Continental Insurance v. Thorpe Insulation Co., 671 F.3d 1011

Background

Thorpe Insulation's asbestos-related liabilities led to settlement with Continental in 2003, including Assignment and Establishment Warranties.
Settlement created no release of direct-action rights of claimants, but did release Thorpe's claims against Continental.
Continental asserted Thorpe breached the Settlement by acquiring Settling Insurers' rights and by aiding §524(g) plan formation and trust funding.
Thorpe filed for Chapter 11 in 2007; arbitration under Wellington Agreement disputes stayed and later disputed.
Bankruptcy court held the claim was core, declined arbitration, and disallowed Continental's claim as a matter of law; district court affirmed with remand on prepetition direct-action allegations.
On remand, the bankruptcy court again denied arbitration and granted summary judgment, disallowing Continental's claim in full; district court affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Arbitration availability in core bankruptcy	Continental argues core claim should be arbitrated.	Thorpe argues bankruptcy policy and §524(g) centralization preclude arbitration.	Bankruptcy court had discretion to deny arbitration; arbitration would conflict with bankruptcy aims.
Enforceability of prepetition waivers under Bankruptcy Code	Assignment/Establishment Warranties forbid Thorpe's prepetition actions.	Prepetition waivers cannot override federal bankruptcy protections, thus unenforceable.	Prepetition waivers are unenforceable to the extent they would contravene Bankruptcy Code protections.
Effect of assignment to §524(g) trust on Assignment Warranty	Acquiring/assigning Settling Insurers' rights breached Assignment Warranty.	Trust assignment was necessary for plan implementation and not a breach.	Assignment to the §524(g) trust did not breach the Assignment Warranty; assets transferred for plan implementation.
Establishment Warranty and plan-related actions	Thorpe's collaboration with claimants to structure/seek plan breached Establishment Warranty.	Such conduct is integral to bankruptcy plan formation and not a breach.	Establishment Warranty claims resolved in favor of Thorpe; actions tied to §524(g) plan did not breach.
Remand direct-action claims and discovery posture	Continental should be allowed discovery and arbitration for standalone prepetition direct-action issue.	Remand issues remained intertwined with bankruptcy administration; discovery unnecessary.	Discretion affirmed; discovery denied and claim disallowed as a matter of law.

Key Cases Cited

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (Supreme Court 1983) (federal policy favoring arbitration with possible statutory exceptions)
In re Elec. Mach. Enters., 479 F.3d 791 (11th Cir. 2007) (core vs non-core proceedings; discretion to deny arbitration when conflict with bankruptcy)
In re Mintze, 434 F.3d 222 (3d Cir. 2006) (McMahon standard; arbitration may be denied in core bankruptcy matters)
In re Nat'l Gypsum Co., 118 F.3d 1056 (5th Cir. 1997) (centralization and efficiency concerns in bankruptcy arbitration)
In re U.S. Lines, Inc., 197 F.3d 631 (2d Cir. 1999) (centralization, efficiency; work within bankruptcy framework)