USDC So. Dist. of NY: Marsh USA must face claims once barred by the Trust

Posted: 8/15/2018

The United States District Court for the Southern District of New York has released the attached opinion in The Bogdan Law Firm, as counsel for Salvador Parra, Jr. v. Marsh USA, Inc., 18-cv-1228 (JSR) (Salvador_Order.pdf) holding that the Estate of Salvador Parra Jr. was NOT barred from pursuing Mississippi state court claims against Marsh USA Inc. notwithstanding the bankruptcy trust created during the long-running bankruptcy of Johns-Manville Corporation back in 1986.  Marsh was Manville’s principal insurance broker during the bankruptcy.  Parra alleged that Marsh knew of the dangers of asbestos but did not disclose them and conspired with Manville and others to prevent the public and the government from learning the truth.  Marsh moved to enjoin the litigation and the bankruptcy court held that claims like these were enjoined and channeled into the bankruptcy trust by the 1986 order.  The Bankruptcy Court agreed, and enjoined Parra’s claim as falling within the scope of the orders establishing the Manville Trust.  On appeal, however, the District Court reversed, holding that Parra was not adequately represented by the future claims representative.  The court explained that no one involved at the time believed that the bankruptcy court had jurisdiction to bind future claimants as to their non-derivative claims against third parties for independent tortious conduct, and thus, the future claims representative could not have contemplated representing such claims.   Therefore, the third party non-derivative claims were not adequately represented, and claimants such as Parra were not barred from pursuing such claims. 

Further appeal of this decision seems likely, but if permitted to stand, it has potentially far reaching ramifications.  Insurers and similar entities can continue to rely on bankruptcy trust orders, to limit their derivative liabilities on asbestos claims running through their insureds.  However, under this opinion, allegations of independent tortious conduct may not ultimately be shielded by bankruptcy trust participation.