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  • Writer's pictureKirk Hartley

Response to Question Regarding Whether the Chrysler Bankruptcy Causes a Stay of Underlying Tort Case

A comment/question was posed under yesterday’s post about the asbestos issues bubbling up in the Chrsyler case. The question is whether the Chrsyler bankruptcy would cause a stay of all underlying asbestos cases as against all defendants. The question is interesting and again underscores the importance of what the US Supreme Court has to say in Travelers/Manville about the scope of bankruptcy court jurisdiction. The short answer is that the bankruptcy code’s automatic stay provisions do not stay cases against co-defendants, and adverse existing precedent would have to be overcome to obtain a stay for all defendants based on “related to” jurisdiction in the bankruptcy court.

The “related to” precedent arises from Federal-Mogul’s chapter 11 petition filed October 1, 2001. Soon thereafter, some car makers sought to use the FM proceedings as the forum to hold a global Daubert hearing on whether friction products can cause asbestos-related disease. Among other things, there were arguments that the bankruptcy court could exert “related to” jurisdiction based on express or implied indemnity claims that might be asserted against FM by other entities involved with friction products, and various arguments about the inter-related nature of the friction product claims. The asbestos plaintiff’s bar vigorously opposed that approach.

Judge Wolin denied the effort, concluding that he lacked jurisdiction. The 3rd Circuit declined to reverse him based on issues regarding its appellate jurisdiction. For a complete synopsis of the issues and rulings from the Crowell & Moring lawyers who have for years represented insurers in asbestos bankrutcies, go here. The 3rd Circuit’s opinion, In re Federal-Mogul Global, Inc., 300 F.3d 368 (3rd Cir. 2002) provides the following brief synopsis:

” In re Federal-Mogul Global, Inc., No. 01-10587, 2002 Bankr.LEXIS 105, *4-5 (Bankr.D.Del. Feb. 8, 2002) (hereinafter, Feb. 8 Order). The District Court’s written opinion supplementing the order was issued on February 15, 2002. In re Federal-Mogul Global, Inc., No. 01-10578 et al., slip op. (Bankr.D.Del. Feb. 15, 2002) (hereinafter, Feb. 15 Op.).

The District Court held that it lacked subject-matter jurisdiction because the claims against the Friction Product Defendants were not “related to” the Federal-Mogul bankruptcy proceedings. The court found it unlikely that “Congress … intended that the bankruptcy of a single player [in a multi-player industry] would have automatic, nation-wide impact in which every manufacturer and distributor and all tens of thousands of injured parties are concentrated in a single reorganization proceeding.” Feb. 15 Op. at 16. Specifically, the District Court found that under this court’s influential decision in Pacor, Inc. v. Higgins (In re Pacor), 743 F.2d 984 (3d Cir.1984), “related-to bankruptcy jurisdiction [does] not extend to a dispute between non-debtors unless that dispute, by itself, creates at least the logical possibility that the estate will be affected.” Id. at 17.

The District Court noted that Pacor made clear that there is no “related to” jurisdiction over a personal injury claim *376 against a non-debtor “without the filing and adjudication of a separate claim for indemnification” against the debtor. Id. at 18. Further, the District Court observed that “cases since Pacor have failed to endorse the proposition that any contract of indemnification will support an extension of related-to jurisdiction.” Id. at 22 (emphasis in original).”

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