WILMINGTON, Del. - (Mealey's) A Delaware federal judge on Jan. 30 overruled all remaining objections to W.R. Grace & Co.'s Chapter 11 plan of reorganization and confirmed the plan, which includes establishment of a trust to pay asbestos personal injury claims having an estimated total value of more than $6 billion (In re: W.R. Grace & Co., et al. [Garlock Sealing Technologies LLC, et al. v. W.R. Grace & Co., et al.], No. 11-199, D. Del.).
(Opinion. Document #48-120227-002Z. Order. Document #48-120227-003R.)
In 2001, facing more than 65,000 asbestos-related personal injury lawsuits involving more than 129,000 claims, W.R. Grace and 61 related entities (collectively, Grace) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware.
After five hearings and the resolution of numerous objections, the Bankruptcy Court initially approved Grace's joint reorganization plan in 2009. Forty-three objections to the plan were filed by 39 parties, and the Bankruptcy Court then held a 16-day confirmation hearing and reviewed more than 1,100 pages of objections.
The Bankruptcy Court entered an order confirming the plan on Jan. 31, 2011, and 12 parties, including fellow asbestos bankruptcy entity Garlock Sealing Technologies LLC, filed 11 appeals to the plan confirmation ruling. The other appellants are Maryland Casualty Co.; the Official Committee of Unsecured Creditors in W.R. Grace's bankruptcy case; 20 financial institutions known as the Bank Lender Group; Anderson Memorial Hospital; AXA Belgium, as successor to Royale Belge SA; BNSF Railway Co.; Government Employees Insurance Co. and Republic Insurance Co. n/k/a Starr Indemnity & Liability Co.; Her Majesty the Queen in Right of Canada; claimants injured by exposure to asbestos from the debtors' operations in Lincoln County, Mont. (the Libby claimants); and the State of Montana.
The appeals were docketed in the U.S. District Court for the District of Delaware, and Judge Ronald L. Buckwalter consolidated them under the Garlock case, No. 11-199.
The appellants sought to have the plan confirmation overturned based on a number of objections, including a complaint by Garlock that Grace's plan, through joint and several liability, exposes Garlock to any shortfall between payments that will be made by Grace's Asbestos Personal Injury Trust and the company's actual liability share. Garlock, facing approximately 100,000 pending asbestos personal injury claims of its own, filed a Chapter 11 petition in June 2010 in the U.S. Bankruptcy Court for the Western District of North Carolina. Garlock filed a reorganization plan in November that also proposes an asbestos trust under Section 524(g) of the Bankruptcy Code.
Garlock alleged that, as a codefendant with Grace, it has suffered an injury in fact because its alleged rights to contribution and set-off claims would need to be asserted against Grace's trust rather than Grace itself and that these claims would be less valuable under the terms of Grace's plan than they would be outside the bankruptcy. Garlock based its argument on the idea that it would be entitled to seek contribution from Grace for any tort judgments rendered in joint and several liability jurisdictions in which Garlock paid more than its share of liability and for which Grace was also liable.
But Judge Buckwalter said Garlock's argument fails because with the filing of its own bankruptcy, all of Garlock's liabilities also will be channeled to a trust for resolution.
"Given its exit from the tort system and the filing of its own reorganization plan, Garlock will no longer be at risk of paying any joint and several jury verdicts, and therefore will have no reason to seek contribution or set-off from Grace or any other co-defendant," the judge held. "Thus, armed with the protective shield of its own asbestos trust and channeling injunction, Garlock has insulated itself from both its own liability, as well as any shared liability between it and Grace."
Therefore, Garlock failed to show how it suffered any injury required for standing under Article III of the U.S. Constitution to object to Grace's reorganization plan, Judge Buckwalter said. Garlock also did not show that it has "party in interest" standing under Section 1109(b) of the Bankruptcy Code, the judge said.
Judge Buckwalter also approved an $84 million settlement agreement reached in 2010 between Grace and Continental Casualty Co. and Continental Insurance Co. (collectively, Continental), overruling objections to the settlement by the Libby claimants and BNSF. The judge rejected the appellants' arguments that they are entitled to the proceeds of Grace's insurance policies with Continental and that they therefore have additional rights that are infringed upon by entry of the settlement agreement.
Judge Buckwalter held that the settlement meets the factors established in Myers v. Martin (In re Martin) (91 F.3d 389, 393 [3d Cir. 1996]) for assessing and balancing the value of the claim that is being compromised against the value to the estate of the acceptance of the compromise proposal.
"In applying the four Martin factors to the instant dispute, it is evident to the Court that the Bankruptcy Court properly applied and analyzed the Settlement Agreement under the applicable legal standard, and, more importantly, did not abuse its discretion because 'on balance, the settlement benefits the estate,'" the judge said.
Judge Buckwalter also rejected BNSF's argument that it had additional rights under the Continental policies as "additional insureds" and the Libby claimants' argument that under Montana state law, they had rights to Grace's insurance coverage that "vested" at the time of their injuries and that the "vested rights" could not be terminated by the settlement.
W.R. Grace is represented by Laura Davis Jones, James E. O'Neill, Kathleen P. Makowski and Timothy P. Cairns of Pachulski, Stang, Ziehl & Jones in Wilmington; John Donley and Adam Paul of Kirkland & Ellis in Chicago; Deanna D. Boll of Kirkland & Ellis in New York; and Janet S. Baer and Roger J. Higgins of Baer Higgins Fruchtman in Chicago.
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