Cont'l Cas. Co. v. Carr (In Re W.R. Grace & Co.)Cont'l Cas. Co. v. Carr (In Re W.R. Grace & Co.)
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
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
OPINION OF THE COURT
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
A. Channeling of Third-Party Claims in Asbestos Bankruptcy
Congress intended
Relevant here is the injunction and channeling of certain actions against CNA as a third party. Under
[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[.]
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
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 Claim . . . against . . . any other Asbestos Protected Party . . . . [A]ll such Holders permanently and forever shall be stayed, restrained, and enjoined from taking any and all legal or other actions or making any Demand against any Asbestos Protected Party . . . for the purpose of, directly or indirectly, claiming, collecting, recovering, or receiving any payment, recovery, satisfaction, or any other relief whatsoever on, of, or with respect to any Asbestos PI Claims . . . other than from the Asbestos PI Trust . . . .
It applies “only to the extent[] provided by [§] 524(g) . . . .” Excluded from the Injunction‘s reach are “rights or obligations [that] pertain solely to coverage for” “[c]laim[s]
Along with the Grace Plan, CNA and Grace entered into a settlement agreement (the “Settlement Agreement“) in which CNA agreed to contribute $84 million over a period of six years to the Trust, $13 million of which could be reimbursed for any payments CNA makes for asbestos personal injury claims that are not successfully channeled to the Trust.
C. Procedural History
Plaintiffs filed the Montana Claims in that State against CNA, see CNA SUF ¶ 38, alleging it breached a duty of care. Specifically, the Montana Claims allege:
161. CNA was negligent in [its] undertaking to provide [industrial hygiene] services:
(a) in failing to recommend or require sufficient measures and standards for employee education, warning the workers, their families and the community, protection against asbestos dust going into workers’ homes and into the community, dust control (including housekeeping, ventilation, exhaust air cleaning and maintenance) and medical monitoring;
(b) in failing to sufficiently test and monitor the effectiveness of dust control at all locations where there was dust;
(c) in failing to obtain medical information on the incidence of disease and deaths at the Grace operations from Grace and from public agencies; and
(d) in failing to sufficiently study and use the information on dust control and asbestos disease that it did have. 162. CNA‘s representatives with expertise in industrial hygiene inspected the Grace Libby operations.
163. In so doing, CNA had a duty of reasonable care to the Libby workers, their families and to the community.
164. CNA was negligent in inspection of the Grace Libby operations, in failing to report and act upon known hazardous conditions due to insufficient worker education, insufficient warnings to workers, their families and to the community, insufficient dust control . . . , and insufficient medical monitoring.
165. As a direct and proximate result of the negligence of CNA, Plaintiffs have suffered from asbestos[-]related bodily injuries and incurred the damages alleged herein.
CNA filed a complaint in the Bankruptcy Court seeking a declaratory judgment that the Montana Claims fall under the Injunction and accordingly must be enjoined and channeled to the Trust. The Montana Plaintiffs filed a motion to dismiss and CNA filed a motion for summary judgment. The Asbestos PI Trust filed a brief as amicus curiae in support of CNA. The Court, after hearing oral argument on the motions, decided the Montana Claims must be enjoined and thus denied the Montana Plaintiffs’ motion to dismiss and granted summary judgment to CNA. W.R. Grace, 2016 WL 6068092, at *1.
In answering the former, the Court relied on our opinion in Combustion Engineering, 391 F.3d 190, and the Bankruptcy Court‘s ruling in In re Pittsburgh Corning Corp., 453 B.R. 570 (Bankr. W.D. Pa. 2011). It found that the Montana Claims are “derivative,” i.e., they seek to hold CNA directly or indirectly liable for Grace‘s conduct, because the underlying injuries are based on exposure to Grace‘s asbestos products or operations.
The Court then decided the Montana Claims can only exist “by reason of” CNA‘s provision of insurance to Grace because any alleged duty CNA has to conduct industrial hygiene services arises from the parties’ insurance policies. The Court also ruled the Injunction does not exceed the Bankruptcy Court‘s jurisdiction because the Trust has a contractual obligation to reimburse CNA for liability from personal injury claims (including the Montana Claims) affecting the assets of the bankruptcy estate. Finally, it rejected the Montana Plaintiffs’ assertion that CNA‘s providing insurance is not legally relevant to the Montana Claims, finding instead that they stem from CNA‘s insurance to Grace.
Second, the Court addressed Plaintiffs’ contention that (1) the Montana Claims trace to CNA‘s Workers’ Compensation & Employers’ Liability Policies covering Grace, and (2) thus the Injunction does not enjoin those actions. It found the exception to the Injunction is for
II. Jurisdiction and Standard of Review
We granted a direct appeal under
III. Discussion
We review the issues on appeal in the order they were briefed (which differs from their order in the Bankruptcy Court‘s decision).
A. Applying the Injunction to the Montana Claims
We turn first to the Montana Plaintiffs’ argument that the Injunction does not, by its terms, bar the Montana Claims. We have reviewed the Grace Plan, the Settlement Agreement, and the CNA Workers’ Compensation & Employers’ Liability Policies. We conclude that the CNA Policies are among those covered by the Injunction‘s terms, though buried
Claims barred by the Injunction include tort claims made against certain protected third parties directly or indirectly resulting from personal injury and exposure to Grace‘s asbestos. Third parties protected from these claims include CNA and other insurance companies who entered into settlement agreements with Grace. They are protected, however, only to the extent their policies are identified as subject to a settlement agreement.
Twenty-five CNA policies are identified in the Settlement Agreement, along with a catch-all for “all known and unknown policies, or portions of policies,” issued by CNA to Grace through June 30, 1985 that actually or potentially provide insurance coverage for asbestos-related claims of bodily injury. These asbestos-related claims include any made against Grace or CNA “arising in whole or in part (directly or indirectly) by reason of” CNA‘s provision of insurance to Grace, if these claims involve bodily injury caused by Grace‘s asbestos. The Settlement Agreement specifically covers any claims alleging CNA has a duty to provide industrial hygiene, conduct inspections, provide warnings or educational services, or protect third parties from the danger of asbestos exposure. As noted, excluded from protection are any rights or obligations that pertain solely to CNA‘s coverage for state workers’ compensation benefits.
The Montana Plaintiffs argue the CNA Workers’ Compensation & Employers’ Liability Policies are not included among the 25 listed policies and thus are not covered by the Injunction. Our review, however, shows that CNA entered into a settlement agreement with Grace, that the catch-all for all “known and unknown policies” includes the
Plaintiffs further contend that claims against CNA may not be enjoined because it is a workers’ compensation insurer. This argument misreads the workers’ compensation carve-out: it excludes from the Injunction rights or obligations that pertain solely to workers’ compensation benefits.2 CNA provided not only workers’ compensation coverage but also employers’ liability coverage; provisions of the CNA Policies that pertain to both workers’ compensation and employers’ liability coverage do not “pertain solely” to workers’ compensation and thus are not excluded. The provisions relevant to the Montana Claims—those that give CNA the right, but not the obligation, to inspect the Libby Facility‘s industrial hygiene—apply to both types of coverage. They appear outside the sections on employers’ liability and workers’ compensation, and, unlike other provisions in the CNA Policies, they contain no indication that they apply to one type of coverage to the exclusion of the other. Accordingly, claims tied to these provisions are barred by the Injunction‘s terms.
The Montana Plaintiffs ask us to interpret the Plan and Settlement Agreement‘s terms to preserve all of CNA‘s duties as a workers’ compensation insurer and all rights of workers’ compensation claimants (which, they allege, state law requires). To do otherwise, they claim, would impermissibly preempt state law. We agree with the Bankruptcy Court and see no conflict between our interpretation of these
B. The Permissible Scope of the Injunction under Section 524(g)(4)
To repeat,
i. The “Derivative Liability” Requirement
The Montana Plaintiffs contend that the Montana Claims do not seek to hold CNA “directly or indirectly liable for the conduct of, claims against, or demands on” Grace and, as a result, may not be enjoined under
In Combustion Engineering we interpreted the relevant statutory language to permit channeling injunctions to enjoin “actions against third parties . . . where a third party has derivative liability for the claims against the debtor.” 391 F.3d at 234. By contrast, “the plain language of the statute makes clear[] [it] does not permit the extension of a channeling injunction to include . . . non-derivative third-party actions,” i.e., “claims against [third parties that] allege independent liability[] wholly separate from any liability involving [the debtor].” Id. at 235. With this understanding, we are not convinced by either the Montana Plaintiffs’ or CNA‘s interpretation of
We first set aside the Montana Plaintiffs’ attempt to constrain the meaning of “direct[] or indirect[] liab[ility] for
Additionally, 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.4 Theories of liability exist that involve a third-party‘s wrongdoing but are no less derivative of a principal‘s
Likewise, CNA‘s proposed interpretation is equally unpersuasive: that a debtor‘s product caused a plaintiff‘s injury is not enough to render a third party liable “for the conduct of, claims against, or demands on the debtor.” After our decision in Combustion Engineering, the Bankruptcy Court agreed with CNA‘s position and found claims against protected third parties based on the claimant‘s injury from or exposure to the debtor‘s asbestos products were “derivative.”6
The involvement of the debtor‘s asbestos is relevant, but not dispositive. For instance, where the third-party‘s liability is based on exposure to a non-debtor‘s asbestos, it is clearly not derivative of the conduct of or a claim against the debtor. See Combustion Eng‘g, 391 F.3d at 231. But there may be cases in which the involvement of the debtor‘s product is only incidental (for example, if a piece of building material containing Grace asbestos in a CNA office fell and
The proper inquiry is to review the law applicable to the claims being raised against the third party (and when necessary to interpret state law) to determine whether the third-party‘s liability is wholly separate from the debtor‘s liability or instead depends on it.7 This does not require the reviewing court to decide state-law claims on the merits. It does, however, require it to ascertain what liability under the relevant law demands. We do not undertake this analysis here because we have not been fully briefed on which state‘s law applies under a choice-of-law analysis or on what that state‘s law requires for CNA to be liable as alleged in the Montana Claims. Instead, we vacate this portion of the Bankruptcy Court‘s decision and remand for it to make this determination.
Though we rely on the plain language of the statute, we note this mode of analysis is also supported by the structure and purpose of the Bankruptcy Code as it pertains to asbestos liability in bankruptcy. The incentive for third parties, particularly insurers, to contribute to an asbestos personal injury trust is their diminished exposure to asbestos liability from the asbestos debtor‘s conduct or claims against it. Protecting these third parties from derivative exposure
ii. The “Statutory Relationship” Requirement
Plaintiffs and CNA contest whether a third-party‘s “alleged liability . . . arises by reason of” its statutory relationship to the debtor,
We do not disturb the Bankruptcy Court‘s assumption that CNA‘s provision of insurance to Grace must be a “legally relevant factor” to its alleged liability.8 But even
C. Jurisdiction
Next, the Montana Plaintiffs argue the Settlement Agreement provision allowing for $13 million in reimbursements to CNA for any payments made for asbestos personal injury claims does not confer jurisdiction on the Bankruptcy Court to enjoin the Montana Claims. Whether the Court had jurisdiction was not an issue before it. Rather, the Court discussed its jurisdiction in the context of addressing the Montana Plaintiffs’ argument that third-party-claims channeling injunctions under
We agree with CNA‘s argument that the Montana Plaintiffs misread our precedent in Combustion Engineering and jurisdiction was not an issue before the Court. Thus we address the issue only briefly. In that case, we reiterated our oft-repeated Pacor standard for “related to” jurisdiction in bankruptcy: a proceeding is “related to” a Chapter 11 proceeding if “the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.” 391 F.3d at 226 (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984), overruled in part by Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (1995)) (emphasis omitted); see also Nuveen Mun. Trust v. WithumSmith Brown, P.C., 692 F.3d 283, 293–95 (3d Cir. 2012). “‘[R]elated to’ jurisdiction [exists] over actions [against] non-debtors involv[ing] contractual indemnity obligations between the debtor and non-debtor that automatically result in indemnification liability against the debtor.” Combustion Eng‘g, 391 F.3d at 226. Such is the case here, as the Trust is obligated by contract to indemnify CNA up to $13 million for its asbestos personal injury liability within the meaning of
IV. Conclusion
We affirm the Bankruptcy Court‘s decision that the Montana Claims are included in the terms of the Injunction. We vacate its decision that the Montana Claims may be enjoined under
Thus we affirm in part and vacate and remand in part to the Bankruptcy Court.