In re W.R. Grace & Co.

• Decision Date: 14 December 2006
• Docket Number: No. 01-01139 (JKF).,01-01139 (JKF).
• Parties: In re W.R. GRACE & CO., et al., Debtor(s).
• Court: U.S. Bankruptcy Court — District of Delaware

Page 462

355 B.R. 462

In re W.R. GRACE & CO., et al., Debtor(s).

No. 01-01139 (JKF).

United States Bankruptcy Court, D. Delaware.

December 14, 2006.

COPYRIGHT MATERIAL OMITTED

David W. Carickhoff, Jr., James E. O'Neill, Laura Davis Jones, Laura Davis Jones, Pachulski Ziehl Stang Ziehl Young Jones & Wein, Michael R. Lastowski, Duane Morris LLP, Richard Allen Keuler, Jr., Reed Smith LLP, Robert J. Dehney, Morris, Nichols, Arsht & Tunnell, USA, Rosalie L. Spelman, Janssen Keenan & Ciardi P.C., Stuart B. Drowos, State of Delaware Division of Revenue, William E. Chipman, Jr., Edwards Angell Palmer & Dodge, Wilmington, DE, Paula Ann Galbraith, Chicago, IL, Richard F. Rescho, Law Offices of Christopher E. Grell, Oakland, CA, for Debtor(s).

MEMORANDUM OPINION¹

JUDITH K. FITZGERALD, United States Bankruptcy Judge.

The matters before the court are the opposing Motions for Summary Judgment² 2 of the Debtors, W.R. Grace & Company ("Grace"), and a group of property damage claimants, Zonolite Attic Insulation Claimants ("ZAI Claimants"), and the ZAI Claimants' Motion for Partial Summary Judgment³ regarding the threshold issue of what science demonstrates with regard to whether or not the presence of ZAI⁴ in the home creates an unreasonable risk of harm. The court has consolidated the actions of the ZAI Claimants pursuant to Fed.R.Civ.P. 42(a) for purposes of determining this common question.⁵ The ZAI Claimants argue that there is no material issue of fact and that ZAI creates an unreasonable risk. Grace disagrees that ZAI creates an unreasonable risk and argues that Claimants have not met their burden to proffer valid scientific evidence sufficient to create a genuine issue of material fact on whether ZAI creates unreasonable risk of harm.

At the time Grace filed bankruptcy, a number of putative class actions in various state and federal courts had been filed for property damages against Grace on behalf of homeowners whose properties contained Zonolite Attic Insulations.⁶ Upon filing bankruptcy, Grace proposed that the claims be adjudicated through the filing of individual proofs of claim and counsel for ZAI Claimants argued for a single proof of claim to be litigated on behalf of a class of ZAI Claimants. Pursuant to § 501(c) of the Bankruptcy Code, Grace filed proofs of claim on behalf of the ZAI Claimants.⁷ ZAI Claimants moved to strike these proofs of claim⁸ and the court denied their motion at a May 20, 2002, hearing and permitted Claimants to file amended proofs of claim if they chose.⁹ Claimants filed amended proofs of claim on May 30, 2002.¹⁰ Grace filed objections to ZAI Claimants' proofs of claim¹¹ and ZAI Claimants filed a response asserting the validity of their claims.¹²

Prior to a decision on whether to require individual proofs of claim or consider a single proof of claim on behalf of a class, and in order to determine whether a ZAI claims bar date should be established and, if so, what type of notice program would be appropriate, this court decided to address the threshold issue of whether ZAI poses an unreasonable risk of harm, under the assumption that any property damage claim ultimately arises from the risk of someone getting sick from the contaminated property.¹³ The court was concerned, based on the alleged huge number of potential claims (published estimates provided by Claimants put the number of homes with ZAI at 3 million-30 million),¹⁴ that special procedures would be needed to administer this claims process, and the type of process would be informed by the determination of the risk of harm.

On October 21, 2002, this court entered an order setting forth a pretrial discovery and motion practice schedule pertaining to the anticipated science trial ("ZAI Science Trial"). The scope of discovery was limited to what science demonstrates with regard to whether ZAI creates an unreasonable risk of harm.¹⁵ Months of discovery ensued, including scientific testing by numerous experts. The parties engaged in protracted, but unsuccessful, settlement talks. After receiving volumes of evidence and briefs from both sides, a hearing on cross motions for summary judgment (the ZAI Science Trial) was held on October 18, 2004.¹⁶ Additional efforts to settle were unavailing. The matters are now ripe for decision.

Claimants filed a Motion for Partial Summary Judgment (the docket entry reads "Motion for Summary Judgment") requesting that the court issue an order pursuant to Fed.R.Civ.P. 56(d) specifying that there is no material issue of fact but that ZAI is contaminated with asbestos and ZAI releases asbestos fibers into the air when disturbed during foreseeable homeowner activities in the attic.¹⁷ Claimants also filed a Motion for Summary Judgment requesting judgment as a matter of law that "ZAI can contaminate homes/pose an unreasonable danger upon disturbance" and "ZAI Claimants have viable claims under tort and/or other legal theories in this bankruptcy proceeding."¹⁸ Claimants proposed that a claims fund be established to compensate presently identified claimants and that provisions should be made for not-yet-identified claimants as homeowners encounter ZAI during foreseeable disturbance activities. Although Claimants have asked for partial summary judgment pursuant to Fed.R.Civ.P. 56(d), that rule provides that "[i]f ... judgment is not rendered upon the whole case ... the court ... shall if practicable ascertain what material facts exist without substantial controversy ... [and] shall thereupon make an order specifying the facts that appear without substantial controversy...." Accordingly, we will deny, without prejudice, the motion for partial summary judgment and will enter an order finding that there is no material issue of fact but that ZAI is contaminated with asbestos and ZAI releases asbestos fibers into the air when disturbed during foreseeable homeowner activities.

Grace also filed a Motion for Summary Judgment on the threshold issue of whether ZAI creates an unreasonable risk of harm, contending that there is insufficient evidence that ZAI poses such a risk.¹⁹ Grace requested that, in accordance with this finding, the court dismiss the property damage claims of the ZAI Claimants.

The only issue before the court is the nature of the product — specifically, whether the physical characteristics, use, and location of ZAI in homes creates an unreasonable risk of harm. This determination is a critical factor in assessing the viability of the property damage claims and the practicability of the proposed procedures for administration of the claims process. All three motions at bench are based on this premise and we will discuss collectively unless otherwise indicated in the text. In addressing the threshold question of unreasonable risk, Claimants argued that a finding that ZAI was contaminated with asbestos and released fibers during foreseeable homeowner activities is enough evidence to satisfy state consumer protection statutes and to support a finding of unreasonable risk. Grace argued that contamination and release alone are not enough, but that the fiber release from ZAI must be at levels which pose unreasonable risk of harm to human health. We agree with Debtors' argument as will be explained below.

BACKGROUND

Zonolite Attic Insulation ("ZAI") was sold by Grace as a supplemental insulation for unfinished attics of existing homes. The Zonolite Company, which was acquired by Grace in 1963, began sales of the product as early as the 1920s²⁰ and Grace ceased production and sale of ZAI in 1984.²¹ ZAI is comprised of an expanded mineral known as vermiculite. The vermiculite in ZAI was mined from Zonolite Mountain, located ten miles from Libby, Montana. Vermiculite is not asbestos; however, one of the tramp²² minerals contained in the vermiculite ore mined at Libby was asbestos. After mining this crude vermiculite ore and prior to furnace expansion, Grace milled the ore to remove impurities such as asbestos. Grace contends that the percentage of asbestos remaining in ZAI is generally less than one percent. It is the asbestos content which is the catalyst for the property damage claims involving ZAI.²³

The Environmental Protection Agency ("EPA") and the Agency for Toxic Substances and Disease Registry ("ATSDR") acknowledge that the scientific studies thus far fail to establish a scientific basis to show a relationship between ZAI and health risks²⁴ but recommend that the public take precautions until more is known.²⁵ They recommend that homeowners leave VAI²⁶ undisturbed and, if homeowners choose to remove it, that they hire professionals.²⁷ These recommendations have been consistent for over 20 years. "People who have homes with vermiculite insulation should become informed, not alarmed," said Stephen L. Johnson, EPA's Assistant Administrator for the Office of Prevention, Pesticides and Toxic Substances ("OPPT"), in an OPPT study which refused to declare a public health emergency in Libby, Montana, despite the argument that ZAI has the potential to create additional asbestos exposure risks to the community.²⁸ "If our message of 20 + years is adhered to, the risk is minimal."²⁹ The EPA has been reluctant to make any changes to its longstanding guidance to homeowners.³⁰

We note that the EPA's advice to homeowners is not a codified regulation; it is an EPA advisory issued in connection with a "National Consumer Awareness Program" on VAL.³¹ Even if it were a regulation, it would not necessarily establish a standard from which to determine liability for property damage. As the court stated in In re Agent Orange Product Liability Litig., 597 F.Supp. 740 (E.D.N.Y.1984), aff'd, 818 F.2d 145 (2d Cir.1987), cert. denied sub nom. Pinkney v. Dow Chemical Co., 484 U.S. 1004, 108 S.Ct. 695, 98 L.Ed.2d 648 (1988):

The distinction between avoidance of risk through regulation and compensation for injuries after the fact is a fundamental one. In the former, risk assessments may lead to control of a toxic...