In re W.R. Grace & Co.

• Decision Date: 29 September 2009
• Docket Number: Civil Action No. 08-863.,Bankruptcy Case No. 01-1139.
• Citation: 418 B.R. 511
• Parties: In re W.R. GRACE & CO., et al. State of California Department of General Services, Appellant, v. W.R. Grace & Co., et al., Appellees.
• Court: U.S. District Court — District of Delaware

418 B.R. 511

In re W.R. GRACE & CO., et al.

State of California Department of General Services, Appellant, v. W.R. Grace & Co., et al., Appellees.

Civil Action No. 08-863.

Bankruptcy Case No. 01-1139.

United States District Court, D. Delaware.

September 29, 2009.

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COPYRIGHT MATERIAL OMITTED

Steven J. Mandelsberg, John P. McCahey, Christina J. Kang, Hahn & Hesson LLP, New York, NY, Leslie Carol Heilman, Ballard, Spahr, Andrews & Ingersoll, LLP, Wilmington, DE, for State of California, Department of General Services, Appellant.

James E. O'Neill, III, Kathleen P. Makowski, Timothy P. Cairns, Pachulski, Stang, Ziehl & Jones, LLP, Wilmington, DE, for Appellees.

MEMORANDUM

BUCKWALTER, Senior District Judge.

Currently pending before the Court is the appeal of the State of California, Department of General Services (the "State" or "California") from the October 10, 2008 Order of the United States Bankruptcy Court for the District of Delaware. For the following reasons, the Order of the Bankruptcy Court is reversed.

I. BACKGROUND AND PROCEDURAL HISTORY

The Debtors, W.R. Grace ("Grace") and others (collectively "the Debtors"), initially filed their petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code on April 2, 2001. On March 28, 2003, prior to the bar date for the filing of property damage claims, the State filed Sixteen Claims (the "Sixteen Claims") against the Debtors' estate, alleging property damage from asbestos-containing materials manufactured by the Debtors. (Appendix to Brief of Appellees ("Appellee App.") 066-260.) Each claim involved a different building owned by the State and sought to recover a total of over $130 million in damage. (Id.)

Subsequently, on February 16, 2007, the Debtors moved for summary judgment to disallow and expunge the State's claims, arguing that they were barred by the applicable statute of limitations. (State's Designation of Items to be Included in Record on Appeal ("State's D.I.") No. 4, 4-6.) The motion asserted that the limitations period on those claims began running on January 29, 1990—the date when the State filed a previous action against Grace for damages related to asbestos abatement. More specifically, in 1990, the State of California, together with twenty-nine other states, sought leave to file a complaint with the United States Supreme Court against twenty-six asbestos manufacturers, including Grace (the "Alabama action"). (Appellee App. 029-065.) The proposed complaint set forth the following relevant allegations:

5. Asbestos fibers are known to be a human carcinogen. Inhalation of the asbestos fibers can lead to mesothelioma, lung cancer, asbestosis, and other diseases that are serious, incurable, and often fatal.

6. The Asbestos Companies knew, or should have known, of the link between asbestos exposure and disease. Despite this knowledge, the Asbestos Companies manufactured, distributed, and marketed asbestos-containing building products that were installed in the States' buildings and facilities.

7. The Asbestos Companies had a duty to provide to the States products that were safe for their intended uses or, in the alternative, to warn the States of any dangers posed by their products.

8. The Asbestos Companies breached their duty because the products installed in the States' buildings and facilities were not safe for their intended uses, and at no time did the Asbestos Companies warn the States of the dangers posed by their products.

9. There is no safe level of exposure to asbestos fibers. All asbestos-containing products eventually deteriorate and release their hazardous fibers. Accordingly, an imminent danger exists to the health and welfare not only of the occupants of the States' buildings, but also of the public who visits these buildings.

10. As sovereigns and proprietors, the States must act and have acted to protect the public health and to preserve the value and utility of state-owned properties by abating the hazards created by the manufacture, distribution, and marketing of the asbestos-containing building products of the Asbestos Companies.

11. Abatement of the asbestos-containing products in the States' buildings has and will require a great expenditure of the States' funds.

(Appellee App. 035-36.) Although the complaint defined itself as one for "Equitable Relief Pursuant to the Public Assistance Doctrine," the prayer for relief sought "the costs of asbestos abatement undertaken to remedy the hazards caused by the failure of the Asbestos Companies to perform their duty," as well as "such relief as is equitable and appropriate to effectuate restitution to the States." (Id. at 037-038.) The United States Supreme Court denied the petition for leave to file the complaint via Order dated May 14, 1990. (State's D.I. No. 17.)

On April 9, 2007, in connection with the Debtors' motion for summary judgment based on this prior Alabama action, the Bankruptcy Court held oral argument. Subsequently, the Honorable Judith K. Fitzgerald issued a Memorandum Opinion, dated October 10, 2008, holding that the State's claims were time-barred under both California and Delaware's three-year statute of limitations. (Appellee App. 01-015.) The ruling explained that:

[in the Alabama action,] [t]he States and, therefore, [the Department of General Services] as part of the executive department of the State of California alleged more than the presence of asbestos. They alleged that asbestos contamination existed in state-owned buildings and facilities at the time of the Alabama complaint. Thus, they had actual knowledge of certain contamination and were, at the very least, on inquiry notice of any other asbestos contamination in their buildings in 1990 at the latest. Inasmuch as the putative defendants in the Alabama action included W.R. Grace, it is beyond dispute that California, and therefore, DGS ... knew that asbestos contamination was caused by Grace because the State sought to recover against Grace in the 1990 Supreme Court Alabama action. Under California law, as discussed below, the statute of limitations began to run at that time.

(Appellee App. 06-08 (footnotes omitted).)

The State appealed the decision to this Court on March 26, 2009. (Doc. No. 24.) Grace filed its Appellee Brief on April 13, 2009 (Doc. No. 26), and the State submitted a Reply Brief on April 27, 2009. (Doc. No. 28.) Having thoroughly considered these submissions, the Court now turns to a discussion of the issues at hand.

II. STANDARD OF REVIEW

The district court, sitting as an appellate tribunal, applies a clearly erroneous standard to review a bankruptcy court's factual findings, and a de novo standard to review its conclusions of law. In re Siciliano, 13 F.3d 748, 750 (3d Cir.1994). A finding of fact is clearly erroneous if a reviewing court has a "definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). With mixed questions of law and fact, the court must accept the bankruptcy court's "finding of historical or narrative facts unless clearly erroneous, but exercises `plenary review of the [bankruptcy] court's choice and interpretation of legal precepts and its application of those precepts to the historical facts.'" Mellon Bank, N.A. v. Metro Commc'ns, Inc., 945 F.2d 635, 642 (3d Cir.1991) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981)).

III. DISCUSSION

In its Brief on Appeal, the State sets forth three broad challenges to the Bankruptcy Court's ruling: (1) the Bankruptcy Court erred in concluding that the limitations laws of Delaware applied to the Sixteen Claims; (2) the Bankruptcy Court mistakenly found that the Sixteen Claims were barred under California law; and (3) the Bankruptcy Court erred in finding that the Sixteen Claims were barred under Delaware law.¹ The Court addresses each argument individually.

A. Whether the Bankruptcy Court Erred in Determining that Delaware Limitations Law Applied to the Claims

At the forefront of this appeal stands the question of which state law governs the statute of limitations questions. The Bankruptcy Court declined to conclusively resolve this issue, reasoning as follows:

This court must apply the limitations law of the state in which it sits which, in this case is Delaware. See In re Circle Y of Yoakum, Texas, 354 B.R. 349, 359 (Bankr.D.Del.2006), citing In re PHP Healthcare Corp., 128 Fed.Appx. 839, 843 (3d Cir.2005).... As to its state's residents, Delaware law requires application of the limitations period where the claim arose, unless Delaware's period is shorter. 10 Del.C. § 8121. W.R. Grace is a Delaware corporation. See, e.g., Adv. 01-771, Doc. No. 1, at 6 ¶ 15. Under Delaware law the statute of limitations for damage to real property is three years. Mullen v. Alarmguard of Delmarva, Inc., 1992 WL 114040 at *5 (Del.Super., May 20, 1992) ("the statute of limitations for the claims for damages to real property is 10 Del. C. § 8106,² a three-year statute of limitations"), reversed on other grounds 625 A.2d 258 (Del.1993). California's statute of limitations for damage to real property is also three years. Cal.Code. Civ. Pro. § 338(b).³ Thus, we examine both California and Delaware law. The primary issue is when the statute begins to run. We find that under either statute of limitations, the claims of DGS are barred.

(Appellee App. 04-05 (footnotes and some citations omitted).)

This Court finds that the Bankruptcy Court's reasoning was in error. A statute of limitations is accepted "with all its accoutrements," including laws of accrual. Plumb v. Cottle, 492 F.Supp. 1330, 1336 (D.Del.1980) (quoting Frombach v. Gilbert Assoc., 236 A.2d 363 (Del.1967)). Thus, while the Bankruptcy Court correctly found that both Delaware and California have the same three-year limitations period, it failed to note that California's laws of accrual with...