetna has addressed the authority of the District Court in an action

related te t bankrupt v action at |e nuthin Opposition to the Piccinin certiorari

petiiion. Oct Perm, L9YS6. No. S6-211

6

itself. He said that “where abstention does not occur, those
cases |i.@., “personal injury cases’ will be handled by the
district court where the bankruptcy has been filed or, if that
court finds it appropriate, where the claim arose.” State-
ment by Hon. Robert Dole 130 Cong. Rec. S. 8889 (daikv
ed. June 29, 1954), reprinted in, 1984 U.S. Code Cong. &
Ad. News 586, 587. We discern nothing in that language to
warrant the conclusion that, in enacting the statute the Con-
gress favored decentralizing the administration of the bank-
ruptey by leaving all “personal injury cases” to the court in
the place where the claim “arose.” In fact, to accept the
view of the appellants on the construction of the statute
would be completely at variance with the House version of
the bill, which was in effect accepted by the Conference
Committee, and would be to adopt the Senate version,
which, according to Congressman Kastenmeier’s statement
as a House Conference member, was “largely reject|ed]” by
the Conference Committee and “would have dissipated the
assets of the estate by creating a multiplicity of forums for
the adjudication of parts of a bankruptcy case.”

Nor do we find anything in In re White Motor Credit,
761 F.2d 270, 273-74 (6th Cir. 1985), also relied on by the
appellants, that lends support to appellant's construction of
$157(b)(5). The extent of the holding in White Motor was
that the district court had the power under the statute to
allow products liability cases to be tried where the claim
arose; there was nothing in the opinion, however, that de-
clared that such action was mandated or even preferred.
Specifically, there was no statement in the opinion that the
district court in which the bankruptcy was pending could
not try the claim. Unquestionably the district court in this
case had the power under the statute to fix the trial venue
in its district for all the Dalkon Shield cases.

788 F.2d at 1010 (footnotes omitted) (A.39-40). It is therefore
clear, not only that the District Court did not abuse its discre-
tion, but that it exercised its discretion in a proper and judicious
manner, as was found by the Court of Appeals.

ud

i

CONCLUSION

For the foregoing reasons, the petition for a writ of certiorari
should be denied.

Respectfully submitted,

JOHN G. HARKINS, JR.*
JAN Z. KRASNOWIECKI
EDMUND B. SPAETH, JR.
JAMES M. BECK

Pepper, Hamilton & Scheetz
2001 The Fidelity Building
123 South Broad Street
Philadelphia, PA 19109-1083
(215) 893-3000

Attorneys for Respondent

AETNA CASUALTY & SURETY COMPANY

*Counsel of record for Respondent Aetna Casualty & Surety
Company upon whom service is to be made

APPENDIX

APPENDIX

A-]
APPENDIX A

STATUTES INVOLVED
il U.S.C. §105. Power of court

(a) The court may issue any order, process, or judgment
that is necessary or appropriate to carry out the provisions of this
title.

11 U.S.C. $541. Property of the estate

(a) The commencement of a case under section 301, 302, or
303 of this title creates an estate. Such estate is comprised of all
the following property, wherever located and by whomever

held:

(1) Except as provided in subsections (b) and ‘c)(2) of
this section, all legal or equitable interests of the debtor in
property as of the commencement of the case.

28 U.S.C. §157. Procedures

(b)\(5) The district court shall order that personal injury tort
and wrongful death claims shall be tried in the district court in
which the bankruptcy case is pending, or in the district court in
the district in which the claim arose, as determined by the dis-
trict court in which the bankruptcy case is pending.

28 U.S.C. §1334. Bankruptcy cases and proceedings

(b) Notwithstanding any Act of Congress that confers ex-
clusive jurisdiction on a court or courts other than the district
courts, the district courts shall have original but not exclusive
jurisdiction of all civil proceedings arising under title 11, or aris-
ing in or related to cases under title 11.

A-2
APPENDIX B
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
In re Chapter 1]
A. H. ROBINS COMPANY Case No. 85-O1307-R

INCORPORATED

Debtor
Emplovers Tax Identification
No. 54-0456345

A. HE. ROBINS COMPANY Adversary Proceeding

INCORPORATED. No. $5-1006-R
Plaintiff.

U.

NANCY CAMPBELL, KATHRYN Retained Proceeding

CONRAD, JEANETTE DICHARRY

and VERNON DICHARRY, ANNA

PICCININ, LUISA MOSA and )
JACK Mosa, STELLA J. CAMP
and JOHN H. Camp, HELEN
BARNETT and MICHAEL
BARNETT, and EDNA LINDSEY — )
RUMINSKI,
Defendants. — )

ORDER FOR PRELIMINARY INJUNCTION

This cause came on to be heard on plaintiff's motion for
preliminary injunction. The Court having considered plaintiff's
complaint, the memorandum of law and the declarations in sup-
port of the motion and the papers filed in opposition thereto and,
having heard testimony and argument and considered the evi- (
dence presented, the Court adopts its remarks and rulings as |

EE TA Ce at nT 2

A-3

stated from the bench and makes the following findings of fact
conclusions of law, and order for a preliminary injunction pur-
suant to Bankruptey Rule 7065 and Federal Rule of Civil Pro
cedure 65(d), ail objections by opposing counsel being duly

presery ed

Findings of Fact

As of August 21, 1985, the plaintiff in this action, A. H
Robins Company, Incorporated (“Robins”) was named as the de-
fendant in approximately 5,000 civil actions in state and tederal
courts throughout the country alleging injuries and seeking daimn-
ages stemming from Robins’ manufacture and marketing of the
Dalkon Shield intrauterine contraceptive device. Pursuant to 1]
U.S.C. Section 362(a). all litigation against Robins in those ap-
proximately 5,000 civil actions was stayed automatically on Au-
gust 21, 1985 upon filing of Robins petition tor protection from
its creditors under Chapter 11

Approximately 2,400 of those civil actions name persons or
entities other than Robins as co-defendants. Those approxi-
mately 2.400 civil actions seek damages from Robins
co-defendants based upon theories of liability which are deriv-
ative of or interrelated with the causes of action or claims for
relief asserted against Robins. Any judgment rendered against a
Robins co-defendant in any one of those approximately 2,400
civil actions could result in a claim against Robins for either con-
tractual indemnity or commontaw contribution. Although Rob-
ii may be entitled to relitigate the issue of its liability to each
indemnity or contribution claim, the burden on Robins estate of
such litigation would significantly impede Robins reorganization
and render any plan of reorganization futile.

Moreover, many of those 2,400 civil actions against the co-
defendants would require the participation of Robins’ officers,
executives and employees as witnesses and in pre-trial and post-
trial proceedings. The diversion of Robins’ key personnel trom
the reorganization effort which would result from continuation of
litigation in those 2,400 civil actions would impair Robins’ reor-
ganization effort and would be contrary to the public interest.

\-4

The continuation of litigation in those 2.400 civil actions
which name Robins’ co-defendants poses a significant threat to
Robins reorganization effort and could cause a direct and sub-
stantial drain upon the assets of Robins’ Chapter 11 estate. If this
reliet sought is not granted, a rush to judgment will likely ensue.
Such a race to obtain judgments against Robins’ co-defendants
would be detrimental to the debtor and would adversely affect
Robins’ reorganization effort.

Any rejection by the debtor of its contractual duty to in-
demnify its officers, directors, and employees would adversely
attect the debtor and would not be consistent with the debtor's
reorganization under Chapter 11.

Defendant Nancy Campbell has a civil action pending in the
United States District Court for The Western District of Wis-
consin. In her complaint Ms. Campbell asserts claims against
Robins, The Aetna Casualty and Surety Company, E. Claiborne
Robins, Sr., E. Claiborne Robins, Jr. and Dr. Hugh J. Davis.
Ms. Campbell seeks recovery from those defendants under the-
ories of negligence, strict liability, implied and express warran-
ties, misrepresentation, fraud and under the Racketeer
Influcenced and Corrupt Organization Act (“RICO”). The con-
tinuation of litigation in the Campbell Action against any of
Robins’ co-defendants threatens property of the debtor's estate
and threatens to impair and impede the debtor's reorganization
effort.

Defendant Kathryn Conrad has a civil action pending in the
Circuit Court for Baltimore City. In her complaint, Ms. Conrad
asserts claims against Robins, Dr. Hugh J. Davis and Dr.
Frederick A. Clark, Jr. Ms. Conrad seeks recovery from those
defendants under theories of negligence, strict liability, fraud-
ulent misrepresentation and conspiracy. The continuation of lit-
igation in the Conrad action against any of Robins’ co-defendants
threatens property of the debtor's estate and threatens to impair
and impede the debtor's reorganization effort.

Defendants Jeanette Dicharry and Vernon Dicharry have a
civil action pending in The United States District Court for the
Eastern District of Louisiana. In their complaint, the Dicharrys
assert claims against Robins and Aetna Casualty and Surety

A-5

Company (served herein as Aetna Life and Casualty). The
Dicharrys seek recovery from those defendants under theories of
strict liability, negligence, misrepresentation and breach of war-
ranty. The continuation of litigation in the Dicharry Action
against Aetna Casualty and Surety Company threatens property
of the debtor’s estate and threatens to impair and impede the
debtor’s reorganization effort.

Defendant Anna Piccinin has a civil action pending in The
United States District Court for The Middle District of Alabama.
In her complaint, Ms. Piccinin asserts claims against Robins and
The Aetna Casualty and Surety Company. Ms. Piccinin seeks
recovery from those defendants under theories of conspiracy,
fraud, negligence, misrepresentation and breach of warranty.
The continuation of litigation in the Piccinin Action against The
Aetna Casualty and Surety Company will impair and impede the
debtor's reorganization effort.

Defendants Luisa Mosa and Jack Mosa have a civil action
pending in The United States District Court for the District of
Maryland. In their complaint, the Mosas assert claims against
Robins and Dr. Hugh J. Davis. The Mosas seek recovery from
those defendants under theories of fraud and deceit, involuntary
testing and battery, negligence, strict liability, breach of war-
ranty, violation of the Federal Food and Drug Act and conspir-
acy. The continuation of litigation in The Mosa Action against
Dr. Hugh J. Davis threatens property of the debtor's estate and
threatens to impair and impede the debtor's reorganization ef-
fort.

Defendants Stella J. Camp and John H. Camp have a civil
action pending in The Circuit Court for Madison County, Ala-
bama. In their complaint, the Camps assert claims against Rob-
ins, D.L.K., Incorporated and John or Jane Does numbers three
through nine. The Camps seek recovery from those defendants
under theories of negligence, strict liability, misrepresentation,
breach of warranty, conspiracy and fraud. The continuation of
litigation in The Camp Action against any of Robins’
co-defendants threatens to impair and impede the debtor's re-
organization effort.

A-6

Defendants Helen Barnett and Michael Barnett have a civil
action pending in the Circuit Court of the Ninth Judicial Circuit,
Orange County, Florida. In their complaint, the Barnetts assert
claims against Robins, Aetna Casualty and Surety Company,
Florida Physicians Supply, Incorporated and Medical Supply
Company of Jacksonville. The Barnetts seek recovery from those
defendants under theories of willful negligence, fraud and mis-
representation, violation of State and Federal Food and Drug
Acts, strict liability, breach of warranty and battery. The con-
tinuation of litigation in the Barnett Action against any of Robins’
co-defendants threatens property of the debtor's estate and
threatens to impair and impede the debtor's reorganization ef-
fort.

Defendant Edna Lindsey Ruminski has a civil action pend-
ing in the Superior Court for the Judicial District of New Haven,
Connecticut. In her complaint, Ms. Ruminski asserts claims
against Robins and Dr. Marshall R. Holley. Ms. Ruminski seeks
recovery from those defendants under theories of negligence.
The continuation of litigation in the Ruminski Action against Dr.
Marshall R. Holley threatens to impair and impede the debtor's
reorganization effort.

The eight civil actions described above are representative
examples of similar civil actions among the approximately 2,400
civil actions currently pending against Robins which name per-
sons or entities other than Robins as co-defendants. The contin-
uation of litigation in those approximately 2,400 civil actions
against the various categories cf co-defendants represented by’
the eight civil actions described above would pose a serious
threat to the success of the debtor's reorganization and is con-
trary to the public interest.

Conclusions of Law

The District Court exercising its jurisdiction under 28
U.S.C. Sections 1334(b) and (d), has the authority pursuant to 11
U.S.C. Section 105 and 28 U.S.C. Section 1651, to stay all ac-
tions which adversely affect the estate of the debtor and the

debtor's reorganization effort and to stay all actions which wil!
impair and impede the debtor's reorganization effort.

Robins has established that the likelihood of irreparabl:
harm to Robins if this injunction is not granted outweighs th:
likelihood of irreparable harm to the defendants if the injunction
is granted.

Robins has established the likelihood of its success on the
merits and the likelihood of a successful reorganization if it is not
burdened by continued litigation against it and its co-defendants

Robins has established that the granting of this preliminary
injunction is in the public interest.

The conclusions of law contained in this order constitute the
law of this case and shall be applied with equal force to all de
fendants similarly situated who are brought to the attention of
this court.

To the extent any of the foregoing conclusions of law con-
stitute findings of fact, they are to be deemed as such, and vice-
versa.

Order

Based upon the foregoing, and good cause appearing there-
for, it is hereby

DECLARED all available proceeds of liability insurance is-
sued to Robins are property of the debtor's estate pursuant to 11
U.S.C. Section 541 and any civil action seeking a judgment that
might be satisfied from the proceeds of that insurance is auto-
matically stayed pursuant to 1] U.S.C. Section 362(a);

ORDERED defendant Nancy Campbell is enjoined and re-
strained from continuing with litigation against any of the de-
fendants named in Civil Action No. 85-C-230-S currently
pending in the United States District Court for the Western Dis-
trict of Wisconsin; and further

ORDERED defendant Kathryn Conrad is enjoined and re-
strained from continuing with litigation against any of the de-
fendants named in Civil Action No. 85231036 currently pending
in the Circuit Court for the City of Baltimore, State of Maryland;
and further

A-8

ORDERED defendants Jeanette Dicharry and Vernon
Dicharry are enjoined and restrained from continuing with liti-
gation against any of the defendants named in Civil Action No.
85-1243 currently pending in the United States District Court
for the Eastern District of Louisiana; and further

ORDERED defendant Anna Piccinin is enjoined and re-
strained from continuing with litigation against any of the de-
fendants named in Civil Action No. CV-85-H-9120-N currently
pending in the United States District Court for the Middle Dis-
trict of Alabama; and further

ORDERED defendants Luisa Mosa and Jack Mosa are en-
joined and restrained from continuing with litigation against any
of the defendants named in Civil Action No. H82-49 currently
pending in the United States District Court for the District of
Maryland; and further

ORDERED defendants Stelia J. Camp and John H. Camp
are enjoined and restrained from continuing with litigation
against any of the defendants named in Civil Action No. CV-85-
671-W currently pending in the Circuit Court for Madison
County, State of Alabama; and further

ORDERED defendants Helen Barnett and Michael Barnett
are enjoined and restrained from continuing with litigation
against any of the defendants named in Civil Action No. 83-5426
currently pending in the Circuit Court for the Ninth Judicial
District, Orange County, State of Florida; and further

ORDERED defendant Edna Lindsey Ruminski is enjoined
and restrained from continuing with litigation against any of the
defendants named in Civil Action No. CV-81-0209979-S cur-
rently pending in the Superior Court for the Judicial District of
New Haven, State of Connecticut.

This injunction shall remain in force until further order of
this Court.

DATED: October 11, 1985
Nunc pro tune 10-9-85

/s/ ROBERT R. MERHIGE, JR.
UNITED STATES DISTRICT JUDGE

A-9

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA

Richmond Division

Case No. 85-01307-R
Retained Proceeding
(Judge Merhige)

In Re A. H. ROBINS COMPANY, INCORPORATED
Debtor
EMPLOYER'S TAX IDENTIFICATION NO. 54-0486348

ORDER PURSUANT TO
28 U.S.C. SECTIONS 157(b)(5) AND 1334(b)
AND 11 U.S.C. SECTION 105(a)

Upon the motion of A. H. Robins Company, Incorporated
(“Robins”), for orders pursuant to 28 U.S.C. Sections 157(b)(5)
and 1334(b), and 11 U.S.C. Section 105(a) for determination of
trial venue, identification of cases “related to” this Chapter 11
case and transfer of cases; the Court having considered the mo-
tion, the memorandum of law, the Statement of Financial Affairs
For Debtor Engaged in Business Question 12 (Exhibit 1), and
having heard the arguments of counsel and good cause appearing
therefor, it is hereby

ORDERED, pursuant to Sections 157(b)(5) and 1334(b) of
Title 28 of the United States Code, that to the extent personal
injury tort or wrongful death actions against Robins or any other
defendant that are related to the Robins Chapter 11 case are to
be tried in a district court, such action shall be tried in the Rich-
mond Division of the United States District Court for the East-
ern District of Virginia; and it is further

ORDERED, pursuant to Section 1334(b) of Title 28 of the
United States Code, that all actions based upon personal injury
tort or wrongful death claims arising from the use of the Dalkon
Shield intrauterine contraceptive device are proceedings related
to this Chapter 11 case over which this Court has jurisdiction;
and it is further

A-10

ORDERED that all actions related to the Robins Chapter
11 case, as determined by this Order, now pending in any federal
district court or subsequently removed to any federal district
court during the pendency of this Chapter 11 case, be trans-
ferred by the Clerks of those Courts to this Court; and it is fur-
ther

ORDERED that nothing contained herein shall affect or
limit the power of this Court to abstain from hearing any par-
ticular proceeding under Section 1334(c)(1) of the United States
Code or remanding any particular proceeding under Section
1452(b) of the United States Code.

/s/ ROBERT R. MERHIGE, JR.
U.S. District Judge

DATED: November 9, 1985
We ask for this:

/s/ CLIFFORD W. PERRIN, JR.

William R. Cogar

Clifford W. Perrin, Jr.

Mays, Valentine, Davenport
& Moore

Post Office Box 1122

Richmond, Virginia 23208

Patrick A. Murphy

Penn Ayers Butler

Murphy, Weir & Butler

101 California Street, 39th Floor
San Francisco, California 94111

o Ser eR

A-11

A. H. ROBINS COMPANY,

INCORPORATED,
Appellee,
v.
Anna PICCININ
Appellant,

and
Nancy Campbell, Kathryn Conrad, Jeanette Dicharry, Vernon
Dicharry, Luisa Mosa, Stella J. Camp, John H. Camp,
Helen Barnett, Michael Barnett, and Edna _ Lindsey
Ruminski, Defendants.
Aetna Casualty and Surety Company,
Intervenor/Appellee.
In re A. H. ROBINS COMPANY, INCORPORATED
Debtor.
A. H. ROBINS COMPANY, INCORPORATED,
Appellee,
v.
COMMITTEE REPRESENTATIVES OF
DALKON SHIELD CLAIMANTS,
Appellants.
AETNA CASUALTY AND SURETY COMPANY,
Intervenor/Appellee.
In re A. H. ROBINS COMPANY, INCORPORATED,
Debtor.
A. H. ROBINS COMPANY, INCORPORATED,
Appellee,
v.
KATHRYN CONRAD, LUISA AND JACK MOsSA,
Appellants.
In re A. H. ROBINS COMPANY, INC.,
Debtor.
A. H. ROBINS COMPANY, INC.,
Appellee,
v.
ANNA PICCININ,
Appellant.

A-12

Nos. 85-2183 to 85-2188.

United States Court of Appeals,
Fourth Circuit.
Argued Dec. 3, 1985.
Decided April 10, 1986.
Rehearing Denied May 14, 1986.

Debtor sought preliminary injunction restraining prosecu-
tion of products liability actions against codefendants. The
United States District Court for the Eastern District of Virginia,
Robert R. Merhige, Jr., J., granted preliminary injunction, and
products liability plaintiffs appealed. The Court of Appeals,
Donald Russell, Circuit Judge, held that: (1) debtor was entitled
to preliminary injunction, and (2) district court had jurisdiction
to fix venue for trial of all products liability cases and provide for
transfer of cases to district in which bankruptcy court was sitting.

Affirmed in part and remanded with directions.

C. Neal Pope (Max R. McGlamry, Pope, Kellogg,
McGlamry, Kilpatrick & Morrison, Atlanta, Ga., Robert. L.
Dolbeare, Richmond, Va., on brief), for appellant Anna Piccinin.

H. Robert Erwin, Jr. (Pret] & Schultheis, P.A., Baltimore,
Md., on brief) for appellants Kathryn Conrad, Luisa Mosa and
Jack Mosa.

Mark C. Ellenberg (Murray Drabkin; Cadwalader,
Wickersham & Taft, Washington, D.C., George B. Little, L.B.
Cann, III, Little, Parsley & Cluverius, P.C., Richmond, Va., on
brief), for appellant Committee of Representatives of Dalkon
Shield Claimants.

Patrick A. Murphy (Penn Ayers Butler, Michael Kip Maly,
Murphy, Weir & Butler, San Francisco, Cal., William K. Cogar,
Bradfute W. Davenport, Jr., Clifford W. Perrin, Jr., James S.
Crockett, Jr., Mays, Valentine, Davenport & Moore, Richmond,
Va., on brief), for appellee.

Jan Z. Krasnowiecki, Pepper, Hamilton & Scheetz, Phila-
delphia, Pa., for intervenor.

A-13

Before RUSSELL and CHAPMAN, Circuit Judges, and
SWYGERT, Senior Circuit Judge of the United States Court of
Appeals for the Seventh Circuit, sitting by designation.

DONALD RUSSELL, Circuit Judge:

Confronted, if not overwhelmed, with an avalanche of ac-
tions filed in various state and federal courts throughout the
United States by citizens of this country as well as of foreign
countries seeking damages for injuries allegedly sustained by the
use of an intrauterine contraceptive device known as a Dalkon
Shield,! the manufacturer of the device, A.H. Robins Company,
Incorporated (Robins) filed its petition under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. §§101 et seq., August, 1985.

Background

The device, which is the subject of these suits, had been
developed in the 1960's by Dr. Hugh Davis at the Johns Hopkins
Hospital! in Baltimore, Maryland.2 In mid-1970 Robins acquired
all patent and marketing rights to the Dalkon Shield and engaged
in the manufacture and marketing of the device from early 1971
until 1974, when it discontinued manufacture and sale of the
device because of complaints and suits charging injuries arising
allegedly out of the use of the device. The institution of Dalkon
Shield suits did not, however, moderate with the discontinuance
of manufacture of the device, since Robins did not actually recall
the device until 1984.3 By the middle of 1985, when the Chapter
11 petition was filed the number of such suits arising out of the
continued sale and use of the Dalkon Shield device earlier put
into the stream of commerce by Robins had grown to 5,000.
More than half of these pending cases named Robins as the sole
defendant; a co-defendant or co-defendants were named in the

1. For the current FDA regulation on intrauterine devices, see 21 C.F.R.
§310.502 (1984).

2. Book Note, 99 Harv.L.Rev. 875 (1986) (reviewing Engelmayer and
Wagman, Lord’s Justice: One Judge's Battle to Expose the Deadly Dalkon
Shield 1.U.D. (1985)).

3. In response to that recall, Engelmayer & Wagman, supra, note 2, at
878, n. 8, state that 4,500 women had removed the shield as of August, 1985,
at a cost of $1,600,000.

A-14

others. Prior to the filing, a number of suits had been tried and.
while Robins had prevailed in some of the actions, judgments in
large and burdensome amounts had been recovered in others.
Many more had been settled.4 Moreover, the costs of defending
these suits both to Robins and to its insurance carrier had risen
into the millions. A large amount of the time and energies of
Robins’ officers and executives was also being absorbed in pre-
paring material for trial and in attending and testifying at dep-
ositions and trials. The problems arising out of this mounting tide
of claims and suits precipitated this Chapter 11 proceeding.
The filing of the Chapter 11 petition automatically stayed all
suits against Robins itself under section 362(a) of the Bankruptcy
Code, even though no formal order of stay was immediately en-
tered. See In re Larmar Estates, 5° B.R. 328, 330
(Bankr. E.D.N.Y. 1980). But a number of plaintiffs in suits where
there were defendants other than Robins, sought to sever their
actions against Robins and to proceed with their claims against
the co-defendant or co-defendants. Robins responded to the
move by filing an adversary proceeding in which it named as
defendants the plaintiffs in eight such suits pending in various
state and federal courts. In that proceeding, the debtor sought (1)
declaratory relief adjudging that the debtor's products liability
policy with Aetna Casualty and Insurance Company (Aetna) was
an asset of the estate in which all the Dalkon Shield plaintiffs and
claimants had an interest and (2) injunctive relief restraining the
prosecution of the actions against its co-defendants. Service of
the summons and complaint in that adversary proceeding, a
memorandum of law in support of the motion for a preliminary
injunction therein, a notice of the debtor’s intention to apply for
a temporary restraining order, a copy of the proposed temporary
restraining order and affidavits in support were duly mailed by

4. Engelmayer & Wagman, supra, note 2, at 876, n. 6, state that of the
approximately 7,500 Dalkon Shield cases settled from 1972 to February 1955,
fewer than 40 went to a jury.

A recent article in the Nat. L.J., p. 10 (March 17, 1986), states that by mid
1985, Robins, along with its insurer, Aetna Casualty & Surety Company, “had
paid roughly $517 million for 25 trial judgments and 9,300 settlements since the
first verdict in 1975.”

A-15

first-class mail and by Federal Express to all the defendants and
their attorneys at their addresses. See Bankruptcy Rule 7004 and
Rule 4, Fed. R.Civ.P.

The debtor's application for a temporary restraining order
and for the setting of a date for a hearing on the request for
preliminary injunction in the adversary proceeding was heard ex
parte by the district judge who had jurisdiction over the pro-
ceedings.® The district judge granted at the time a temporary
restraining order in the proceedings and set a hearing on the
debtor's application for a preliminary injunction. On that same
day, Robins mailed by first-class mail and by Federal Express to
all the defendants and their attorneys at their addresses “Notice
of Hearing on Plaintiff's Motion for Preliminary Injunction.”

At the hearing on the motion for a preliminary injunction,
a number of defendants as well as the Committee constituted by
the court to represent Dalkon Shield Claimants appeared by
counsel.® At the commencement of the hearing the defendant
Piccinin, a plaintiff in one of the Dalkon Shield actions which
Robins sought to stay, filed through her attorney a written mo-
tion to dismiss as against her. No other defendant filed a motion
in response to the motion for a preliminary injunction. After re-
ceiving certain testimony, adinitting va-ious records, and hear-
ing arguments of parties, the district court granted Robins
request for a preliminary injunction.

In his order granting the preliminary injunction, the district
judge found (1) that continuation of litigation in the civil actions
threatened property of Robins’ estate, burdened and impeded
Robins’ reorganization effort, contravened the public interest,

5. Section 104 of the 1984 Amendments to the Bankruptcy Code provides
that “[iJn each judicial district, the bankruptcy judges in regular active service
shall constitute a unit of the district court to be known as the bankruptcy court
for the district. Each bankruptcy judge . . . may exercise the authority con-
ferred under this chapter . . . except as otherwise provided by law or by rule
or order of the district court.”

6. For a discussion of the authorization for and responsibilities of such
Committees, see Note, The Chapter 11 Creditors Committee; Statutory
Watchdog? 2 Bankr. Dev.J., 247 (1955)).

A-16

and rendered any plan of reorganization futile: (2) that this bur-
den on Robins’ estate outweighed any burden on the Dalkon
claimants caused by enjoining their civil actions; and (3) that all
remaining insurance coverage in favor of the debtor under its
liability policy issued by Aetna was property of the Robins’ Chap-
ter 11 estate. The district judge then held that all actions for
damages that might be satisfied from proceeds of the Aetna in-
surance policy were subject to the stay pursuant to 11 U.S.C.
§362(a)(3) and enjoined further litigation in the eight civil ac-
tions, pursuant to 11] U.S.C. §362(a)(1), (3) as supplemented by
1] U.S.C. §105.

Only the defendants Piccinin, the Mosas, and Conrad filed
timely notices of appeal from the grant of the preliminary in-
junction. Their appeals, questioning the propriety of that pre-
liminary injunction as against suits by Robins co-defendants is
the first of the issues now before this Court.

Some three weeks after entry of the preliminary injunction,
Robins filed a motion for (1) a determination of trial venue of all
Dalkon Shield suits, (2) identification of such Daikon Shield
cases as were “related to” the Chapter 11] case, and (3) transfer
of such cases to the Eastern District of Virginia for trial. It also
requested an expedited hearing on these motions. This request
for an expedited hearing was granted and the expedited hearing
was set ten days later. Notice of the hearing was given the Rep-
resentatives of the Dalkon Shield Claimants Committee and the
Unsecured Creditors Committee. The Committees and the de-
fendants Piccinin, the Mosas and Conrad appeared by counsel at
the hearing and joined in entering objections to the motion.

After a hearing on the motions, the district judge entered an
order holding that (1) pursuant to 28 U.S.C. §1334(b), all actions
based upon personal injury tort or wrongful death claims arising
from the use of the Dalkon Shield were proceedings related to
this Chapter 11 case over which this court had jurisdiction; (2)
pursuant to 28 U.S.C. §§157(b\(5)* and 1334(b), all such actions,

7. In Chatz & Schumm, 1954 Bankruptcy Code Amendments—Fresh
from the Anvil, 89 Com. L.J., 317, 319-20 (1984), the authors refer to these two
sections as the “critical sections” of the Amendments, establishing as they do
what “a bankruptcy court Can and cannot do.”

Se ee Ne Leen ee ee

A-17

wherever pending, were to be tried in the Richmond Division of
the United States District Court for the Eastern District of Vir-
ginia; (3) all actions related to the Robins’ Chapter 11 case now
pending in any federal district court or subsequently removed to
any federal district court, during the pendency of this Chapter 11
case, were to be transferred to this court {the Richmond Division
of the United States District Court]; and (4) nothing in the order
limited the power of this court [the Richmond Division of the
United States District Court] later to abstain from hearing any
proceeding under section 1334(c)(1) or remanding under section
1452(b), 28 U.S.C.

From this order, the Committee of Representatives of
Dalkon Shield Claimants and the defendant Piccinin have ap-
pealed.* This appeal poses the second issue on appeal.

I.

The initial question in the appeal of the first issue relates to
the court's jurisdiction to grant a stay or injunction of suits in
other courts against co-defendants of the debtor or of third par-
ties; none of the parties herein contest the jurisdiction of the
bankruptcy court to stay actions against the debtor itself in any
court. Jurisdiction over suits involving co-defendants or third-
parties may be bottomed on two statutory provisions of the Bank-
ruptcy Act itselfas well as on the general equitable powers of the
court. The first of these statutory grants of jurisdiction is found
in section 362, 11 U.S.C. The purpose of this section by its var-
ious subsections is to protect the debtor from an uncontrollable
scramble for its assets in a number of uncoordinated proceedings
in different courts, to preclude one creditor from pursuing a rem-
edy to the disadvantage of other creditors, and to provide the
debtor and its executives with a reasonable respite from pro-
tracted litigation, during which they may have an epportunity to
formulate a plan of reorganization for the debtor. Matter of
Holtkamp, 669 F.2d 505, 508 (7th Cir. 1982). As the Court in
Fidelity Mortg. Investors v. Camelia Builders, Inc., 550 F.2d 47,

8. An order of the Honorable H. Emory Widener, Jr., after a motion for
a stay pending appeal, permitted Aetna to intervene. Aetna appears in the
appeal.

A-18

55 (2d Cir. 1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1107, 51
L.Ed.2d 540, put it, “[t]he stay insures that the debtor’s affairs
will be centralized, initially, in a single forum in order to prevent
conflicting judgments from different courts and in order to har-
monize all of the creditors’ interests with one another.”

Section 362 is broken down into several subsections, only
two of which are relevant on this appeal. The first of such sub-
sections is (a)(1), which imposes an automatic stay of any pro-
ceeding “commenced or [that] could have been commenced
against the debtor’ at the time of the filing of the Chapter 11]
proceeding; the second is (a)(3), which provides similar relief
against suits involving the possession or custody of property of
the debtor, irrespective of whether the suits are against the
debtor alone or others. We shall discuss the extent of jurisdiction
given the bankruptcy court under these two subsections, begin-
ning with (a)(1).

(a)

Subsection (a)(1) is generally said to be available only to the
debtor, not third party defendants or co-defendants. The ratio-
nale for this narrow construction of the statute has been stated in
Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194, 1196-97
(6th Cir. 1983), and in our own case of Williford v. Armstrong
World Industries, Inc., 715 F.2d 124, 126-27 (4th Cir. 1983), and
it need not be repeated here. However, as the Court in Johns-
Manrille Sales Corp., 26 B.R. 405, 410 (S.D.N.Y. 1983) re-
mar ed, in discussing the oft-cited case, Royal Trucks & Trailer
v. Armadors Meritina Salvadoreana, 10 B.R. 488, 491,
(N.D.III.1981),° “there are cases [under 362(a)(1)] where a bank-
ruptcy court may properly stay the proceedings against
non-bankrupt co-defendants” but, it adds, that in order for relief
for such non-bankrupt defendants to be available under (a)(1),
there must be “unusual circumstances” and certainly “ ‘[s]ome-
thing more than the mere fact that one of the parties to the law-
suit has filed a Chapter 11 bankruptcy must be shown in order
that proceedings be stayed against non-bankrupt parties.’ ” This
“unusual situation,” it would seem, arises when there is such

Y. This case is generally cited on the strict construction of this subsection.

A-19

identity between the debtor and the third-party defendant that
the debtor may be said to be the real party defendant and that
a judgment against the third-party defendant will in effect be a
judgment or finding against the debtor. An illustration of such a
situation would be a suit against a third-party who is entitled to
absolute indemnity by the debtor on account of any judgment
that might result against them in the case. To refuse application
of the statutory stay in that case would defeat the very purpose
and intent of the statute. This fact was recognized by the court
in In Re Metal Center, 31 B.R. 458 (D.Conn. 1983).

In Metal Center the third-party plaintiff had been sued,
along with the debtor, on his guaranty of the debtor's obligation.
The third-party was entitled to be indemnified by the debtor on
account of any judgment rendered against him because of his
guaranty. While the action against both the debtor and the guar-
antor was pending, the debtor filed its Chapter 11 petition. The
action was stayed against the debtor but the plaintiff sought to
continue his suit against the guarantor. The guarantor at this
point moved to stay the action as against him. The bankruptcy
court reviewed the motion because of the possible “effect upon
the debtor of a state court judgment against Gardner [the
guarantor].” In discussing the issue, the court first dismissed as
inapplicable to the facts of this case the situation where the third-
party defendant was “independently liable as, for example,
where the debtor and another are joint tort feasors or where the
nondebtor’s liability rests upon his own breach of duty.” It noted
that in such a case “the automatic stay would clearly not extend
to such non debtor.” But, in contrast to those situations, it de-
clared that “where, however, a debtor and nondebtor are so
bound by statute or contract that the liability of the nondebtor is
imputed to the debtor by operation of law, then the Congres-
sional intent to provide relief to debtors would be frustrated by
permitting indirectly what is expressly prohibited in the Code.”
It concluded with the statement: “Clearly the debtor's protection
must be extended to enjoin litigation against others if the result
would be binding upon the debtor's estate,” and this is so,
whether the debtor is a party or not. 31 B.R. at 462.

A-20

It is true that, although the third-party defendant in Metal
Center was found to be entitled to indemnity from the debtor,
the court held that the situation was not such as to qualify for a
stay under section 362(a)(1). The court reached this conclusion
because in its opinion the judgment in the suit against the third-
party would not be binding on the bankruptcy court. Of course,
if the indemnitee, who has suffered a judgment for which le is
entitled to be absolutely indemnified by the debtor, cannot file
and have allowed as an adjudicated claim the actual amount of
the judgment he has secured but must submit his claim for al-
lowance in the bankruptcy proceeding with the prospect that his
claim may not be allowed in the full amount of the judgment
awarded in favor of him, the indemnitee will be unfairly mulcted
by inconsistent judgments and his contract of indemnit® in effect
nullified. We do not accept such reasoning with its shocking re-
sult and would find a stay under (a)(1) acceptable. Apparently the
court in Metal Center recognized the inconsistency and the in-
justice resulting from its refusal to sustain a stay under (a)(1) for
it did grant a stay of the action against the third-party but on
equitable grounds, finding in justification that “severing and re-
manding |the plaintiff's action against the indemnitee to the
state court for trial and judgment would] . . . potentially ex-
pose|s] Gardner [the indemnitee] to inconsistent judgments.” 31
B.R. at 463. While, as we have said, it seems that a ruling sus-
taining the stay in that case under section 362(a)(1) would have
been more logical and appropriate, it is unimportant whether the
stay is granted under section 362(a)(1) or on equitable grounds:
the result is the same; a stay is proper in such a situation.

In Seybolt v. Bio-Energy of Lincoln, Inc., 38 B.R. 123
(D. Mass. 1984), the issue was similar to that in Metal Center, i.e.,
whether a guarantor entitled to indemnity by the debtor would
be entitled to seek a stay under section 362(a)(1). In granting the
stay in that case, the Court, after quoting the language of Metal
Center with respect to the case in which “the liability of the
non-debtor is imputed to the debtor by operation of law,” said:

The concept that notice and an opportunity to detend binds
the principal on a judgment against a guarantor (in a case in

A-2]

which the principal did not participate) springs from notions
of res judicata. If George Seybolt recovers a judgment
against the guarantors in the state court, Bio-Energy
Associates’ assertion that the $100,000 was not a loan but a
contribution to capital may well be rendered moot wier te
guarantor subsequently asserts a claim against it for indem-
nity. At the very least, the dual litigation of these issues in
the state court and the bankruptcy court is not judicially
economic and potentially exposes Bio-Energy, Inc. and Bio-
Energy Associates to inconsistent judgments. See In Re
Metal Center, Inc., supra, at 463.

Accordingly, I find that George Seybolt's claims against
the individual guarantors are within this Court's jurisdiction
and should be stayed until an appropriate motion for relief
from stay is filed and granted by the bankruptcy court. 38
B.R. at 127-28.

In Re Brentano's, 27 B.R. 90(S.D.N.Y. 1983), also involved
the situation of a guarantor of a debtor in a Chapter 11 proceed-
ing who was entitled under contract to indemnity by the debtor
against any judgement against him. While the case did not di-
rectly concern section 362 but the question of bankruptcy juris-
diction, the language of the court appears relevant on the issue
under review here. It said that the action against the guarantor-
indemnitee “could and would affect the estate in bankruptcy, ”
since, under the indemnity agreement, “a judgment in favor of
the [plaintiff] in the guaranty action would automatically result in
indemnification liability against Brentano's’ [i.e., the indemni-
tor]. Accepting this language one would have difficulty in not
concluding that the action was in effect one against the debtor
and as such would qualify for relief under (a)(1). Brentano's is
cited and discussed in Pacor, Inc. v. Higgins, 743 F.2d 984, 995
(3d Cir. 1984), which was an asbestos case. The issue in Pacor,
as in Brentano's, was one of bankruptcy jurisdiction. The court
described the facts in Brentano's and stated the resulting legal
situation as follows:

A-22

In Brentano's, however, it is clear that the action be-
tween the landlord and MacMillan could and would affect
the estate in bankruptcy. By virtue of the indemnification
agreement between Brentano's and MacMillan, a judgment
in favor of the landlord on the guarantee action would au-
tomatically result in indemnification liability against
Brentano's. See also In re Johnie T. Patton, Inc., 12 B.R.
470 (Bankr. D. Nev. 1981); In re Lucasa International, Ltd.,
6 B.R. 717 (Bankr.S.D.N.Y. 1980); In re Brothers Coal Co..,
6 B.R. 567 (Bankr. W.D. Va. i980) (all involving guarantors
of debtor's obligations). Moreover, even in the absence of an
explicit indemnification agreement, an action by a creditor
against a guarantor of a debtor's obligations will necessarily
affect that that [sic| the creditor's status vis a vis other cred-
itors, and administration of the estate therefore depends
upon the outcome of that litigation. 743 F.2d at 995.

Pacor, however, found Brentano's inapplicable in its case be-
cause:

In this case, however, there would be no automatic cre-
ation of liability against Manville on account of a judgment
against Pacor. Pacor is not a contractual guarantor of
Maiville, nor has Manville agreed to indemnify Pacor, and
thus a judgment in the Higgins-Pacor action could not give
rise to any automatic liability on the part of the estate. 743
F.2d at 995.

The clear implication of the decision is that, if there had been a
contract to indemnify, a contrary result would have been in or-
der. :

A-23

(b)

But (a)(1), which stays actions against the debtor and argu-
ably against those whose interests are so intimately intertwined
with those of the debtor that the latter may be said to be the real
party in interest, is not the only part of section 362 providing for
an automatic stay of proceedings. Subsection (a)(3) directs stays
of any action, whether against the debtor or third-parties, to
obtain possession or to exercise control over property of the
debtor. A key phrase in the construction and application of this
section is, of course, “property” as that term is used in the Act.
Section 541(a)(1) of the Bankruptcy Act defines “property” in the
bankruptcy context. It provides that the “estate is comprised of
all the following property, wherever located . . . all legal or eq-
uitable interests of the debtor in property as of the commence-
ment of the case.” The Supreme Court in construing this
language in United States v. Whiting Pools, Inc., 462 U.S. 198,
205, n. 9, 103 §.Ct. 2309, 2313, n. 9, 76 L.Ed.2d 515, quoted
this language in the legislative history of the Section:

The scope of this paragraph [541{a)(1)] is broad. It in-
cluded all kinds of property including tangible or intangible
property, causes of action (see Bankruptcy Act §70a(6)), and
all other forms of property currently specified in section 70a
of the Bankruptcy Act.

Under the weight of authority, insurance contracts have
been said to be embraced in this statutory definition of
“property.” In re Davis, 730 F.2d 176, 184 (5th Cir. 1984). For
example, even the right to cancel an insurance policy issued to
the debtor has uniformly been held to be stayed under section
362(a)(3). Lam, Cancellation of Insurance: Bankruptcy Auto-
matic Stay Implications, 59 Am.Bank, L.J., 267 (1985), (exten-
sively reviewing the cases to this effect). A products liability
policy of the debtor is similarly within the principle: it is a valu-
able property of a debtor, particularly, if the debtor is confronted
with substantial liability claims within the coverage of the policy
in which case the policy may well be, as one court has remarked
in a case like the one under review, “the most important asset of
[i.e., the debtor's] estate,” In re Johns Manville Corp., 40 B.R.

A-24

219, 229 (§.D.N.Y.1984). Any action in which the judgment may
diminish this “important asset” is unquestionably subject to a
stay under this subsection. In re Johns Manville Corp., 33 B.R.
254, 261 (S.D.N.Y.1983). Accordingly actions “related to” the
bankruptcy proceedings against the insurer or against officers or
employees of the debtor who may be entitled to indemnification
under such policy or who qualify as additional insureds under the
policy are to be stayed under section 362(a)(3). [bid .!°

(c)

The statutory power of the bankruptcy court to stay actions
involving the debtor or its property is not, however, limited to
section 362(a)(1) and (a)(3). It has been repeatedly held that 11
U.S.C. §105 which provides that the bankruptcy court “may is-
sue any order, process, or judgment that is necessary or appro-
priate to carry out the provisions of this title,” “empowers the
bankruptcy court to enjoin parties other than the bankrupt” from
commencing or continuing litigation. In re Otero Mills, Inc., 25
B.R. 1018, 1020 (D.N.M.1982).!! In that case, the Court said:

10. There is nothing in In Re White Motor Credit, 761 F.2d 270, 274 (6th
Cir. 1985) in any way contrary to this conclusion; in fact, it sustains the con-
struction of the statute adopted by us. In White, the parties were in agreement
that the products liability insurance was adequate to cover all claims filed but
the court cautioned that had this not been so, the result in that case would have
been different:

Were it not for the fact that all parties are in agreement that the
insurance coverage is adequate to cover all filed claims, it would be nec-
essary to liquidate all claims before any insurance was paid out; otherwise
some claimants would receive an unequal portion of the insurance assets
of the debtor.

It is obvious from that statement of the court that White actually sustains
the result reached by us that, if the liability insurance is inadequate to satisfy
in full all claims under the insurance, the actions by claimants should be stayed
and the claims should be “liquidated” in the bankruptcy court.

11. There can be no dispute that the Bankruptcy Reform Act of 1978 and
like language later in section 1334(b) of the Bankruptcy Amendments of 1984
greatly enlarged the jurisdiction of the bankruptcy courts and were, as stated
in the legislative history, intended to “leave no doubt as to the scope of the
bankruptcy court’s jurisdiction over disputes.” H.Rep. No. 95-595, 95th
Cong. 2d Sess. 445, reprinted in 1978 U.S., Code Cong. & Adm. News, 5963,

A-25

Appellant cites only one case decided under the 1978
Bankruptcy Code which found that the bankruptcy court
lacked [under §105] the power to enjoin parties from pur-
suing actions against non-bankrupts in state court. In re
Aboussie Brothers Construction Co., 8 B.R. 302
(E.D.Mo.1981). In Aboussie, the court did not address
§105(a), but relied on cases decided under the old Bank-
ruptcy Act to hold that there was no jurisdiction to enjoin
parties from pursuing actions which did not involve the
bankrupt directly. The pre-1978 Act confined jurisdiction to
“the debtor and his property, wherever located.” Act of
June 22, 1938, ch. 575, $1, 52 Stat. 906 (1938). Under the
new Bankruptcy Code, the jurisdictional statute provides
that the bankruptcy court shall have jurisdiction “of all civil
proceedings arising under title 11 or arising in or related to
cases under title 11.” 28 U.S.C.A. $1471 (Supp. 1982). This
broader jurisdictional statute, combined with §105(a),

6401. Those sections provide jurisdiction in the bankruptcy case over any pro-
ceedings arising in or related to a title 11 case. The accepted definition of the
“related to” in these statutes is that declared in Pacor, Inc. v. Higgins, 743 F.2d
984, 994 (3d Cir. 1984):

An action is related to bankruptcy if the outcome could alter the
debtor's rights, liabilities, options or freedom of action (either positively or
negatively) and which in any way impacts upon the handling and admin-
istration of the bankrupt estate.

See also Note, Selective Exercise of Jurisdiction in Bankruptcy-Related Civil
Proceedings, 59 Tex. L.Rev. 325, 330-31 (1981):

One can imagine controversies over which the new bankruptcy courts
{under 1471(b)] would have jurisdiction even if neither the debtor nor a
representative of the estate were a party, and it is difficult to imagine any
instance in which a bankruptcy court would not have jurisdiction if the
debtor were a party.

It is true that both Pacor and the Texas Note were referring to section 1471(b)
of the 1978 Act. That section, however, was re-enacted in the exact words of
the repealed 1471(b) in section 1334(a) and (b) of the 1984 Act. Therefore, “[t]he
jurisdiction conferred on the district court [under the 1984 Act’s section 1334(a)
and (b)] is exactly the same jurisdiction that was conferred on the district courts
under the Bankruptcy Reform Act [of 1978].” Taggart, The New Bankruptcy
Court Systems, 59 Am.Bank.L.J. 231, 239 (1985). To the same effect, King,
Jurisdiction and Procedure Under the Bankruptcy Amendments of 1984, 38
Vand. L. Rev. 675, 677 (1985).

A-26

grants the bankruptcy court power to enjoin parties from
proceeding in state court against non-bankrupts where the
state proceeding is related to a case arising under Title 11,
25 B.R. at 1020.

In stating the same scope for section 105, the Court in
Johns-Manville Corp., 26 B.R. 420, 425 (S.D.N.Y.1983), quot-
ing from 2 Collier on Bankruptcy §§362.02 and 362.05 (15th ed.
1982), put the matter thus:

[Section 362 of the Code} does not attempt to state the
jurisdiction of the bankruptcy court with respect to stays
and injunctive relief or to determine the boundaries of the
exercise of the court's injunctive power.

Section 105 which is the successor to Section 2A(15),
gives the court the power to issue any order, process or
judgment that is necessary or appropriate to carry out the
provisions of this title.

[T]he exceptions to the automatic stay of §362(a) which
are set forth in §362(b) are simply exceptions to the stay
which protect the estate automatically at the commence-
ment of the case and are not limitations upon the jurisdic-
tion of the bankruptcy court or upon its power to enjoin.
That power is generally based upon §105 of the Code. The
court will have ample power to enjoin actions excepted from
the automatic stay which might interfere in the rehabilita-
tive process whether in a liquidation or in a reorganization
case.

See to the same effect, In Re Landmark, 19 B.R. 556, 559
(N.D.Ohio 1982); In Re Larmar Estates, Inc., 5 B.R. 328, 330-31
(S.D.N.Y.1980).

Accepting that section 105 confers on the bankruptcy court
power under its expanded jurisdiction as expressed in section
1471(b) [28 U.S.C.] of the Bankruptcy Reform Act of 1978 and
now section 1334(b), 28 U.S.C. of the 1984 Bankruptcy Amend-
ments to enjoin suits against parties in other courts, whether
state or federal, it is necessary to mark out the circumstances

A-27

under which the power or jurisdiction may -* exercised. In
Otero Mills, supra, the Court approved a ruling that “{t]o so
enjoin a creditor's action against a third party, the court must
find that failure to enjoin would effect [sic] the bankruptcy estate
and would adversely or detrimentally influence and pressure the
debtor through the third party.” 25 B.R. at 1020. In Johns-
Manville, the Court phrased somewhat fuller the circumstances
when section 105 may support a stay:

In the exercise of its authority under §105, the Bank-
ruptcy Court may use its injunctive authority to “protect the
integrity of a bankrupt’s estate and the Bankruptcy Court’s
custody thereof and to preserve to that Court the ability to
exercise the authority delegated to it by Congress” [citing
authority]. Pursuant to the exercise of that authority the
Court may issue or extend stays to enjoin a variety of pro-
ceedings [including discovery against the debtor or its of-
ficers and employees] which will have an adverse impact on
the Debtor's ability to formulate a Chapter 11 plan 40
B.R. at 226.

(d)

Beyond these statutory powers under section 362 and sec-
tion 105 to enjoin other actions whether against the debtor or
third-parties and in whatsoever court, the bankruptcy court un-
der its comprehensive jurisdiction as conferred by section 1334,
28 U.S.C., has the “inherent power of courts under their general
equity powers and in the efficient management of the dockets to
grant relief” to grant a stay. Williford v. Armstrong World In-
dustries, Inc., supra, 715 F.2d at 127, Austin v. Unarco Indus-
tries, Inc., 705 F.2d 1, 5 (1st Cir. 1983). In exercising such power
the court, however, must “weigh competing interests and main-
tain an even balance” and must justify the stay “by clear and
convincing circumstances outweighing potential harm to the
party against whom it is operative.” Williford, supra, Metal Cen-
ter and Seybolt, discussed supra, are illustrative of situations in
which courts have found sufficient grounds to grant a stay under
this power.

(e)

There are thus four grounds on which the bankruptcy court
may enjoin suits against the bankrupt or its assets and property.
In some instances only one of these grounds may be relevant; in
an involved and complex case, several or even all of the grounds
may require consideration. The present case is such an involved
and complex case. It has a striking similarity to a Chapter 11
proceedings, initially begun in the bankruptcy court of the
Southern District of New York, concerning the reorganization of
the Johns-Manville Corporation. In that proceeding, which was
litigated both in the New York and Louisiana courts, many of the
issues posed on this aspect of the case were raised and analyzed
by the courts of the two circuits and the decisions resolving such
issues present in a practical form the application of the power of
a bankruptcy court to stay actions relating to the bankruptcy pro-
ceeding against the debtor, its property and their operations.
For this reason, it seems pertinent to review the decisions in
those proceedings, for their guidance on the resolution of the
issue herein. We begin with the initial proceedings in the bank-
ruptcy court of the Southern District of New York.

(f)

Johns-Manville, an asbestos producer, was beset by a mass
of suits seeking large awards for damages sustained by reason of
asbestos exposure much as has Robins in this case and, after suf-
fering large and burdensome recoveries by plaintiffs and making
substantial settlements in many of the cases, filed its Chapter 11
petition in the Southern District of New York in August, 1982.
Such filing operated as an automatic stay of all proceedings
against Johns-Manville. However, many of the thousands of
cases named as defendants not only Johns-Manville but a num-
ber of other asbestos producers and dealers as co-defendants.
Shortly after Johns-Manville filed its Chapter 11 petition, these
co-defendants, charged in the complaints of the plaintiffs in the
actions as joint tort feasors, sought judicial relief in the bank-
ruptcy court, “inviting,” that court by way of a declaratory judg-
ment in the exercise of “its equitable powers” to enlarge the
automatic stay provided by section 362 of the Act to include

\ A-29

nondebtor defendants “under the penumbra of section 362’s pro-
tection” as well as under section 105, and to extend this stay
throughout the nation to all asbestos litigation. Matter of Johns-
Manville Corp., 26 B.R. 405 (S.D.N.Y. 1983). The primary issue
at this stage was stated to be “whether this Court should take the
unprecedented step of exercising its discretion pursuant to sec-
tion 105 of the Code to extend the section 362 automatic stay so
as to encompass the co-defendants herein.” 26 B.R. at 408-409.
The bankruptcy court ruled, first, “that section 362 is limited in
scope to the debtor and does not operate to stay actions against
the co-defendants of this debtor.” 26 B.R. at 409-414. Sec-
ondly, it held that relief under section 105 is only available if
found to be “necessary or appropriate in order to achieve the
goals of a Chapter 11 reorganization,” and, even then, only after
a finding that “a failure to enjoin would affect the bankruptcy
estate and would adversely or detrimentally influence and pres-
sure the debtor through that third-party,” thereby justifving a
finding of irreparable injury and likelihood of prevailing on the
merits. None of these facts the court found present on the instant
showing, but it added:

In an appropriate case, where the proposed extension
of the stay is designed to cover actions against entities that
truly are inextricably interwoven with the debtor or which
affect property of the debtor's estate, section 105 may be
used. In the instant case, such is not the situation as any
liability of these co-defendants is not directly attributable to
the debtor as it would be if these co-defendants were, for
example, key employees of the debtor. 26 B.R. at 418 (ital-
ics in text).

It concluded by declaring that there was “no basis [as shown by
the record] to extend the section 362 stay to cover them [the
appeals} by means of section 105.”

A second action was begun shortly afterwards, this time by
the debtor, to enjoin (1) the prosecution of “proceedings against
Manville’s employees, agents and others” and of discovery pro-
ceedings involving them in actions covering “the same issues and
subject-matter as are involved in the stayed litigations against

A-30

Manville,” (2) * ‘direct action’ lawsuits against insurers and sure-
ties of the debtor !? since the coverage of such policies of insur-
ance or suretyship “represent{ed| property of [the debtor's]
estate which must be preserved for the benefit of all creditors,
and (3) a suit brought by certain security holders against “various
of the ‘employees, agents and others’ in the district court of
Colorado. In re Johns-Manville Corp., 26 B.R. 420, 423
(S.D.N.Y.1983). It will be observed that this proceeding in-
volved matters not litigated in the earlier proceeding; in fact, it
involved actions against the debtor's employees for actions at-
tributable to Manville, precisely the point which the court in the
earlier case had said was not before it at that time. The bank-
ruptcy court granted a temporary injunction against the contin-
uance of either the suits or of discovery against present or future
officers, employees and agents but refused a stay for past officers
and employees. In reaching that conclusion it found that “in
great measure the suits being pursued against Manville’s officers
and employees are in reality derivative of identical claims
brought against Manville,” which, if sustained against the offic-
ers and employees, would expose the estate “to claims for con-
tribution and indemnification” and might result in collateral
estoppel against the debtor “in subsequent actions.” 26 B.R.
at 426. It accordingly held it proper to stay these actions and
discovery “against [such] non-debtors which would frustrate the
statutory scheme or impact adversely on a debtor's ability to for-
mulate a plan or on the debtor's property.” 26 B_R. at 427. It
further granted the injunction against the security action, finding
“that [such] suit is nothing more than an effort to circumvent
section 362 by suing Manville’s officers and directors when the
real party in interest is Manville. In all but formal detail, the
[security] litigation is against the debtor within the meaning of
section 362.” 26 B.R. at 428. It, also, said that:

12. “Direct actions” against insurers are described in Wedgeworth v.
Fibreboard Corp., 706 F.2d 541, 546-47 (5th Cir. 1983), and were recognized
in Lumbermen’s Mutual Casualty Co. v. Elbert, 348 U.S. 48, 50, 75 S.Ct. 151,
153. 99 L.Ed. 59 (1964).

A-3]

An adverse judgment in the {security| case would have
serious consequences for the debtor's estate. Manville’s By-
Laws require it to indemnify its officers and directors for
their litigation expenses, including any amounts paid to sat-
isfy a judgment of liability, so long as the conduct at issue
was intended to benefit the company... Although
Manville believes that the insurance policies which it had in
force cover these expenses, the insurance company has re-
served its right to contest coverage and to terminate on 30
days notice the payment of defense costs. If the insurance
company fails to live up to its obligations, the officers and
directors would look to the Company for reimbursement
pursuant to the By-Laws. In any event, the policies have
specific dollar limits beyond which Manville itself must pay.
To the extent expenditures related to the (security) suit ex-
haust those limits, an asset of the estate is diminished and
Manville’s exposure in other litigations increases. 26 B.R.
at 429.

But it denied a stay of the suits against the insurers and sureties,
Saving:

Unlike suits against the debtor's employees and agents,
Manville maintains no obligation to indemnify or pay for the
defense costs of its insurers or sureties. Thus, the liability of
these insurers and sureties in no way inures to the detri-
ment of the Manville estate. 26 B.R. at 431.

On motion for rehearing, however, the bankruptcy court
withdrew its decision denying an injunction against suits di-
rected against the debtor's insurers and granted such injunction.
It did so on the basis of these findings:

The debtor “could be adversely affected by the contin-
uation of such suits” since the “insurance policies and pro-
ceeds thereof and the causes of action previously asserted by
Manville against its insurance carriers in suits pending in
California (“California Insurance Litigation”) and elsewhere
constitute a substantial property of the Manville estate
which will be diminished if and to the extent that third party

A-32

direct actions against the insurance carriers result in plain-
tiffs’ judgments” and since “important issues respecting pol-
icy coverage and liability may be pressed as collaterally
estopping Manville.” 26 B.R. at 435. Further, “[t]o per-
mit the third party actions to continue against Manville’s
insurance carriers will result in a multiplicity of positions
and defenses on the part of the insurance carriers and will
most likely result in inconsistent decisions and rulings con-
cerning the coverage and liability of the insurance carriers
to the third party claimants and to Manville. Such a disor-
ganized and fragmented procedure for resolving such major
issues will undermine Manville’s attempt at reorganiza-

tion. 26 B.R. at 436.
It ended with these legal conclusions:

1. “Manville’s rights under its insurance policies and
all the causes of action arising thereunder constitute prop-
erty of the Manville estates within the purview of section

541/a) of the Code.” 26 B.R. at 436.

2. “Pursuant to § 105(a), the Bankruptcy Court may ex-
tend the automatic stay under § 362 of the Code to stay and
enjoin proceedings or acts against non-debtors where such
actions would interfere with, deplete or adversely affect
property of Manville’s estates or which would frustrate the
statutory scheme of Chapter 11 or diminish Manville’s abil-
ity to formulate a plan of reorganization.” 26 B. R. at 436

3. Pursuant to § 362(a) of the Code, all actions “to
obtain possession of or, interfere with property from
Manville estates” are stayed and enjoined. 26. B.R. 436.

As a result of action in the Fifth Circuit to which we later
advert and in order to enlarge the stay theretofore granted to
include past officers and employees, (the court having reached
the decision that suits against past as well as present employees
of the debtor should be stayed) the bankruptcy court in New
York entered a third reported decision in 33 B.R. 254 (S.D.N-Y.
1983). It found that:

A-33

In the event of a recovery against the past or present
officers, directors or employees of Manville in any of the
pending 1,000 cases, Manville’s insurers may be called upon
to indemnify such officers, directors and employees under
the provisions of the policies issued by them to Manville. If
such insurers are called upon to make such indemnification
payments, those payments may cause an asset of the
Manville estates to be diminished. 33 B.R. at 261.

It reiterated in this same decision its ruling that the insurance
policies constituted assets of the debtor, and stated the test for
granting a stay or injunction in the circumstances: “(a) possible
irreparable harm and (b) either (1) likelihood of success on the
merits or (2) sufficiently serious questions going to the merits to
make them a fair ground for litigation and a balance of hardships
tipping decidedly toward the party requesting the preliminary
relief. It concluded by granting the stay in favor of the insurers
and the past as well as present directors, officers and employees,
finding that the required findings for a preliminary injunction
had been satisfied. 33 B.R. at 262-63.

On appeal of certain of these decisions, the district court
affirmed the decisions of the Bankruptcy Court staying discovery
of any officers, directors or employees of the debtor and ruled
that the provisions of section 362 stayed proceedings against the
debtor's insurers. Specifically, it declared that “the fact that it
_Manville] ultimately may not receive all of the proceeds under
its products liability insurance does not affect its status as prop-
erty under the Code subject to the provisions of the automatic
stay. 40 B.R. at 230.

At the same time that these Johns-Manville cases were pro-
ceeding in New York, similar issues were arising in asbestos
cases filed against Johns-Manville, other joint tortfeasors, and
their insurers in the three districts of Louisiana. The three dis-
trict courts had ruled differently on the right to a stay of all co-
defendants of Manville, there being no dispute that the stay was
proper of Manville itself. On appeal, the Court of Appeals held
in Wedgeworth v. Fibreboard, 706 F.2d 541 (5th Cir. 1983), that
the automatic stay applied only to Manville, not to the other

A-34

defendants and that the showing as made was insufficient to sus-
tain a stay in favor of the co-defendants under equitable princi-
ples; however, it sustained the right of the plaintiffs to amend
their complaints to state a “direct action” under the Louisiana
statute against Manville’s insurer and held that such an action
was not stayed by any provision of the Bankruptcy Act. After a
petition for rehearing, however, the Court modified its decision
on the plaintiffs’ motion to amend and held “that the district
court did not abuse its discretion in declining to permit the plain-
tiffs to amend their complaints to add, as party defendants, the
liability insurance carriers of Johns-Manviile and Unarco.” 706
F.2d at 548. Two days after this decision was filed, the bank-
ruptcy court modified its previous orders by staying “any and all
suits against any past, present or future Manville officer, director
or employee or against [his or her] insurers.” It added in this
order, also, that its prior order would be amended to preclude
discovery of the parties against whom suits were proscribed. In
an appeal based on a petition for certiorari and for a writ of pro-
hibition against a contempt order against plaintiffs’ counsel for
violating such stay, the orders of the bankruptcy court were in
effect sustained in In Re Davis, 730 F.2d 176 (5th Cir. 1984).

(g)

As we have earlier indicated, we have discussed at some
length these proceedings in the Johns-Manville proceedings in
New York and Louisiana, because, with their striking similarity
both factually and on the legal issues to this case, the decisions
of those courts provide persuasive guidance for our action
herein. Though the district judge below did not cite the various
rulings of the Manville courts in support of his decision, there
was a close identity of issues between those in the Manville cases
and in the present case. In the three situations in which the
defendants have challenged the injunction granted by the dis-
trict judge [i.e., the Mosa, Conrad and Piccinin cases], the only
defendants other than the debtor, are the two Robins, Dr.
Frederick A. Clark, Jr., Dr. Hugh J. Davis, and the debtor's
insurer Aetna. So far as the suits against the two Robins and Dr.
Clark, those defendants were entitled to indemnification by the

A-35

debtor under the corporate by-laws and the statutes of Virginia.
the State of debtor’s incorporation,'!> and were, in addition, ad-
ditional insureds under the debtor's insurance policy. Dr. Davis
was the beneficiary of an express contract of indemnification on
the part of Robins and was. under a compromise agreement with
Robins and Aetna, an additional insured under Robins’ insurance
policy. The Manville court had granted a preliminary injunction
in favor of defendants in the same position as these defendants,
as we have seen, on facts similar to those here, finding that the
requirements of possible irreparable harm “had been satisfied by
the showing ... {that the suits against the defendants would rep-
resent] an immediate and irreparable impact on the pool of in-
surance assets, of the existence of sufficiently serious questions
going to the merits,” and of the tipping in the defendants’ favor
in the hardships in a balancing of the debtor's and the plain-
tiffs. 33 B.R. at 262-63. That court had previously disposed
of the public interest being weighted in the debtor's favor. “In-
deed, this Court finds the goal of removing all obstacles to plan
formulation eminently praiseworthy and supports every lawful
effort to foster this goal while protecting the due process rights
of all constituencies.” 26 B.R. at 428.

U.

The district court in this case applied the test for a grant of
preliminary injunctive relief as stated by us in Blackwelder Fur-
niture, 550 F.2d 189, 195 (4th Cir.1977), and Televest cv.
Bradshaw, 618 F.2d 1029, 1032 (4th Cir. 1980). It found, as had

13. It is the accepted practice for corporations such as the debtor to in-
demnify their directors, officers and employees for the costs of their defense for
any judgment rendered against them in such cases. See A.D.M. Corp. 1
Thorison, 707 F.2d 25, 28 (1st Cir. 1983), 13 Fletcher, Cyclopedia of the Lau
of Corporations, § 6045.1 and 6045.3 (1980 ed.). Virginia, the State of the
debtor's incorporation, has by statute empowered corporations of that State, by
their charter, to provide for such indemnity. Section 13.1-3, 1 Virginia Code,
Fletcher, supra, section 6045. -2-235. The charter of the debtor, included in the
record, provides such right of indemnification for the directors, officers and
employees of the debtor in the broadest sense. As we have seen, a stay in favor
of such officers, directors and employees, protected as they are by the right to
indemnity from the debtor, and the record in this case shows undisputably that
these directors and employees are so protected, was in order.

A -36

the Johns-Manville courts, that irreparable harm would be suf-
tered by the debtor and by the defendants since any of these suits
against these co-defendants, if successful, would reduce and di-
minish the insurance fund or pool represented in Aetiias policy
in favor of Robins, and thereby affect the property of the debtor
to the detriment of the debtor's creditors as a whole. The like-
lihood of success by the debtor under these circumstances ap-
peared indisputable. The hardships which would be suffered
irreparably by the debtor and by its creditors generally in per-
mitting these plaintiffs to secure as it were a preference in the
distribution of the insurance pool, herein to which all creditors
were entitled, together with the unquestioned public interest in
promoting a viable reorganization of the debtor can be said to
outweigh any contrary hardship to the plaintiffs. Such was the
finding in the Manville cases and that finding does not appear
unreasonable here.

The appellants, however, suggest that the record is insuf-
ficient to support such findings by the district judge. We dis-
agree. The record is not extensive but it includes every fact
considered by the courts in the Manville cases to be necessary for
their decision. The rights of Dr. Davis, Dr. Clark and the two
Robins to indemnity and their status as additional insureds under
Robins’ insurance policy are undisputed on the record. That
there are thousands of Dalkon Shield actions and claims pending
is a fact established in the record and the limited fund available
under Robins’ insurance policy is recognized in the record. It
seems incontestable that. if the suits are permitted to continue
and discovery allowed, any effort at reorganization of the debtor
will be frustrated, if not permanently thwarted. It is obvious
from the record that if suits are permitted to preceed against
indemnitees on claims on which the indemnitees are entitled to
indemnity by Robins, either a binding judgment against the
debtor will result or, as the court in Metal Center said, incon-
sistent judgments will result, calling for the exercise of the
court's equitable powers. In our opinion, the record was thus
more than adequate to support the district court's grant of in-
junctive relief. Certainly, the district court did not commit an
abuse of discretion in granting the injunction herein.

A«37

The appellants add a final complaining note that the district
judge state in his decision that the “Conclusions of Law” made
by him should apply “with equal force to all defendants similarly
situated who are brought to the attention of the court.” This is
little different, however, from the language of the court in the
Manville cases in which there was a broad, general injunction
against all present or future suits.

In summary, we have no difficulty in sustaining the grant of
a preliminary injunction herein. We are sustained in this con-
clusion by the fact, recognized by the district judge on the
record, that any Dalkon Shieid plaintiff may at any time petition
for the vacation of the stay as it affects his or her suit and he or
she is entitled to a hearing on such petition. Actually, there is
one such petition pending and the district judge has agreed to set
a hearing on that petition.

II]

The second appeal questions the validity of the district
court's order of November 9, 1985, fixing the venue for the trial
of all Dalkon Shield cases and providing for the transfer of such
cases to the District Court of the Eastern District of Virginia at
Richmond. Robins has challenged the appealability of such or-
der. We find the challenge without merit.

It is unquestionably true that, as the Court in In Re Amatex
Corp., 755 F.2d 1034, 1038-39 (3rd Cir. 1985), declared, juris-
diction in a Court of Appeals to review a decision or order of a
district court sitting in bankruptcy is controlled by § 1291, 28
U.S.C. See also Matter of UNR Industries, Inc., 725 F.2d 1111,
1114-16 (7th Cir. 1984). While section 1291 limits jurisdiction to
appeals from “all final decisions of the district courts,” the con-
cept of finality under such statute has traditionally been applied
“in a more pragmatic and less technical way in bankruptcy cases
than in other situations.” Amatex, supra, at 1039. Judge Breyer
in In Re Saco Local Development Corp., 711 F.2d 441, 443-45
(Ist Cir. 1983) has traced this traditional rule of more liberal con-
struction of finality as applied to appeals in bankruptcy cases over

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the years. In tracing appealability under the statute in bank-
ruptcy cases, Judge Breyer noted the definition of a “proceed-
ing” in bankruptcy as stated in Taylor v. Voss, 271 U.S. 176, 151,
46 S.Ct. 461, 463-64, 70 L.Ed. 889 (1926), as “not the overall
liquidation or reorganization, but rather an individual ‘matter| |
of an administrative character . . . presented in the ordinary
course of the administration of the bankrupt’s estate.” (Emphasis
added by Judge Breyer). He then declared on the basis of this
determination that “any dispute between a bankrupt and his
creditors over a claim or priority was a separate ‘proceeding and
an order settling such dispute was appealable.” 711 F.2d at 445.
Such is but another practical expression of the principle that “fi-
nality” under 1291 is to be given not an absolute and inflexible
construction in bankruptcy cases in which a “functional” and
“practical” application is to be the rule.

The special or unique reason for this relaxed rule of appeal-
ability in bankruptcy is that

([bjankruptcy cases frequently involve protracted proceed-
ings with many parties participating. To avoid the waste of
time and resources that might result from reviewing dis-
crete portions of the action only after a plan of reorganiza-
tion is approved, courts have permitted appellate review of
orders that in other contexts might be considered interloc-
utory. In Re Amatex, supra, at 1039.

This particular appeal illustrates well the justification for the
relaxed rule of appealability in bankruptcy cases. Should appeal
be denied-and trials proceed in the district court of the myriad
of claims involved with the possibility of reversal on appeal from
a final decision in such proceedings, months and months of lit-
igation, carried on at great expense to all concerned might be
voided and the reorganization derailed, with consequent exten-
sive delays both in reorganization and in resolution of the claims
of the tort plaintiffs themselves. Weighty considerations of fair-
ness and efficient judicial administration, therefore, mandate ap-
pealability in this case. We accordingly dismiss Robins’ challenge
to the appealability of the order in question.

A-39

Were it necessary, appealability could be sustained under
Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541,
346-47, 69 S.Ct. 1221, 1225-26, 93 L. Ed. 1528 (1949), as well as
in mandamus. See In re Ralson Purina Co., 726 F.2d 1002, 1005
(4th Cir.1984). We, however, prefer to ground our decision on
the more relaxed standard of finality for appeal purposes under
1291 traditionally assigned bankruptcy appeals.

Turning to the merits of the appeal on this part of the case,
we address first the power of the district court, sitting in bank-
ruptcy, to enter an order fixing the venue for the trial of tort
personal injury claims against the debtor and for transferring all
such cases to the bankruptcy court for trial and disposition. Sec-
tion 157(b)(5) 28 U.S.C. states:

The district court shall order that personal injury tort
and wrongful death claims shall be tried in the district court
in which the bankruptcy case is pending, or in the district
court in the district in which the claim arose, as determined
by the district court in which the bankrupcy case is pending.

We do not understand the appellants to contend that under this
language the district court did not have authority under this stat-
ute to issue an order fixing the venue for trial of tort cases against
a Chapter 11 debtor. They do argue, however, that the sense of
the section, if not its precise language, was to decentralize the
trial of these tort claims and to permit their continuance for trial
in the court in which the complaints were filed and that the rul-
ing of the district judge in this case fixing venue in the district
court in which the bankruptcy petition was filed flies in the face
of this congressional purpose. They refer to the language of Sen-
ator Dole in commenting on the Senate Conference Report on
the 1984 amendments and construe it as suggesting that tort
claims were to be tried in the court in which those claims were
originally filed. Senator Dole, in the language to which appel-
lants refer and out of which the appellants arrive at their finding
of the sense of the Congress, actually restated simply the lan-
guage of the statute itself. He said that “where abstention does

A-40

not occur,!+ those cases [i.e., “personal injury cases’ | will be
handled by the district court where the bankruptcy has been
filed or, if that court finds it appropriate, where the claim arose.
Statement by Hon. Robert Dole 130 Cong. Rec. $ 8889 (daily ed.
June 29, 1984), reprinted in, 1984 U.S. Code Cong. & Ad. News
586, 587. We discern nothing in that language to warrant the
conclusion that, in enacting the statute the Congress favored de-
centralizing the administration of the bankruptcy by leaving all
“personal injury cases” to the court in the place where the claim
“arose.” In fact, to accept the view of the appellants on the con-
struction of the statute would be completely at variance with the
House version of the bili, which was in effect accepted by the
Conference Committee, and would be to adopt the Senate ver-
sion, Which, according to Congressman Kastenmeier s statement
as a House Conference member, was “largely reject{ed!” by the
Conference Committee and “would have dissipated the assets of
the estate by creating a multiplicity of forums for the adjudication
of parts of a bankruptcy case.”!°

Nor do we find anything in In re White Motor Credit, 761
F.2d 270, 273-74 (6th Cir. 1985), also relied on by the appellants,
that lends support to appellant's construction of § 157(b)(5). The
extent of the holding in White Motor was that the district court
had the power under the statute to allow products liability cases
to be tried where the claim arose; there was nothing in the opin-
ion, however, that declared that such action was mandated or
even preferred. Specifically, there was no statement in the opin-
ion that the district court in which the bankruptcy was pending
could not try the claim. Unquestionably the district court in this
case had the power under the statute to fix the trial venue in its
district for all the Dalkon Shield cases.

The primary point of difference between the parties, how-
ever, relates not so much to the power of the district court in this

i4. “Mandatory abstention under section 1334(c\(2) is not applicable to
personal injury claims, but the district court may abstain as a matter of dis-
cretion and lift the stay of the state court action.” Taggart, The New Bankruptcy
Court System, 59 America Bank, L.J. 231, 253 (1955).

15. Statement by the Hon. Robert Kastenmeier, 130 Cong. Rec. H.7492,
reprinted in 1984 U.S. Code Cong. & Adm. News at 579.

A-4]

case to fix venue for all the pending Dalkon Shield tort cases—
that power is stated in unmistakable terms in section 157(b)(3)—
but to the manner in which that power may be exercised. Con-
cededly, section157(b)(5) does not prescribe any procedure. The
appellants suggest that the procedure to be followed is laid out
in 28 U.S.C. § 1412, which provides that “[a] district court may
transfer a case or proceeding under title 11 to a district court for
another district, in the interest of justice or for the convenience
of the parties.” As the appellants correctly construe section 1412.
the authority to transfer a suit under the statute rests solely with
the court in which the suit is pending and it provides no author-
ity whatsoever to a district court sitting in bankruptcy in one
district and having jurisdiction of the bankruptcy to transfer the
venue of a case against the bankrupt to another district. Section
157(b)(5), however, expressly confers on the district court sitting
in bankruptcy and having jurisdiction of the bankruptcy proceed-
ings the power to fix the venue of any tort case against the debtor
pending in other districts. The purpose of this latter statute was.
as Congressman Kastenmeier declared, to centralize the admin-
istration of the estate and to eliminate the ‘multiplicity of forums
for the adjudication of parts of a bankruptcy case.” 130
Cong. Rec. H 7492, June 29, 1984, reprinted in 1984 U.S.Code
Cong. & Adm. News at 579. That purpose would be thwarted and
the plain language of section 157(b)(5) nullified if the power of the
district court sitting in bankruptcy to fix the venue for tort claims
against a debtor was to be preempted by the provisions of section
1412. We do not believe this to have been the intention.of Con-
gress in enacting the two statutes. Section 157(b)(5) was drafted
to cover the procedure in connection with a special group of
cases, to wit, personal injury tort claims against a debtor in Chap-
ter 11 proceedings wherever pending and in that connection the
section is supreme. In all other cases related to the bankruptcy
proceedings, however, the general statute (i.e., section 1412)
would govern. This, we think, is the proper construction to be
given the two statutes. It is a construction which harmonizes the
two sections. It conforms to that established canon of statutory
construction that “[w]e must read the statutes [in those instances
where there is any possible conflict] to give effect to each if we

A-42

can do so while preserving their sense and purpose.” Watt v.
Alaska, 451 U.S. 259, 267, 101 S.Ct. 1673, 1678, 68 L.Ed.2nd
80 (1981): Columbia Gas v. Federal Energy Regulatory Comm..,
651 F.2d 1146, 1158 (5th Cir.1981); Pennsylvania v. Dept. of
Health & Human Resources, 723 F.2d 1114, 1119 (3rd Cir. 1983).
To accept the appellants’ interpretation and to negate the plain
language of § 157(b)(5) “would violate the basic principle of con-
struction that statutes should be read, if possible, as harmonious
texts.” Leaf Tobacco Exporters Assn. v. Block, 749 F.2d 1106,
1115 (4th Cir. 1984). We, therefore, have no difficulty in finding
that the district judge’s authority to fix venue of personal injury
tort actions against the debtor exists under § 157(b)(5), irrespec-
tive of the district in which such controversy is pending.

And there are very real considerations that support a cen-
tralization of all the Dalkon Shield claims, at least at first, in the
district court having jurisdiction of the bankruptcy. The “single
focal point” of this proceeding is the development of a reasonable
plan of reorganization for the debtor, one which will work a re-
habilitation of the debtor and at the same time assure fair and
non-preferential resolution of the Dalkon Shield claims. See In
re Towner v. Petroleum Co., 48 B.R. 182, 190 (W.D. Okla. 1985).
These Dalkon Shield claims, asserted by thousands of individuals
in courts throughout the United States on behalf of both citizens
of this country and citizens or residents of other countries, rep-
resent what are characterized in the Act as “contingent or
unliquidated claims.” 11 U.S.C. § 502. Ordinarily such claims
would be “estimated” by the bankruptcy court as a “core pro-
ceeding,” 28 U.S.C. § 157(b)(2), for purpose of allowance if fail-
ure to do so “would unduly delay the administration of the case.”
11 U.S.C. § 502(c); 3 Collier on Bankruptcy, § 502-03 (15 ed.
1982). That duty of estimation in a proper case under section
502(c) is not a permissive one; it is a mandatory obligation of the
bankruptcy court. In re Nova Real Estate Inv. Trust, 23 B.R. 62
(E.D.Va. 1982). This customary process of estimation of contin-
gent claims is, however, different where the unliquidated con-
tingent claims are persona! injury tort claims.

A-43

Section 157(b)(2)(B) excepts from the definition of “core pro-
ceedings personal tort claims against the debtor. The bank-
ruptcy court thus is without authority under the Act over “the
liquidation or estimation of contingent or unliquidated persona!
injury or wrongful death claims against the estate for purposes of
distribution under Title 11” 28 U.S.C. § 157(b)(2)(B). (Italics
added) It will be observed, however, that the statute denies au-
thority to the bankruptcy court to “estimate” contingent claims
only if the purpose is to make a “distribution” of the assets of the
debtor; the statute does not in express terms deny to the bank-
ruptcy court the authority, or relieve it of the duty, to “estimate”
the contingent “personal injury” claims for purposes of deter-
mining the feasibility of a reorganization. And such has been the
construction of the statute which has been adopted by the courts
which have had to face the issue, the two leading cases being
proceedings arising out of the asbestos litigation. Roberts cv.
Johns-Manville Corp., 45 B.R. 823, 825-26 ($.D.N.Y.1984): In
re UNR Industries, Inc., 45 B.R. 322, 326-27 (N.D.III]. 1984).
Both of these cases hold that estimations of the debtors’ potential
personal injury tort liabilities as an incident of the development
of a plan of reorganization are core proceedings within the bank-
ruptcy court's jurisdiction, and that such estimations are not
foreclosed by Section 157(b)(3) of the Act.!®

16. Roberts at 826 said:

Even assuming that section 157(b)(5) requires that all personal injury
and wrongful death claims be tried in the district courts, the Court does
not find that immediate withdrawal and liquidation of Roberts’ claim is
appropriate. Section 157(b)(2)(B) does not exclude from the definition of
core proceedings estimations of personal injury and wrongful death claims
for all purposes. The section is limited to estimation “for purposes of dis-
tribution.” This leaves estimation for other purposes within the jurisdic-
tion of the bankruptcy court. See In re UNR Industries, 45 B.R. 322
(N.D.II]. 1954). A trial is not needed, therefore, to satisfy the requirement
of section 502(c) that “all claims against the debtor be converted into dollar
amounts. (citing Congressional sources). Thus, even if the Code and the
1984 Act require that each and every asbestos claim filed in this eventually
be tried, they do not require immediate withdrawal of those claims before
a reorganization plan has been confirmed.

A-44

This is not to say the personal injury claimants in this pro-
ceeding will not be ultimately entitled, if they elect to do so, to
have a jury trial of their claim in the district court. Section
157(b)(5) gives them that right. But, even though the tort claim-
ants may be entitled to their jury trials, the bankruptcy court is
not relieved of its duty in a Chapter 11 proceeding to estimate
those contingent claims. The real question thus arises as to which
proceedings takes precedence, whether the estimation by the
bankruptcy court of the claims or the jury trials in the district
court of the claims. The authorities which have considered this
question in connection with a complicated products liability sit-
uation such as this are all unanimous. The estimations of the
potential and pending claims by the bankruptcy courts should
precede any trials of the claims. This was specifically held in the
asbestos cases. Roberts v. Johns-Manville Corp., 45 B.R. at
§25-26. After all, the first and primary purpose of the proceed-
ings, however, is to ascertain whether a fair reorganization of the
debtor can be achieved. This purpose may well be completely
thwarted if the energies of the debtor's executives and officers
are initiaily diverted by, and the resources of the debtor are dis-
sipated in the expenses of litigating, the trial of thousands of per-
sonal injury suits in courts throughout the land spread over an
interminable period of time. As the Court in Newton v. Johns-
Manville Corp., 45 B.R. 827, 830 (S.D.N.Y.1984), put it, in ex-
plaining its decision to proceed in the estimation of the claims
before setting any claim for trial: there is no “sense in ordering
a trial of a [tort claimant's} claim against Manville until a plan has
been developed for Manville and until there is reason to believe
that the time and expense of potentially 25,000 personal injury
trials of the claims against Manville will not deplete the estate
and leave other creditors with empty judgments.”

There are 5,000 suits pending against the debtor in this pro-
ceeding. There are perhaps an equal number not filed. If all
these claims were to be tried, the expense of discovery proceed-
ings and trial would likely consume all the assets of the debtor
and exhaust all the resources of its executives and employees. As
one court has commented, we “must be mindful of the realities
of modern litigation. Pre-trial discovery under modern federal

A-45

practice has become a monster on the loose . . . Pre-trial pro-
ceedings have become more costly and important than trials
themselves.” In re Johns-Manville, supra, 40 B.R. at 224. Since
the Dalkon Shield litigation began, forty claims have actually
been tried but over $517,000,000 have been expended in de-
fending or settling Dalkon Shield suits or claims. It is impossible
to anticipate the stupendous costs that would be involved if all
the claims here had to be tried. If the claimants as a whole are
to realize reasonable compensation for their claims, it is obvi-
ously in the interest of the class of claimants as a whole to obviate
the tremendous expense of trying these cases separately. If the
bankruptcy court could arrive at a fair estimation of the value of
all the claims and submit a fair plan of reorganization based on
such estimation, with some mechanism for dispute resolution
and acceptable to all interested parties, great benefit to all the
claimants could be achieved and the excessive expense of innu-
merable trials, stretching over an interminable time, could be
avoided.'7 In addition, the real purpose of the proceeding (i.e.,
a reorganization of the debtor and its continuance as a going busi-
ness) could be attained.

It is manifest, of course, that the process of estimation will
involve some examination of the claims. But this examination
will be conducted by the court, will likely not involve duplicative
discovery, and can be accomplished expeditiously. It was argued
in In re UNR Industries, Inc., 45 B.R. 322 (N.D.III. 1984),
though, that this would require a hearing by the bankruptcy
court in making its estimation of the tort claims and accordingly
would “not be any more efficient than ordering district court
trials.” The court dismissed the argument with this apt
comment:

17. Section 157(b)(5) “does not mandate that all tort actions must be tried
in district court, but only those which are not settled otherwise . . . .” Bank-
ruptcy Service, L.Ed. § 2:14:5, at 22 (Supp. 1985) (summarizing Roberts v.
Johns-Manville, supra, 45 B.R. at 825-26), and “the parties are certainly free
to agree to a dispute-resolution procedure that does not involve trial,” UNR,
supra. 45 B.R. at 326. To the same effect is Newton v. Johns-Manville Corp..,
45 B.R. 827, 830 (S.D.N.Y. 1954).

A-46

This contention both understates the time and expense
of trials and overstates the time and expense of the estima-
tion process. Even should Judge Toles decide the Towers
study is insufficient to accurately estimate asbestos claims
and that some sort of hearing is necessary, there is no reason
to believe 17,000 hearings must be held to get an accurate
enough picture of the debtor's liability to asbestos vic-
tims. 45 B.R. at 326.

That language is applicable in this case. It is unlikely that all
8,000 to 10,000 claims which have been filed would have to be
tried before an intelligent estimation of the claims could be made
by the bankruptcy court. The interests of all the claimants and
the public interest in a reasonable and fair reorganization com-
bine in favor of an effort at an estimation of the Dalkon Shield
claims as a basis for formulating such a plan of reorganization and
as a possible step in working out a mechanism acceptable to all
the claimants for a dispute-resolution of their claims without bur-
dening the estate with the tremendous expense of endless liti-
gation and reducing if not exhausting, the assets available for
paying those claims.

No progress along estimating these contingent claims, how-
ever, can be made until all Dalkon Shield claims and suits are
centralized before a single forum where all interests can be heard
and in which the interests of all claimants with one another may
be harmonized. Cf. Fidelity Mortgage Investors v. Camelia
Builders, Inc., 550 F.2d 47, 55 (2d Cir.1976), cert, denied, 429
U.S. 1093, 97 S.Ct. 1670, 52 L.Ed.2d 372. That undoubtedly
was the purpose of the motion to fix venue and to transfer the
pending suits to the district court sitting in bankruptcy before
which the proceedings were pending. This unquestionably was
the idea which prompted the district court to opt tentatively in
his order fixing venue in the district court sitting in bankruptcy
for all these claims. We approve of the idea and find it conducive
of the interests of all concerned.

However persuasive may be the reasons for fixing tempo-
rarily at least venue of all the pending suits against the debtor in
the district court sitting in bankruptcy where all the other

= iil dal

A-47

Dalkon Shield claims not in suit mav be handled together, the
question remains as to what procedure must be followed in ef-
fecting such change of venue in order to satisfy the requirements
of due process. It is the position of the appellants that a right of
action in tort is “property which may not under due process be
adversely affected by an involuntary change of venue in the ab-
sence of a full hearing after reasonable notice. It may be accepted
that, as the appellants argue, a tort claim or action is a “species
of property in the constitutional sense. Logan v. Timmerman
Brush Co., 455 U.S. 422, 428, 102 S.Ct. 1148, 1153-54, 71
L.Ed.2d 265 (1982); cf. Martinez v. California, 444 U.S. 277,
281-82, 100 S.Ct. 553, 557, 62 L.Ed.2d 481 (1980). Similarly, it
may be agreed that where the plaintiff has such a claim against
a debtor in a Chapter 11 proceeding, he has a statutory right to
a jury trial in a district court and that the place of such trial is an
important right which may be entitled to some form of due pro-
cess protection under the broad principles of Mullane v. Central
Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94
L.Ed. 865 (1950). The question is, though, what form such pro-
tection must take.

“Due process’ does not establish an inflexible standard to
be rigorously applied in all cases. Recently, in McClelland v.
Massinga, 786 F.2d 1205 (4th Cir. 1986), we said that “due pro-
cess is not ‘a technical conception’ of ‘inflexible procedures’ (cit-
ing Cafeteria Workers v. McElroy, 367 U.S 886, 895, 81 S.Ct.
1743, 1748-49, 6 L.Ed.2d 1230 (1961) nor is it ‘a mechanical in-
strument or ‘yardstick’; it is rather ‘a delicate process of adjust-
ment and of a balancing of interests in which it is recognized
‘that what is unfair in one situation may be fair in an-
other... .'” In particular, it is important to recognize that the
notice and hearing is not “always require{d] .. . prior to the
initial deprivation of property and that “[w]here only property
rights are involved, mere postponement of the judicial enquiry
is not a denial of due process, if the opportuntiy given for ulti-
mate judicial determination of liability is adequate.” Parratt v.
Taylor, 451 U.S. 527, 540, 101 S.Ct. 1908, 1915, 68 L.Ed. 2d 426
(1981). We conclude therefore, that due process requires some
form of notice and opportunity for a hearing before there can be

A-45

a change of venue and before trial of a personal injury tort cause
of action against a debtor may be transferred finally trom the
court in which the cause was initially filed to the district where
the bankruptcy proceedings are pending.

We reach this conclusion not only under due process anal-
ysis, but also under the language and Rules issued under the
Bankruptcy Act. In our opinion, the debtor's motion herein qual-
ified as a “contested matter” under the Act. As such it had to be
begun by the filing of a motion with “reasonable notice and op-
portunity for hearing. . . . afforded the party against whom [the |
the relief [was] sought.” Bankruptcy Rule 9014. The debtor filed
with the district court sitting in bankruptcy an appropriate mo-
tion for a fixing of venue and for transfer of tort claims against the
debtor, and notice in the manner provided by the Rules in this
case was given but only to the Committee of Representatives of
Dalkon Shield claimants. There was no notice given the indi-
vidual Dalkon Shield claimants who had causes of action against
the debtor pending in court. Counsel for the debtor asserted in
argument in district court in justification of failure to serve the
individual plaintiffs in the tort actions that “in these cases the
tradtional rule is that you serve the counsel for the Committee,
and the Committee, the counsel then has the obligation to bring
such matters as are appropriate to the attention of the members
of the Committee,” Counsel cited no authority for this “tradi-
tional rule.” The Committee, however contends that notice to it
was not notice to the indiviual claimants and that such notice did
not satisfy the notice requirements of Bankruptcy Rule 9014 or
of due process.

The role of Committees appointed under the Act as revised
has received considerable discussion but remains somewhat un-
certain. As we have already noted, the status and position of
Chapter 11 Committees are thoroughly canvassed in Andrews,
The Chapter 11 Creditors’ Committee: Statutory Watchdog”, 2
Bankruptcy Developments Journal, 247 (1985). As that article
indicates, the Committee's right to intervene and be heard in
any proceeding is, we think, fairly established. Matter of Marin
Motor Oil, Inc., 689 F.2d 445, 454-6 (3d Cir.), cert. denied, 459
U.S. 1206, 103 S.Ct. 1196, 75 L.Ed.2d 440 (1983). In fact, the

|

A-49

Rules require that certain notices in the course of the proceed-
ings must be given the Committee. But it seems clear under the
Rules that the Comunittee is not authorized to represent the ine
dividual interests of any claimant, as distinguished from the gen-
eral interests of all claimants, In re Johns-Manville, 26 B.R. 919.
926 (S.D.N.Y. 1983), and only in certain specific situations, no
one of which is relevant here, may proper service be made on the
Committee rather than on the individual claimants themselves
under Bankruptcy Rule 2002(i). It follows that, in our opinion,
service of notice of the hearing on the motion to fix venue and to
transfer, as given only to the Committee did not represent com-
pliance with Bankruptcy Rule 9014 or with due process.

Conceding that notice to the Committee did not qualify as
service on the individual claimants, it does not follow that the
absence of such notice may be fatal to due process in this pro-
ceeding. The notice to the Committee may have been sufficient
under Cleveland Bd. of Education v. Loudermill, U.S.
—_, __, 105 §.Ct. 1487, 1495, 84 L.Ed. 2d 494, 506 (1984) to
permit the issuance of a provisional or conditional order provid-
ing for a fixing of venue in the district court sitting in bankruptey
for all the pending Dalkon Shield cases against the debtor but
giving the claimants individual notice and an opportunity to ob-

ject and to be heard before the order became final in any case

where the plaintiff has filed an objection. That procedure would
satisfy due process under Parratt and the other cases. And, as we
read the record as well as the formal order of the district court,
this is precisely what the district court intended, though the lan-
guage of its order may be obscure on the point.

The district court entered a ruling bringing for the time be-
ing all the pending suits against the debtor before the district
court sitting in bankruptcy in order to proceed expeditiously in
the reorganization but with the definite condition that any party
might object and might petition for abstention in his or her case.
It was in our opinion intended as a conditional order, though not
clearly stated as such. We are of the opinion, because of this
possible want of clarity in the order assailed, that such order
must be modified to make it crystal clear that the determination

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of venue therein is, as we have said, conditional, dependent fi-
nally and ultimately on a ruling to be made only after notice to
all claimants advising them of their right to enter any objectio

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_2318%3A2. Public record. Not legal advice.