Opinion
M-47 (RJH).
January 26, 2010
MEMORANDUM OPINION AND ORDER
Quigley Company, Inc. ("Quigley") and its corporate parent, Pfizer Inc. ("Pfizer"), are currently involved in a Chapter 11 case and related adversary proceeding in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). On May 15, 2008, as part of the bankruptcy proceedings, Chief Bankruptcy Judge Bernstein issued an order (the "Order") clarifying the scope of a previously issued injunction barring certain asbestos claims against Quigley and Pfizer during the pendency of the bankruptcy proceedings. See Memorandum Opinion and Order Clarifying Amended Injunction, In re Quigley Co., Adv. Proc. No. 04-04262 (Bankr. S.D.N.Y. May 18, 2005). The Law Office of Peter G. Angelos, P.C. ("The Angelos Firm") is a member of the Ad Hoc Committee of Tort Victims (the "Committee") in the bankruptcy proceedings and seeks to appeal the Order to the district court. For the reasons set forth below, the Court concludes that that the Order is a final, appealable order under 28 U.S.C. 158(a)(1).
See Chapter 11 Case No. 04-15739 (SMB); Adv. Proc. No. 04-04262.
BACKGROUND
Quigley, a wholly-owned subsidiary of Pfizer that had manufactured a number of refractory products, filed for bankruptcy on September 3, 2004 after being inundated with a slew of asbestos exposure suits by putative victims who had used Quigley's products. In re Quigley Co., 323 B.R. 70, 72 (S.D.N.Y. 2005). Quigley's bankruptcy filing caused all of the suits proceeding against it to be stayed automatically pursuant to 11 U.S.C. § 362(a). Id.
On that same day that it filed for bankruptcy, Quigley filed an adversary proceeding seeking to enjoin all asbestos-related proceedings against Pfizer pursuant to 11 U.S.C. §§ 362(a) and 105(a) on the grounds that Quigley and Pfizer share rights in certain insurance policies and are joint beneficiaries of an insurance trust that is used to satisfy settlements, judgments, and defense costs related to asbestos suits against each of the companies. Id. After holding several hearings, the Bankruptcy Court concluded that Quigley's bankruptcy estate would be immediately and irreparably injured if the automatic stay were not extended to asbestos-related suits against Pfizer that had the potential to deplete shared insurance policies. Id. (citation omitted). Therefore, on December 17, 2004, the Bankruptcy Court issued a preliminary injunction (the "Preliminary Injunction") extending the automatic stay provisions of § 362(a) to Quigley's parent company, Pfizer. Id. at 72-73.
Shortly thereafter, the Committee filed a motion seeking to appeal the entry of the Preliminary Injunction to the district court, claiming that the Preliminary Injunction was too broad. By a decision dated April 8, 2005, United States District Judge Marrero denied this motion. Quigley, 323 B.R. 70. Judge Marrero held: (1) that the Preliminary Injunction was interlocutory (not final) and, therefore, the Angelos Firm was not entitled to an appeal as of right under 28 U.S.C. § 158; and (2) that discretionary leave to appeal should not be granted under the circumstances. Id. at 72, 74-75, 77-79.
The bankruptcy proceedings then continued in the Bankruptcy Court. On December 6, 2007, Judge Bernstein issued an Amended Preliminary Injunction (the "Amended Injunction") narrowing the scope of the Preliminary Injunction to provide Pfizer with the same protection that it would receive under 11 U.S.C. § 524(g) if Quigley's reorganization is ultimately confirmed. See Order, at 4 (quoting Amended Injunction Pursuant to 11 U.S.C. §§ 105(a) and 362(a) and Federal Rule of Bankruptcy Procedure 6075, In re Quigley Co., Adv. Proc. No. 04-04262 (Bankr. S.D.N.Y. Dec. 6, 2007)). The Amended Injunction, which remains in place as of the date of this Opinion, does not bar claims against Pfizer based on Pfizer products that have nothing to do with Quigley, as the Preliminary Injunction had done. Instead, it bars only those claims against Pfizer that arise by reason of its ownership or management of, provision of insurance to, or involvement in certain transactions with, Quigley (or parties related to Quigley). See id.
Section 524(g) is a provision designed to afford related companies an opportunity to fairly deal with asbestos liability which arises from the actions of a particular company within the corporation. See generally 11 U.S.C. § 524(g). It "provides a unique form of supplemental injunctive relief for an insolvent debtor confronting the particularized problems and complexities associated with asbestos liability . . . Section 524(g) mandates the channeling of related claims to a personal injury trust, thereby relieving the debtor of the uncertainty of future asbestos liabilities and helping to achieve the purpose of Chapter 11 by facilitating the reorganization and rehabilitation of the debtor as an economically viable entity." In re Johns-Mansville Corp., 517 F.3d 52, 67 (2d Cir. 2008). "The application of a § 524 channeling injunction to enjoin actions against third parties is limited to `situations . . . where a third party has derivative liability for tort claims against the debtor.'" Id. at 68 (citation omitted).
After the Amended Injunction was entered, the Angelos Firm began prosecuting asbestos personal injury claims against Pfizer in a Pennsylvania state court, claiming that Pfizer was the manufacturer of an asbestos-containing product known as Insulag, and that Pfizer was liable for manufacturing and/or distributing Insulag under Section 400 of the Restatement of Torts (the "Section 400 Claims"). (Angelos Br. at 11). The Angelos Firm claimed that Pfizer owed an independent duty to Insulag users — a duty that did not depend upon or arise by reason of Pfizer's corporate relationship with Quigley, but by reason of Pfizer's decision to advertise itself as a manufacturer of Insulag — and, therefore, that the Section 400 Claims against phzer were not covered by the Amended Injunction. ( Id. at 11, 26). Pfizer, on the other hand, maintained that it never manufactured Insulag — Quigley did — and that the Pennsylvania lawsuits sought to impose liability on Pfizer based upon its ownership or purported management of Quigley, in violation of the Amended Injunction. See Order, at 5. Pfizer, therefore, sought relief from the Bankruptcy Court, asking it to enjoin the Angelos Firm from prosecuting the Section 400 Claims. Id. On May 15, 2008, Judge Bernstein issued the Order in question, in which he ruled that "the Section 400 claims asserted against Pfizer by the Pennsylvania plaintiffs are covered by the Amended Injunction, and the Angelos Firm and its clients are directed to cease prosecuting them." Id. at 15.
On May 30, 2008, the Angelos Firm simultaneously filed a notice of appeal of the Order and the instant motion for leave to appeal the Order. Since that time, confirmation hearings on Quigley's plan of reorganization have been completed before Judge Bernstein and post-trial briefing regarding the confirmation plan is due to be completed in the middle of February. (Transcript of Oral Argument ("Tr."), January 15, 2010, at 2). Judge Bernstein indicated at the beginning of the confirmation proceedings that he would not be making any decisions with respect the scope of any Section 524(g) — based injunction that may issue from the confirmation hearing; rather, the scope would have to be determined later. ( See id. at 18).
DISCUSSION
This court has jurisdiction to hear appeals from "from final judgments, orders, and decrees" of the Bankruptcy Court. 28 U.S.C. § 158(a)(1). Such final judgments, order, and decrees are appealable as of right. See id.; In re Chateaugay Corp., 880 F.2d 1509, 1511 (2d Cir. 1989); In re Perry H. Koplik Sons, Inc., 377 B.R. 69, 73 (S.D.N.Y. 2007). In addition, the Court may hear appeals from "other interlocutory orders and decrees," provided that the appellant obtains leave of court. 28 U.S.C. § 158(a)(3).
Because bankruptcy proceedings often continue for long periods of time and discrete claims may be resolved at various times over the course of the proceedings, the Second Circuit has adopted a flexible approach to the concept of "finality" in the bankruptcy context. In re Pegasus Agency, Inc., 101 F.3d 882, 885 (2d Cir. 1996); Chateaugay, 880 F.2d at 1511. Thus, orders on bankruptcy matters are considered final and immediate appeal is permitted where the orders "finally dispose of discrete disputes within the larger case." In re Sonnax Indus., 907 F.2d 1280, 1283 (2d Cir. 1990) (citation omitted). For a bankruptcy court order to be considered final, it "need not resolve all of the issues raised by the bankruptcy; but it must completely resolve all of the issues pertaining to a discrete claim, including issues as to the proper relief." In re Fugazy Express, Inc., 982 F.2d 769, 776 (2d Cir. 1992).
In a line of authority beginning with In re Taddeo, 685 F.2d 24 (2d Cir. 1982), the Second Circuit has held that an order denying relief from an automatic stay is a "final order" within the meaning of 28 U.S.C. § 158(a). See Taddeo, 685 F.2d at 26 n. 4; Chateaugay, 880 F.2d at 1512; Sonnax, 907 F.2d at 1285; In re Lomas Fin. Corp., 932 F.2d 147, 151 (2d Cir. 1991); Pegasus, 101 F.3d at 885. The Second Circuit analogized such orders to permanent injunctions, and held that the mere fact that proceedings regarding reorganization of the debtor are ongoing does not preclude a finding that an order denying relief from the automatic stay is a final order. Lomas, 932 F.2d at 151; see also Pegasus, 101 F.3d at 886. Because the Amended Injunction in the present case is indistinguishable in its effect on litigants from the automatic stay imposed 11 U.S.C. § 362, Quigley, 323 B.R. at 75, the issue before this Court is whether the Order constitutes a final denial of relief from the Amended Injunction. If so, it is appealable as of right under Taddeo and its progeny.
The Angelos Firm argues that the Order is, in effect (even if not in form), a final denial of relief from the Amended Injunction for those seeking to bring Section 400 Claims against Pfizer because it conclusively bars the Angelos Firm or any other plaintiff from pursuing such claims for the duration of the bankruptcy proceeding (and practically speaking, forever if the reorganization plan is confirmed by the Bankruptcy Court). ( See Angelos Br. at 13-14).
Pfizer responds that the Order cannot be a final denial of relief because the Angelos Firm never filed a motion seeking individualized relief from the Amended Injunction in Bankruptcy Court. (Pfizer Br. at 10-13). Instead, Pfizer contends, the Order merely interprets or clarifies the scope of the Amended Injunction, and is interlocutory for the same reasons that Judge Marrero found the Preliminary Injunction to be interlocutory in 2005. ( Id.). Pfizer concedes that if the Angelos Firm had filed a motion seeking relief from the Amended Injunction to bring the Section 400 Claims, and if the Bankruptcy Court had denied such a motion, the order denying that motion would be final. ( See id. at 12). But Pfizer maintains that because the Order was issued in response to a motion by Pfizer to prevent the Angelos Firm from proceeding with the Pennsylvania actions, and not in response to any motion by the Angelos Firm, it is not final under Taddeo and its progeny. ( See id. at 12-13).
The Court concludes that under the circumstances presented here, the Order is a final order, which is appealable as of right under 28 U.S.C. § 158(a)(1). In substance, the Order acts as a denial of relief from the Amended Injunction as to all Section 400 Claims against Pfizer because it conclusively determines that the Amended Injunction bars such claims for the duration of the bankruptcy proceedings. Nothing in the Order indicates that Judge Bernstein's conclusion was preliminary or that he intends to reconsider that issue in subsequent proceedings. The Second Circuit's decision in Lomas, 932 F.2d at 151, makes clear that under these circumstances — where the Bankruptcy Court contemplates no further hearings on whether Pfizer is entitled to an injunction apart from the success or lack thereof of the reorganization — the Order before the Court is final as to that issue and is appealable.
The Order differs from the Preliminary Injunction that Judge Marrero found to be interlocutory in 2005 because whereas the Preliminary Injunction did not rule on whether any specific persons were entitled to relief from its terms, the Order effectively does so by ruling, after the Angelos Firm attempted to bring Section 400 Claims on behalf of particular plaintiffs and Pfizer objected, that the Section 400 Claims are barred by the Amended Injunction.
The fact that the Order is styled as an order holding that a particular class of tort claims are barred by the Amended Injunction, as opposed to an order denying a motion by the Angelos Firm for relief from the Amended Injunction, does not alter the Court's conclusion. The Second Circuit addressed the distinction between these two types of orders in Lomas and explicitly held that the distinction is of no consequence to the finality analysis. 932 F.2d at 151 n. 2 (" Sonnax, [ 907 F.2d 1280], involved an appeal from a denial of a motion to lift the automatic stay whereas the instant case involves an appeal from an order holding, inter alia, that the automatic stay applies to the action. We do not believe that this difference is a distinction of consequence as to the finality issue. A decision that the stay applies to the tort action is final as to that issue and is appealable."). Lomas makes clear that rather than focusing on the form of an order, the Court's focus should be on its effect and whether, as a practical matter, it finally resolves a discrete dispute. See id. at 151 n. 2. Here, the effect of the Order is to conclusively preclude Section 400 Claims from proceeding against Pfizer for the entire time that Quigley's reorganization is pending, and that order is final and appealable as of right under Taddeo, Lomas, and other relevant authority.
Fugazy, 982 F.2d 769, does not undermine this conclusion. In Fugazy, the Second Circuit stated that, "Conduct that bypasses the bankruptcy court and violates the automatic stay is plainly not the equivalent of a motion asking the court to lift the stay, and a subsequent ruling by the bankruptcy court that conduct bypassing the court was impermissible is equally plainly, not a ruling on a motion to lift the stay." 982 F.2d at 776-77. Pfizer argues that this statement precludes this Court from concluding that the Order is equivalent to an order denying a motion to lift a stay, given that no such motion was ever filed by the Angelos Firm. (Pfizer Br. at 12). The Court disagrees. The language in Fugazy must be understood in light of the facts of that case, in which a party had surreptitiously transferred assets away from the bankruptcy estate after the debtor had filed for bankruptcy. The above-cited passage, which in no way suggested that it was intended to overrule or limit Lomas, was grounded in the Court's disapproval of the improper conduct of that party and is not dispositive on the very different factual pattern before this Court.
Pfizer's counsel argued at the hearing that the Order was interlocutory in that nothing in the Order would preclude a party facing extenuating circumstances — for instance, an individual whose mesothelioma symptoms are particularly advanced, for whom waiting until the conclusion of the reorganization proceedings to seek recovery from Pfizer is not viable — from filing a motion for individualized relief from the Amended Injunction under 11 U.S.C. § 362(d)(1). (Tr. 10-12). Pfizer contends that since no Section 400 claimant(s) (including, presumably, the Committee) have filed such a motion, and since the Bankruptcy Court has not, therefore, denied such a motion, the Order cannot properly be characterized as final within the meaning of 28 U.S.C. 158(a)(1). (Tr. 10-12).
This provision authorizes bankruptcy courts to grant discretionary relief from a stay "for cause," a broad concept that may include, among other things, "the lack of adequate protection of an interest in property" or the fact that the claim that the party seeks to advance lacks a connection with, or would not interfere with, the pending bankruptcy case. See Sonnax, 907 F.2d at 1286.
The Court disagrees. As sated above, Lomas expressly rejected the notion that an order denying a motion for relief from a stay should be treated differently for purposes of the finality analysis from an order holding that a particular class of tort claims falls within the stay. 932 F.2d at 151 n. 2. In evaluating the finality of the order in Lomas — an order which held that certain tort claims against two corporate officers of the debtor fell within the stay against the debtor — there is no indication that the Second Circuit considered the possibility that some creditors might seek individualized relief under 11 U.S.C. § 362(d)(1) to be relevant to an analysis of the finality of the order in question.
In an analogous situation. an otherwise final order denying relief from a stay was not found to be interlocutory simply because the movant remained free to make a new motion for relief from the stay at a future date if their circumstances suggested that relief from the stay would be appropriate. See Chateaugay, 880 F.2d at 1513. Indeed, in Chateaugay the Second Circuit held that even where a bankruptcy court indicates that it plans to reconsider its ruling denying relief from a stay in one year, that does not necessarily render the initial ruling non-final where the facts surrounding the initial ruling otherwise suggest finality. Id. The Second Circuit treated the bankruptcy court's initial order in Chateaugay as a final disposal of a discrete issue in the case — namely, the right of the appellants to foreclose on their collateral under the circumstances in effect on the date they requested relief — and stated that the bankruptcy court's reconsideration of the issue in one year should be viewed as consideration of a new motion, which would be decided in light of different circumstances and with potentially different consequences for the parties. Id.
The logic of Chateaugay suggests that the Order before this Court should not be considered non-final merely because there is a possibility that a subset of particularly ill Section 400 claimants may have grounds for seeking individualized relief from the stay and may be able to convince the Bankruptcy Court to grant them such individualized relief. Under Chateaugay, any separate motion for relief from the stay based on a party's unique circumstances should be treated as an entirely distinct motion, consideration of which will be decided in light of the circumstances presented at the time such motion is made. Until that time, the Bankruptcy Court should be viewed as having issued a final order barring Section 400 Claims against Pfizer during the pendency of Quigley's reorganization, and the Angelos Firm is entitled to appeal that Order under 28 U.S.C. § 158(a)(1).
CONCLUSION
In sum, the Court concludes that the Order was a final order and is appealable as of right under 28 U.S.C. § 158(a)(1). Accordingly, the Court need not consider whether to exercise its discretion to grant leave to appeal.SO ORDERED.