Cont'l Cas. Co. v. Carr (In re W.R. Grace & Co.)

• Decision Date: 14 August 2018
• Docket Number: No. 17-1208,17-1208
• Citation: 900 F.3d 126
• Parties: IN RE: W.R. GRACE & CO., et al, Reorganized Debtors Continental Casualty Company; Transportation Insurance Company v. Jeremy B. Carr, et al. Jeremy B. Carr, et al. Appellants
• Court: U.S. Court of Appeals — Third Circuit

900 F.3d 126

IN RE: W.R. GRACE & CO., et al, Reorganized DebtorsContinental Casualty Company; Transportation Insurance Company

v.Jeremy B. Carr, et al. Jeremy B. Carr, et al. Appellants

No. 17-1208

United States Court of Appeals, Third Circuit.

Argued March 6, 2018

Opinion filed: August 14, 2018

Michael Busenkell, Gellert Scali Busenkell & Brown, 1201 North Orange Street, Suite 300, Wilmington, DE 19801, Daniel C. Cohn [Argued], Taruna Garg, Murtha Cullina, 99 High Street, 20th Floor, Boston, MA 02110, Allan M. McGarvey, McGarvey, Heberling, Sullivan & Lacey, P.C., 345 First Avenue East, Kalispell, MT 59901, Counsel for Appellants.

Brian T. Burgess, Michael S. Giannotto [Argued], Goodwin Procter, 901 New York Avenue, N.W., Suite 900 East, Washington, DC 20001, Scott D. Cousins, Evan T. Miller, Bayard P.A., 600 North King Street, Suite 400, Wilmington, DE 19801, Counsel for Appellees.

Robert M. Horkovich, Anderson Kill, 1251 Avenue of the Americas, 42nd Floor, 41-154W, New York, NY 10020, Edward J. Longosz, II, Mark A. Johnston, Kennedy L. Cabell, Eckert Seamans Cherin & Mellott, 1717 Pennsylvania Avenue, N.W., 12th Floor, Washington, DC 20006, Jeffrey C. Wisler, Connolly Gallagher, 1000 West Street, The Brandywine Building, Suite 1400, Wilmington, DE 19801, Counsel for Amici Appellees.

Before: MCKEE, AMBRO, and RESTREPO, Circuit Judges

OPINION OF THE COURT

AMBRO, Circuit Judge

Mass-tort liability of entities with asbestos operations typically results in their filing for bankruptcy protection. The Bankruptcy Code allows a court to supplement a confirmed plan of reorganization by entering an injunction that channels this liability to a trust set up to compensate persons injured by the debtor’s asbestos.

In certain circumstances, channeling injunctions can also protect the interests of non-debtors, such as insurers. The question we answer is whether the claims of plaintiffs in litigation begun in Montana (the "Montana Plaintiffs" or simply "Plaintiffs") fit a channeling injunction’s coverage.

The Plaintiffs are a group of individuals suffering from asbestos disease as a result of exposure to the asbestos mining and processing operations in Libby, Montana (the "Libby Facility") of W.R. Grace & Co. and its related entities (collectively "Grace"). They seek to hold Grace’s insurers, Continental Casualty Company and Transportation Insurance Company (collectively "CNA"), liable under various state-law negligence theories for their injuries (the "Montana Claims"). CNA, however, seeks to enforce a third-party-claims channeling injunction (the "Injunction") entered under Grace’s confirmed plan of reorganization (the "Grace Plan") to bar the Montana Plaintiffs’ action.

As the Montana Claims fit the text of the Injunction and are not excluded from it, we affirm the Bankruptcy Court’s decision as it pertains to this issue. We do not decide, however, whether it could bar the Montana Claims within the limits of 11 U.S.C. § 524(g)(4). Instead, we vacate this portion of the Court’s decision and remand for it to make this determination per the guidelines we note.

I. Background

A. Channeling of Third-Party Claims in Asbestos Bankruptcy

Section 524(g) of the Bankruptcy Code authorizes bankruptcy courts to form a trust and issue an injunction to channel certain claims to that trust in conjunction with a confirmed plan of reorganization in asbestos bankruptcies. In re Quigley Co., Inc. , 676 F.3d 45, 48 (2d Cir. 2012) ; In re Combustion Eng’g, Inc. , 391 F.3d 190, 234 n.46 (3d Cir. 2004), as amended (Feb. 23, 2005). The injunction bars asbestos-related actions against the debtor and claims against certain third parties who are alleged to be directly or indirectly liable for the debtor’s conduct along with claims or demands against it. §§ 524(g)(1)(B), (4)(A)(ii). Instead, those actions are directed to the trust, "generally funded by insurance proceeds and securities in the reorganized debtor," which assumes the asbestos liabilities. In re Plant Insulation Co. , 734 F.3d 900, 906 (9th Cir. 2013) ; see also In re W.R. Grace & Co. , 729 F.3d 311, 315 (3d Cir. 2013) ; In re Federal-Mogul Global Inc. , 684 F.3d 355, 360 (3d Cir. 2012) ; In re Thorpe Insulation Co. , 677 F.3d 869, 877 (9th Cir. 2012), as amended (Apr. 3, 2012).

Congress intended § 524(g) to address the "unique problems and complexities associated with asbestos liability," Combustion Eng’g , 391 F.3d at 234, particularly the "long latency period of many asbestos-related diseases, which ... typically creates a large pool of future claimants whose disease has not yet manifested." W.R. Grace , 729 F.3d at 323 ; see also Plant Insulation , 734 F.3d at 905–06 ; Quigley , 676 F.3d at 58–59 ; H.R. Rep. No. 103-835, at 40 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3348. The statute "seeks to use the broad equitable power of the bankruptcy court to resolve th[is] dilemma in a way that is fair for both present and future asbestos claimants." Plant Insulation , 734 F.3d at 906. It "allows companies to emerge from bankruptcy free of asbestos liability," W.R. Grace , 729 F.3d at 315, and to "facilitate[ ] [their] ongoing viability, which in turn provides ... trust[s] with an ‘evergreen’ source of funding to pay future claims," id. at 320 (citing Combustion Eng’g , 391 F.3d at 234 ) (quotation marks omitted). Many statutory prerequisites designed to ensure fairness must be met before a trust is formed and a channeling injunction entered under § 524(g). Combustion Eng’g , 391 F.3d at 234 n.45 (describing statutory prerequisites under §§ 524(g)(2)(B)(i)(I)–(IV), (ii)(I)–(V) ); see also W.R. Grace , 729 F.3d at 320.

Relevant here is the injunction and channeling of certain actions against CNA as a third party. Under § 524(g)(4)(A)(ii),

[a third-party-claims channeling] injunction may bar any action directed against a third party who is identifiable from the terms of such injunction ... and is alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor to the extent such alleged liability of such third party arises by reason of—

(I) the third party’s ownership of a financial interest in the debtor, a past or present affiliate of the debtor, or a predecessor in interest of the debtor;

(II) the third party’s involvement in the management of the debtor or a predecessor in interest of the debtor, or service as an officer, director or employee of the debtor or a related party;

(III) the third party’s provision of insurance to the debtor or a related party; or

(IV) the third party’s involvement in a transaction changing the corporate structure, or in a loan or other financial transaction affecting the financial condition, of the debtor or a related party[.]

Id. Gateway keys are whether the third parties are identifiable (as opposed to specifically identified) by the injunction and whether the liability results, even if indirectly, from the debtor. Protecting third parties like CNA against actions alleging derivative liability "provide[s] [them with] an incentive ... to contribute to the trust." Quigley , 676 F.3d at 59. They are provided this incentive because continued exposure to indirect asbestos claims would create a "lingering uncertainty regarding the scope of [their] liability [that] would threaten the debtor’s recovery and hinder Congress’s objective of providing an ‘evergreen’ source of funding to pay future claims." W.R. Grace , 729 F.3d at 325 (citing Combustion Eng’g , 391 F.3d at 234 ) (quotation marks omitted).

B. Facts

We have previously discussed extensively the facts surrounding Grace asbestos operations and its bankruptcy. In re W.R. Grace & Co. , 729 F.3d 332, 335–39 (3d Cir. 2013) ; In re W.R. Grace & Co. , 532 F. App'x 264, 265–66 (3d Cir. 2013) ; In re W.R. Grace & Co. , 591 F.3d 164, 167–70 (3d Cir. 2009) ; In re W.R. Grace & Co. , 316 F. App'x 134, 135–36 (3d Cir. 2009) ; In re W.R. Grace & Co. , 115 F. App'x 565, 566 (3d Cir. 2004). So we include here only the pertinent undisputed facts taken largely from the Bankruptcy Court’s decision. See In re W.R. Grace & Co. , No. 01-01139, 2016 WL 6068092, at *1–4 (Bankr. D. Del. Oct. 17, 2016).

CNA issued a variety of insurance policies to Grace between 1973 and 1985, including policies for workers’ compensation and employers’ liability (collectively the "Workers’ Compensation & Employers’ Liability Policies" or "CNA Policies").¹ See Statement of Undisputed Material Facts of Continental Casualty Company and Transportation Insurance Company in Support of Motion for Summary Judgment ("CNA SUF") ¶ 20, In re W.R. Grace & Co., 2016 WL 6068092 (No. 01-01139 ). Within the latter group of CNA Policies, CNA is granted the right to inspect the Libby Facility:

Inspection and Audit: [CNA] ... shall ... be permitted but not obligated to inspect at any reasonable time the workplaces, operations, machinery and equipment covered by this policy. Neither the right to make inspections nor the making thereof nor any report thereon shall constitute an undertaking on behalf of or for the benefit of [Grace] or others, to determine or warrant that such workplaces, operations, machinery or equipment are safe or healthful, or are in compliance with any law, rule or regulation.

Workers’ Compensation & Employers’ Liability Policies No. WC 1205050R (1973–76) at ¶ 4, No. WC 159 9420 (1977–85) at ¶ 4 (emphasis in original).

After Grace filed voluntary chapter 11 petitions in the District of Delaware, the Bankruptcy Court confirmed the Grace Plan. It included the Injunction under § 524(g) barring certain suits against third parties and instead channeling them to an asbestos personal injury trust (the "Asbestos PI Trust") designed to compensate those injured by Grace’s asbestos. The Injunction states in pertinent part:

On and after the Effective Date, the sole recourse of the Holder of an Asbestos PI Claim ... shall be to the Asbestos PI Trust ...[,] and such Holder shall have no right whatsoever at any time to assert its Asbestos PI

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