In re Johns-Manville Corp.

Johns-Manville Corporation and its affiliates (collectively, Manville) (debtor) manufactured products containing asbestos. When asbestos exposure from Manville’s products began causing health issues, injured plaintiffs began suing Manville to recover. By August 1982, there were approximately 16,000 asbestos-exposure lawsuits pending against Manville, with the potential for thousands more in the following decades due to the sometimes-delayed manifestation of asbestos-related illnesses. Manville decided that it needed to book a $1.9 billion reserve to cover its asbestos-exposure liability, but doing so would have triggered the acceleration of $450 million in outstanding debt and possibly required a forced liquidation of some of Manville’s key business segments. Manville concluded that its only option was filing for bankruptcy, and it filed a chapter 11 petition. A committee comprised mostly of lawyers for asbestos victims (the asbestos committee) moved to dismiss Manville’s bankruptcy case, asserting that Manville had not filed its petition in good faith. Specifically, the asbestos committee alleged that Manville had fraudulently exaggerated its economic troubles to support its chapter 11 filing, and the asbestos committee presented evidence that it claimed supported its allegations regarding Manville’s intentional overcalculation of its financial concerns. In response, Manville presented data demonstrating that it had carefully and conservatively analyzed its financial situation and calculated the projected $1.9 billion debt figure. The bankruptcy court considered the parties’ arguments in ruling on the motion to dismiss.