729 F.3d 311 (3rd Cir. 2013), 12-1521, In re W.R. Grace & Co.

Docket Nº:12-1521/12-2904
Citation:729 F.3d 311
Opinion Judge:JORDAN, Circuit Judge.
Party Name:In Re: W.R. Grace & Co., et al., Debtors Her Majesty the Queen in Right of Canada, Appellant in 12-1521 the State of Montana, Appellant in 12-2904
Attorney:Jacqueline Dais-Visca, Senior Counsel, Ontario Regional Office, Toronto, Ontario; Kevin J. Mangan, Francis A. Monaco, Jr. [ARGUED], Matthew P. Ward, Womble, Carlyle, Sandridge & Rice, Wilmington, DE, Counsel for Appellant her Majesty the Queen In Right of Canada by the Attorney General of Canada....
Judge Panel:Before: AMBRO, FISHER and JORDAN, Circuit Judges.
Case Date:September 04, 2013
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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729 F.3d 311 (3rd Cir. 2013)

In Re: W.R. Grace & Co., et al., Debtors Her Majesty the Queen in Right of Canada, Appellant in 12-1521 the State of Montana, Appellant in 12-2904

Nos. 12-1521/12-2904

United States Court of Appeals, Third Circuit

September 4, 2013

Argued: June 17, 2013.

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[Copyrighted Material Omitted]

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On Appeal from the United States District Court for the District of Delaware. (D.C. No. 11-cv-199). District Judge: Hon. Ronald L. Buckwalter.

Jacqueline Dais-Visca, Senior Counsel, Ontario Regional Office, Toronto, Ontario; Kevin J. Mangan, Francis A. Monaco, Jr. [ARGUED], Matthew P. Ward, Womble, Carlyle, Sandridge & Rice, Wilmington, DE, Counsel for Appellant her Majesty the Queen In Right of Canada by the Attorney General of Canada.

Kevin J. Mangan,Francis A. Monaco, Jr. [ARGUED], Matthew P. Ward, Womble, Carlyle, Sandridge & Rice, Wilmington, DE, Counsel for Appellant State of Montana.

John Donley [ARGUED], Lisa G. Esayian, Adam C. Paul, Kirkland & Ellis, Chicago, IL; Roger J. Higgins, Chicago, IL; Laura D. Jones, Kathleen P. Makowski, James E. O'Neill, III, Pachulski Stang Ziehl & Jones, Wilmington, DE; Christopher Landau, Kirkland & Ellis, Washington, DC, Counsel for Appellee W.R. Grace & Co.

Mark T. Hurford, Campbell & Levine, Wilmington, DE; Peter V. Lockwood [ARGUED], Caplin & Drysdale, Washington, DC, Counsel for Appellee Official Committee of Asbestos Personal Injury.

Elisa Alcabes, Mary Beth Forshaw, Andrew T. Frankel, Simpson, Thacher & Bartlett, New York, NY; Robert J. Dehney, Morris, Nichols, Arsht & Tunnell, Wilmington, DE; Neal J. Levitsky, Seth A. Niederman, Fox Rothschild, Wilmington, DE, Counsel for Appellee Travelers Casualty & Surety Co.

Roger L. Frankel [ARGUED], Orrick, Herrington & Sutcliffe, Washington, DC, Counsel for Appellee David T. Austern, Asbestos PI Future Claimants Representative.

Mark M. Maloney, Thaddeus D. Wilson, King Spalding LLP, Atlanta, GA; Ashley C. Parrish, Matthew S. Owen, Carolyn M. Sweeney, King & Spalding LLP, Washington, DC, Counsel for Amicus Curiae Imperial Tobacco Canada Limited.

Before: AMBRO, FISHER and JORDAN, Circuit Judges.


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JORDAN, Circuit Judge.

The State of Montana (" Montana" ) and Her Majesty Queen Elizabeth II in Right of Canada (" the Crown" )1 appeal the June 11, 2012 order2 of the United States District Court for the District of Delaware affirming the Bankruptcy Court's confirmation of the plan of reorganization of W.R. Grace & Co, et al . (" Grace" ).3 We conclude that the District Court correctly denied Montana's and the Crown's objections to plan confirmation, and we will accordingly affirm.

I. Background

A. The Grace Bankruptcy

This appeal arises from Grace's ongoing efforts to reorganize under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101, et seq., in a manner that resolves all of its present and future asbestos liabilities. The company, which has manufactured and sold specialty chemicals and construction materials for more than a century, began facing asbestos-related lawsuits in the 1970s. Those lawsuits were based on alleged harm caused by a number of Grace's products and activities, including its operation of a vermiculite mine in Libby, Montana. Grace operated the mine from 1963 to 1990, and during that period the mining process released asbestos-containing dust into the atmosphere and allegedly sickened hundreds of area residents. Grace also had to confront many property damage lawsuits, including claims seeking recovery

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for the removal of asbestos-containing products from homes and businesses.

As a result of Grace's production of asbestos-containing materials, Montana and the Crown have been subject to asbestos-related lawsuits due to their alleged failure to warn their citizens of the risks posed by Grace's products and activities. Montana was named as a defendant in approximately 210 cases in Montana state courts, based on allegations that Montana officials failed to warn people in the vicinity of the vermiculite mine that they were at risk of asbestos exposure. Some of the cases also involved claims that Montana aided and abetted Grace's allegedly unlawful activities. In 2004, the Montana Supreme Court held that the state had a duty to warn residents of " workplace conditions known to be hazardous to health," but the court did not resolve whether Montana had breached that duty. Orr v. State, 2004 MT 354, 324 Mont. 391, 106 P.3d 100, 110, 118 (Mont. 2004). The state settled all of those cases for $43 million in 2011. As for the Crown, it has been named as a defendant in several failure-to-warn class action lawsuits involving property damage and personal injury claims arising from the use of " Zonolite Attic Insulation" (" ZAI" ), a Grace insulation product that contains trace amounts of asbestos. The Crown further asserts that there may be future asbestos claims against it. Because of their exposure to asbestos liability, Montana and the Crown contend that they are entitled to contribution and indemnification from Grace.4

By 2001, the number of asbestos-related lawsuits against Grace had grown to 65,000, which threatened the company's financial viability and prompted it to file for Chapter 11 protection. Grace hoped that it could use § 524(g) of the Bankruptcy Code, 11 U.S.C. § 524(g), to establish a means for resolving the thousands of present and future asbestos-related claims against the company. That provision, discussed in depth herein, allows a company like Grace to set up a trust that will assume its asbestos liabilities. The statute likewise authorizes an injunction to channel all asbestos-related claims to such a trust. See 11 U.S.C. § 524(g)(1)(A), (2)(B). Section 524(g) thus allows companies to emerge from bankruptcy free of asbestos liability, but only if the particular channeling injunction in the case satisfies certain prerequisites, including that it be " fair and equitable" to future claimants. See id . § 524(g)(4)(B)(ii).

It took Grace and its creditors' committees seven years of contentious negotiations and litigation to reach an agreement regarding the basic structure of the company's reorganization. The litigation included a protracted dispute over estate assets, which focused on Grace's transfer of billions of dollars to two former affiliates, as well as numerous disagreements with Grace's insurance providers. Those disputes eventually settled, resulting in the allocation of more than 1.5 billion dollars to a proposed § 524(g) trust.

Grace also worked to resolve disputes with the nearly 130,000 claimants who brought pre-petition asbestos personal injury and property damage claims. The company successfully settled with the vast majority of claimants bringing what came to be called " traditional" property damage claims -- i.e., claims that do not involve ZAI -- and it reached global agreements addressing the resolution of present and future ZAI property damage claims. With regard to the personal injury claims, Grace and the claimants engaged in extended

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negotiations over the estimated value of Grace's personal injury liabilities and the corresponding amount needed to adequately fund a § 524(g) trust. In April 2008, the Bankruptcy Court held an " estimation trial" to resolve those questions. At that trial, representatives for the personal injury claimants, which included the personal injury creditors' committee (the " PI Committee" ) and a court-appointed future claimants' representative, presented expert testimony that estimated Grace's liability to be somewhere between 6.3 and 7.4 billion dollars. Grace's experts, on the other hand, put the company's liability at 468 million dollars. Given that disparity, the parties opted for settlement and agreed to a term sheet that created the essential structure of a joint plan.

B. The Joint Plan

Soon after that settlement in April 2008, Grace, the PI Committee, the future claimants' representative, and the equity committee proposed a Joint Plan of Reorganization (the " Plan" or the " Joint Plan" ),5 the central pillars of which are two trusts -- a personal injury trust and a property damage trust -- that will assume all of Grace's current and future asbestos liabilities. The Joint Plan also provides for a § 524(g) channeling injunction, which will send all asbestos-related claims against Grace (and certain protected third parties), including future claims, to the trusts, allowing the protected parties to be " unconditionally, irrevocably and fully released" from " any and all Asbestos-Related Claims." (J.A. at 200117.) As its name suggests, the personal injury trust will assume all of Grace's direct and indirect asbestos personal injury liabilities.6 It is funded by the 1.5 billion dollars obtained through settlements with Grace's insurers and former affiliates, by an initial payment from Grace of 450 million dollars, by a warrant to acquire 10 million shares of Grace common stock at 17 dollars a share, and by deferred cash payments from Grace of 100 to 110 million dollars per year through 2033.7 In total, those funding sources will provide more than 3 billion dollars to the trust. The property damage trust will likewise assume all of the protected parties' direct and indirect property damage liabilities, including ZAI property damage claims, and it is funded by an initial payment of 180 million dollars, and a subsequent payment of 30 million dollars.8 Some of that money will then be transferred to a special fund that will be used to compensate Canadian ZAI property damage claimants.

In addition to being separately funded, the two trusts proposed by the Joint Plan have separate mechanisms for resolving

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