In Re W.R. Grace & Co.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

Nos. 12-1521/2904

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In Re: W.R. Grace & Co., et al., Debtors

Her Majesty the Queen in Right of Canada,

Appellant in 12-1521

The State of Montana,

Appellant in 12-2904

_______________

On Appeal from the United States District Court

for the District of Delaware

(D.C. No. 11-cv-199)

District Judge: Hon. Ronald L. Buckwalter

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Argued

June 17, 2013

Before: AMBRO, FISHER and JORDAN, Circuit Judges.

(Filed: September 4, 2013)

_______________

Jacqueline Dais-Visca

Senior Counsel

Ontario Regional Office

130 King Street West - #3400

Toronto, Ontario M5X1K6

Kevin J. Mangan

Francis A. Monaco, Jr. [ARGUED]

Matthew P. Ward

Womble, Carlyle, Sandridge & Rice

222 Delaware Avenue - #1501

Wilmington, DE 19801

Counsel for Appellant her Majesty the Queen

In Right of Canada by the Attorney General of Canada

Kevin J. Mangan

Francis A. Monaco, Jr. [ARGUED]

Matthew P. Ward

Womble, Carlyle, Sandridge & Rice

222 Delaware Avenue - #1501

Wilmington, DE 19801

Counsel for Appellant State of Montana

John Donley [ARGUED]

Lisa G. Esayian

Adam C. Paul

Kirkland & Ellis

300 N. LaSalle Street

Chicago, IL 60654

2

Roger J. Higgins

111 E. Wacker Drive - #2800

Chicago, IL 60601

Laura D. Jones

Kathleen P. Makowski

James E. O’Neill, III

Pachulski Stang Ziehl & Jones

919 N. Market Street – 17th Fl.

Wilmington, DE 19801

Christopher Landau

Kirkland & Ellis

655 15th Street NW - #1200

Washington, DC 20005

Counsel for Appellee W.R. Grace & Co.

Mark T. Hurford

Campbell & Levine

222 Delaware Avenue - #1620

Wilmington, DE 19801

Peter V. Lockwood [ARGUED]

Caplin & Drysdale

One Thomas Circle, NW - #1100

Washington, DC 20005

Counsel for Appellee Official Committee of Asbestos

Personal Injury

3

Elisa Alcabes

Simpson, Thacher & Bartlett

425 Lexington Avenue

New York, NY 10017

Robert J. Dehney

Morris, Nichols, Arsht & Tunnell

1201 North Market Street

P.O. Box 1347

Wilmington, DE 19899

Mary Beth Forshaw

Simpson, Thacher & Bartlett

425 Lexington Avenue

New York, NY 10017

Andrew T. Frankel

Simpson, Thacher & Bartlett

425 Lexington Avenue

New York, NY 10017

Neal J. Levitsky

Fox Rothschild

919 North Market Street

Citizens Bank Center

Suite 1300

Wilmington, DE 19801

4

Seth A. Niederman

Fox Rothschild

919 North Market Street

Citizens Bank Center

Suite 1300

Wilmington, DE 19801

Counsel for Appellee Travelers Casualty & Surety Co

Roger L. Frankel [ARGUED]

Orrick, Herrington & Sutcliffe

1152 15th Street, N.W.

Columbia Center

Washington, DC 20005

Counsel for Appellee David T. Austern, Asbestos PI Future

Claimants Representative

Mark M. Maloney

Thaddeus D. Wilson

King Spalding LLP

1180 Peachtree Street, NE

Atlanta, GA 30309

Ashley C. Parrish

Matthew S. Owen

Carolyn M. Sweeney

King & Spalding LLP

1700 Pennsylvania Avenue, NW

Washington, DC 20006

Counsel for Amicus Curiae Imperial Tobacco Canada

Limited

_______________

5

OPINION OF THE COURT

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JORDAN, Circuit Judge.

The State of Montana (“Montana”) and Her Majesty

Queen Elizabeth II in Right of Canada (“the Crown”)1 appeal

the June 11, 2012 order2 of the United States District Court

for the District of Delaware affirming the Bankruptcy Court’s

confirmation of the plan of reorganization of W.R. Grace &

Co, et al. (“Grace”).3 We conclude that the District Court

1

Although other courts of appeals have referred to the

Queen by the territory over which she is sovereign, see, e.g.,

Her Majesty the Queen in Right of Ontario v. EPA, 912 F.2d

1525, 1529 (D.C. Cir. 1990) (referring to “Her Majesty the

Queen in Right of Ontario” as “Ontario”), for consistency’s

sake we adopt the term used by her counsel and the District

Court, and further adopt the District Court’s convention of

referring to the sovereign as “it.”

2

The District Court first issued an order affirming the

Bankruptcy Court’s confirmation decision on January 30,

2012. See In re W.R. Grace & Co., 468 B.R. 81 (D. Del.

2012). At the request of the parties, the Court subsequently

addressed an additional issue not relevant to this appeal and,

on June 11, 2012, it issued an amended and superseding

opinion and order. See In re W.R. Grace & Co., 475 B.R. 34

(D. Del. 2012). Montana and the Crown appealed both

orders, but the earlier order has since been withdrawn.

3

For simplicity, we refer to the appellee-debtors

collectively and in the singular as “Grace,” as the District

6

correctly denied Montana’s and the Crown’s objections to

plan confirmation, and we will accordingly affirm.

I. Background

A. The Grace Bankruptcy

This appeal arises from Grace’s ongoing efforts to

reorganize under Chapter 11 of the Bankruptcy Code, 11

U.S.C. § 1101, et seq., in a manner that resolves all of its

present and future asbestos liabilities. The company, which

has manufactured and sold specialty chemicals and

construction materials for more than a century, began facing

asbestos-related lawsuits in the 1970s. Those lawsuits were

based on alleged harm caused by a number of Grace’s

products and activities, including its operation of a

vermiculite mine in Libby, Montana. Grace operated the

mine from 1963 to 1990, and during that period the mining

process released asbestos-containing dust into the atmosphere

and allegedly sickened hundreds of area residents. Grace also

had to confront many property damage lawsuits, including

claims seeking recovery for the removal of asbestos-

containing products from homes and businesses.

As a result of Grace’s production of asbestos-

containing materials, Montana and the Crown have been

subject to asbestos-related lawsuits due to their alleged failure

to warn their citizens of the risks posed by Grace’s products

Court did. See In re W.R. Grace & Co., 475 B.R. at 63 n.3.

Grace actually consists of 62 separate entities. See In re W.R.

Grace & Co., 446 B.R. 96, 102 n.2 (Bankr. D. Del. 2011)

(listing those entities).

7

and activities. Montana was named as a defendant in

approximately 210 cases in Montana state courts, based on

allegations that Montana officials failed to warn people in the

vicinity of the vermiculite mine that they were at risk of

asbestos exposure. Some of the cases also involved claims

that Montana aided and abetted Grace’s allegedly unlawful

activities. In 2004, the Montana Supreme Court held that the

state had a duty to warn residents of “workplace conditions

known to be hazardous to health,” but the court did not

resolve whether Montana had breached that duty. Orr v.

State, 106 P.3d 100, 110, 118 (Mont. 2004). The state settled

all of those cases for $43 million in 2011. As for the Crown,

it has been named as a defendant in several failure-to-warn

class action lawsuits involving property damage and personal

injury claims arising from the use of “Zonolite Attic

Insulation” (“ZAI”), a Grace insulation product that contains

trace amounts of asbestos. The Crown further asserts that

there may be future asbestos claims against it. Because of

their exposure to asbestos liability, Montana and the Crown

contend that they are entitled to contribution and

indemnification from Grace.4

By 2001, the number of asbestos-related lawsuits

against Grace had grown to 65,000, which threatened the

company’s financial viability and prompted it to file for

Chapter 11 protection. Grace hoped that it could use § 524(g)

of the Bankruptcy Code, 11 U.S.C. § 524(g), to establish a

means for resolving the thousands of present and future

4

The Crown also claims to have direct property

damage claims against Grace due to “costs incurred to seal

attics and otherwise remediate ZAI installed in homes on

military bases in Canada.” (Crown Opening Br. at 14.)

8

asbestos-related claims against the company. That provision,

discussed in depth herein, allows a company like Grace to set

up a trust that will assume its asbestos liabilities. The statute

likewise authorizes an injunction to channel all asbestos-

related claims to such a trust. See 11 U.S.C. § 524(g)(1)(A),

(2)(B). Section 524(g) thus allows companies to emerge from

bankruptcy free of asbestos liability, but only if the particular

channeling injunction in the case satisfies certain

prerequisites, including that it be “fair and equitable” to

future claimants. See id. § 524(g)(4)(B)(ii).

It took Grace and its creditors’ committees seven years

of contentious negotiations and litigation to reach an

agreement regarding the basic structure of the company’s

reorganization. The litigation included a protracted dispute

over estate assets, which focused on Grace’s transfer of

billions of dollars to two former affiliates, as well as

numerous disagreements with Grace’s insurance providers.

Those disputes eventually settled, resulting in the allocation

of more than 1.5 billion dollars to a proposed § 524(g) trust.

Grace also worked to resolve disputes with the nearly

130,000 claimants who brought pre-petition asbestos personal

injury and property damage claims. The company

successfully settled with the vast majority of claimants

bringing what came to be called “traditional” property

damage claims – i.e., claims that do not involve ZAI – and it

reached global agreements addressing the resolution of

present and future ZAI property damage claims. With regard

to the personal injury claims, Grace and the claimants

engaged in extended negotiations over the estimated value of

Grace’s personal injury liabilities and the corresponding

amount needed to adequately fund a § 524(g) trust. In April

9

2008, the Bankruptcy Court held an “estimation trial” to

resolve those questions. At that trial, representatives for the

personal injury claimants, which included the personal injury

creditors’ committee (the “PI Committee”) and a court-

appointed future claimants’ representative, presented expert

testimony that estimated Grace’s liability to be somewhere

between 6.3 and 7.4 billion dollars. Grace’s experts, on the

other hand, put the company’s liability at 468 million dollars.

Given that disparity, the parties opted for settlement and

agreed to a term sheet that created the essential structure of a

joint plan.

B. The Joint Plan

Soon after that settlement in April 2008, Grace, the PI

Committee, the future claimants’ representative, and the

equity committee proposed a Joint Plan of Reorganization

(the “Plan” or the “Joint Plan”),5 the central pillars of which

are two trusts – a personal injury trust and a property damage

trust – that will assume all of Grace’s current and future

asbestos liabilities. The Joint Plan also provides for a

§ 524(g) channeling injunction, which will send all asbestos-

related claims against Grace (and certain protected third

parties), including future claims, to the trusts, allowing the

protected parties to be “unconditionally, irrevocably and fully

released” from “any and all Asbestos-Related Claims.” (J.A.

at 200117.) As its name suggests, the personal injury trust

will assume all of Grace’s direct and indirect asbestos

5

The Joint Plan was initially filed on September 19,

2008, and a “finalized” version was filed on February 27,

2009. The Plan continued to undergo modifications,

however, through December 23, 2010.

10

personal injury liabilities.6 It is funded by the 1.5 billion

dollars obtained through settlements with Grace’s insurers

and former affiliates, by an initial payment from Grace of 450

million dollars, by a warrant to acquire 10 million shares of

Grace common stock at 17 dollars a share, and by deferred

cash payments from Grace of 100 to 110 million dollars per

year through 2033.7 In total, those funding sources will

provide more than 3 billion dollars to the trust. The property

damage trust will likewise assume all of the protected parties’

direct and indirect property damage liabilities, including ZAI

property damage claims, and it is funded by an initial

payment of 180 million dollars, and a subsequent payment of

6

Specifically, the personal injury trust will “assume

the liabilities of the Debtors with respect to all Asbestos

[Personal Injury] Claims,” and will “process, liquidate, pay

and satisfy all Asbestos [Personal Injury] Claims in

accordance … with [the] Plan.” (J.A. at 200092.) The Plan’s

definition of an Asbestos Personal Injury Claim includes any

claim against Grace that, “directly or indirectly,” is “based

on, arising out of, resulting from, or attributable to … death,

wrongful death, personal or bodily injury …, sickness,

disease, loss of consortium, survivorship, medical monitoring,

or other personal injuries,” and “the presence of or exposure

at any time to” Grace’s asbestos products or production. (J.A.

at 200041.) It therefore includes personal injury claims

arising from ZAI.

7

The deferred payments to the trust are secured by a

majority of Grace’s common stock.

11

30 million dollars.8 Some of that money will then be

transferred to a special fund that will be used to compensate

Canadian ZAI property damage claimants.

In addition to being separately funded, the two trusts

proposed by the Joint Plan have separate mechanisms for

resolving claims. Claims brought against the personal injury

trust are to be resolved in accordance with the personal injury

trust agreement and the “trust distribution procedures,” or

“TDPs.” The TDPs establish two primary methods by which

claims will be assessed, valued, and paid. Under an

“expedited review” process, claims will be categorized and

assigned a set amount of recovery according to a schedule of

eight asbestos-related disease levels, some of which require

demonstration of certain medical or exposure criteria.

Claimants who do not meet those criteria, or who “seek to

establish a liquidated value for the claim that is greater than

its Scheduled Value,” will also have the option of utilizing an

individual review process, which could involve arbitration or

litigation of their claims. (J.A. at 200293.) Both the

expedited review and the individual review will result in a

determination of the liquidated value of a claim. Claimants

will not be paid the full liquidated value, however. Rather,

each claimant will recover a certain percentage of the

liquidated value of his or her claim – a “Payment Percentage”

– in order to ensure that there is money left for future

claimants to receive comparable recoveries. The TDPs set

the initial Payment Percentage at between 25% and 35%,

meaning that personal injury claimants should receive

8

Subject to certain conditions, reorganized Grace is

also obliged to make additional future payments to the trust if

needed to satisfy future demands.

12

somewhere between 25% and 35% of the liquidated value of

their claims. That percentage may “be adjusted upwards or

downwards from time to time … to reflect then-current

estimates of the [personal injury] [t]rust’s assets and its

liabilities, as well as [the] then-estimated value of then-

pending and future claims.” (J.A. at 200296.) All claims are

also limited to a “maximum value” based on the relevant

disease level, unless the claim qualifies as an “extraordinary

claim,”9 in which case it is capped at the “maximum

extraordinary value” for such claims. Claims will be paid on

a “first-in, first-out” basis, which means that a claimant can

recover from the trust as soon as the value of the claim is

established. The trust will be administered by designated

trustees, in consultation with a Trust Advisory Committee and

the future claimants’ representative.

The property damage trust resolves claims somewhat

differently. Under the agreement governing that trust, all

allowable “traditional” property damage claims will be paid

in full, and there is no expedited process for determining the

value of a claim. ZAI property damage claims brought by

United States residents will also be paid from the property

damage trust, but they will be resolved in accordance with

procedures that closely resemble the personal injury TDPs.

9

An “extraordinary claim” is a claim held by someone

“whose exposure to asbestos … occurred predominately as a

result of working in a manufacturing facility of Grace … or

… was at least 75% the result of exposure to asbestos or an

asbestos-containing product or to conduct for which Grace

has legal responsibility, and in either case there is little

likelihood of a substantial recovery elsewhere.” (J.A. at

200323.)

13

Canadian ZAI property damage claimants will be paid

pursuant to a settlement agreement reached by representatives

of those claimants and Grace.

In addition to establishing the two § 524(g) trusts, the

Joint Plan divides claimants into eleven classes, one of which

is further divided into two subclasses.10 Relevant here, Class

6 includes all asbestos personal injury claims (including

Canadian and U.S. ZAI personal injury claims), Class 7A

includes traditional asbestos property damage claims, Class

7B includes U.S. ZAI property damage claims, and Class 8

includes Canadian ZAI property damage claims.11 Like the

10

Both Montana and the Crown filed proofs of claim

against Grace during its bankruptcy case.

11

The full list of classes provided for in the Joint Plan

is as follows:

Class 1: Priority Claims

Class 2: Secured Claims

Class 3: Employee Benefit Claims

Class 4: Workers’ Compensation

Claims

Class 5: Intercompany Claims

Class 6: Asbestos Personal Injury

Claims

Class 7A: Asbestos Property

Damage Claims, excluding United

States ZAI Claims

Class 7B: United States ZAI

Claims

Class 8: Canadian ZAI Claims

14

trusts, those classes do not distinguish between direct and

indirect claims, and so Montana’s claims for indemnification

and contribution are classified in Class 6 alongside claims

brought directly by people allegedly harmed by Grace’s

activities. The Crown’s claims fall into two different classes;

any claims arising from personal injury ZAI suits are grouped

in Class 6, whereas all direct and indirect ZAI property

damage claims are in Class 8. Both of those classes are

considered to be “impaired classes,” as is Class 7B, because

claimants in those classes will not be able to recover the full

value of their liquidated claims. All of the claims in Classes

6, 7, and 8 are subject to the channeling injunction provided

for in the Joint Plan.

C. Procedural History

Following the submission of the Joint Plan, the

bankruptcy trustees solicited votes from members of the

impaired classes and the classes whose claims would be

channeled to the trusts. Each of the classes of channeled

claims easily cleared the hurdle of a 75 percent vote in favor

of the Plan, as is required by § 524(g), see 11 U.S.C.

§ 524(g)(2)(B)(ii)(IV)(bb) (providing that a class of claimants

“whose claims are to be addressed by a trust” must “vote[],

by at least 75 percent of those voting, in favor of the plan”),

Class 9: General Unsecured

Claims

Class 10: Equity Interests in the

Parent

Class 11: Equity Interests in

Debtors Other Than the Parent

15

and the only other class that the Joint Plan considers to be

“impaired” (Class 11 – the equity holders) also voted for the

Plan.12 The Bankruptcy Court then held a sixteen-day

confirmation hearing, which began on September 8, 2009.

During that hearing, numerous parties, including Montana

and the Crown, objected to confirmation of the Joint Plan on

the basis that it did not comply with the requirements of the

Bankruptcy Code. In particular, Montana and the Crown

argued that their claims could not properly be considered in

Class 6, that they were improperly subject to the channeling

injunction, and that they were treated unfairly under the Plan.

After the Bankruptcy Court heard testimony and

argument from both the Plan proponents and the objectors,

the Plan was amended to address many of the objections. The

Court then entered a confirmation order on January 31, 2011,

and overruled the remaining objections, including the

objections of Montana and the Crown. In re W.R. Grace &

Co., 446 B.R. 96, 102-03 (Bankr. D. Del. 2011).13 On appeal,

the District Court affirmed the Bankruptcy Court’s order,

12

Another class of creditors – bank lenders in the

“general unsecured creditors” class – also claim to be

impaired, and did not vote in favor of the Joint Plan. Their

objections to the Plan are the subject of a different appeal.

13

On February 15, 2011, the Bankruptcy Court issued

an order clarifying the January 31, 2011 order and

memorandum opinion, which made “clear that the Joint Plan

as modified is confirmed” and requested “that the District

Court issue and affirm the Confirmation Order … including,

without limitation, the injunction pursuant to § 524(g)(3).”

(J.A. at 100081.)

16

accepting as “reasonable” the inclusion of Montana’s and the

Crown’s claims in classes with direct asbestos claims, In re

W.R. Grace & Co., 475 B.R. 34, 110 (D. Del. 2012), and

concluding that their claims “are properly enjoined and

channeled to the trust,” id. at 111, and that “the record is

devoid of any evidence indicating disparate treatment” of

their claims, id. at 136. The Court therefore held that the

Bankruptcy Court had properly overruled Montana’s and the

Crown’s objections to plan confirmation. This timely appeal

followed.

II. Discussion14

Montana and the Crown both argue on appeal that the

Bankruptcy Court and the District Court erred in confirming

14

The Bankruptcy Court had jurisdiction pursuant to

28 U.S.C. §§ 157(a) and 1334(b). The District Court had

appellate jurisdiction over the Bankruptcy Court’s decision

under 28 U.S.C. § 158(a). We have jurisdiction over this

appeal pursuant to 28 U.S.C. §§ 158(d) and 1291. We

exercise “plenary review of an order from a district court

sitting as an appellate court in review of a bankruptcy court.”

In re Exide Techs., 607 F.3d 957, 961-62 (3d Cir. 2010).

Under that standard, “[w]e review the District Court’s

conclusions of law de novo, its factual findings for clear

error, and its exercise of discretion for abuse thereof.” In re

Combustion Eng’g, Inc., 391 F.3d 190, 214 n.19 (3d Cir.

2004). Under the clearly erroneous standard, we must uphold

the Bankruptcy Court’s factual findings unless we are “left

with the definite and firm conviction that a mistake has been

committed.” In re CellNet Data Sys., Inc., 327 F.3d 242, 244

(3d Cir. 2003) (internal quotation marks omitted).

17

Grace’s Joint Plan of Reorganization because the Plan fails to

comply with the applicable provisions of the Bankruptcy

Code. See 11 U.S.C. § 1129(a)(1) (“The court shall confirm a

plan only if … [t]he plan complies with the applicable

provisions of this title.”). Although they raise many specific

objections, which we discuss infra, Montana and the Crown

have three fundamental complaints about the Plan: (1) it

wrongly channels their claims to the § 524(g) trusts; (2) it

discriminates against their claims for indemnification and

contribution;15 and (3) it is not “fair and equitable” to future

claimants. We address each of those contentions in turn, and

conclude that each was rightly rejected.

A. The Channeling Injunction

Montana and the Crown attempt to escape the scope of

the channeling injunction by invoking two different

provisions of the Bankruptcy Code. First, they say that §

524(g) does not encompass their claims against Grace. They

argue that they lack “claims” or “demands” as those terms are

used in § 524(g), and that that provision does not permit the

channeling of the particular kind of claims they do have,

namely claims for indemnification or contribution. Second,

they contend that § 1122 should prevent their claims from

being placed in the same class as direct personal injury

claims. Both arguments do not persuade us, as § 524(g)

broadly encompasses all asbestos-related actions against the

15

The Crown raises two independent arguments in

this regard, contending that the Plan grants preferential

treatment to U.S. claims and impermissibly prevents indirect

claimants from qualifying for “extraordinary claim” status.

We address those claims in Section II.B, infra.

18

debtor, including claims for indemnification and contribution,

and because such claims are sufficiently similar to direct

personal injury claims that they can be classified together

under § 1122.

1. Section 524(g)

As we have explained on previous occasions, § 524(g)

“provides a special form of supplemental injunctive relief for

an insolvent debtor facing the unique problems and

complexities associated with asbestos liability.” In re

Combustion Eng’g, 391 F.3d 190, 234 (3d Cir. 2004); see

also In re Federal-Mogul Global, Inc., 684 F.3d 355, 362 (3d

Cir. 2012) (describing § 524(g) as a “quasi-administrative

process” for resolving a company’s asbestos liabilities).

Modeled after the “creative solution” to asbestos liability

developed during the bankruptcy of the Johns-Manville

Corporation, Federal-Mogul, 684 F.3d at 359 (internal

quotation marks omitted), § 524(g) permits all asbestos-

related claims against the debtor to be channeled to a trust,

and thus it “relieves the debtor of the uncertainty of future

asbestos liabilities,” Combustion Eng’g, 391 F.3d at 234. See

also H.R. Rep. No. 103-835, at 40 (1994) (explaining that

§ 524(g) “is modeled on the trust-injunction in the Johns-

Manville case”).16 By removing that uncertainty and

16

The Johns-Manville Corporation was formerly the

world’s largest miner of asbestos, and it filed for bankruptcy

in 1982. Kane v. Johns-Manville Corp, 843 F.2d 636, 639

(2d Cir. 1988). Its plan of reorganization pioneered the use of

a trust and a channeling injunction to equitably resolve the

company’s asbestos liabilities. Id. at 690; see also In re

Federal-Mogul Global Inc., 684 F.3d 355, 359 (3d Cir. 2012)

19

allowing the debtor to emerge from bankruptcy free of all

asbestos liability, § 524(g) facilitates the company’s ongoing

viability, which in turn provides the trust “with an ‘evergreen’

source of funding to pay future claims.” Combustion Eng’g,

391 F.3d at 234. In order to qualify for that relief, however, a

debtor must satisfy certain prerequisites designed to ensure

that future asbestos claimants will be treated fairly. Federal-

Mogul, 684 F.3d at 359 n.9; see also 11 U.S.C. § 524(g)(2).

The statute thus furthers two goals: ensuring the equitable

resolution of present and future asbestos claims, and

“enabling corporations saddled with asbestos liability to

obtain the ‘fresh start’ promised by bankruptcy.” Federal-

Mogul, 684 F.3d at 359.

At issue in this case is the proper scope of a § 524(g)

channeling injunction. Montana and the Crown argue that,

under § 524(g), their legal efforts to obtain indemnification

and contribution cannot be channeled to a trust. They say the

statute “only enjoins ‘claims’ or ‘demands,’” and that their

particular claims – what they like to call “requests” – do not

fall within the definition of either term. (Montana Opening

(“The primary bankruptcy innovation for addressing mass tort

liability has been the post-confirmation trust, which first

appeared in the bankruptcy proceedings of the Johns-

Manville Corporation … .”). The Johns-Manville plan

significantly underestimated the number of claims that would

be filed, however, and the trust rapidly became insolvent. In

re Joint E. & S. Dist. Asbestos Litig., 78 F.3d 764, 769 (2d

Cir. 1996). As a result, subsequent litigation produced a

settlement agreement that imposed new trust distribution

procedures intended to preserve value for future claimants.

Id. at 770-71.

20

Br. at 26.) They further indicate that, even if they do hold

“claims” or “demands” within the meaning of § 524(g), those

claims are not the sort that can be channeled to a trust. They

assert that § 524(g) permits a channeling injunction to extend

only to personal injury, wrongful death, and property damage

actions, not to their claims for indemnification and

contribution, which are “of a different nature” because they

arise from Montana’s and the Crown’s alleged failures to

warn their citizens of the dangers of Grace’s activities.17

(Montana Opening Br. at 25.) Grace responds that both

arguments misunderstand the text, history, and purpose of

§ 524(g), which is designed to permit all asbestos-related

actions against the debtor – both direct and indirect – to be

channeled to a trust, including actions for contribution and

indemnification.

To determine whether the scope of § 524(g)

encompasses “requests” like those that Montana and the

Crown plan to make, we look first to the text of that

provision. Section 524(g) allows a court “to enjoin entities

from taking legal action for the purpose of directly or

indirectly collecting, recovering, or receiving payment or

recovery with respect to any claim or demand that, under a

plan of reorganization, is to be paid in whole or in part by a

trust described in [§ 524(g)(2)(B)(i)] … .” 11 U.S.C.

§ 524(g)(1)(B). Put more simply, “any claim or demand” that

17

In their briefing, Montana and the Crown make

those arguments in reverse order. We address them in the

order here because it seems more logical to consider whether

Montana and the Crown have claims at all before determining

if the substance of those claims is proper.

21

will be paid by a § 524(g) trust cannot, because of the

§ 524(g) injunction, be brought against the debtor.

That brings us to the question of what constitutes a

“claim or demand.” The Bankruptcy Code defines a “claim”

using the “broadest available definition,” FCC v. NextWave

Pers. Commc’ns Inc., 537 U.S. 293, 302 (2003) (internal

quotation marks omitted), which provides that a “claim” is a

“right to payment, whether or not such right is reduced to

judgment, liquidated, unliquidated, fixed, contingent,

matured, unmatured, disputed, legal, equitable, secured, or

unsecured,” 11 U.S.C. § 101(5)(A). Section 524(g) takes that

definition and expands it even further, including within the

sweep of the channeling injunction not only “claims” but also

“demands.” Id. § 524(g)(1)(B). A “demand” is then defined

as a “demand for payment, present or future” that “was not a

claim during the proceedings leading to the confirmation of a

plan of reorganization” but “arises out of the same or similar

conduct or events that gave rise to the claims addressed by the

injunction.” Id. § 524(g)(5). A § 524(g) channeling

injunction can therefore include any right to or demand for

payment that arises from the debtor’s underlying asbestos

liabilities, regardless of when that right or demand arises,

whether it was raised during the bankruptcy proceeding or is

contingent on a future event.

Despite the breadth of those definitions, Montana and

the Crown contend that their particular “requests” for

contribution and indemnification somehow fall outside of the

channeling injunction’s scope. They say that their “requests”

cannot be considered “claims” because claims for

contribution and indemnification do not technically arise until

a judgment or settlement has been paid, and at the time of

22

Grace’s bankruptcy petition no such judgments had been

entered against either Montana or the Crown. Their

“requests” are also not “demands,” they explain, because

those requests are not personal injury, wrongful death, or

property damage claims, and thus they did not “aris[e] out of

the same or similar conduct” as the claims subject to the

injunction. See id. § 524(g)(5)(B).

While those arguments reflect some creativity, they are

ultimately unpersuasive. Montana’s and the Crown’s

assertion that a “claim” arises when it fully accrues is based

on the now-rejected reasoning of Avellino & Bienes v. M.

Frenville Co. (In re Frenville), 744 F.2d 332, 335-36 (3d Cir.

1984), which we explicitly overruled in In re Grossman’s,

Inc., 607 F.3d 114 (3d Cir. 2010) (en banc). See Grossman’s,

607 F.3d at 121 (holding that the “accrual test” previously

established in Frenville “should be and now is overruled”).18

The law in this Circuit now is that “a claim arises when an

18

In re Frenville held that “a ‘claim,’ as that term is

defined by the Bankruptcy Code, arises when the underlying

state law cause of action accrues.” Grossman’s, 607 F.3d at

118 (citing In re Frenville, 744 F.2d at 337). That approach

to determining when a claim arises was uniformly criticized

as incompatible with the broad definition of “claim” in the

Bankruptcy Code, id. at 120, and in Grossman’s we rejected

it in favor of the rule that “a ‘claim’ arises when an individual

is exposed pre-petition to a product or other conduct giving

rise to an injury, which underlies a ‘right to payment’ under

the Bankruptcy Code,” id. at 125. Two years later, in Wright

v. Owens Corning, we expanded that holding to include

conduct that occurs post-petition but pre-confirmation. 679

F.3d 101, 106-07 (3d Cir. 2012).

23

individual is exposed pre-confirmation to a product or other

conduct giving rise to an injury that underlies a ‘right to

payment’ under the Code.” Wright v. Owens Corning, 679

F.3d 101, 107 (3d Cir. 2012) (emphasis omitted). A “claim”

can therefore exist “before a right to payment exists under

state law.” Grossman’s, 607 F.3d at 121. Regardless of

when Montana and the Crown may have had judgments

entered against them,19 the material fact is that Grace’s

asbestos-related activities underlie any rights to

indemnification and contribution that they can assert. Grace’s

relevant activities all occurred long before its bankruptcy

filing, and thus, to the extent that Montana and the Crown

have “claims,” those claims arose before confirmation of the

Joint Plan.

For largely the same reason, Montana’s and the

Crown’s argument regarding “demands” also fails. Although

they claim that requests for contribution and indemnification

do not “aris[e] from” the same conduct as personal injury or

property damage claims, that argument ignores the underlying

basis for such requests: Grace’s alleged asbestos liability.

Any action that Montana and the Crown say they have against

Grace arises from the same events as do all the other claims

and demands covered by the channeling injunction, namely

Grace’s production of asbestos-containing materials.

Therefore, if Montana and the Crown have requests for

19

Montana says that, “with the exception of one

complaint, [it] was not named as a defendant in any … State

Court Actions until after the Petition Date.” (Montana

Opening Br. at 10.) It appears, however, to have settled all of

the state court claims against it prior to confirmation of the

Joint Plan.

24

payment that were not “claims” during the bankruptcy

proceeding, those requests would meet the definition of

“demand” in § 524(g). See 11 U.S.C. § 524(g)(5).

More fundamentally, the arguments made by Montana

and the Crown are based on a misunderstanding of the

purpose of § 524(g). By arguing that they have “requests” for

payment from Grace that cannot be called “claims” or

“demands,” Montana and the Crown suggest that those terms

constitute discreet categories, and that some asbestos-related

actions fall into neither category and thus cannot be subject to

§ 524(g). The text and history of § 524(g) tell us just the

opposite. As for the text, § 524(g)’s definition of “demand”

overlaps to some degree with the Bankruptcy Code’s

definition of “claim” – a “demand” could be a request for

payment that was not raised during the bankruptcy

proceeding, which also fits the Code’s definition of a “claim.”

Furthermore, by taking the already broad definition of

“claim” and expanding it to include all other “demands for

payment” that arise from the same conduct, § 524(g) evinces

an intent to include all potential asbestos-related liability of a

debtor, regardless of when such liability arose. See 11 U.S.C.

§ 524(g)(1)(B), (5).

That intent is also reflected in the history and purpose

of the provision. Congress enacted § 524(g) in part because

of the long latency period of many asbestos-related diseases,

which, in cases like this, typically creates a large pool of

future claimants whose disease has not yet manifested. See

H.R. Rep. No. 103-835, at 40 (1994) (noting that “[a]sbestos-

related disease has a long latency period” of “up to 30 years

or more”). Congress was concerned about those claimants for

two reasons – they lack the ability to protect their own

25

interests during the bankruptcy proceeding, and they create

tremendous uncertainty for companies in Grace’s position,

which can hinder a company’s financial rebound and limit

available recovery for all asbestos victims. See id.

(explaining that future claimants “do not have their own

voice” and that “lingering uncertainty” can “undermine[] the

‘fresh start’ objectives of bankruptcy and the goals of the trust

arrangement”); see also In re Flintkote Co., 486 B.R. 99, 124

(Bankr. D. Del. 2012) (“In part because of long latency

periods of certain asbestos-related illnesses, Congress enacted

§ 524(g) to protect the due process rights of the exposed yet

unimpaired.”).

Section 524(g) addresses those concerns by imposing

requirements to protect the rights of future claimants, and

then, if those requirements are met, channeling all present and

future asbestos-related liability to a trust funded by the

debtor. Congress wanted to cover the whole set, and it did.

The distinction, to the extent there is one, between a “claim”

and a “demand” is therefore unimportant to the scope of the

channeling injunction; the relevant question is instead

whether an action seeks recovery that stems from the debtor’s

asbestos-related liabilities. If it does, then it falls somewhere

within the broad category of “any claim or demand,” and can

be subject to a channeling injunction.

Montana and the Crown dispute the breadth of that

interpretation, arguing that, for due process reasons, their

requests cannot be channeled to a trust. They cite our recent

decision in Wright v. Owens Corning, see supra note 18,

which concluded that due process prevents some claims from

being discharged by reorganization plans that were proposed

and confirmed during the Frenville era. 679 F.3d at 107-09.

26

Because the law during those bankruptcies was that claims

arise when they accrue, some potential claimants might have

received notice of a bankruptcy but failed to file a claim

because they understood that their claims had not yet

“arisen.” Id. at 108. Therefore, although claims against a

debtor are generally discharged by plan confirmation, such

claimants lacked adequate notice for their claims to have been

discharged without violating due process.

But Owens Corning is inapposite, because the

bankruptcy plan at issue in that case did not involve a

§ 524(g) trust and channeling injunction. Although

Montana’s and the Crown’s claims against Grace will be

discharged, § 524(g) sends those claims, along with all other

asbestos-related claims and demands, to a trust. Montana and

the Crown will therefore have an opportunity to litigate their

claims and potentially obtain relief, which means that the due

process concern in Owens Corning – that claimants would

lose any opportunity for relief without first receiving proper

notice – is not implicated. Rather, the potential due process

issue associated with channeling claims to a trust is the

fairness of forcing future claimants, many of whom might

have had no notice at all of the bankruptcy, to bring their

claims against a trust rather than against the debtor directly.

That concern is addressed by the proper application of

§ 524(g). As we explained in Combustion Engineering, and

again in Grossman’s, § 524(g) includes a number of

requirements that “are specifically tailored to protect the due

process rights of future claimants,” such as the “fair and

equitable” provision and the mandatory seventy-five percent

approval requirement. Combustion Eng’g, 391 F.3d at 234

n.45 (citing, inter alia, 11 U.S.C. § 524(g)(4)(B)(ii),

(g)(2)(B)(ii)(IV)(bb)); see also Grossman’s, 607 F.3d at 127

27

(“By enacting § 524(g), Congress took account of the due

process implications of discharging future claims of

individuals whose injuries were not manifest at the time of

the bankruptcy petition.”). Therefore, as long as a court

correctly determines that § 524(g)’s requirements are

satisfied, present and future claims can be channeled to a

§ 524(g) trust without violating due process.20

Montana’s and the Crown’s next argument is that their

claims for indemnification and contribution are substantively

different from Grace’s other asbestos-related liabilities, and

thus cannot be channeled to the trust for that reason. They

base that contention on § 524(g)(2)(B)(i), which explains that

the purpose of a trust “is to assume the liabilities of a debtor

20

Montana and the Crown also contend that, under

Owens Corning, they cannot be considered to have “claims.”

They base that contention on Owens Corning’s discussion of

the lingering effect of our overruled Frenville decision. See

Owens Corning, 679 F.3d at 109 (explaining that Frenville

must continue to define when certain claims can be

discharged, for the due process reasons discussed above). But

that discussion does not help their case, because in Owens

Corning we did not hold that Frenville continues to define

when a claim arises – we held only that “[t]he shadow of

Frenville” prevents some claims from being discharged. Id.

Indeed, the opinion explicitly separates those two issues,

concluding that an individual did hold a claim during the

bankruptcy, but that the claim could not be discharged

without violating due process. Id. at 107. Montana’s and the

Crown’s contention that they do not even hold claims is

therefore flatly contradicted by both Grossman’s and Owens

Corning.

28

which … has been named as a defendant in personal injury,

wrongful death, or property-damage actions seeking recovery

for damages allegedly caused by the presence of, or exposure

to, asbestos or asbestos-containing products.” 11 U.S.C.

§ 524(g)(2)(B)(i)(I). Montana and the Crown assert that,

because of that language, only asbestos-related personal

injury, wrongful death, and property damage actions can be

subject to the channeling injunction.

The argument fails, however, since § 524(g) expressly

states that a court can “enjoin entities from taking legal action

for the purpose of directly or indirectly collecting” on a claim

or demand that is to be paid by a trust. Id. § 524(g)(1)(B)

(emphasis added). Although they are each being sued under a

failure-to-warn theory of liability, Montana and the Crown

concede that they only have claims against Grace because the

plaintiffs bringing the failure-to-warn lawsuits were allegedly

harmed by Grace’s asbestos-related products and operations.

In other words, behind each failure-to-warn suit against

Montana and the Crown is a plaintiff with a personal injury,

wrongful death, or property damage claim against Grace.

More precisely, there must be such a plaintiff in order for

Montana and the Crown to have a basis for their claims at all.

Montana’s and the Crown’s actions against Grace therefore

are brought “for the purpose of … indirectly … receiving

payment or recovery” for asbestos-related personal injury and

property damage claims against the debtor, and thus are

subject to the § 524(g) channeling injunction under the plain

language of that statute. See 11 U.S.C. § 524(g)(1)(B),

(2)(B).

That interpretation is consistent with the purpose of

§ 524(g). As noted above, the statute was modeled on the

29

trust established in the Johns-Manville bankruptcy, which

subjected all asbestos-related claims, including

“indemnification or contribution liabilities or obligations” of

the debtor, to a channeling injunction. (Plan Proponents App.

at 602040 (the Manville Corporation Second Amended

Restated Plan of Reorganization, at 2).) Inclusion of such

liabilities in the injunction is also a matter of practicality,

because one of the primary goals of § 524(g) is to allow a

debtor to “emerge[] from bankruptcy free and clear” of

asbestos liability, and thus enable the debtor to “grow[] the

pie available to victims” (provided, of course, that asbestos

claimants’ interests are adequately protected). 140 Cong.

Rec. S4521-01 (daily ed.) (Apr. 20, 1994) (statement of Sen.

Brown). If the reorganized debtor could still be exposed to

indirect asbestos claims for indemnification and contribution,

lingering uncertainty regarding the scope of that liability

would threaten the debtor’s recovery and hinder Congress’s

objective of providing “an ‘evergreen’ source of funding to

pay future claims.” Combustion Eng’g, 391 F.3d at 234.

Finally, the narrow interpretation of § 524(g) advanced

by Montana and the Crown is unsupported by any caselaw

and would effectively rewrite the provision. Montana and the

Crown offer no explanation for § 524(g)’s explicit inclusion

of actions that “indirectly” seek recovery on asbestos-related

claims. Instead, they simply ignore that language and assert

that § 524(g) addresses only direct personal injury, wrongful

death, and property damage actions. But we are not free to

ignore an express provision of the statute, as it is our “judicial

duty to give faithful meaning to the language Congress

adopted.” United States v. Bornstein, 423 U.S. 303, 309

(1976). It is a mystery what Congress could have meant by

an action that “indirectly” seeks recovery if it did not mean to

30

include an action seeking indemnification or contribution.

Little wonder, then, that courts have consistently upheld the

channeling of such claims to § 524(g) trusts. See, e.g., In re

Armstrong World Indus., Inc., 348 B.R. 136, 168-69 (D. Del.

2006) (“Because Indirect PI Trust Claims … relate to direct

Asbestos Personal Injury Claims, they are appropriately

channeled to the Asbestos PI Trust and have historically been

channeled to trusts established in connection with asbestos

related chapter 11 cases.”); In re Pittsburgh Corning Corp.,

453 B.R. 570, 582 (Bankr. W.D. Pa. 2011) (concluding that

“an entity that may pay a future demand holder and thereby

acquire an indirect claim” against the debtor has “interests

that are no different from any other Indirect Claimant’s

interests,” and the entity’s claims can thus be channeled to a

§ 524(g) trust); In re Celotex Corp., 204 B.R. 586, 622

(Bankr. M.D. Fla. 1996) (enjoining any claim or demand

“asserting or accomplishing any setoff, right of subrogation,

indemnity, contribution or recoupment of any kind” against

the debtor).

We therefore conclude that the Bankruptcy Court and

the District Court correctly held that Montana’s and the

Crown’s claims for indemnification and contribution are

subject to the channeling injunction included in the Joint

Plan. Section 524(g) gives courts the express authority to

“enjoin entities from taking legal action for the purpose of

directly or indirectly … recovering … with respect to any

claim or demand that … is to be paid … by a [§ 524(g)]

trust,” 11 U.S.C. § 524(g)(1)(B), which is precisely the type

of action that Montana and the Crown each wish to take

against reorganized Grace. The channeling injunction thus

properly encompasses their claims, and their arguments to the

contrary were rightly rejected.

31

2. Section 1122

Having decided that § 524(g) permits a channeling

injunction to extend to the claims asserted by Montana and

the Crown, we can readily dispense with the argument that

those claims were improperly placed in Class 6, which

includes all asbestos personal injury claims.21 Under § 1122

of the Bankruptcy Code, “a plan may place a claim or an

interest in a particular class only if such claim or interest is

substantially similar to the other claims or interests of such

class.” 11 U.S.C. § 1122(a). To determine whether claims

are “substantially similar,” the proper focus is on “the legal

character of the claim as it relates to the assets of the debtor.”

In re AOV Indus., Inc., 792 F.2d 1140, 1150 (D.C. Cir. 1986)

(emphasis omitted); see also In re Tribune Co., 476 B.R. 843,

855 (Bankr. D. Del. 2012) (concluding that the phrase

“substantially similar” reflects “the legal attributes of the

claims, not who holds them” (internal quotation marks

omitted); In re Quigley Co., 377 B.R. 110, 116 (Bankr.

S.D.N.Y. 2007) (“Claims are similar if they have

substantially similar rights to the debtor’s assets.” (emphasis

and internal quotation marks omitted)). The Bankruptcy

Court has “broad discretion” to decide if a plan satisfies that

requirement, and we will uphold a plan’s classification

scheme so long as it is “reasonable” and does not “arbitrarily

designate classes.” In the Matter of Jersey City Med. Ctr.,

817 F.2d 1055, 1061 (3d Cir. 1987) (internal quotation marks

21

Although some of the Crown’s claims are classified

in Class 8 (Canadian ZAI Claims), see supra Section I.B, it

only challenges the classification of its indirect personal

injury claims in Class 6 (Asbestos Personal Injury Claims).

32

omitted); see also John Hancock Mut. Life Ins. Co. v. Route

37 Bus. Park Assocs., 987 F.2d 154, 158 (3d Cir. 1993)

(interpreting § 1122(a) to bar the debtor from “arbitrarily”

designating classes or doing so in a manner that “would not

serve any legitimate purpose”).

Here, Montana and the Crown identify only one

difference in “legal effect against the debtor’s assets”

between their claims and the other claims in Class 6: their

claims “are not subject (or should not be subject) to an

injunction imposed pursuant to Bankruptcy Code section

524(g).” (Montana Opening Br. at 43.) That argument fails,

because, for all of the reasons already discussed, their claims

certainly are subject to the channeling injunction. Moreover,

as the District Court observed, “[b]oth direct and indirect

claims under the Plan exhibit a similar effect on Grace’s

bankruptcy estate – they seek recovery from the trust for

actions related to Grace’s asbestos liability.” In re W.R.

Grace & Co., 475 B.R. at 110. Although Montana and the

Crown must first be held liable for failure to warn before they

can bring a claim against the trust, that makes no difference to

Grace, as its liability for such a claim depends solely on its

asbestos-related activities. The Joint Plan therefore

reasonably classified claims for indemnification and

contribution together with direct personal injury claims.

B. Disparate Treatment of Creditors

33

We turn next to the contention that the Joint Plan

should not have been confirmed because the TDPs22 may

result in disparate treatment among claims within the same

class. As Montana and the Crown correctly note, “equality of

distribution among creditors is a central policy of the

Bankruptcy Code” that is furthered by several different Code

provisions. In re Combustion Eng’g, 391 F.3d at 239

(quoting Bergier v. IRS, 496 U.S. 53, 58 (1990) (internal

quotation marks omitted). Relevant here, § 1123(a)(4)

requires that a plan “provide the same treatment for each

claim or interest of a particular class,” 11 U.S.C.

§ 1123(a)(4),23 and § 524(g) mandates that “present claims

and future demands that involve similar claims” be paid “in

substantially the same manner,” id. § 524(g)(2)(B)(ii)(V).

Together, the two provisions ensure that claims in a class that

will be channeled to a § 524(g) trust receive the same

treatment, regardless of when they are brought. In

determining whether a plan provides for the same treatment

of claimants in a class, “we consider the bankruptcy scheme

as an integrated whole.” In re Combustion Eng’g, 391 F.3d at

241.

Although “neither the Code nor the legislative history

precisely defines the standards of equal treatment,” In re AOV

22

The TDPs, as earlier noted, see supra Section I.B,

are the trust distribution procedures for the personal injury

trust established in the Joint Plan.

23

Section 1123 permits disparate treatment when “the

holder of a particular claim or interest agrees to … less

favorable treatment,” but neither Montana nor the Crown has

done so here. 11 U.S.C. § 1123(a)(4).

34

Indus., Inc., 792 F.2d at 1152, courts have interpreted the

“same treatment” requirement to mean that all claimants in a

class must have “the same opportunity” for recovery. In re

Dana Corp., 412 B.R. 53, 62 (S.D.N.Y. 2008); see also In re

Cent. Med. Ctr., Inc., 122 B.R. 568, 575 (Bankr. E.D. Mo.

1990) (concluding that a plan that “subjects all members of

the same class to the same process for claim payment” is

“sufficient to satisfy the requirements of Section

1123(a)(4)”). For example, the United States Court of

Appeals for the Second Circuit has held that “[a]sbestos

health claimants would receive the ‘same treatment’ if they

all were permitted to present their claims to a jury and were

all paid whatever amounts the jury awarded, until funds were

no longer available.” In re Joint E. & S. Dist. Asbestos Litig.,

982 F.2d 721, 749 (2d Cir. 1992), opinion modified on

rehearing, 993 F.2d 7 (2d Cir. 1993). What matters, then, is

not that claimants recover the same amount but that they have

equal opportunity to recover on their claims. See id.

(“Without question, the ‘same treatment’ standard of section

1123(a)(4) does not require that all claimants within a class

receive the same amount of money.”)

Courts are also in agreement that § 1123(a)(4) “does

not require precise equality, only approximate equality.” In

re Quigley Co., Inc., 377 B.R. 110, 116 (Bankr. S.D.N.Y.

2007); see also In re Multiut Corp., 449 B.R. 323, 334

(Bankr. N.D. Ill. 2011) (same). Certain procedural

differences, such as a “delay in receipt of distributions” for

some claims, “do[] not alone constitute unequal treatment.”

In re New Power Co., 438 F.3d 1113, 1122-23 (11th Cir.

2006); see also In re Multiut, 449 B.R. at 337 (same). In fact,

§ 524(g) “clearly envisions that asbestos claims will be paid

periodically as they accrue and as they are allowed,” since it

35

requires courts to ensure that there will be sufficient funds

available for both future demands and present claims to

receive similar treatment. In re W. Asbestos Co., 313 B.R.

832, 842-43 (Bankr. N.D. Cal. 2003). Therefore, differences

in the timing of distributions and other procedural variations

that have a legitimate basis do not generally violate

§ 1123(a)(4) unless they produce a substantive difference in a

claimant’s opportunity to recover. See In re New Power Co.,

438 F.3d at 1122-23 (concluding that a plan provision did not

violate § 1123(a)(4) in part because it was “procedural rather

than substantive”); cf. In re Dow Corning Corp., 280 F.3d

648, 660 (6th Cir. 2002) (holding that a difference in the

procedural protections offered to certain claimants violated

§ 1123(a)(4) because some claimants were “accorded far

more effective recovery rights” than others).

Under that standard, none of the provisions of the

TDPs that Montana and the Crown complain of amounts to

disparate treatment of creditors. Montana and the Crown first

take issue with a provision that allows indirect claims to be

considered “presumptively valid” only if, among other things,

“the Indirect Claimant has paid all or a portion of a liability or

obligation that the PI Trust had to the Direct Claimant.”

(Montana Opening Br. at 47 (quoting J.A. at 200326)

(internal quotation marks omitted).) They say that such a

requirement may provide no payout for indirect claims, and is

therefore discriminatory. But the only indirect claims that

will not be paid based on that provision are those for which

Grace has no underlying liability. As the District Court

rightly said, there is no “legal authority that requires a debtor

to reimburse third parties for wrongs for which the debtor is

not responsible,” and thus a bar on such recovery cannot be

36

said to constitute disparate treatment. In re W.R. Grace &

Co., 475 B.R. at 136.

Montana and the Crown next complain that the “first-

in, first-out” mechanism for processing and paying claims

discriminates against indirect claims. Citing testimony from

the future claimants’ representative that “there is a

possibility” that the trust may have insufficient funds to pay

future claims, they argue that, because claims for

indemnification and contribution depend on another judgment

first being obtained, their claims will likely be brought later

than direct asbestos claims and thus will be less likely to

obtain recovery. (Montana Opening Br. at 51 (quoting J.A. at

201664A) (internal quotation marks omitted).) They say that

the only fair method for resolving claims against the trust is

“for no distributions to be made until all” indemnification and

contribution claims have arisen and been asserted. (Id. at 52.)

There are significant problems with that argument.

First, although there may be a “possibility” that the trust will

have insufficient funds to compensate future claimants, the

Joint Plan endeavors to make that scenario as unlikely as

possible. To that end, it funds the personal injury trust with

the amount agreed to by the PI Committee and the future

claimants’ representative, it limits recoveries using the

“Payment Percentage” (which is specifically designed to

ensure that present and future claimants receive equivalent

amounts), and it allows the Payment Percentage to be

modified as needed to permit future recoveries.24 Second, the

24

As discussed earlier, see supra Section I.B, the

“Payment Percentage” limits each claimant’s recovery to a

certain percentage of the liquidated value of his or her claim,

37

“first-in, first-out” payment process is a common feature of

§ 524(g) trusts, see In re Federal-Mogul, 684 F.3d at 360

n.12, and it treats all claims identically, resolving both direct

and indirect claims in the order that they are received.

Although it may be true that indirect claims will generally

recover later under that process because they require the

additional step of a judgment being entered against the

claimant, the “delayed receipt of distributions to members of

a class whose claims remain disputed does not, in and of

itself, violate § 1123(a)(4).” In re New Power Co., 438 F.3d

at 1122. Finally, it would be wholly unreasonable to require

asbestos victims – many of whom have already waited

through twelve years of bankruptcy – to continue to wait

indefinitely until all indirect claims accrue before they can

recover from the trust. Cf. In re W. Asbestos Co., 313 B.R. at

842 (“It is not necessary to make liquidated claims wait for

payment until all disputed and unliquidated claims have been

resolved.”). Rather, by requiring courts to ensure that future

demands will be treated fairly, § 524(g) specifically

acknowledges that some claims against a trust may recover

earlier than others. See 11 U.S.C. § 524(g)(2)(B)(ii)(V)

(requiring that the court ensure that the trust will “operate

through mechanisms … that provide reasonable assurance

that the trust will value, and be in a financial position to pay,

present claims and future demands that involve similar claims

in substantially the same manner”). We therefore agree with

the District Court that the “first-in, first-out” mechanism does

not violate § 1123(a)(4) or § 524(g).

in order to ensure that funds will be available for future

claims.

38

Montana and the Crown also assert that the TDPs are

discriminatory because they impose additional restrictions on

indirect claims. Specifically, the complaints are that indirect

claimants cannot recover attorneys’ fees; that, in order to

have a presumptively valid claim, an indirect claimant must

secure a release of liability against the trust from the direct

claimant; and that personal injury claims are limited by the

“maximum value” provision of the TDPs. The District Court

properly rejected the argument that any of those features

make the TDPs unfair. Montana and the Crown have not

demonstrated a right to attorneys’ fees under their local tort

regimes, and there is therefore no reason why they should

expect to recover attorneys’ fees from the trust. There is also

nothing discriminatory about requiring an indirect claimant to

obtain a release from the direct claimant whose claims

provide the basis for seeking indemnification or contribution.

That requirement has the legitimate objective of ensuring that

an indirect claimant has satisfied a liability of the debtors, and

it would not make sense to extend it to direct claims. In any

event, the release provision does not limit a claimant’s

opportunity for recovery, as indirect claimants who are unable

to obtain a release can still pursue their claims through the

individual review process.25 As for the “maximum value”

25

The release of liability is only required for indirect

claimants seeking expedited review of their claims. The

TDPs expressly state that, “[i]f an Indirect Claimant cannot

meet the presumptive requirements” necessary for expedited

review, “including the requirement that the Indirect Claimant

provide the [personal injury] [t]rust with a full release of the

Direct Claimant’s claim, the Indirect Claimant may request

that the [personal injury] [t]rust review the … [c]laim

individually.” (J.A. at 200326.)

39

provision, that requirement applies with equal force to direct

and indirect claims, and therefore does not result in disparate

treatment of claims.

Finally, the Crown independently argues that the TDPs

are discriminatory both because Canadian property damage

claimants will allegedly receive inferior recovery to U.S.

property damage claimants, and because the Crown cannot

qualify for “extraordinary claim” treatment. The first of those

contentions seems to be based on the amount allocated to the

Canadian ZAI property damage claims fund, which is

significantly less than the amount being allocated for U.S.

property damage claims. But, as the District Court correctly

noted, Canadian and U.S. property damage claimants are

classified in separate classes, operate under separate tort

regimes, and reached separate settlement agreements. See In

re W.R. Grace & Co., 475 B.R. at 138-39. There is therefore

no reason to expect that they would receive the same dollar

amount in recovery, and, more importantly, § 1123(a)(4) does

not demand that they receive equal treatment, as it requires

only that a plan “provide the same treatment for each claim or

interest of a particular class.” 11 U.S.C. § 1123(a)(4)

(emphasis added). Moreover, it is unclear whether the

Crown’s assertion that Canadian claimants will receive less

than their U.S. counterparts is even factually accurate, as the

Crown provides no information on the estimated number of

Canadian property damage claims, so there is no way to

conclude that the available funds are unduly limited.

As for the “extraordinary claim” provision, it is

designed to provide a remedy for certain individuals harmed

by Grace who have “little likelihood of a substantial recovery

elsewhere.” (J.A. at 200323.) The Crown is therefore correct

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that the provision treats certain claims differently than others,

but it does so based on the claimant’s particular factual

situation, in much the same way that the expedited review

process treats claims differently based on the particular

disease at issue. The Crown does not contest that such

substantive distinctions among claims are valid bases for

potential differences in the amount of recovery, nor does it

argue that the individualized review process will value its

claims at less than they would be worth under the tort system.

Therefore, it has not shown that the “extraordinary claim”

provision unfairly limits its opportunity for recovery.

In sum, the District Court rightly determined that the

Joint Plan satisfies the equal treatment provisions of

§ 1123(a)(4) and § 524(g). Although there may, at the

margins, be some differences in recovery for direct and

indirect claims, those differences do not amount to disparate

treatment of creditors.

C. “Fair and Equitable” to Future Claimants

Montana’s and the Crown’s final contention is that the

Joint Plan violates the “fair and equitable” provision of

§ 524(g). That provision requires that, before confirming a

plan involving a § 524(g) trust, a court must determine that

the proposed channeling injunction is “fair and equitable with

respect to the persons that might subsequently assert …

demands” against the trust “in light of the benefits provided

… to such trust on behalf of [the] debtor.” 11 U.S.C.

§ 524(g)(4)(B)(ii).26 In other words, the provision requires a

26

Although it uses similar language, the § 524(g) “fair

and equitable” provision is separate from the “fair and

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reviewing court to consider whether, given the funds

available in a trust, it is “fair and equitable” to channel future

demands to that trust.

Although no court of appeals has yet interpreted what

“fair and equitable” means in that context, other courts seem

to agree that one way to evaluate the equities is to consider

the amount being contributed to the trust in comparison to the

liability exposure of the protected parties. See, e.g., In re

Plant Insulation Co., 485 B.R. 203, 227 (N.D. Cal. 2012)

(“[T]he analysis appropriately focuses on the relationship

between the contributions of protected entities to the Trust,

and the benefits received by the same under the terms of the

channeling injunction.”); In re Congoleum Corp., 362 B.R.

167, 180 (Bankr. D.N.J. 2007) (“A review of the case law

suggests that finding that an injunction is fair and equitable is

closely tied to the value being contributed to the plan.”).

Given the substantial benefit provided by the channeling

injunction, courts have held that the protected parties’

contribution to the trust must be sufficient to justify that

extraordinary form of relief. See In re Quigley Co., 437 B.R.

at 133; In re Plant Insulation Co., 485 B.R. at 227

(considering whether the protected parties provided the trust

equitable” provision of 11 U.S.C. § 1129(b), which provides

that the court can confirm a plan over the objection of an

impaired and dissenting class of creditors if it is “fair and

equitable … with respect to each class of claims or interests

that is impaired under, and has not accepted, the plan.” 11

U.S.C. § 1129(b)(1). Because Montana and the Crown are in

classes that overwhelmingly accepted Grace’s Joint Plan, they

do not challenge plan confirmation under § 1129(b), and it is

not at issue in this appeal.

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“with sufficient benefits to justify the injunctive relief

provided to them, from the perspective of future asbestos

injury claimants”). Under that standard, channeling

injunctions have generally been considered “fair and

equitable” to future claimants when the trust contribution that

will be available to those claimants bears some relationship to

the estimated value to the debtor of enjoining their claims. In

re Quigley Co., 437 B.R. at 140 (denying plan confirmation

because future demand holders would receive only about

$147 million, whereas the value to the debtor of enjoining

their claims was $613 million); see also In re G-I Holdings

Inc., 420 B.R. 216, 276 (D.N.J. 2009) (concluding that the

“substantial contributions provided” to the trust made it fair to

future claimants).

Montana and the Crown do not suggest that the

amount being contributed to the personal injury and property

damage trusts is out of sensible proportion to the liability

exposure of the protected parties.27 Rather, they contend that

27

Because Montana and the Crown do not take issue

with the size of the trust contribution, we need not determine

in this case when an imbalance between the liability exposure

and the amount being contributed to a trust prevents an

injunction from being “fair and equitable” under § 524(g).

We note, however, that the trust contribution does not have to

be equal to the projected liability in order for the injunction to

be fair to future claimants. Although the statutory language at

issue focuses on the funds available to pay future claims,

§ 524(g) does not require that those claims be paid in full.

Rather, it requires that future claims be paid “in substantially

the same manner” as present claims. 11 U.S.C.

§ 524(g)(2)(B)(ii)(V). In many cases, the trust may be funded

43

the TDPs are “unfair and inequitable” because they “lack

certainty regarding the amount of distributions and the

procedure for distributions” (Montana Opening Br. at 56),

and because the Trust Advisory Committee includes

“attorneys for underlying asbestos claimholders,” which they

say is unfair to indirect claimants (id. at 57). We are

unconvinced that those allegations are even relevant to the

question of whether the channeling injunction is fair and

equitable under § 524(g). As Grace points out,

§ 524(g)(4)(B)(ii) “is not a catch-all provision” for objecting

to plan provisions (Grace Br. at 78); rather, it specifically

addresses whether it is fair to enjoin future claims against the

debtor in light of the amount being contributed to the trust.

But even if Montana’s and the Crown’s allegations of

in an amount that, as here, only allows present and future

claimants to recover a portion of the value of their claims.

See Federal-Mogul, 684 F.3d at 360 n.12 (“[F]ew trusts pay

the full value of submitted claims; current payment

percentages range widely, but the median is 25%, with most

trusts paying between ten and forty-six percent of a claim’s

liquidated value.”). But that alone does not mean that the

injunction is unfair or inequitable, since, without such a

limitation, the debtor may be forced to liquidate and be

unable to pay future claims at all. For that reason, courts look

for a relationship between the protected parties’ contribution

to the trust and the benefit they are receiving from the

injunction, and do not require the trust contribution to be

equal to the estimated value of future claims. We leave for

another day the question of how to determine whether the

benefit of an injunction outweighs the value committed to the

trust to a degree that channeling future claims would be unfair

to future claimants.

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unfairness were relevant to the statutory inquiry, they are

baseless. Although they complain that the TDPs do not

precisely determine the amount of future recoveries, that

uncertainty is unavoidable, as it is impossible to calculate

precisely how many future demands will be brought or how

much those claimants will be entitled to recover. One cannot

even have a § 524(g) trust unless “the actual amounts,

numbers, and timing of such future demands cannot be

determined.” 11 U.S.C. § 524(g)(2)(B)(ii)(II). As for their

complaint regarding the Trust Advisory Committee members,

that committee exercises only limited control over trust

distributions, and Montana and the Crown have pointed to no

evidence suggesting that the committee has or will engage in

improper conduct. There therefore was no error in the

District Court’s determination that the channeling injunction

is fair and equitable to future claimants under § 524(g).

III. Conclusion

For the foregoing reasons, we conclude that the

District Court correctly affirmed the Bankruptcy Court’s

order overruling the objections of Montana and the Crown to

Grace’s Joint Plan, and we will affirm the Court’s order to

that effect.

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