Bankruptcy – Chapter 11 petition stays asbestos-exposure lawsuits

Where parties allegedly harmed by exposure to asbestos products moved to lift the automatic bankruptcy stay interposed when the defendant filed a Chapter 11 petition, arguing the petition was filed in bad faith, but the record does not include evidence to suggest bad faith, and the bankruptcy court found that granting the motions would “greatly” prejudice the debtor’s estate and that such harm would outweigh any harm to the claimants that might be caused by any delay in the resolution of their asbestos claims, their motion was denied.

Background

Appellants are plaintiffs in asbestos-grounded tort actions against DBMP LLC. 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.

The plaintiffs filed motions to lift the stay and to stay the preliminary injunction.  They argued 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.

The bankruptcy court denied the motions. The district court affirmed.

Analysis

The bankruptcy court found that granting the motions to lift the stay would “greatly” prejudice the debtor’s estate and that such harm would outweigh any harm to the claimants that might be caused by any delay in the resolution of their asbestos claims. The court reasoned that granting the stay would reduce judicial economy by releasing a wave of asbestos cases back into the court system, severely undermining the bankruptcy court’s ability to “treat consistently and fairly all similarly situated claimants in a 524(g) plan.”

The court was particularly concerned that granting the stay would imperil its ability to protect the interests of future asbestos claimants through the § 524(g) plan. And based on its experience with similar mass-tort bankruptcies, it predicted that lifting the stay would “effectively destroy the bankruptcy case.” The court also found that any delays that might occur in the resolution of the claimants’ suits in bankruptcy provided an insufficient basis to lift the stay as such a proposition was speculative.

The court pointed out that, given the high volume of asbestos-related cases against the debtor, proceeding in the state court system would likely also result in substantial delays. Indeed, it noted that if the parties to DBMP’s § 524(g) reorganization were to work toward the goals of the reorganization in good faith, resolution of the claimants’ claims in bankruptcy could be even faster than their resolution in state courts.

The claimants nevertheless contend that DBMP filed for bankruptcy as a “profitable, non-distressed” company and that the bankruptcy court should have granted relief from the automatic stay on that basis. This court agrees with claimants that good faith is an implied requirement for obtaining an automatic stay and that a showing of a lack of good faith, or bad faith, can therefore justify lifting the stay.

Here, however, the bankruptcy court found that there was a lack of evidence in the record of subjective bad faith, and even if there were such evidence, the claimants had failed to meet the objective futility requirement. This court agrees with the bankruptcy court that the record does not include evidence to suggest bad faith.

Affirmed.

Dissenting opinion

Kings, J., dissenting:

Claimants are statutorily entitled to the limited relief they seek because “bad faith” on the part of a debtor constitutes “cause” to lift the automatic bankruptcy stay imposed under 11 U.S.C. § 362(d). And there is ample evidence in this record that the 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.

Herlihy v. DBMP, LLC, Case No. 24-2109, Feb. 11, 2026. 4th Cir. (Niemeyer), from WDNC at Charlotte (Bell). Jonathan Ruckdeschel for Appellants. C. Kevin Marshall for Appellee. VLW 026-2-044. 58 pp.

Full-Text Opinion

VLW 026-2-044
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