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Tens of thousands of asbestos cases that were conditionally transferred to federal court in Delaware as part of the Federal-Mogul Global Inc. bankruptcy and later remanded back to the state courts where they originated will be staying in those state courts now that the 3rd U.S. Circuit Court of Appeals has ruled that it lacks jurisdiction to review the remand order. Federal-Mogul, headquartered in Southfield, Mich., was a commonly-named defendant in the latest wave of asbestos cases — so-called “friction product” cases in which plaintiffs claim they were exposed to asbestos used in products such as brake pads. In Wednesday’s decision, the court rejected the arguments of a group of Federal-Mogul’s co-defendants — led by Ford, General Motors and Daimler-Chrysler — that all of the cases were “related to” the Federal-Mogul bankruptcy and that putting them all before a single judge would allow for a “global Daubert hearing” in which they could challenge the science behind the theory that asbestos in friction products causes asbestos-related diseases. Third Circuit Judge Dolores K. Sloviter, writing for a unanimous three-judge panel, said: “We are neither unaware of nor unsympathetic to the argument of the friction product defendants that the crisis created by the current asbestos litigation would be ameliorated were there a single proceeding that determined” the Daubert issues. Sloviter said that while the defendants are optimistic that they would win in such a hearing, “the evidence creates an issue that could well go either way as to whether Plaintiffs satisfy the Daubert gatekeeping standard.” But Sloviter said the appellate court couldn’t even consider the question because “we are halted at the pass by our conclusion that we have no jurisdiction over the decision of the district court denying the transfer and remanding the cases to the state courts from which they came.” In a section of the opinion she labeled a “coda,” Sloviter noted that the Federal-Mogul co-defendants argued that the court was faced with the question of “whether the American judicial system is capable of dealing with the recent explosion of automotive ‘friction product’ asbestos claims in a fair and rational manner.” Sloviter said the 3rd Circuit rejected a similar argument in Georgine v. Amchem Products, an attempted global settlement of all pending asbestos cases against 20 defendants. The U.S. Supreme Court, she noted, upheld the 3rd Circuit’s rejection of the settlement. “Just as both courts [in Georgine] declined to permit an end run around the requirements for class actions imposed by Federal Rule of Civil Procedure 23, so also are we unwilling to disregard the statutory impediments to our review of orders of the district courts transferring and remanding cases,” Sloviter wrote. And while there might be some wisdom in aggregating all of the friction-product asbestos cases from the state courts into a single federal court for a global Daubert hearing, Sloviter said that “such proposals, frequently made, have not passed both houses of Congress.” Federal-Mogul and its 156 affiliates and subsidiaries filed Chapter 11 bankruptcy petitions in October 2001 in the District of Delaware. At that time, the company was a co-defendants in many (though not all) of the thousands of friction-product asbestos cases filed in state courts around the country. The bankruptcy filing immediately stayed the state court proceedings as to them. Soon after, plaintiffs in those suits began severing or dismissing their claims against Federal-Mogul. At the same time, co-defendants began removing the claims against them from state courts to the appropriate federal district courts. Arguing that the claims were “related to” the Federal-Mogul bankruptcy, the co-defendants began seeking transfers of the cases to Delaware where U.S. District Judge Alfred Wolin of the District of New Jersey had been specially assigned to preside over five asbestos-related bankruptcies. The primary theory in support of “related to” jurisdiction was that the co-defendants would be able to seek indemnification or contribution from Federal-Mogul because some of the friction products used by them were purchased from Federal-Mogul. In addition to DaimlerChrysler Corp., Ford Motor Co. and General Motors — the so-called “Big Three” automakers — the co-defendants included Volkswagen of America Inc.; Mercedes-Benz USA; BMW North America Inc.; Volvo Cars North America Inc.; Rolls Royce Bentley Motor Cars Inc.; Nissan North American Inc.; and Honeywell International Inc. In a brief before Wolin, the defendants argued that the goal of the global Daubert hearing” was to “excise the friction product claims from the American judicial system in one fell swoop and lift a substantial cloud from over Federal-Mogul.” Wolin at first conditionally approved a transfer of all the cases, but later ordered that they be remanded to the state courts where they began because they were not truly “related to” the Federal-Mogul bankruptcy. On appeal, the defendants argued that Wolin erred in finding that the bankruptcy court lacked “related to” jurisdiction, and in deciding to remand the claims directly to the state courts from which they were removed. The remand to state court was not authorized, they said, because only a court to which a claim was removed has the statutory power to remand to the state court from which that claim was removed. But Sloviter found that the appellate court lacked jurisdiction because “orders transferring venue are not immediately appealable.” And even if the court were to consider issuing a writ of mandamus, Sloviter found that it was not called for since Wolin’s decision was solidly grounded in one of the 3rd Circuit’s most famous and most often-cited cases — the 1984 decision in Pacor Inc. v. Higgins, which established a test for determining when a suit is “related to” a bankruptcy. In Pacor, John and Louise Higgins sued Pacor in Pennsylvania state court for work-related injuries to John Higgins caused by exposure to asbestos supplied by Pacor. Pacor filed a third-party complaint impleading Johns-Manville, the manufacturer of the asbestos. Manville then filed for Chapter 11 bankruptcy in the Southern District of New York. Pacor filed a petition for removal in the Bankruptcy Court for the Eastern District of Pennsylvania seeking to remove the Higgins case from state court to federal bankruptcy court and simultaneously to transfer it from that court to the New York district court where it would be joined with the rest of the Johns-Manville bankruptcy proceedings. The theory of Pacor’s petition was that the Higgins suit was “related to” the Manville bankruptcy proceeding. The bankruptcy court denied the petition and remanded the case, and the 3rd Circuit affirmed. Wolin interpreted Pacor and its progeny to hold that “related-to bankruptcy jurisdiction will 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.” Sloviter found that the test articulated in Pacor “has been enormously influential. Pacor not only governs our analysis here, but its cogent analytical framework has been relied upon by our sister circuits more than any other case in this area of the law.” Even for those circuits that have not formally adopted, Sloviter found that Pacor “has provided an indispensable and frequently cited frame of reference, a veritable beacon on the uncharted and perilous waters of bankruptcy subject matter jurisdiction.” Despite that “widespread acceptance” of Pacor, Sloviter said, the Federal-Mogul co-defendants argued that the friction product claims were “related to” the Federal-Mogul bankruptcy proceeding because the various claims against them could lead to substantial indemnification or contribution claims against Federal-Mogul, which would in turn significantly affect the administration of the bankruptcy estate and the development of an appropriate plan of reorganization. Sloviter disagreed, saying the defendants were reading too much into a single line from the decision and ignoring its overall holding. “Because any indemnification claims that the friction product defendants might have against [Federal-Mogul] have not yet accrued and would require another lawsuit before they could have an impact on Federal-Mogul’s bankruptcy proceeding, we cannot hold that [Judge Wolin's] ruling that [the bankruptcy court] lacked subject-matter jurisdiction because the Friction product claims were not ‘related to’ the Federal-Mogul bankruptcy proceeding was a clear error approaching the magnitude of an unauthorized exercise of judicial power,” Sloviter wrote.

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