In Re Dow Corning Corporation
86 F.3d 482 (1996)
Rule of Law:
Federal district courts, sitting as bankruptcy courts, have "related to" subject matter jurisdiction under 28 U.S.C. § 1334(b) over personal injury claims against non-debtor co-defendants where those claims could conceivably affect the bankruptcy estate through contingent contribution or indemnification liabilities or the depletion of shared insurance policies. Such courts may also transfer these "related to" claims to the district where the bankruptcy case is pending under 28 U.S.C. § 157(b)(5).
Facts:
- Dow Corning Corporation (Dow Corning) was the predominant producer and supplier of silicone gel breast implants, ceasing their manufacture in 1992.
- Tens of thousands of implant recipients sued Dow Corning, claiming autoimmune reactions to silicone in their implants.
- Dow Chemical Company, Corning Incorporated, Minnesota Mining and Manufacturing Company, Baxter Healthcare Corporation, Baxter International Incorporated, Bristol-Myers Squibb Company, and Medical Engineering Corporation were other manufacturers and suppliers of silicone gel-filled implants and were codefendants with Dow Corning in a large number of personal injury actions.
- On September 1, 1994, a class action settlement was approved for breast implant recipients, creating a $4.25 billion fund, but several thousand plaintiffs opted out to pursue their individual claims separately.
- Dow Corning, Dow Chemical, and Corning Incorporated were co-insured under various liability insurance policies providing over $1 billion in coverage, which constituted one of Dow Corning's largest assets.
- Dow Chemical and Corning Incorporated had already asserted cross-claims for indemnity and contribution against each other and Dow Corning in the underlying litigation.
- Minnesota Mining, Baxter, and Bristol-Myers Squibb indicated their intent to file claims for contribution and indemnification against Dow Corning.
- Many claims against non-debtor defendants alleged joint and several liability with Dow Corning, including claims for negligent undertaking of duties, aiding and abetting, or conspiracy to sell unsafe products.
Procedural Posture:
- On June 25, 1992, the Federal Judicial Panel on Multidistrict Litigation ordered the consolidation of all breast implant actions pending in federal courts for coordinated pretrial proceedings and transferred those actions to the Northern District of Alabama.
- On May 15, 1995, Dow Corning Corporation filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States District Court for the Eastern District of Michigan.
- Dow Chemical Company, Corning Incorporated, Minnesota Mining and Manufacturing Company, Baxter Healthcare Corporation, Baxter International Incorporated, Bristol-Myers Squibb Company, and Medical Engineering Corporation removed many opt-out claims in which they were named defendants with Dow Corning from state to federal court.
- On June 12, 1995, Dow Corning filed a motion pursuant to 28 U.S.C. § 157(b)(5) to transfer to the Eastern District of Michigan opt-out breast implant claims pending against it and its shareholders, Dow Chemical and Corning Incorporated.
- On June 14, 1995, Minnesota Mining, Baxter, and Bristol-Myers Squibb also moved, pursuant to § 157(b)(5), to transfer to the Eastern District of Michigan the opt-out cases in which those manufacturers were named as defendants with Dow Corning.
- On September 12, 1995, the district court issued orders asserting jurisdiction over opt-out breast implant cases pending solely against Dow Corning and permitting their transfer, but denied the remainder of the transfer motions, holding that it lacked "related to" subject matter jurisdiction under 28 U.S.C. § 1334(b) over claims against the non-debtor defendants.
- The district court also directed individual federal courts to dismiss or sever Dow Corning and/or remand combined opt-out actions to state court, and enjoined non-debtor codefendants from removing any other cases from state to federal court if the only basis for such removal was 28 U.S.C. § 1334(b) or § 1367(a).
- On September 14, 1995, the district court extended its rulings to include opt-in breast implant claims.
- Dow Corning, Dow Chemical, Corning Incorporated, Minnesota Mining, Baxter, and Bristol-Myers Squibb subsequently filed appeals seeking review of the district court's partial denial of their motions to transfer, which were then consolidated before the Sixth Circuit Court of Appeals.
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Issue:
Does a federal district court, sitting as a bankruptcy court, have "related to" subject matter jurisdiction under 28 U.S.C. § 1334(b) over personal injury claims against non-debtor co-defendants, and the power to transfer such claims to the bankruptcy forum under 28 U.S.C. § 157(b)(5), when those claims involve potential contribution or indemnification liabilities to the debtor or risk depleting the debtor's shared insurance assets?
Opinions:
Majority - Boyce F. Martin, Jr., Circuit Judge
Yes, a federal district court, sitting as a bankruptcy court, does have "related to" subject matter jurisdiction under 28 U.S.C. § 1334(b) over personal injury claims against non-debtor co-defendants, and the power to transfer such claims to the bankruptcy forum under 28 U.S.C. § 157(b)(5), when those claims involve potential contribution or indemnification liabilities to the debtor or risk depleting the debtor's shared insurance assets. The court reasoned that Congress intended to grant broad jurisdiction to bankruptcy courts to efficiently and expeditiously deal with all matters connected to the bankruptcy estate, applying the "conceivable effect" test from Pacor, Inc. v. Higgins. Under this test, an action is "related to" bankruptcy if its outcome could conceivably affect the debtor's rights, liabilities, options, or freedom of action, or impact the administration of the estate. The court clarified that "automatic" liability is not a prerequisite for "related to" jurisdiction, as established in In re Salem Mortgage Co. The potential for Dow Corning to be held liable for or assert claims for contribution and indemnification against the non-debtors, which could ripen into fixed claims, suffices to establish a conceivable impact on the estate. The overwhelming number of potential indemnification claims in this mass tort litigation presented a significant threat to Dow Corning's reorganization plan. Furthermore, the shared insurance policies between Dow Corning and its parent companies (Dow Chemical and Corning Incorporated) provided an additional basis for jurisdiction. The prospect of claims against co-insureds depleting policy limits and defense costs reducing the pool of coverage available to Dow Corning presented a sufficiently immediate contingency to support "related to" jurisdiction, as affirmed in A.H. Robins Co. I and In re Zale Corp. Finally, the court held that 28 U.S.C. § 157(b)(5) allows a district court to fix venue for "related to" cases pending against non-debtor defendants. This approach promotes the centralization of claims, increasing the likelihood of a successful reorganization and ensuring a fair and non-preferential resolution of claims, aligning with the legislative intent behind the broad jurisdictional grant. The case was remanded for further proceedings on the issue of abstention under 28 U.S.C. § 1334(c).
Analysis:
This case significantly broadens the scope of bankruptcy court jurisdiction, particularly in the context of complex mass tort litigation involving both a debtor and numerous non-debtor codefendants. By clarifying that potential contingent liabilities (like contribution and indemnification) and the risk of depleting shared assets (like insurance policies) are sufficient for "related to" jurisdiction, the ruling allows bankruptcy courts to centralize a wider array of claims. This promotes judicial efficiency and enhances the debtor's ability to formulate a comprehensive and feasible reorganization plan. The decision serves as an important precedent for future mass tort bankruptcies, potentially drawing more non-debtor parties into bankruptcy proceedings for consolidated resolution of claims.
