3rd Circuit Rejects Garlock’s Appeal Of Grace’s Plan For Lack Of Injury, Standing

PHILADELPHIA — (Mealey’s) Chapter 11 debtor Garlock Sealing Technologies Inc. does not have standing to object to fellow debtor W.R. Grace & Co.’s confirmed plan of reorganization because Garlock cannot show that it will be harmed by the plan, the Third Circuit U.S. Court of Appeals held July 24 (In re:  W.R. Grace & Co., et al. [Garlock Sealing Technologies LLC, et al. v. W.R. Grace & Co., et al.], No. 12-2807, 3rd Cir.). 

(Opinion available.  Document #48-130826-004Z.

Reorganization Plan 

The reorganization plan for W.R. Grace, which filed for Chapter 11 bankruptcy in 2001 in the U.S. Bankruptcy Court for the District of Delaware along with dozens of related companies (collectively, Grace), was confirmed by the Bankruptcy Court in 2011.  The joint plan establishes two asbestos trusts to compensate personal injury claimants and property owners.  The personal injury trust — one of the largest ever created to compensate asbestos victims — is to be funded with more than $3 billion in cash, stock, warrants, insurance proceeds and deferred payments from Grace, its insurers and third parties.  The second trust will contain about $112 million for property damage claims to be paid in full on the plan’s effective date. 

Although the plan was approved by 99.51 percent of asbestos personal injury claimants, it still faced objections by 12 parties.  But in January 2012, U.S. Senior Judge Ronald L. Buckwalter of the District of Delaware overruled all of the objections, affirmed the Bankruptcy Court’s findings confirming the plan and issued an injunction channeling asbestos claims to the trusts. 

After Judge Buckwalter denied a motion for reconsideration and entered an amended opinion and an order again confirming Grace’s plan, eight parties appealed the rulings to the Third Circuit.  The judge and the Third Circuit both denied bids to stay plan confirmation until the appeals are decided, and three appeals were voluntarily dismissed after Grace resolved the parties’ objections.  The Third Circuit heard arguments June 17 on all five of the remaining appeals. 

Contribution, Setoff 

One of the appeals was filed by Garlock, a manufacturer of engineered industrial products that formerly used some of Grace’s asbestos-containing materials in its products.  The two companies were named as co-defendants in thousands of personal injury lawsuits in the decades prior to Grace’s bankruptcy, and Garlock filed its own Chapter 11 petition in 2010 in the Western District of North Carolina due to pending asbestos claims. 

Garlock says that because of the prospect of joint liability with Grace, it has contribution rights against Grace and setoff rights against plaintiffs that obtain recovery from Grace.  However, in confirming Grace’s reorganization plan, the Delaware Bankruptcy Court overruled Garlock’s objections to the plan, finding that Garlock had “not established party in interest standing in Grace’s bankruptcy case” and, therefore, did not have standing to object to the joint plan. 

Judge Buckwalter agreed with the Bankruptcy Court, concluding on appeal that Garlock lacked bankruptcy standing because it “has not articulated how it has suffered any injury.” 

Article III Standing 

The Third Circuit, in a nonprecedential opinion written by Circuit Judge Kent A. Jordan, joined by Circuit Judges Thomas L. Ambro and D. Michael Fisher, concurred with the judge’s finding that Garlock does not satisfy the requirements for party-in-interest standing under Article III of the U.S. Constitution because it fails to show that it has suffered an injury in fact. 

The panel said Garlock’s allegations do not give it standing under Reilly v. Ceridian Corp. (664 F.3d 38, 41 [3d Cir. 2011]), which requires that there be some “invasion of a legally protected interest that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.” 

While Garlock claims that Grace’s reorganization plan threatens to diminish contribution payments and setoff amounts it may receive from Grace in future cases, Garlock never asserted contribution or setoff rights in the 10 years following Grace’s bankruptcy filing, the Third Circuit said. 

“Garlock’s alleged future injury can thus only be called speculative, and it fails to satisfy Article III’s requirements for standing,” the panel held. 

‘Possible Future Injury’ 

Further, the Third Circuit said, even the possibility of future claims against both Grace and Garlock does not provide standing for Garlock because the claims must also produce judgments or settlements in order for Garlock to be entitled to contribution or setoff. 

“Far from being ‘certainly impending,’ Garlock’s alleged injury is therefore contingent on the occurrence of events that may never happen, and indeed may never have happened previously, making it more ‘conjectural or hypothetical’ than ‘actual or imminent.’  As the [U.S.] Supreme Court has made clear, such ‘[a]llegations of possible future injury do not satisfy the requirements of Article III,’” the panel held, citing Whitmore v. Arkansas (495 U.S. 149, 158 [1990]). 

The Third Circuit affirmed the District Court judge’s ruling denying Garlock standing to object to Grace’s plan because “Garlock failed to demonstrate an injury in fact as required by Article III and the Bankruptcy Code.” 

Counsel 

Garlock is represented by Garland S. Cassada, Susan M. Huber and Richard C. Worf Jr. of Robinson Bradshaw & Hinson in Charlotte, N.C., and Brett D. Fallon and Eric J. Monzo of Morris James in Wilmington, Del. 

Grace is represented by Laura Davis Jones, James E. O’Neill and Kathleen P. Makowski of Pachulski, Stang, Ziehl & Jones in Wilmington; John Donley, Lisa G. Esayian and Adam Paul of Kirkland & Ellis in Chicago; Christopher Landau of Kirkland & Ellis in Washington, D.C.; and Roger J. Higgins of Law Offices of Roger J. Higgins in Chicago. 

The Official Committee of Asbestos Personal Injury Claimants is represented by Peter V. Lockwood of Caplin & Drysdale in Washington and Mark T. Hurford of Campbell & Levine in Wilmington.

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