In Re North American Refractories Co.

Citations: 280 B.R. 356; 2002 Bankr. LEXIS 669; 2002 WL 1488700Docket: 19-20304

Court: United States Bankruptcy Court, W.D. Pennsylvania; June 28, 2002; Us Bankruptcy; United States Bankruptcy Court

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On June 24, 2002, the U.S. Bankruptcy Court for the Western District of Pennsylvania, presided by Chief Judge Judith K. Fitzgerald, addressed motions by Minnesota Mining and Manufacturing Co. (3M) and Hopeman Brothers to transfer cases related to Chapter 11 filings. The court found that 3M has no cognizable claim in the bankruptcy case as defined under 11 U.S.C. § 101(5). A claim necessitates a right to payment or an equitable remedy, which 3M lacks, except for a singular judgment against it from a state court. Without a valid right to payment under Mississippi state law, neither 3M nor Hopeman Brothers can assert common law contribution or subrogation claims. The court emphasized that their potential liability in state court does not translate to a claim in bankruptcy unless it arises under the Bankruptcy Code. The situation is likened to the case In re Utilimax.com, where purported creditors were denied claims due to their derivative nature. Ultimately, any right to recover against the debtors hinges on proving liability in state court, with the court referencing joint tortfeasor principles that would preclude contribution claims under Mississippi law.

Mississippi Code Ann. 85-5-5, repealed in 1989, allowed for a right of contribution among joint tort-feasors only after judgments were rendered against them, with no pre-judgment contribution permitted in tort cases. Current law, under Section 85-5-7, maintains that in civil actions based on fault, damages liability among multiple defendants is joint and several only to the extent that the injured party can recover 50% of their damages; otherwise, liability is several, proportionate to each tort-feasor's percentage of fault. This section establishes that employers and employees, or principals and agents, are considered a single defendant for fault assessment purposes. Joint tort-feasors can seek contribution from one another based on their respective fault percentages, but only among defendants who are parties to the action. The Mississippi Supreme Court in Narkeeta Timber noted that the introduction of third-party practice under Mississippi Rule of Civil Procedure 14 was less effective without a substantive right to contribution. Prior to the 1989 amendments, plaintiffs could sue any combination of tort-feasors and recover full damages from any one, regardless of fault allocation. The 1989 amendment modified this by limiting joint and several liability to 50% of the judgment while retaining it for that portion. The court clarified that the new statute does not eliminate the requirement for a joint judgment for contribution, thus preserving the traditional rule against contribution absent such a judgment. The effectiveness of Rule 14 is diminished without a substantive right to contribution.

A third-party claim cannot be initiated solely based on the potential liability of a third party to the original plaintiff; mere allegations of joint tortfeasorship or true liability are insufficient. In Mississippi, the lack of contribution and impleader options for defendants emphasizes the necessity for plaintiffs not to control fault allocation among parties. In the case of Berry v. Combustion Engineering, the court mandated that claims for indemnity or contribution comply with Mississippi Rules of Civil Procedure, and any such claims must be separated from the plaintiffs' claims against defendants. As per this case management order, Hopeman Brothers must seek court permission to assert claims against Debtors, and due to the automatic stay in bankruptcy proceedings, such a request cannot proceed without relief from the stay. Currently, no motion for relief has been filed, rendering any attempt to do so futile, as movants lack a distinguishable position from other creditors. Furthermore, under 28 U.S.C. § 157(b)(5), personal injury or wrongful death claims must be tried in the relevant district court, but movants do not hold such claims; they seek contribution contingent on future liability, which does not constitute an existing legal dispute. Consequently, there is no jurisdiction for federal court adjudication since no liability has been established against movants.

Movants argue for the transfer of actions related to a bankruptcy case to the Western District of Pennsylvania under 28 U.S.C. 1334, claiming their indemnification claims are "related to" the bankruptcy. However, they lack a contractual right to indemnification and instead assert a common law right of contribution as modified by Mississippi law. Currently, there is no immediate effect on the Debtors' estates since they have been severed from state court actions, the automatic stay prevents proceedings against them, and a state court management order bars actions against them. Any potential impact on the estates would arise only if movants receive an adverse judgment in state court, at which point they could pursue claims against the Debtors in a proper forum. The court emphasizes that the concept of "related to" jurisdiction, while broad, has limits and does not extend to speculative effects. Moreover, even if there were a conceivable effect, movants could file claims, which could be amended later as no bar date has been set. The automatic stay currently prohibits any litigation against the Debtors, and any liability determination against Hopeman Brothers in state court does not involve Debtors, as their absence prevents adjudication of Debtors' liability. Hopeman Brothers may only minimize its fault percentage without the Debtors present, and any claims against the Debtors must be pursued in bankruptcy after the state court proceedings. Overall, the transfer motions are deemed premature and not ripe for adjudication.

Mississippi law limits the right of contribution to defendants who are parties to the lawsuit. The movants contend that the Debtors' liability will still be assessed against them despite their absence from the state court suit, but Mississippi law contradicts this claim. Under Mississippi Code Ann. 85-5-7(4), a defendant is only liable for contribution based on the percentage of fault assigned to them and must be a party to the action for such liability to exist. The Mississippi Supreme Court, in the case of Estate of Hunter v. General Motors Corporation, clarified that contribution applies only to tortfeasors already involved in the action, reinforcing that the legislature intended to restrict contribution rights to those defendants named by the plaintiff.

In the specific cases of Hopeman Brothers and 3M, although the Debtors are named defendants, they have been severed from the state court action, meaning no judgments can be entered against them due to an automatic stay. Consequently, they cannot be compelled to participate in the state court proceedings without a court order. The discussion of jurisdiction raises the issue of whether abstention is appropriate, with Section 157(b)(4) indicating that non-core proceedings are not subject to mandatory abstention but allow for discretionary abstention. The court highlighted that the motions for transfer were not ripe, and issues of the case do not significantly impact the Debtors' estates.

Past rulings, such as the Federal-Mogul Global case, differentiate between claims against non-debtors and claims against the estate for jurisdictional purposes. The United States District Court for the Southern District of Mississippi criticized the removal of cases based on weak justifications, labeling it a burden on the court system and indicating that further attempts to remove similar lawsuits may lead to contempt sanctions. The court concluded there was no federal jurisdiction under the "related to" provision of 28 U.S.C. 1334(b) because the bankruptcy debtors were severed from the suits and no liability determination had been made against them.

The indemnification claim was deemed not ripe for consideration. The District Court's opinion in Anderson v. Pittsburgh Corning reaffirmed this conclusion. Judge Wolin's opinion in Federal-Mogul addressed the transfer of personal injury claims against auto manufacturers but highlighted a conflicting interpretation between the Sixth and Third Circuits regarding similar facts. Although the U.S. Supreme Court partially overruled Pacor v. Higgins, it remains applicable within the Third Circuit, and this court is obliged to follow it. In the Dow Corning case, the primary issue was the gel used in implants, while in the current case against 3M, the allegations involve defective face masks allegedly allowing asbestos fibers to permeate. 3M argues it has a viable defense based on the known risks of asbestos, though the effectiveness of this defense remains uncertain. Hopeman Brothers' liability appears linked to the installation of an asbestos-containing product, which also introduces a known danger. The determination of liability among multiple parties, including other asbestos manufacturers, is still unresolved. Both 3M and Hopeman Brothers do not fall under federal jurisdiction as per Judge Wolin's analysis. 

3M also contends that Mississippi law recognizes "equitable indemnity," permitting it to sue Debtors based on non-contractual implied indemnity among joint tortfeasors, as discussed in a 2000 Fifth Circuit case referencing a 1970 Mississippi Supreme Court ruling. The principle states that a joint tortfeasor may shift liability to another if their fault is secondary or passive, but not if all parties share equal fault. The decision on indemnity must be case-specific, considering the facts involved.

Two prerequisites must be met for non-contractual implied indemnity in Mississippi: (1) the claimant must face damages due to a legal obligation to the injured party, and (2) the claimant must not have actively participated in the wrongdoing. The applicability of this doctrine to 3M or Hopeman Brothers (or Debtors) depends on the outcomes of ongoing state court cases, which do not establish a bankruptcy claim requiring the transfer motions to be granted. Until these state court matters are resolved against the movants, there is no justification for asserting bankruptcy jurisdiction. Consequently, the motions to transfer the cases are denied. Additionally, the statute referenced, 85-5-7, was enacted in 1989. In a related note, Hopeman Brothers had filed a motion to stay proceedings in the District Court for the Southern District of Mississippi pending a decision on its motion to transfer.