Channeling Injunction Prohibits General Motor’s Wrongful Death Suit for Contribution against the Manville Trust U.S. Bankruptcy Court, Southern District of New York, July 24, 2017
General Motors (GM) filed suit against the Manville Personal Injury Settlement Trust (Manville) seeking a declaratory order that its state suit against Manville was not barred by the longstanding “Channeling Injunction” of the Manville Corporation’s chapter 11 reorganization (the Plan) and subsequent order confirming the same.
Separate from the declaratory complaint, GM filed suit in Ohio state court against the estate of Bobby Bolen and multiple asbestos defendants including Manville. GM alleged the defendants were jointly and severally liable to GM as it had subrogated to the rights of Mr. Bolen for payments previously made to Bolen under a worker’s compensation claim. GM further asserted that it was entitled to the full amount of its interest due “from defendants’ and Bolen’s failure to give notice to GM of the settlements” they had reached while GM was paying monthly payments to Bolen.
Manville moved to dismiss the declaratory complaint on practical grounds and argued that the Trust Distribution Procedures of 1995 barred the plaintiff’s state court action against Manville filed in Ohio. The court gave a lengthy analysis of the history of the Johns Manville bankruptcy, which culminated with the creation of two separate bankruptcy trusts. The plan was set to provide a sole avenue to pay claims to asbestos claimants rather than discharging all claims through bankruptcy. The court first noted that the plan explicitly reserved jurisdiction for interpretation of disputes regarding the trust. Here, the Trust argued its position was supported by a prior case, Graphic, decided last year where Graphic had sued for declaratory relief. In that case, the court enjoined asbestos plaintiffs’ claims based on the channeling injunction. The court agreed that the Graphic case was identical to the one before it. GM was correct to seek equity in this Court and stated that “failure to first obtain a ruling from this Court that the injunction does not apply would result in a violation of the injunction, potentially subjecting the offending party to sanctions.” GM argued that Ohio Code requiring Mr. Bolen to “notify a statutory subrogee and the attorney general of the identity of all third parties against whom the claimant has or may have a right of recovery…” was not met by Mr. Bolen. However, the court pointed out that the provisions of the trust set specific parameters for filing a claim against it. Specifically, the confirmation states that suits against Manville “for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on or with respect to any Claim, interest of Other Asbestos Obligation” is prohibited. Accordingly, GM cannot sue Manville in state court because of these provisions regardless of whether GM is a subrogee or if it sues on its own. Here, the court concluded that Bolen’s claim would have fallen into the “Other Asbestos Obligation.” Moreover, Ohio Code and the Confirmation Order do not provide for GM’s alleged subrogation against Manville according to the court.
Notably, the court pointed out that the purpose of the channeling injunction was to prohibit all suits arising from asbestos litigation. Without it, there would be no litigation because the claims would have been discharged in the bankruptcy. The court continued and stated that GM was in fact asserting a claim for contribution rather than one for subrogation because it was “not standing in Bolen’s shoes.” On the contrary, GM was trying to recover against both Manville and Bolen for his failure to notify GM of the settlement with the trust.
Consequently, GM cannot sue Manville in the state action.