## Facts

- Johns-Manville Corporation, a major asbestos manufacturer, filed for Chapter 11 reorganization in August 1982 in the Southern District of New York.
- The bankruptcy court repeatedly extended the debtor’s exclusive period under 11 U.S.C. § 1121 to propose a plan, leaving the incumbent board in effective control of plan filing for more than three years.
- Manville’s board negotiated a “Principle Elements Agreement” with key creditor and asbestos-claimant constituencies that contemplated substantial dilution of existing common equity.
- The Equity Security Holders Committee, representing common stockholders, opposed the proposed structure and sought to influence plan direction.
- A member of the Equity Committee filed an action in the Delaware Court of Chancery to compel Manville to hold an overdue annual shareholders’ meeting to elect directors.
- Manville commenced an adversary proceeding in bankruptcy court seeking to enjoin prosecution of the Delaware action, asserting that the meeting effort threatened the reorganization.
- The bankruptcy court treated the dispute as a core proceeding, granted summary judgment for Manville, and enjoined the Delaware action.
- The district court affirmed, characterizing the Equity Committee’s conduct as a “clear abuse” of shareholder rights aimed at blocking the reorganization or gaining improper leverage.
- The Equity Committee appealed, challenging both bankruptcy jurisdiction and the propriety of the injunction and summary judgment.

## Issues

1. Whether the bankruptcy court had jurisdiction under the Bankruptcy Code and 28 U.S.C. § 157 to enjoin the Delaware shareholder action seeking a meeting and board election.
2. Whether, assuming jurisdiction, the bankruptcy court properly used its equitable authority (including under 11 U.S.C. § 105(a)) to grant summary judgment and enjoin the shareholder meeting based on findings of “clear abuse” and threatened harm to the reorganization.

## Decision

- The Second Circuit held that the bankruptcy court had jurisdiction to consider and grant injunctive relief because the shareholder-meeting dispute was closely connected to the debtor’s ability to formulate and pursue a Chapter 11 plan.
- The court vacated the injunction and reversed the grant of summary judgment, remanding for further proceedings.
- The court concluded the record did not adequately support findings that the shareholder-meeting effort was a “clear abuse” of shareholder rights or that it posed a demonstrated threat of irreparable harm to the reorganization.

## Legal Principles

- Bankruptcy courts may exercise jurisdiction over disputes framed as corporate-governance matters when the dispute directly affects the debtor’s plan formulation and progress in Chapter 11.
- Section 105(a) permits bankruptcy courts to issue injunctions “necessary or appropriate” to carry out the Code, including potentially restraining actions in other fora that would materially threaten reorganization.
- Interference with shareholder franchise rights requires a concrete, developed evidentiary showing; generalized concerns about negotiation leverage or conclusory assertions of harm are insufficient to support summary judgment and broad injunctive relief.
- Shareholders retain a legitimate interest in influencing reorganization outcomes, and using lawful governance mechanisms to improve equity’s position is not inherently abusive.

## Conclusion

The Second Circuit confirmed bankruptcy-court jurisdiction to address shareholder actions that bear directly on Chapter 11 plan development, but required a stronger factual basis before a court may enjoin a shareholder meeting or restrict voting rights in the name of protecting reorganization efforts.


Manville Corp. v. Equity Sec. Holders Comm. (In re Johns-Manville Corp.), 801 F.2d 60 (2d Cir. 1986)