Section 524(g) of the Bankruptcy Code is a unique and powerful tool that provides the means for a debtor plagued with massive asbestos liabilities to reorganize by channeling such claims into a trust. While asbestos bankruptcies are becoming less frequent, precedent construing Section 524(g) remains important because the use of channeling injunctions outside the context of asbestos liability is often influenced by Section 524(g) precedent, as in In re Continental Airlines, 203 F.3d 203 (3d Cir. 2000). For that reason, a recent U.S. Court of Appeals for the Third Circuit opinion, In re W.R. Grace & Co., Nos. 12-1521/12-2904, 2013 U.S. App. LEXIS 18346 (3d. Cir. Sept. 4, 2013), is noteworthy for its confirmation that, in the face of some creative arguments to the contrary, a channeling injunction under Section 524(g) can indeed bind “all asbestos-related claims” against a debtor, including indirect claims from a governmental body for indemnification and contribution arising from an alleged failure to warn.
The Third Circuit’s opinion arose from W.R. Grace & Co.’s ongoing attempts through Chapter 11 to resolve its present and future asbestos liabilities. To accomplish that goal, the debtor and its creditors committees proposed a joint plan of reorganization that, pursuant to Section 524(g), sought to impose a channeling injunction to funnel all of its asbestos liabilities to trusts created to assume and satisfy them.
