Cont'l Cas. Co. v. Carr (In re W.R. Grace & Co.)
| Decision Date | 15 September 2021 |
| Docket Number | No. 20-2171,20-2171 |
| Citation | 13 F.4th 279 |
| Parties | IN RE: W.R. GRACE & CO., et al., Reorganized Debtors Continental Casualty Company; Transportation Insurance Company, Appellants v. Jeremy B. Carr; Julie L. Gifford; Gloria G. Harris; Joyce Lundvall; Edward D. Stefanatz; Fred O. Bache; Jack L. Jensen ; Melba C. Weston; Ruby R. Hagner; Kerry L. Beasley; William G. Corbett ; Amanda K. Foss; Tammy Sue Lang; William E. Deshazer; Johnny G. Jellesed; Lorraine B. Sichting; Martin H. Krebs; Kenneth B. Neubauer; L. Vinson ; Laurie A. Waller; Shirline E. Almeida; Ignacio C. Almeida; Thomas F. Erickson; Russell S. Barnes; Sandra L. Barnes; Phyllis A. Haugen; Dennis L. Welch |
| Court | U.S. Court of Appeals — Third Circuit |
Brian T. Burgess [ARGUED], Michael S. Giannotto, Goodwin Procter LLP, 1900 N Street, Northwest, Washington, DC 20036, Gerard Justin Cedrone, Goodwin Procter LLP, 100 Northern Avenue, Boston, MA 02210, Evan T. Miller, Bayard, PA 600 N. King Street, Suite 400, Wilmington, DE 19801, Counsel for Appellants
Daniel C. Cohn [ARGUED], Murtha Cullina, 99 High Street, 20th Floor, Boston, MA 02110, Taruna Garg, Murtha Cullina, 177 Broad Street, 16th Floor, Stamford, CT 06901, Michael Busenkell, Gellert Scali Busenkell & Brown, LLC, 1201 N. Orange Street, Suite 300, Wilmington, DE 19801, Allan M. McGarvey, McGarvey, Heberling, Sullivan & Lacey, PC, 345 First Avenue East, Kalispell, MT 59901, Counsel for Appellees
Mark A. Behrens, Shook, Hardy & Bacon LLP, 1800 K Street NW, Suite 1000, Washington, D.C. 20006, Counsel for Amicus American Casualty Insurance Association
Jeffrey C. Wisler, Connolly Gallagher LLP, 1201 N. Market Street, 20th Floor, Wilmington, DE 19801, Edward J. Longosz, II, Eckert Seamans Cherin & Mellott, LLC, 1717 Pennsylvania Avenue NW, Suite 1200, Washington, DC 20006, Counsel for Amicus Maryland Casualty Company
Robert M. Horkovich, Anderson Kill, PC, 1251 Avenue of the Americas, New York, NY 10020, Counsel for Amicus WRG Asbestos Personal Injury Trust
Before: KRAUSE, PHIPPS, and FUENTES, Circuit Judges.
Because of the long latency period of asbestos disease, debtor companies in asbestos-related bankruptcies face a large and uncertain pool of future claimants.1 This raises two related problems: first, debtor companies may not be able to emerge from bankruptcy without a true sense of their future liabilities; and second, if these companies cannot emerge from bankruptcy, future claimants may not have access to redress for asbestos-related harm.2 Section 524(g) of the Bankruptcy Code attempts to solve both of these problems. It enables bankruptcy courts to establish a trust for future claimants as part of a debtor company's reorganization plan, and, through the resulting channeling injunction, diverts all claims against the debtor to the trust.3 This ensures both that future claimants are assured restitution, and that debtor companies can survive bankruptcy without the threat of future asbestos suits.4
Largely in order to encourage contributions to the trust, certain third parties may also benefit from a § 524(g) channeling injunction.5 However, these protections do not extend to all claims brought against third parties. In order to conform with the statute, (1) these claims must be "directed against a third party who is identifiable from the terms of such injunction" and (2) the third party must be "alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor"; in addition, (3) "such alleged liability" must arise "by reason of" one of four statutory relationships, including, as is relevant here, "the third party's provision of insurance to the debtor or a related party."6 These requirements strike a balance between providing contributing third parties freedom from "continued exposure to indirect asbestos claims," and "ensur[ing] fairness" for future claimants.7
Only the second and third requirements, referred to as the "derivative liability" and "statutory relationship" requirements, respectively, are at issue in this case. In In re W.R. Grace & Co. (" Grace I "),8 we instructed the Bankruptcy Court on the appropriate analysis for determining whether these requirements were met. Because we conclude that the Bankruptcy Court misapplied our guidance, we vacate the decision below. We hold that the claims at issue meet the derivative liability requirement, but that we cannot, on the record before us, determine whether they meet the statutory relationship requirement. Accordingly, we again remand to the Bankruptcy Court for the limited purpose of developing the record on this point so that it can determine in the first instance whether the required statutory relationship exists here. This panel will retain jurisdiction over any future appeals.
This case stems from the confirmed Chapter 11 bankruptcy plan of W.R. Grace & Co. ("Grace"). Grace's troubles have been well-documented in the Federal Reporters,9 so we will only recite the facts necessary for the resolution of this appeal.
Grace operated an asbestos mining and processing facility in Libby, Montana from 1963 until 1990. Faced with thousands of asbestos-related suits, Grace filed for Chapter 11 bankruptcy. When it emerged, its reorganization plan provided for a several-billion-dollar asbestos personal-injury trust to compensate existing and future claimants. Pursuant to § 524(g)(4), all asbestos-related personal injury claims against Grace were to be enjoined and channelled through the trust (the "Grace Injunction").
Appellants (collectively, "CNA") provided general liability, workers’ compensation, employers’ liability, and umbrella insurance policies to Grace at the Libby mine from 1973 to 1996. As part of its insurance contracts with Grace, CNA was granted the right to inspect the Libby operation and to make loss-control recommendations. After twenty-six years of litigation regarding the scope of CNA's coverage of Grace's asbestos liabilities, Grace and CNA entered into a settlement agreement, the terms of which ensured that CNA would be protected by Grace's channeling injunction. In return, CNA agreed to contribute $84 million to the trust. The terms of the settlement also provided that the trust would indemnify CNA for up to $13 million if it was held liable for certain asbestos-related claims, including tort claims premised on CNA's alleged failure to warn third parties about the mine's dangers.
Appellees (collectively, the "Montana Plaintiffs") are a group of individuals who worked at the Libby mine and now suffer from asbestos disease. They sued several defendants in Montana state court, asserting various tort claims including negligence against CNA (the "Montana Claims"). The Montana Claims are based on allegations that CNA was aware of the asbestos exposure at the Libby operation and the dangers associated with it, and that it incurred a duty to protect and warn the Libby workers of these dangers when it undertook to provide them with "industrial hygiene services," as well as when it inspected the mine.10 By failing to fulfill this duty, CNA allegedly caused the Montana Plaintiffs’ asbestos-related injuries.11
In response to the Montana suit, CNA filed an adversary complaint in Bankruptcy Court seeking a declaration that the Montana Plaintiffs’ claims were barred by the Grace Injunction. The Montana Plaintiffs filed a motion to dismiss, and CNA filed for summary judgment. The Bankruptcy Court denied the Montana Plaintiffs’ motion and granted CNA's.12 The Montana Plaintiffs appealed, and we affirmed in part, vacated in part, and remanded. In Grace I , we concluded that the Grace Injunction, by its own terms, barred the Montana Claims. However, we declined to decide whether these claims met § 524(g) ’s derivative liability and statutory relationship requirements, in part because we had not been fully briefed on what law to apply. Instead, we remanded the case back to the Bankruptcy Court with instructions on how to analyze these requirements. On remand, the Bankruptcy Court entered summary judgment in favor of the Montana Plaintiffs (the "Bankruptcy Decision"). CNA timely filed the instant appeal.
The Bankruptcy Court had jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. We have jurisdiction to review a direct appeal from the Bankruptcy Court pursuant to 28 U.S.C. § 158(d)(2).13 We review the Bankruptcy Court's grant of summary judgment de novo .14
On appeal, CNA maintains that the Montana Claims satisfy both the derivative liability and statutory relationship requirements. While we agree with the former, the record is currently insufficient to decide the latter. We will therefore remand to the Bankruptcy Court for the limited purposes of developing the record and making an initial determination as to whether the statutory relationship requirement is met.
We begin our analysis where we left off in 2018. In Grace I , the Montana Plaintiffs argued that their claims were not derivative because they were based on CNA's own misconduct, and, therefore, did not seek to recover from CNA's insurance policies for Grace's liabilities.15 CNA argued that the claims were derivative because Grace's asbestos was indisputably the "but-for" cause of the Montana Plaintiffs’ injuries.16 We rejected both proposed frameworks, finding "the former [to be] overly narrow and the latter [to be] overly broad."17
With respect to the Montana Plaintiffs’ argument, we noted that while actions for insurance proceeds were surely "attempt[s] to hold the insurer ‘directly liable’ for claims against its insured ... nothing in the statute's text supports indirect insurer liability only where a claimant seeks to recover from insurance proceeds."18 Moreover, "that a third party is alleged to have engaged in some wrongdoing is not enough to render a claim against it independent if its liability depends on the debtor's liability."19
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