SDNY Bankruptcy Court Enjoins GM Lawsuit Against Friedman Kaplan Client Manville Trust

July 24, 2017

SDNY Chief Bankruptcy Judge Cecelia Morris has issued a decisive ruling in favor of Friedman Kaplan’s client, the Manville Personal Injury Settlement Trust, in a declaratory judgment action commenced by General Motors LLC.

The Manville Trust was created to pay the asbestos-related liabilities of Johns-Manville Corp. (once the world’s largest manufacturer of asbestos products, Johns-Manville filed for bankruptcy in 1982 as a result of the crushing volume of claims arising from asbestos exposure). A cornerstone of the Johns-Manville plan of reorganization was the court’s issuance of a “channeling injunction,” which bars persons with claims arising from asbestos exposure from suing the reorganized Johns-Manville. The channeling injunction also requires claimants alleging an injury tied to Johns-Manville asbestos to submit their claims to the Manville Trust for resolution in accordance with its streamlined claims resolution process. By removing Manville Trust claims from the court system, the channeling injunction was designed to cap the Manville Trust’s litigation costs and ensure the equitable distribution of its limited funds to future beneficiaries (hundreds of thousands of whom have manifested asbestos-related diseases in the decades since Johns-Manville’s bankruptcy filing).

The question before the Court was whether the channeling injunction enjoins a lawsuit that GM brought in Ohio state court against the Manville Trust (and other similarly situated trusts). In its Ohio lawsuit, GM alleges that, under an Ohio workers’ compensation subrogation statute, the Manville Trust was liable for up to 100% of the benefits GM has paid to a worker’s compensation claimant (the widow of a former GM employee, who contracted cancer after a workplace asbestos exposure). GM claimed entitlement to recover against the Manville Trust because the worker’s compensation claimant allegedly failed to notify GM that she had entered into a settlement with the Manville Trust. Under GM’s reading of the Ohio statute, the worker’s compensation claimant’s alleged failure to notify GM of that settlement entitles GM to recover from the Manville Trust the full value of the worker’s compensation benefits GM has paid to the claimant—an amount more than 50 times the settlement proceeds paid by the Manville Trust. 

In the SDNY declaratory judgment action, GM argued that it is free to pursue this claim because liability arises from a violation of the Ohio statute (in particular, its requirement that worker’s compensation claimants report their settlements with third party tortfeasors), not from an injury tied to an asbestos exposure. GM also argued that the channeling injunction does not bar claims that have accrued since the confirmation of Johns-Manville’s reorganization plan. If adopted by the Court, GM’s arguments could have radically limited the channeling injunction, exempted hundreds of thousands of claimants from the Manville Trust’s claims resolution process, and resulted in the accelerated depletion of the Manville Trust’s limited assets.

In her written opinion, Chief Judge Morris endorsed the Manville Trust’s position that GM’s claim is enjoined and rejected GM’s attempt to read a loophole in the channeling injunction.

The Manville Trust was represented by Jason Rubinstein and Timothy Haggerty.

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