Bankruptcy – Refusal to Lift Automatic Stay – Reorganization Effort

The bankruptcy court did not abuse its discretion in refusing to lift the automatic stay because DBMP’s Chapter 11 filing to pursue a §524(g) asbestos trust was a legitimate, non–bad-faith reorganization effort and lifting the stay would undermine judicial economy and the equitable treatment of present and future claimants.

We affirmed.

On appeal, we considered whether the bankruptcy court properly denied motions to lift the automatic stay imposed after DBMP LLC filed for Chapter 11 bankruptcy to address massive asbestos liabilities. Claimants are among tens of thousands of plaintiffs who sued DBMP (as successor to CertainTeed’s asbestos liabilities) in state tort actions. They sought relief from the stay under 11 U.S.C. §362(d), arguing that DBMP filed for bankruptcy in bad faith because it is solvent, well-funded, and allegedly capable of paying all claims outside bankruptcy.

The bankruptcy court denied their motions, applying the Fourth Circuit’s framework from In re Robbins, which requires balancing prejudice to the debtor’s estate against hardship to the movant. The court found that lifting the stay would significantly harm the reorganization effort, undermine judicial economy by returning tens of thousands of asbestos cases to state courts, and jeopardize the equitable treatment of present and future claimants under a § 524(g) trust. It also concluded that granting relief would effectively dismantle the bankruptcy case. The district court affirmed, and we likewise affirmed.

The background centers on CertainTeed’s decades-long exposure to asbestos litigation. Since 2002, it incurred over $2 billion in resolving more than 300,000 claims and still faced approximately 60,000 pending cases, with projections of continuing claims for decades due to the latency of asbestos-related diseases. In 2019, CertainTeed undertook a Texas “divisional merger,” allocating asbestos liabilities to DBMP and transferring related funding rights through an uncapped funding agreement with New CertainTeed. DBMP then filed for Chapter 11 to pursue a reorganization under 11 U.S.C. §524(g), a provision enacted specifically to address large-scale asbestos liabilities through the creation of a trust that channels all present and future claims into a single forum.

On appeal, the claimants contended that the “Texas Two-Step” maneuver demonstrated bad faith and that a solvent company should not invoke Chapter 11. We did not review the legality of the divisional merger or the overall propriety of the Chapter 11 filing, but only whether “cause” existed to lift the stay.

While recognizing that bad faith can constitute “cause” under §362(d), such a showing requires both subjective bad faith and objective futility, as articulated in cases like Carolin Corp. v. Miller. The bankruptcy court found no evidence that DBMP acted with improper intent or that pursuing a §524(g) plan was futile. To the contrary, the record demonstrated that DBMP faced substantial ongoing and future liabilities of the type Congress specifically intended § 524(g) to address. The statute does not require insolvency, and Congress designed it to manage long-tail asbestos exposure in a fair and centralized manner.

Affirmed.

Herlihy v. DBMP LLC (Lawyers Weekly No. 001-045-26, 58 pp.) (Paul V. Niemeyer, J.) Appealed from the U.S. District Court for the Western District of North Carolina, at Charlotte (Kenneth D. Bell, J.) ARGUED: Jonathan Ruckdeschel, THE RUCKDESCHEL LAW FIRM, LLC, Ellicott City, Maryland, for Appellants. C. Kevin Marshall, JONES DAY, Washington, D.C., for Appellee. ON BRIEF: Thomas W. Waldrep, Jr., Chris W. Haaf, Diana S. Johnson, WALDREP WALL BABCOCK & BAILEY PLLC, Winston-Salem, North Carolina; John L. Steffan, St. Louis, Missouri, Clayton L. Thompson, MAUNE RAICHLE HARTLEY FRENCH & MUDD, LLC, New York, New York, for Appellants. Gregory M. Gordon, Dallas, Texas, Jeffrey B. Ellman, Atlanta, Georgia, Sarah Welch, JONES DAY, Cleveland, Ohio; Garland S. Cassada, Richard C. Worf, ROBINSON, BRADSHAW & HINSON, P.A., Charlotte, North Carolina, for Appellee. Natalie D. Ramsey, Davis Lee Wright, ROBINSON & COLE LLP, Wilmington, Delaware; Kevin C. Maclay, Todd E. Phillips, Jeffrey A. Liesemer, CAPLIN & DRYSDALE, CHARTERED, Washington, D.C., for Amicus Curiae. U.S. Court of Appeals for the Fourth Circuit