In re G-I Holdings Inc., No. 01-30135; U.S. Bankruptcy Court (DNJ); opinion by Gambardella, U.S.B.J.; filed August 13, 2012. DDS No. 42-6-xxxx [53 pp.]

On Jan. 5, 2001, G-I Holdings Inc. (G-I) filed a voluntary petition for relief under Chapter 11 of the bankruptcy code and continued to operate its business as a debtor-in-possession. G-I is the successor-in-interest to GAF Corporation (GAF), an entity named in approximately 500,000 asbestos-related lawsuits. As successor-in-interest, G-I remained liable for approximately 150,000 asbestos- related lawsuits filed but unresolved as of the petition date and for asbestos-related claims that would be filed in the future.

The Center for Claims Resolution Inc. (CCR) is a Delaware corporation organized to “administer and arrange for the evaluation, settlement, payment, and defense of asbestos-related bodily injury claims.” The “producer agreement” established the CCR as a claims-handling facility for its members, “producers” of asbestos or asbestos-containing products (participating producers). Members are responsible for paying their apportioned share of liability payments and expenses. Both G-I and the former members have terminated their membership in the CCR.

The CCR filed a proof of claim alleging G-I was liable to the CCR for $299.5 million plus interest, fees and expenses because G-I breached the terms of the producer agreement by failing to pay its share of settlements and expenses.

Each of the former members filed a separate proof of claim seeking to recover monies G-I allegedly should have paid to the CCR as its “share” of asbestos personal-injury settlements, in breach of the producer agreement.

The CCR and G-I reached a settlement agreement. G-I agreed to pay and the CCR agreed to accept a payment that would represent G-I’s entire liability, as of the effective date of the plan, to the CCR for G-I’s share of “liability payments” and “allocated expenses” under the terms of the producer agreement. The settlement agreement was approved by the court.

The district court and the bankruptcy court jointly approved the debtors’ eighth amended joint plan of reorganization.

G-I filed a motion for summary judgment respecting claims of three former members of the CCR: Quigley Co. Inc.; U.S. Gypsum Co.; and Pfizer Inc. G-I argues the former members lack standing to bring breach-of-contract claims against G-I for allegedly breaching the terms of the producer agreement.

Held: The former members do not have standing to bring breach-of-contract claims against G-I for allegedly failing to make payments to the Center for Claims Resolution for the settlement of asbestos-related lawsuits.

The debtors argue first that the producer agreement’s terms explicitly authorize the CCR, not its members, to pursue claims for unpaid shares of settlement and, therefore, the former members are barred from enforcing its provisions against G-I directly.

Second, G-I argues that under Delaware law, because the complained-of breach of contract is not failure to make payments to the former members but rather failure to make payments to the CCR, the former members’ claims are derivative of the CCR’s claims against G-I, which have been prosecuted and settled.

Third, the debtors argue that because the CCR has already settled any potential claims against G-I based on or arising under the producer agreement, there is no claim left for the former members to pursue, and, accordingly, they should seek recourse from the CCR, rather than the debtors.

Reading the producer agreement as a whole, the court finds the participating producers (i) elected to rely exclusively on the CCR to settle and pay asbestos claims and to collect payments from members, and (ii) agreed that on termination of CCR membership, former members would continue to be bound by obligations incurred during the period it was a member. The court concludes the CCR was authorized to resolve G- I’s alleged breach of the producer agreement during the period in which G-I was a member and that the former members are contractually barred from pursuing claims against G-I independently of the CCR.

The court finds, further, G-I’s previous settlement with the CCR, which was approved by the court prior to the confirmation of the eighth amended plan, settled all claims the CCR had against G-I arising out of G-I’s membership in the CCR, including G-I’s alleged breach of the producer agreement by virtue of its failure to pay its share of asbestos-related personal-injury settlements made by the CCR on behalf of its members. Accordingly, the producer agreement does not confer standing on the former members, and their claims are duplicative of the CCR’s and must be dismissed.

Having found the producer agreement did not create an independent right of action, the former members’ standing turns on whether their claims are direct or derivative. The complained-of injury is, according to the former members, their “out-of-pocket” costs to pay more than their originally assessed share of the settlement agreements negotiated by the CCR on behalf of the CCR members because G-I allegedly breached the producer agreement.

Pursuant to the producer agreement, the parties contracted to form the CCR in order to settle asbestos-related claims, and expressly delegated the authority to pursue those claims to the CCR as their agent. They also delegated the authority to pursue collection actions against the members of the CCR. Because the duty to pay the allocated portion of the settlement agreements was owed by G-I to the CCR as an entity under the terms of the contract as agreed to by all of the participating producers, including the former members, the court finds the former members cannot demonstrate injury independently of injury to the CCR. The former members are not entitled to recover directly for G-I’s alleged breach of the producer agreement. The court finds that the appropriate recourse would be for the former members to seek recovery from the CCR.

G-I’s motion for summary judgment is granted. The former members’ claims are disallowed and expunged.

For the reorganized debtors — Dennis J. O’Grady and Mark E. Hall (Riker, Danzig, Scherer, Hyland & Perretti) and Andrew J. Rossman and Scott C. Shelley (Quinn Emanuel Urquhart & Sullivan) amd Marc J. Kurzman (Sandak, Hennesey & Greco). For Pfizer Inc. — Alan J. Brody (Greenberg Traurig). For U.S. Gypsum Company — Dan B. Prieto (Jones Day). For Quigley Company Inc. —Stephen D. Hoffman (Wilk Auslander).