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By suing its asbestos claimants, bankrupt USG Corp. is employing a rarely used tactic to insulate itself from the liabilities of its United States Gypsum Co. unit. USG and nine bankrupt subsidiaries want to separate their assets to pre-empt any attempt by the committee of asbestos claimants in their cases to gain access to the assets as a means for recovering their claims. Chicago-based USG seeks to block an expected substantive consolidation move by the committee and future representative Dean Trafelet, according to the lawsuit. USG filed the suit Nov. 8 with the U.S. Bankruptcy Court for the District of Delaware in Wilmington, where it filed for Chapter 11 protection. The plaintiffs are asking Visiting Judge Judith Fitzgerald to declare that they aren’t liable for the asbestos claims and that all the claims should be directly channeled to the United States Gypsum unit, which is also in Chapter 11. That USG took the unusual step of trying to head off the substantive consolidation issue at the pass reflects its concern that one of its bankrupt affiliates may have distributed asbestos products, said a New York attorney familiar with the case, who requested anonymity. The lawyer pointed to USG’s L&W Supply Corp. and the company’s fear about allegations that the asbestos claimants might make against it regarding asbestos-related products. “L&W never manufactured an asbestos product, but they may have distributed asbestos products, so the issue is whether L&W is liable for the asbestos claims,” the attorney said. “The committee usually turns to substantive consolidation to expand their claims to all the entities, and they’re trying to beat them to the punch in a form of reverse substantive consolidation.” United States Gypsum was the only unit that made asbestos-related products, and only a handful of the more than 100,000 claims have been filed against any of the plaintiffs, the USG lawsuit says. The plaintiffs maintain that the other units were all re-created as separate units during a 1984 reorganization and that United States Gypsum, by itself, has the resources to cover all the asbestos claims, according to the suit. “Although Trafelet and the committee assert otherwise, Gypsum currently has sufficient assets and income to continue to pay its debts as they come due,” the lawsuit reads. Still, trying to stave off substantive consolidation before claimants have even filed a motion seeking it is irregular, according to Sander Esserman of Stutzman, Bromberg, Esserman & Plifka PC in Dallas, an attorney who has represented asbestos claimants in other cases but not this one. “This is unusual in the sense that the company is taking the offensive by acting before the committee to seek to ward off substantive consolidation,” Esserman said. “[The plaintiffs] basically have taken what isn’t an unusual tactic used by committees and made it unusual by turning it on its flip side to try and beat the claimants before they act.” The plaintiffs argue that there is no valid reason for invoking substantive consolidation, piercing the corporate veil, finding successor liability or finding that a fraudulent transfer has taken place to expand the liability, according to the lawsuit. “A declaration of plaintiffs’ rights with respect to these issues would facilitate settlement of asbestos claims … and help achieve permanent resolution of the asbestos liability in these cases,” the lawsuit states. Formed in 1902, USG is a maker of drywall and plaster but removed all asbestos from its products by 1978. The company filed for bankruptcy on June 25, 2001, in an effort to deal with its asbestos-related issues. Copyright �2004 TDD, LLC. All rights reserved.

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