4th Circuit now ‘safe haven’ for asbestos suit evasion, dissent warns

The federal Appeals Court circuit covering North Carolina has become a “safe haven” for companies seeking to avoid liability for asbestos claims, according to dissent filed Wednesday.

The 4th US Circuit Court of Appeals issued a 2-1 ruling favoring a company named DBMP in a North Carolina case.

The decision blocked three plaintiffs from proceeding with asbestos-related claims against the company during its bankruptcy proceedings.

“Michael Herlihy, his wife Ann Herlihy, and the Estate of Peter Bergrud are plaintiffs in asbestos-grounded tort actions against DBMP LLC, and their actions have been automatically stayed by DBMP’s filing of this Chapter 11 bankruptcy proceeding, … as well as by a preliminary injunction that the bankruptcy court entered to give effect to the stay,” Judge Paul Niemeyer explained for the Appeals Court’s majority.

“The plaintiffs filed motions to lift the stay and to stay the preliminary injunction, urging that they be allowed to prosecute their asbestos claims against the debtor before a judge and jury in the traditional tort system,” Niemeyer added. “They justified their request with the argument that DBMP obtained the stay ‘in bad faith’ because it is ‘non-distressed, massively wealthy, and fully capable of paying all claims in full,’ and therefore it was not entitled to invoke bankruptcy protection and the automatic stay that it provides.”

Both the federal Bankruptcy Court and US District Judge Kenneth Bell rejected the plaintiffs’ request.

“We affirm that order, concluding that the bankruptcy court did not abuse its discretion in refusing to lift the automatic stay on finding that DBMP filed its Chapter 11 petition with the legitimate purpose of pursuing a § 524(g) plan, that it qualified for such a reorganization, and that the plaintiffs failed to present any evidence that DBMP had acted in bad faith,” Niemeyer wrote.

Judge Pamela Harris joined Niemeyer’s opinion. Judge Robert Bruce King dissented.

“Slowly but surely — and to my great regret — our Circuit has become the ‘safe haven’ for ultra-wealthy corporations seeking to evade asbestos-related civil tort liability under the guise of the Bankruptcy Code,” King wrote. “Today’s panel majority goes even one step further in cementing that unfortunate reputation.”

“In the underlying ‘bankruptcy’ proceedings in the Western District of North Carolina, the Estate of deceased Air Force veteran Peter Bergrud (the ‘Bergrud Estate’), along with Michael and Ann Herlihy, sought very limited relief from an automatic bankruptcy stay interposed against any liquidation of their asbestos-related tort claims in our Nation’s state courts against the so-called ‘Debtor’ in bankruptcy, DBMP, LLC, … its parent, CertainTeed Corporation, and other corporate entities,” King added. “The Bergrud Estate and the Herlihys predicated their stay relief request on DBMP’s well-documented and extensive ‘bad faith’ surrounding its Chapter 11 bankruptcy — an effort that was initiated after CertainTeed executed an increasingly-common scheme to shed itself of civil tort liability for asbestos-related claims.”

“That scheme involved, inter alia, CertainTeed undergoing a ‘Texas Two-Step’ corporate makeover in the State of Texas, assigning all of its existing asbestos-related civil tort liabilities to a newly formed front organization (that is, DBMP), and then plundering that shell corporation into a Chapter 11 bankruptcy in western North Carolina,” King argued. “Notwithstanding those and other damning facts, the bankruptcy court denied the Bergrud Estate’s and the Herlihys’s stay relief requests based on what can only be characterized as fundamental misapplications of law and fact. The district court upheld that flawed court ruling, and our panel majority now erroneously affirms.”

“In my view, the majority’s decision is not only inexplicable as a matter of law and fact, it is unacceptable,” King wrote.

“[T]here is ample evidence in this record that the Debtor DBMP and its non-debtor parent, CertainTeed, have engaged in pervasive, well-documented, and systematic bad faith by subverting the Bankruptcy Code to evade asbestos-related civil tort liability and deprive tens of thousands of dead and dying Americans of their constitutionally-protected day in court before a jury of their peers. Not only that, DBMP — as the Debtor opposing relief from the automatic bankruptcy stay being sought by the Bergrud Estate and the Herlihys under § 362(d) — has failed to carry its statutory burden of proof on the ‘bad faith’ issue.”

The majority “continues our Court’s distressing march into being the ‘safe harbor’ for the ‘big guys’ — here, CertainTeed, acting through its stooge subsidiary, the Debtor DBMP, and at the behest of its French parent, Saint-Gobain — that seek bankruptcy protection to avoid accountability for their asbestos-related tort liabilities. I will not support that effort,” King concluded.

“4th Circuit now ‘safe haven’ for asbestos suit evasion, dissent warns” was originally published on www.carolinajournal.com.