Nos. 13-3335, 13-3336

June 17, 2014 (Date Decided)

Judge Fisher

For Appellant U.S. Gypsum: Rachel S. Bloomekatz of the Ohio bar, and Brad B. Erens and Brian J. Murray of the Illinois bar (Jones Day). For Appellant Quigley: John P. DiIorio (Shapiro Croland) and Stephen D. Hoffman of the New York bar (Wilk Auslander).

For Appellees: Mark E. Hall and Dennis J. O’Grady (Riker, Danzig, Scherer, Hyland & Perretti) and Andrew J. Rossman, Scott C. Shelley, and Jacob J. Waldman of the New York bar ( Quinn, Emanuel, Urquhart & Sullivan)

Due to the rising number of asbestos-related personal injury lawsuits, a group of producers of asbestos and asbestos-containing products, including United States Gypsum Co., Quigley Co. Inc., and the predecessor-in-interest of G-I Holdings Inc., formed the Center for Claims Resolution as a non-profit non-stock Delaware corporation, to administer asbestos claims on behalf of its members. Their producer agreement concerning Center for Claims resolution established the center’s mechanics and the members’ obligations.

After G-I failed to pay its share due to pay personal injury settlements and cover the center expenses, the center commenced ADR against it. U. S. Gypsum and Quigle, had to pay additional sums to cover G-I’s obligation. G-I then filed for bankruptcy. The Center, U.S. Gypsum and Quigley filed proofs of claims, the latter two seeking to recover the sums they paid to the center to cover G-I’s obligations.

The Bankruptcy Court concluded that the center was authorized to resolve G-I’s breach but that the producer agreement barred U.S. Gypsum and Quigley from pursuing claims against G-I. The district court affirmed.

Applying Delaware law, the court says that to determine whether U.S. Gypsum and Quigley, now former members of the center, can maintain a breach of contract action against G-I under the producer agreement, it must give priority to the parties’ intentions as reflected in the agreement. Looking to the agreement, it says that if the case involved only G-I’s nonpayment of its obligations to the center, the former members would be unable to maintain their action because they would not yet have suffered damages. However, once they were required to make additional payments to cover the shortfall caused by G-I’s non-payment, they suffered damages and accrued a cause of action for breach of contract and that Section X of the agreement reserves that right. It also holds that the plain language of Section X is consistent with the overall purpose of the agreement and that allowing the former members to sue G-I under Section X is consistent with the other provisions in the agreement.

The court concludes that the Bankruptcy Court erred in finding that the former members’ claims were derivative of the center’s claims and that permitting the former members to recover would result in an impermissible double recovery.

The court vacates the district court order affirming the Bankruptcy Court’s order granting summary judgment in G-I’s favor and remands the matter.