State of Montana's Motion For Relief From Automatic Stay To Join W.R. Grace As Third Party Defendant In State Court Asbestos Litigation Is Denied
In re W.R. Grace & Co., Case No. 01-01139, 2007 WL 1129170 (Bankr. D. Del. April 13, 2007) (Judge Judith K. Fitzgerald)
The State of Montana filed a motion for relief from the automatic stay to join debtor W.R. Grace & Co. as a third-party defendant in asbestos-related litigation pending in Montana state courts. The claims asserted in those actions arose out of Grace’s former vermiculite mining and processing operation in Montana.
The United States Bankruptcy Court for the District of Delaware analyzed Montana’s request under the standard articulated by the court in In re Rexene Products Co. and In re Continental Airlines, Inc. That standard requires consideration of the prejudice and hardships to the parties, as well as the likelihood that the creditor would ultimately prevail on the merits. The court denied the motion, finding that the debtor, the bankruptcy estate and the other creditors would suffer great prejudice if Montana were permitted to proceed against the debtor in state court, and that Montana’s claims for indemnity and contribution were premature, but preserved in Montana’s proof of claim.
The State of Montana moved for relief from the automatic stay to join Grace as a third-party defendant in these actions. In deciding the motion, the court applied the three-part test articulated by the United States Bankruptcy Court for the District of Delaware in In re Rexene Products Co. and In re Continental Airlines, Inc. Those cases teach that the court is to consider (i) whether any great prejudice to either the bankruptcy estate or the debtor will result from continuation of the civil suit; (ii) whether the hardship to the non-bankrupt party by maintenance of the stay considerably outweighs the hardship to the debtor; and (iii) the probability of the creditor prevailing on the merits.
The bankruptcy court considered these factors and denied the motion for relief from the automatic stay. The court found that the debtor would suffer substantial hardship if the stay were modified because the debtor petitioned for bankruptcy to address in a single forum its asbestos liabilities. If the State of Montana were permitted to join the debtor in the Montana actions, the debtor would be forced to duplicate its defense efforts, unnecessarily depleting estate resources. This would undermine the purpose of the automatic stay.
In addition, the court determined that going forward with the state court actions would undermine the reorganization process. Discovery in the bankruptcy case on personal injury liabilities and property damage claims was already underway, and trial dates were set, all as prerequisites to the process of crafting a plan of reorganization. If relief were granted, members of the debtor’s organization who were working on the reorganization process would be forced to work on the Montana actions.
Also, it appeared far from certain that judgment would be entered against the state of Montana. Therefore, the debtor would be required to participate in a case before any alleged contribution or indemnity claims even accrued. There was also the risk that, even if such claims were ripe, the outcome of the cases could result in different treatment of those claims than for similar claims within the bankruptcy process, offending the principle of similar treatment for similarly situated creditors.
In sum, Montana failed to show that the balance of hardships tipped in its favor, or that the claims at issue in the state court actions were distinguishable from other asbestos claims that were to be addressed through the bankruptcy case. Montana had filed its proof of claim in the bankruptcy case, and its indemnification and contribution claims would be addressed through the claims resolution process. Therefore, finding that the prejudice to the debtors, the estate and other creditors far outweighed any prejudice to the state, the court denied Montana’s motion.
