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In re WR Grace & Co.

United States Court of Appeals, Third Circuit

September 4, 2013

In Re: WR Grace & Co., et al., Debtors Anderson Memorial Hospital, Appellant

Argued June 17, 2013.

On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-11-cv-00199) District Judge: Honorable Ronald L. Buckwalter.

Christopher D. Loizides, Esq. Loizides & Associates, David L. Rosendorf, Esq. Kozyak Tropin & Throckmorton, Daniel A. Speights, Esq. Speights & Runyan Counsel for Appellant, Anderson Memorial Hospital.

John Donley, Esq. (Argued) Lisa G. Esayian, Esq. Adam C. Paul, Esq. Kirkland & Ellis, Laura D. Jones, Esq. Kathleen P. Makowski, Esq. James E. O'Neill, III, Esq. Pachulski Stang Ziehl & Jones, Christopher Landau, Esq. Kirkland & Ellis, Counsel for W.R. Grace, Official Committee of Equity Security Holders, David T. Austern and Garlock Sealing Technologies, LLC.

Roger J. Higgins, Esq. Counsel for W.R. Grace, Official Committee of Equity Security Holders, David T. Austern, Garlock Sealing Technologies, LLC and John M. Thomas.

Andrew N. Rosenberg, Esq. (Argued) Paul, Weiss, Rifkind, Wharton & Garrison, Counsel for David T. Austern, Her Majesty Queen of Canada.

Kevin J. Mangan, Esq. Francis A. Monaco, Jr., Esq. Matthew P. Ward, Esq. Womble, Carlyle, Sandridge & Rice, Counsel for Her Majesty Queen of Canada, Official Committee of Equity Security Holders, David T. Austern, CNA Financial Corp. Loews and State of Montana.

Philip Bentley, Esq. Kramer, Levin, Naftalis & Frankel, Counsel for Official Committee of Equity Security Holders, David T. Austern and John M. Thomas.

Garland S. Cassada, Esq. Susan M. Huber, Esq. Richard C. Worf, Jr., Esq. Robinson Bradshaw & Hinson Brett D. Fallon, Esq. Morris James Counsel for Official Committee Equity Security Holders, David T. Austern and Garlock Sealing Technologies, LLC.

Teresa K.D. Currier, Esq. Saul Ewing 222 Delaware Avenue, Counsel for Official Committee of Equity Security Holders and David T. Austern.

Roger L. Frankel, Esq. Orrick, Herrington & Sutcliffe Richard H. Wyron, Esq. Orrick, Herrington & Sutcliffe, Counsel for David T. Austern.

Alan B. Rich, Esq. (Argued) Counsel for Property Damage Future Claims Representative

Elizabeth M. DeCristofaro, Esq. Ford, Marrin, Esposito, Witmeyer & Gleser, Michael S. Giannotto, Esq. Frederick C. Schafrick, Esq. Goodwin Procter, Counsel for Continental Casualty Co.

Elisa Alcabes, Esq. Mary Beth Forshaw, Esq. Andrew T. Frankel, Esq. Simpson, Thacher & Bartlett Neal J. Levitsky, Esq. Seth A. Niederman, Esq. Fox Rothschild, Counsel for Travelers Casualty & Surety Co.

Mark T. Hurford, Esq. Campbell & Levine, Peter V. Lockwood, Esq. Caplin & Drysdale Suite Counsel for Official Committee of Asbestos Personal Injury Claimants.

Edward C. Toole, Jr., Esq. Pepper Hamilton, Counsel for BNSF Railway Co.

Matthew S. Owen, Esq. Ashley C. Parrish, Esq. Carolyn M. Sweeney, Esq. King & Spalding Thaddeus D. Wilson, Esq. King & Spalding, Counsel for Proposed Amicus Imperial Tobacco Canada Ltd.

Before: AMBRO, FISHER and JORDAN, Circuit Judges.

OPINION

FISHER, Circuit Judge.

Anderson Memorial Hospital ("AMH") first filed suit against W.R. Grace and its affiliates ("Grace")[1] in South Carolina state court in 1992, seeking class-wide redress for property damage caused by asbestos-containing products that Grace had manufactured. Before the resolution of that litigation, Grace filed a petition for Chapter 11 protection. The Bankruptcy Court supervised nearly a decade of related litigation. Most property damage claims against Grace had been settled by 2010, contingent on the approval of an 11 U.S.C. § 524(g) trust and an injunction channeling property damage claims against Grace to that trust for payment. AMH, however, did not settle. The Bankruptcy Court confirmed Grace's reorganization, including a trust and channeling injunction, over AMH's objections. The District Court affirmed.

AMH appeals from the orders confirming Grace's Chapter 11 Plan and approving the trust and channeling injunction. AMH argues that (A) the Plan does not meet the requirements of § 524(g), which provides a mechanism for handling overwhelming asbestos-related liabilities in the Chapter 11 process, (B) the Plan fails to provide equal treatment pursuant to § 1123(a)(4), (C) Grace has not shown that the Plan was proposed in good faith pursuant to § 1129(a)(3), and (D) Grace has not shown that the Plan is feasible pursuant to § 1129(a)(11). On each of these issues, we will affirm the judgment of the District Court.

I.

One aspect of Grace's business is extracting natural resources, refining them, and converting them into manufactured materials used for building construction and insulation. Since the 1980s, Grace has defended itself against hundreds of asbestos-related lawsuits filed by building owners seeking redress for the costs involved in removing Grace products.

AMH owns a hospital complex in Anderson, South Carolina, that used Grace products in its construction. In 1992, AMH filed a class action lawsuit against Grace seeking compensation for asbestos-related property damage in South Carolina state court. The South Carolina court struck out-of-state class members from the AMH complaint—a decision that was not immediately appealable under South Carolina law. Anderson Memorial Hosp. v. W.R. Grace & Co., 1994 WL 1744074 (S.C. Ct. Com. Pl. Aug, 8, 1994). AMH amended its complaint to exclude non-South Carolina buildings and to include damage caused by all kinds of asbestos-containing surfacing material produced by Grace. The South Carolina Circuit Court conditionally certified this class in February 2001. AMH Appendix ("AMHA") at 700193. Grace sought Chapter 11 protection two months later on April 2, 2001, before notice of the South Carolina action had issued to class members.

Early in the Chapter 11 proceedings, Grace sought to establish a bar date for property damage claims and a process for handling related litigation. In April 2001, personal injury ("PI") and property damage ("PD") committees were appointed. The Bankruptcy Court requested proposals in May 2001 for case management plans and the scheduling of the asbestos-related claims.

After the March 31, 2003 deadline for filing claims was established, more than 4, 000 traditional PD claims were filed. [2] Speights & Runyan ("S&R"), counsel for AMH, filed three proofs of claim, including a worldwide class claim, a statewide class claim, and an individual claim. S&R attached a list of 3, 000 putative claimants (including 121 South Carolina claimants) to its worldwide class claim. S&R also filed an individual proof of claim for each of the potential class members it could identify through Grace's sales records. Grace asserts that approximately 2, 000 of the individual claims were filed without any authority from the purported claimant.

Grace filed a Notice of Intent to Object to the PD claims, and some claimants then came forward to object that AMH's counsel had filed claims in their names without authorization. Grace asked S&R to withdraw these claims. The number of PD claims was ultimately reduced from more than 4, 000 to 1, 670, in part because S&R withdrew 586 claims improperly filed on behalf of class claimants and 1, 500 claims that lacked an evidentiary basis. S&R also withdrew approximately 550 additional claims for various other reasons. The parties litigated some additional claims in which S&R's authority was questioned; the Bankruptcy Court disallowed those claims, a ruling that the District Court and this Court later affirmed. In re W.R. Grace & Co., 366 B.R. 302 (Bankr. D. Del. 2007), aff'd, Mission Towers v. W.R. Grace & Co., 2007 WL 4333817 (D. Del. Dec. 6, 2007), aff'd, In re W.R. Grace & Co., 13 F.App'x 134 (3d Cir. 2009). In response to these objections, AMH moved for class certification. That motion was denied on May 29, 2008, and the District Court declined to give leave to appeal—a ruling we declined to review on an interlocutory basis. In re W.R. Grace & Co., 389 B.R. 373, 380 (Bankr. D. Del. 2008), leave to appeal denied, In re W.R. Grace & Co., 2008 WL 4234339, *2 (D. Del. Sept. 4, 2008), interlocutory appeal denied, In re W.R. Grace & Co., No. 08-4829 (3d Cir. Dec. 14, 2009).

Throughout the Chapter 11 process, various parties engaged in settlement negotiations. In fall 2004, an initial settlement effort including S&R failed. In 2006, the late District Judge Samuel Pointer led a mediation including S&R, but the parties did not reach a settlement.

In fall 2006, Grace began to litigate the remaining PD claims. All but 90 of these claims had been withdrawn, disallowed, or settled (contingent on the confirmation of a § 524(g) plan) by February 2009. By the time the District Court issued its opinion in 2012, Grace had settled a total of 407 PD claims (including 119 PD claims S&R agreed to settle) for approximately $150.8 million to be paid in full on the Plan's effective date, assuming a § 524(g) trust is approved.

With the consent of the committee of asbestos PD claimants, Plan Proponents obtained the appointment of Judge Alexander Sanders as a representative of future PD claimants. Plan Proponents negotiated with Judge Sanders and came to an agreement regarding the Plan's treatment of traditional PD claims. Successive drafts of the Plan were circulated to all counsel, and comments were invited. AMH did not provide comments. AMH, for its part, asserts that the Plan was actually the result of a deal negotiated in April 2008 by Grace, the ...


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