SDNY Bankruptcy Court Rules Decisively in Favor of Friedman Kaplan Client Manville Trust on Multi-Million Dollar Indemnification Claim

March 28, 2019

SDNY Chief Bankruptcy Judge Cecelia Morris has issued a decisive ruling in favor of Friedman Kaplan client the Manville Personal Injury Settlement Trust (the “Manville Trust”), resolving in the Manville Trust’s favor a series of legal questions arising from a claim made by Thorpe Insulation Company Asbestos Settlement Trust (the “Thorpe Trust”), seeking indemnification for millions of dollars in payments it had made to approximately 5,000 asbestos health claimants in California between 2010 and 2017.

The Thorpe Trust claimed that it was entitled to indemnification for these payments because its predecessor, J.T. Thorpe, had distributed asbestos products made by the Manville Trust’s predecessor, Johns-Manville Corp., and the Manville Trust’s governing documents generally require the Manville Trust to indemnify distributors for “valid claim[s] for indemnification under applicable law,” subject to various other qualifying conditions.

The Manville Trust determined that its governing documents barred it from indemnifying the Thorpe Trust because its indemnification claims were not “valid . . . under applicable law.” The Manville Trust explained that under a provision of California law – Section 877.6 of the California Code of Civil Procedure – a joint tortfeasor cannot seek indemnification from another joint tortfeasor that has previously settled its liability with the plaintiff, provided the settling tortfeasor’s settlement was “made in good faith.” The Manville Trust also explained that it had previously entered into good faith settlements with the overwhelming majority of the 5,000 claimants who were the focus of the Thorpe Trust’s indemnification demand.

After the Thorpe Trust disputed the Manville Trust’s position and threatened litigation, Friedman Kaplan commenced, on our client’s behalf, an adversary proceeding in the SDNY Bankruptcy Court seeking a declaratory judgment that, among other things, the Manville Trust had no obligation to indemnify the Thorpe Trust for settlements it had made with California claimants who had already settled with the Manville Trust. The Thorpe Trust counterclaimed for breach of contract. Our client moved for partial judgment on the pleadings, and the Thorpe Trust moved for summary judgment. Chief Judge Morris held nearly three hours of oral argument on the motions in September 2018.

The legal questions raised by the motions required the Bankruptcy Court to construe the Manville Trust’s governing documents and the California indemnification bar, and to address whether settlements made by the Manville Trust with individual health claimants pursuant to its court-approved claims resolution procedures were, per se, “made in good faith” for the purposes of Section 877.6.

In her 20-page decision, Chief Judge Morris ruled in the Manville Trust’s favor on every question of law presented. The Bankruptcy Court accepted our client’s interpretation of its governing documents and California law, and ruled that settlements made pursuant to the Manville Trust’s governing documents are per se “made in good faith.” The Bankruptcy Court also agreed that the Thorpe Trust’s counterclaims for damages are enjoined by the channeling injunction entered by the Bankruptcy Court in connection with the Johns-Manville reorganization, and dismissed the Thorpe Trust’s damages counterclaims accordingly.

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

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