In re W.R. Grace & Co.
| Decision Date | 31 December 2009 |
| Docket Number | No. 08-3720.,No. 08-3697.,08-3697.,08-3720. |
| Citation | 591 F.3d 164 |
| Court | U.S. Court of Appeals — Third Circuit |
| Parties | In re W.R. GRACE & CO, et al., Debtor. W.R. Grace & Co., et. al., v. Margaret Chakarian; John Does 1-1000; Home Saving Termite Control; Abner Defendants; Carol Gerard; Keri Evans, State of Montana, Appellant in 08-3697. W.R. Grace & Co., Appellant in 08-3720. |
Before: BARRY, FISHER and JORDAN, Circuit Judges.
W.R. Grace & Co. ("Grace") and the State of Montana appeal an order from the United States District Court for the District of Delaware affirming an order from the District's Bankruptcy Court denying Grace's motion to expand a preliminary injunction. The proposed expansion would have enjoined claims against the State of Montana arising from Grace's mining operations near Libby, Montana. Both the District Court and the Bankruptcy Court determined that the Bankruptcy Court lacked jurisdiction under 28 U.S.C. §§ 1334(b) and 157(a) to expand the injunction to enjoin those claims and, therefore, denied the motion. For the following reasons, we will affirm.
This appeal is the fourth to reach us from Grace's ongoing efforts to reorganize under Chapter 11 of the Bankruptcy Code, efforts which began in 2001 when Grace sought shelter from liabilities associated with asbestos litigation.1 Disputes in the case have been aggressively litigated, as our previous three opinions indicate. See In re W.R. Grace & Co., 316 Fed.Appx. 134 (3d Cir.2009); In re W.R. Grace & Co., 115 Fed.Appx. 565 (3d Cir.2004); In re Kensington Int'l Ltd., 368 F.3d 289 (3d Cir.2004).
Grace produces specialty chemicals and materials. As part of its business, from 1963 until 1990, Grace operated a vermiculite mine ten miles north of Libby, Montana. The mine yielded ore which was used to create zonolite. The zonolite contained tremolite, which is alleged to be an especially carcinogenic variety of asbestos. While the mine was operating, it generated tremolite-laden dust that allegedly caused injury to mine workers, their families, and others in the community. Persons claiming to be injured by that asbestos exposure (the "Libby Claimants")2 filed suit against Grace in Maryland state court (the "Lawsuit"). As a result of costs associated with such asbestos litigation, Grace decided to file a petition for relief under Chapter 11 of the Bankruptcy Code.
On April 2, 2001, the same day that Grace filed its Chapter 11 petition, it commenced an adversary proceeding to halt prosecution of the Lawsuit. The Bankruptcy Court promptly granted a temporary restraining order that included a provision enjoining litigation against Grace and its non-debtor affiliates whose purported asbestos liability derived from Grace's alleged liability.
On May 3, 2001, the Bankruptcy Court entered a preliminary injunction pursuant to 11 U.S.C. § 105(a), encompassing the conditions of the temporary restraining order. More specifically, it precluded "All Asbestos-Related and Fraudulent Transfer Claims" against affiliated entities, including claims "against Insurance Carriers alleging coverage from asbestos-related liabilities." (App. at 180-81.) At Grace's request, the May 3rd order named Grace's worker's compensation insurer, Maryland Casualty Company ("MCC"), as an insurance carrier covered by the injunction. The request was based in part on a 1991 Settlement Agreement between Grace and MCC in which Grace agreed to release and indemnify MCC against any future asbestos-related claims against MCC that arose out of Grace's alleged liability. On January 22, 2002, the Bankruptcy Court modified the scope of the preliminary injunction to include "several additional claims and parties and to reinstate the bar against the commencement" of new actions against affiliates directly or indirectly related to Grace's alleged asbestos liability. (App. at 185.)
On February 4, 2002, a group of the Libby Claimants, led by named plaintiff Carol Gerard, sought to modify the preliminary injunction to allow them to pursue claims against MCC. The Bankruptcy Court denied the motion, which, despite a reversal by the District Court, was ultimately affirmed by our Court on appeal. See In re W.R. Grace & Co. (Gerard v. W.R. Grace & Co.), 115 Fed.Appx. 565 (3d Cir.2004) ("Gerard").
Prior to Grace's April 2, 2001 filing for bankruptcy, the Libby Claimants brought lawsuits in the Montana courts against the State of Montana (the "Montana Actions"), alleging that Montana is liable to them because it was negligent in failing to warn them of the risks of asbestos from the Libby mine. On December 14, 2004, the Montana Supreme Court held that Montana had a duty to "gather public health-related information and provide it to the people." Orr v. State, 324 Mont. 391, 106 P.3d 100, 107 (2004); see also id. at 110 . Having established that, under Montana law, the State of Montana owed a duty to the Libby Claimants, the Montana Supreme Court remanded for a "determination by the fact-finder of whether the State breached its duty to the Miners, and if so, whether such breach caused the damages claimed by them." Id. at 118.
On June 9, 2005, understandably reluctant to face potential asbestos liability alone, Montana asked the Bankruptcy Court for relief from the automatic stay of litigation against Grace so that it could implead Grace as a third-party defendant in the Montana Actions.4 Grace opposed that motion, but filed its own motion asking the Bankruptcy Court to expand the preliminary injunction to include actions brought against the State of Montana. Grace argued that its motion should be granted because Grace and Montana share an identity of interests such that the Montana Actions were essentially suits against Grace, which would be harmful to Grace's efforts to reorganize. The Libby Claimants, of course, opposed Grace's motion, claiming that the Bankruptcy Court lacked jurisdiction to enjoin the Montana Actions. They also argued that, even if the Court did have jurisdiction, Grace's motion failed to establish the unusual circumstances or equitable factors required for the issuance of an injunction against a third-party litigant. The State of Montana also filed a response to Grace's motion, in which it stated that it did not object to the motion unless the relief granted would affect certain of its rights. After a hearing on the motions, the Bankruptcy Court stayed the Montana Actions and took the matter under advisement.
On April 16, 2007, the Bankruptcy Court denied Grace's motion to expand the preliminary injunction to encompass the Montana Actions, holding that it lacked subject matter jurisdiction to grant the requested relief. See In re W.R. Grace & Co., 366 B.R. 295, 301 (Bankr.D.Del.2007). After examining 28 U.S.C. §§ 1334(b) and 157(a), and controlling precedent, the Bankruptcy Court concluded that it did not have "related-to" subject matter jurisdiction over the Montana Actions because Grace's bankruptcy estate would not be directly affected by the outcome of those lawsuits. Id. The Court noted that, before there could be any effect on Grace, "Montana must first be found liable in state court and then pursue its claim for indemnification in bankruptcy court." Id.
While the [Montana Supreme Court] found that a duty existed on behalf of the State, the case was remanded for determination of whether the State of Montana breached that duty. If breach is not found, indemnification/contribution is not possible. If breach is found, the Montana Plaintiffs would still be obligated to bring an entirely separate proceeding to receive indemnification. Montana law prohibits the State of Montana from litigating ... against Debtors for either contribution or indemnity during the course of the State Court Actions. A judgment against the State of Montana will not bind Debtors. An intervening adjudication is necessary to affect the estate.
Id. (citations omitted). The Court effectively denied Montana's motion to lift the automatic stay, saying that "the automatic stay remains in effect as to the Debtors and their property ... and nothing in this Opinion and Order authorizes relief from the stay as to any allegation. ..."5 Id. at 302.
The State of Montana and Grace sought leave to appeal, and the District Court allowed them to do so, though it went on to affirm the decision of the Bankruptcy Court.6 See In re W.R. Grace & Co., No. 08-246, 2008 WL 3522453 (D.Del. Aug.12, 2008). Like the Bankruptcy Court, the District Court noted that Grace "will not be bound by a judgment against the State of Montana in the state court actions [because] a separate adjudication is necessary to affect Debtors' estate." Id. at *4. The Court thus held that "related-to subject matter jurisdiction does not exist." Id. at *6.
Grace and Montana filed timely notices of appeal to our Court.
On appeal, Grace and Montana argue that the Bankruptcy and District Courts erred because "a federal court need...
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