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purpose is consistent with the Bankruptcy Code." Next, the court addressed the structure of the two section 524(g) trusts proposed by the plan. The court overruled the objection that the PD trust was not a proper trust under section 524(g). The court found that the PD trust satisfied all the requirements, stating: "The first element is met because Grace is a corporate defendant involved in personal injury and property damage lawsuits related to asbestos exposure. Moreover, upon the Plan's execution, the trusts will assume Grace's liabilities for these legal actions. The second element is satisfied because the PD Trust is funded in part by its own securities. Specifically, the PD Trust is largely funded by the Class 7A Deferred Payment Agreement, which constitutes a note for deferred payment. A note, in turn, meets the definitional requirements of a "security" under the Bankruptcy Code. ... Moreover, Grace satisfies the third element of § 524(g) because, upon the occurrence of certain specified contingencies, both the PI and PD Trusts will own a majority share of Reorganized Grace. Finally, the fourth element is met because the assets in the PD Trust will be used to pay Grace's claims and demands related to its outstanding asbestos liabilities. As such, Grace's PD Trust constitutes a "genuine" trust that meets all the requirements set forth in § 524(g)." Next, the court addressed those objections relating to the channeling injunction. The court rejected the argument that the channeling injunction was too ambiguous to be enforced, finding that it "only enjoins the Libby claimants from bringing claims against [the debtor's] insurers for their derivative liability." The court next addressed BNSF's request that the channeling injunction be extended to protect BNSF against claims brought against it that are allegedly derivative of the debtor's conduct. Said the court: "In the instant case, BNSF's alleged liability did not arise by any of the four circumstances provided by § 524(g): BNSF never owned a financial interest in Grace, provided insurance to it, engaged in its management, or entered into a transaction with it that altered Grace's corporate structure. Rather, BNSF's contractual indemnity agreements serve as the crux of its relationship with Grace. It has been explicitly recognized, however, that contractual indemnity agreements that do not otherwise meet the definitional requirements of § 524(g) cannot serve as the link in the chain connecting a third party's liability to the debtor for purposes of extending the channeling injunction to non- debtors. Thus, because BNSF's claims against Grace do not meet the Code's definitional requirements of derivative liability, § 524(g) explicitly precludes the Court from extending injunctive relief to BNSF under these circumstances." Next, the court overruled the objection that the scope of the channeling injunction-extending it to property damage claims-was improper. Finally, the court overruled the objection that the channeling injunction should not be extended to an insurer with whom the debtor had reached a settlement pre-bankruptcy because the insurer did not make a direct contribution to the trust. The court found that extending protection to this insurer was fair and equitable because the funds received by the debtor in the settlement with that insurer had nonetheless been added to the trust by the debtor (along with the debtor's own funds). The court also overruled the Libby claimants' objection that the plan was not fair and equitable because it did not differentiate between product and non-product claimants. They argued that (as non-product, i.e. exposure, claimants, they had "stronger insurance rights" under the debtor's insurance plans, which covered 100% of such claims. Thus, they argued that the insurance company's contribution to the trust should be assigned set values for the product and non-product claims. The court rejected this argument, finding that nothing in section 524(g) required such treatment. Next, the court found that the releases of the debtor's subsidiaries (in settlement of
©2014 William L. Norton III
