In Re G-I Holdings, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

Nos. 13-3335 and 13-3336

______

IN RE: G-I HOLDINGS, INC.,

formerly known as GAF Corporation,

Debtor

UNITED STATES GYPSUM COMPANY,

Appellant No. 13-3335

QUIGLEY COMPANY, INC.,

Appellant No. 13-3336

______

On Appeal from United States District Court

for the District of New Jersey

(D. N.J. No. 2-12-cv-6933)

District Judge: Dennis M. Cavanaugh

______

Argued April 8, 2014

Before: FISHER and SCIRICA, Circuit Judges, and

MARIANI,* District Judge.

(Filed: June 17, 2014)

Rachel S. Bloomekatz, Esq. ARGUED

Jones Day

Suite 600

325 John H. McConnell Boulevard

Suite 600, P.O. Box 165017

Columbus, OH 43215

Brad B. Erens, Esq.

Brian J. Murray, Esq.

Jones Day

77 West Wacker Drive

Suite 3500

Chicago, IL 60601

Counsel for Appellant United States Gypsum Co.

John P. DiIorio, Esq.

Shapiro Croland

411 Hackensack Avenue

Hackensack, NJ 07601

*

The Honorable Robert D. Mariani, District Judge for

the United States District Court for the Middle District of

Pennsylvania, sitting by designation.

2

Stephen D. Hoffman, I, Esq. ARGUED

Wilk Auslander

1515 Broadway

43rd Floor

New York, NY 10036

Counsel for Appellant Quigley Co. Inc.

Mark E. Hall, Esq.

Dennis J. O'Grady, Esq.

Riker, Danzig, Scherer, Hyland & Perretti

One Speedwell Avenue

Headquarters Plaza

Morristown, NJ 07962-0000

Andrew J. Rossman, Esq. ARGUED

Scott C. Shelley, Esq.

Jacob J. Waldman, Esq.

Quinn, Emanuel, Urquhart & Sullivan

51 Madison Avenue

22nd Floor

New York, NY 10010

Counsel for Appellees

______

OPINION OF THE COURT

______

3

FISHER, Circuit Judge.

Due to the rising number of asbestos-related personal

injury lawsuits filed in the 1980s, a group of producers of

asbestos and asbestos-containing products (“Members” or

“Participating Producers”) joined together and formed the

Center for Claims Resolution (the “Center”) to administer

asbestos personal injury claims on behalf of the Members.

The Members negotiated and signed the Producer Agreement

Concerning Center for Claims Resolution (the “Producer

Agreement”), which established and set forth the mechanics

of the Center and the obligations of the Members. Appellants

United States Gypsum Company (“U.S. Gypsum”) and

Quigley Company, Inc. (“Quigley”) and the predecessor-in-

interest of Appellee G-I Holdings, Inc. (“G-I”) were among

the roughly twenty asbestos producers who signed the

Producer Agreement, thereby becoming Members of the

Center.

After G-I failed to pay its contractually-calculated

share due to pay out personal injury settlements and cover

Center expenses, U.S. Gypsum and Quigley were obligated to

pay additional sums to cover G-I’s payment obligations. G-I

filed for bankruptcy and the Center, U.S. Gypsum, and

Quigley each filed a proof of claim in the Bankruptcy Court

seeking to recover for G-I’s nonpayment under the Producer

Agreement. The Center eventually settled its claim with G-I.

Although arising in the context of a bankruptcy

proceeding, this case concerns claims for breach of contract

under Delaware law. We are asked to decide whether, under

the Producer Agreement, U.S. Gypsum and Quigley

(together, the “Former Members”) may maintain a breach of

contract action against G-I. We hold that the Producer

Agreement permits the Former Members to pursue a breach

of contract action against G-I for its failure to pay

4

contractually-obligated sums due to the Center, in light of the

Former Members’ payment of G-I’s share. We therefore

vacate the District Court’s order affirming the Bankruptcy

Court’s grant of summary judgment in G-I’s favor.

I.

A.

Facing a growing number of asbestos-related personal

injury lawsuits, a group of producers of asbestos and

asbestos-containing products joined together to form the

Center in order to more effectively defend against and resolve

the lawsuits. The Center was incorporated as a non-profit,

non-stock Delaware corporation in September 1988 to

“administer and arrange for the evaluation, settlement,

payment, and defense of asbestos-related bodily injury

claims.” (A-684).

The Producer Agreement sets forth the Members’

purposes in entering the agreement and establishing the

Center. The Members stated that they “believe it is important

to establish an organization that will, on behalf of all

Participating Producers, resolve meritorious asbestos-related

claims in a fair and expeditious manner and, where necessary,

defend asbestos-related claims efficiently and economically.”

(A-715). They also sought to “enter into a constructive

relationship with one another and to resolve any cross or

counter claims that they may have against each other.” (Id.).

The Center was governed by a five-person Board of

Directors. A producer became a Member of the Center by

signing the Producer Agreement, and membership could be

terminated by a Member’s written notice, by a Member’s

bankruptcy, or by resolution of the Board of Directors.

However, even after termination of membership, the former

Member would “continue to have and to honor all of the

obligations incurred by it [under the Producer Agreement] or

5

on its behalf as a member prior to the effective date of its

membership termination.” (A-720).

The Producer Agreement designates the Center as each

Member’s “sole agent to

administer and arrange on its behalf for the evaluation,

settlement, payment or defense of all asbestos-related claims

against such Participating Producer.” (A-721). The Producer

Agreement defines “asbestos-related claims” as “claims or

lawsuits against any Participating Producers or the Center . . .

seeking monetary relief . . . for bodily injury, sickness,

disease or death, alleged to have been caused in whole or in

part by any asbestos or asbestos-containing product.” (A-

716). After settling or otherwise resolving claims on behalf

of the Members, the Center would bill and collect each

Member’s allocated share of liability payments and expenses

based upon a formula set forth in an attachment to the

Producer Agreement.

If a Member failed to pay its share of liability

payments or expenses in a timely manner, the Producer

Agreement provides that “the Center’s Board of Directors

may direct the Center to institute an ADR on behalf of the

Center’s Participating Producers against such Participating

Producer to enforce payment of such obligations.” (A-731-

32). With respect to claims between Members, the Producer

Agreement provides that “[s]o long as it is a member of the

Center each Participating Producer shall forego with respect

to asbestos-related claims for contribution or indemnity (other

than for contribution or indemnity assumed under written

agreement) against all other Participating Producers that are

members of the Center.” (A-730-31).

Finally, the Producer Agreement sets forth that it is

“not intended to confer any rights or benefits upon any other

persons” aside from Members, the Center, and some of the

6

Members’ insurers. (A-727). Other than the Center, a

signatory Member, or a Member’s insurer, “[n]o person . . .

shall have any legally enforceable rights under the

Agreement.” (Id.). “All rights of action for any breach of

this Agreement by any signatory hereto are hereby reserved to

the Center, Participating Producers and to Supporting Insurers

that are paying unallocated expenses incurred by the Center.”

(Id.).

G-I is the successor-in-interest to GAF Corporation,

which was named in a large number of asbestos-related

lawsuits. G-I’s membership in the Center was terminated by

the Center’s Board of Directors after the Board determined

that G-I had breached the Producer Agreement by failing to

pay its share of settlements and expenses. G-I’s termination

was effective January 17, 2000. Shortly after the termination

of G-I’s membership, the Center notified G-I that it owed the

Center almost $300 million and commenced an ADR for

payment. The ADR was stayed once G-I filed for bankruptcy

in January of 2001. The Center sought additional payments

from the remaining Members to satisfy G-I’s share of

settlements and expenses.

U.S. Gypsum and Quigley were Members of the

Center at the same time as G-I. On February 1, 2001, Quigley

withdrew from the Center, thereby terminating its

membership. On June 25, 2001, U.S. Gypsum filed for

Chapter 11 bankruptcy, which terminated its membership.

U.S. Gypsum and Quigley assert that they made payments to

the Center to cover the shortfall caused by G-I’s failure to

pay.

B.

G-I filed for Chapter 11 bankruptcy on January 5,

2001. The Bankruptcy Court fixed October 15, 2008 as the

date by which all proofs of claim against any interest in the

7

debtor had to be filed. On October 9, 2008, the Center filed a

proof of claim alleging that G-I was liable to the Center for a

total of $254.7 million due to its breach of the Producer

Agreement.1 The Center alleged that it paid out $29.5 million

to asbestos claimants on G-I’s behalf before it stopped paying

out G-I’s share of the settlements to asbestos claimants. It

also asserted that G-I owed it $2.6 million for G-I’s share of

the Center’s expenses. Finally, the Center claimed damages

for settlement agreements that asbestos claimants had voided

after G-I’s membership terminated. Although the Center had

not paid out any of these settlements, it claimed that G-I owed

it $222.6 million as damages for the settlements that would

not have been voided but for G-I’s breach. In its proof of

claim, the Center did not state whether it had sought

reimbursement from the remaining Members of the Center for

the $29.5 million it paid on G-I’s behalf.

Both of the Former Members filed a separate proof of

claim seeking to recover sums paid to the Center to cover G-

1

The amount of the Center’s claim as of the date of G-

I’s bankruptcy filing differs from the amount of the claim as

of the date of filing the proof of claim. See A-775 (“As of

January 6, 2001 (the “Petition Date”), the [Center] had a

claim against G-I Holdings, Inc. (the “Debtor”) in the

aggregate principal amount of $299,510,764 plus interest and

attorneys’ fees. As of the date of the filing of this Proof of

Claim, the [Center] has a claim against the Debtor in the

aggregate principal amount of $254,705,373 plus interest,

fees, and expenses.”). The Center had sought the $299.5

million figure from G-I shortly after its membership

terminated. We use the $254.7 million figure because that is

the amount stated as presently owed in the proof of claim that

G-I and the Center eventually settled.

8

I’s obligations. U.S. Gypsum filed its proof of claim on

October 15, 2008, asserting a breach of contract claim. U.S.

Gypsum maintained that in November 2000, the Center

sought reimbursement from the remaining Members of the

Center, including U.S. Gypsum, for the Center’s payment of

$30 million to asbestos claimants on G-I’s behalf. U.S.

Gypsum paid roughly $6.3 million to the Center to reimburse

the Center for the payments made on G-I’s behalf. Quigley

filed a proof of claim on October 13, 2008 seeking

unliquidated damages for G-I’s breach of the Producer

Agreement. G-I filed objections to the proofs of claim.

The Center and G-I settled the Center’s claim against

G-I seeking $254.7 million for a cash payment of $9.9

million. On September 4, 2009, G-I moved for approval of

the Settlement Agreement in the Bankruptcy Court. The

Former Members objected to the settlement and sought

clarification that the Settlement Agreement would not affect

or release their claims against G-I. The Bankruptcy Court

added language to the Order approving the Settlement

Agreement, which was entered on September 24, 2009,

providing that the Settlement Agreement was “binding on all

entities asserting claims against G-I that derive from [the

Center] or depend upon [the Center’s] rights.” (A-476).

However, “[f]or the avoidance of doubt, nothing in this Order

or the [] Settlement Agreement shall release, prejudice,

compromise or otherwise affect the claims, if any, that

Former Members . . . have or may have against the G-I Plan

Parties . . . .” (Id.).

The District Court and Bankruptcy Court approved G-

I’s Eighth Amended Joint Plan of Reorganization on

November 12, 2009. In the Eighth Amended Plan, G-I

maintained that the Former Members’ claims were derivative

of the Center’s settled claim, and should therefore be

9

considered settled. But the Plan set forth that to the extent

that the Former Members’ claims would be allowed, they

would receive cash equal to 8.6% of the allowed claim

amount.

G-I filed for summary judgment on the Former

Members’ claims on July 15, 2010. After briefing, the

Bankruptcy Court issued an opinion on August 13, 2012

granting the motion for summary judgment in G-I’s favor.

The Bankruptcy Court concluded that the Center was

authorized to resolve G-I’s breach by nonpayment, and the

Producer Agreement barred the Former Members from

pursuing claims, including for breach of contract, against G-I.

The Bankruptcy Court also determined that the Former

Members’ claims were derivative of the Center’s claim,

which provided an additional reason that Former Members

could not maintain their claims against G-I.

U.S. Gypsum and Quigley appealed to the District

Court, which affirmed the Bankruptcy Court’s decision on

June 26, 2013. The District Court agreed with the

Bankruptcy Court that the Former Members were

contractually barred from pursuing an independent breach of

contract action against G-I, reasoning that the Producer

Agreement sought to avoid all litigation between Members.

The District Court explained that, when read in the context of

Section X’s title (“Third-Party Rights”) and the rest of the

Producer Agreement, language reserving rights of action for

breach to the Members did not create a right to bring breach

of contract claims. It also concluded that the section

permitting the Center to bring an ADR for a Member’s failure

to pay did not “leav[e] open the option for independent

members to bypass the sole authority of the [Center] to

remedy [the breach] on their own.” (A-7). The District Court

did not reach the issue of whether the Former Members’

10

claims were direct or derivative. U.S. Gypsum and Quigley

both filed a timely notice of appeal.

II.

The Bankruptcy Court had jurisdiction over this core

matter in G-I’s bankruptcy proceeding pursuant to 28 U.S.C.

§ 1334(b) and 28 U.S.C. § 157. The Former Members timely

appealed the Bankruptcy Court’s final order to the District

Court, which exercised its jurisdiction under 28 U.S.C.

§ 158(a)(1) and Bankruptcy Rule 8001(a). We have

jurisdiction to review the District Court’s final order under 28

U.S.C. § 158(d)(1) and 28 U.S.C. § 1291.

“We review a district court’s grant of summary

judgment de novo, applying the same standard the district

court applied.” Viera v. Life Ins. Co. of N. Am., 642 F.3d 407,

413 (3d Cir. 2011). “We also review the legal interpretation

of contractual language de novo.” Id.

Summary judgment is proper “if the movant shows

that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(a). “An issue is genuine only if there is a sufficient

evidentiary basis on which a reasonable jury could find for

the non-moving party, and a factual dispute is material only if

it might affect the outcome of the suit under governing law.”

Kaucher v. Cnty. of Bucks, 455 F.3d 418, 423 (3d Cir. 2006)

(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986)). In conducting our review, we view the record in the

light most favorable to the non-moving party and draw all

reasonable inferences in that party’s favor. Bowers v. Nat’l

Collegiate Athletic Ass’n, 475 F.3d 524, 535 (3d Cir. 2007).

A motion for summary judgment is properly denied if “a fair-

minded jury could return a verdict for the plaintiff on the

evidence presented.” Anderson, 477 U.S. at 252.

III.

11

The Former Members argue that the District Court

erred in holding that the Producer Agreement bars them from

pursuing a breach of contract claim against G-I. They also

urge us not to adopt the Bankruptcy Court’s conclusions that

the Former Members’ claims are derivative of the Center’s

claim and that allowing Former Members’ claims would lead

to a double recovery. We will address each issue in turn.

A.

In determining whether the Former Members may

maintain a breach of contract action against G-I under the

Producer Agreement, we must heed the guidance of the

Delaware courts2 and “give priority to the parties’ intentions

as reflected in the four corners of the agreement.” GMG

Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36

A.3d 776, 779 (Del. 2012). “In upholding the intentions of

the parties, a court must construe the agreement as a whole,

giving effect to all provisions therein.” E.I. du Pont de

Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113

(Del. 1985). A court should interpret the contract “in such a

way as to not render any of its provisions illusory or

meaningless.” Sonitrol Holding Co. v. Marceau

Investissements, 607 A.2d 1177, 1183 (Del. 1992). “[C]lear

and unambiguous terms” in a contract are interpreted

according to their ordinary meaning. GMG Capital Invs., 36

A.3d at 780. However, “the meaning which arises from a

particular portion of an agreement cannot control the meaning

of the entire agreement where such inference runs counter to

the agreement’s overall scheme or plan.” E.I. du Pont de

Nemours, 498 A.2d at 1113.

2

The parties agree that the law of the state of

Delaware governs the Producer Agreement.

12

We also must keep in mind the elements that a plaintiff

must prove for breach of contract. For a successful breach of

contract claim, a party must prove: “1) a contractual

obligation; 2) a breach of that obligation by the defendant;

and 3) a resulting damage to the plaintiff.” H-M Wexford

LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003).

With these principles in mind, we turn to the terms of

the Producer Agreement. We will first address the language

that is most relevant to Former Members’ ability to sue G-I

for its breach by nonpayment, which is found in Section X.

We will then address whether allowing Former Members to

bring a breach of contract action under Section X is consistent

with the purpose of the Producer Agreement and with its

other provisions and overall scheme.

The third sentence of Section X provides: “All rights

of action for any breach of this Agreement by any signatory

hereto are hereby reserved to the Center, Participating

Producers and to Supporting Insurers . . . .” (A-727). G-I and

Former Members were signatories to the Agreement and

Participating Producers at the time of G-I’s alleged breach.

For the purposes of this appeal, we will assume that G-I did

breach the Producer Agreement by failing to make required

payments.3 If this case involved only G-I’s nonpayment of its

3

The District Court ruled on summary judgment that

the Agreement barred Former Members from bringing a

breach of contract action against G-I as a matter of law. It did

not reach the merits of the breach of contract claim – i.e.

whether G-I failed to make required payments and thereby

breached the Producer Agreement. G-I disputes the breach;

however, as Former Members are the non-moving parties, we

will construe the facts in their favor and assume G-I’s breach

through nonpayment.

13

obligations to the Center, the Former Members would be

unable to maintain a breach of contract action against G-I

because they would not yet have suffered damages. But once

the Former Members were required to make additional

payments to cover the shortfall caused by G-I’s nonpayment,

they suffered damages and accrued a cause of action for

breach of contract. Section X reserves the right of the Former

Members – Participating Producers at the time of G-I’s

breach – to maintain an action for breach of the Producer

Agreement against G-I – a signatory.

Section X makes explicit a basic contract law

principle. “It is axiomatic that either party to an agreement

may enforce its terms for breach thereof.” Triple C Railcar

Serv., Inc. v. City of Wilmington, 630 A.2d 629, 633 (Del.

1993) (citing Richard A. Lord, Williston on Contracts, § 1:1

(4th ed. 1990)). Section X expands the universe of entities

that may bring a breach of contract action under the Producer

Agreement beyond the Members (who were the only

signatories to the Producer Agreement) to include the Center

and some of the Members’ insurers. It was not necessary for

the Producer Agreement to acknowledge the Members’

ability to sue for breach because such an ability is inherent in

contract law. But because the Producer Agreement does

clearly provide for such a suit, we should not lightly overlook

Section X as it is the most relevant provision to the issue at

hand.

G-I argues – and both the Bankruptcy and District

Courts agreed – that this language merely limits third party

rights under the Producer Agreement. Section X is titled

“Third-Party Rights.” But we will not discount the plain

language of the third sentence of that section merely because

of the title. A court “may examine the [contract] heading ‘as

additional evidence tending to support the contract’s

14

substantive provisions.’” Fulkerson v. MHC Operating Ltd.,

01C-07-020, 2002 WL 32067510, at *5 (Del Super. Ct. Sept.

24, 2002) (emphasis added) (quoting Cantor Fitzgerald, L.P.

v. Cantor, 724 A.2d 571, 582 n.35 (Del. Ch. 1998)). The title

of a section cannot contradict or rewrite the plain language of

the contractual provisions within that section. “Contract

headings do not constitute controlling evidence of a contract’s

substantive meaning.” Id.

G-I also relies upon the other provisions in Section X

to write off the third sentence. The first two sentences of

Section X make it clear that the Producer Agreement does not

confer rights or benefits upon third parties, and that the only

entities with legally enforceable rights under the Agreement

are the Center, signatories to the Producer Agreement, and

certain insurers. G-I would read the third sentence to merely

reiterate what the first two already make express – that

unnamed parties are prevented from enforcing the contract. 4

But this reading would drain the third sentence of meaning

and would “render a provision or term” – i.e., the language

reserving rights of action for breach of contract –

“meaningless or illusory.” Osborn ex rel. Osborn v. Kemp,

991 A.2d 1153, 1159 (Del. 2010) (internal quotation marks

4

G-I also takes a different tack by arguing that even if

the third sentence can be read as allowing Participating

Producers to bring breach of contract actions, it need not be

read to allow actions for nonpayment, and instead should be

read as reserving the right to remedy breaches other than for

nonpayment. But this runs counter to the plain language of

the provision, which specifically reserves “all” rights to bring

actions for “any” breach of the Agreement. (A-727). These

words imply that actions for breach due to nonpayment are

included.

15

omitted). This would violate the rule of contract

interpretation that we must “give each provision and term

effect, so as not to render any part of the contract mere

surplusage.” Id. (internal quotation marks omitted) (quoting

Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d

393, 396-97 (Del. 2010)). We therefore decline G-I’s

invitation to read the third sentence of Section X as a

reiteration of or further clarification on the preclusion of third

party rights under the Producer Agreement. Unless the

language of Section X regarding breach of contract actions is

irreconcilably inconsistent with the Producer Agreement’s

purpose, other provisions, or overall contractual scheme, we

should give effect to the “clear and unambiguous” language

reserving the Former Members’ right to bring a breach of

contract action against G-I. GMG Capital Invs., 36 A.3d at

780.

We believe that the plain language of Section X is

perfectly consistent with the overall purpose of the Producer

Agreement. We consider the purpose of the Producer

Agreement because we must “give priority to the parties’

intentions,” id. at 779, and because we do not allow the

meaning of a particular provision in an agreement to control

the meaning of the agreement as a whole where that meaning

“runs counter to the agreement’s overall scheme or plan.”

E.I. du Pont de Nemours, 498 A.2d at 1113.

The introductory statements to the Producer

Agreement set forth its purposes. One statement provides

that the Members “desire to enter into a constructive

relationship with one another and to resolve any cross or

counter claims that they may have against each other.” (A-

715). The courts below relied in part upon this statement in

concluding that the purpose of the Producer Agreement was

to prevent “internecine” litigation – i.e. all litigation

16

occurring between Members. (A-5, A-51). This goes too far

and assumes intent to avoid a lawsuit such as this one where

no such intent was expressed. The Producer Agreement

states that the Members sought to resolve cross and

counterclaims that they might have against one another.

Cross and counterclaims refer to claims that Members could

have against one another in the thousands of asbestos-related

personal injury lawsuits that were the main concern of the

Producer Agreement. The words crossclaim and

counterclaim presume the existence of an underlying claim

already being litigated. See Black’s Law Dict. 433 (9th ed.

2009) (defining crossclaim as “[a] claim asserted between

codefendants or coplaintiffs in a case and that relates to the

subject of the original claim or counterclaim”); Black’s Law

Dict. 402 (9th ed. 2009) (defining counterclaim as “[a] claim

for relief asserted against an opposing party after an original

claim has been made”). If the Members sought to avoid all

litigation – as the courts below concluded – they could have

drafted the Producer Agreement to provide that they sought to

resolve any claims that they might have against each other,

instead of any cross or counterclaims. “[C]ourts should be

most chary about implying a contractual protection when the

contract could easily have been drafted to expressly provide

for it.” Allied Capital Corp. v. GC-Sun Holdings, L.P., 910

A.2d 1020, 1035 (Del. Ch. 2006).

Unlike the courts below, we cannot say that allowing

Former Members to pursue a breach of contract action against

G-I for its nonpayment is inconsistent with the overall

purpose of the Producer Agreement. The Producer

Agreement sought to avoid litigation over the allocation of

liability in the thousands of asbestos-related personal injury

suits that inspired the creation of the Center in the first place.

The desire to resolve these cross and counterclaims says

17

nothing about the type of claim here – a claim among

Members for breach of contract, unrelated to any individual

asbestos-related claim. The expansive reading of purpose

endorsed by the courts below – preventing internecine

litigation – colored their analysis of the entire Producer

Agreement, leading them to conclude that the Former

Members’ suit against G-I was barred. We will not adopt

such a broad interpretation and instead conclude that the

Former Members’ right to bring a breach of contract action is

consistent with the purpose of the Producer Agreement.

We turn now to consider whether allowing the Former

Members to sue G-I for its breach under Section X is

consistent with the other provisions of the Producer

Agreement. “In upholding the intentions of the parties, a

court must construe the agreement as a whole, giving effect to

all provisions therein.” E.I. du Pont de Nemours, 498 A.2d at

1113. If a meaning that arises from one portion of the

agreement conflicts with the agreement’s “overall scheme or

plan,” it cannot control. Id. In interpreting the entire

agreement, “[s]pecific language in a contract controls over

general language, and where specific and general provisions

conflict, the specific provision ordinarily qualifies the

meaning of the general one.” DCV Holdings, Inc. v.

ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005). Section X is a

general provision, broadly setting forth the right to bring a

breach of contract action. If this provision conflicts with a

more specific provision elsewhere in the Producer Agreement

or with its overall scheme or plan, we should not allow

Section X to control.

We turn first to Section IV’s designation of the Center

as the Members’ “sole agent.” By signing the agreement,

“each Participating Producer hereby designates the Center as

its sole agent to administer and arrange on its behalf for the

18

evaluation, settlement, payment or defense of all asbestos-

related claims against such Participating Producer.” (A-720-

21). This provision does not conflict with Former Members’

ability to bring a breach of contract claim against G-I,

because the Center’s role as “sole agent” applies only to

“asbestos-related claims.” “Asbestos-related claims” are

specifically defined in the Producer Agreement as lawsuits

against Participating Producers or the Center “seeking

monetary relief . . . for bodily injury, sickness, disease or

death, alleged to have been caused in whole or in part by any

asbestos or asbestos-containing product.” (A-716). The

Former Members’ claims are breach of contract claims made

by one party to an agreement against another party seeking

remuneration for the breaching party’s failure to pay its

contractually-allocated share of payments to settle asbestos-

related claims. Their claims are not themselves “asbestos-

related claims.” Allowing the Former Members to sue G-I for

its nonpayment does not interfere with the Center’s role as

“sole agent” for the purposes of administering and settling

these asbestos personal injury claims.

Next we turn to the first paragraph of Section XIV

(“Section XIV.1”), which provides that during its

membership, “each Participating Producer shall forego with

respect to asbestos-related claims for contribution or

indemnity (other than for contribution or indemnity assumed

under written agreement) against all other Participating

Producers that are members of the Center.” (A-730-31).

Like the “sole agent” provision in Section IV discussed

above, because Section XIV.1 qualifies its application to

“asbestos-related claims” only, it does not conflict with

Section X. In limiting suits for contribution and indemnity in

asbestos personal injury lawsuits, this provision implements

the Producer Agreement’s stated purpose of resolving cross

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and counterclaims among the Members. Asbestos-related

claims for contribution or indemnity seek to reapportion

damages based upon each tortfeasor’s proportionate share of

liability in the underlying personal injury lawsuits. See e.g.,

Black’s Law Dict. 378 (9th ed. 2009) (defining contribution

as “[o]ne tortfeasor’s right to collect from joint tortfeasors

when – and to the extent that – the tortfeasor has paid more

than his or her proportionate share to the injured party, the

shares being determined as percentages of causal fault”). The

Former Members’ breach of contract actions seek to recover a

set amount of money that they paid to cover G-I’s obligation

as calculated under a contractual formula. These claims are

not based upon G-I’s share of the “fault” in the asbestos

personal injury actions; rather, they are based upon the

Producer Agreement. We cannot read Section XIV.1, which

limits suits for contribution and indemnity for asbestos-

related claims, as being in conflict with the Former Members’

ability to bring suit for breach of the Producer Agreement

under Section X.

Finally, we turn to the fourth paragraph of Section

XIV (“Section XIV.4”), which addresses a Member’s

nonpayment. This section provides: “In the event that any

Participating Producer’s percentage shares of liability

payments or allocated expenses are not paid in a timely

manner, the Center’s Board of Directors may direct the

Center to institute an ADR on behalf of the Center’s

Participating Producers against such Participating Producer to

enforce payment of such obligations.” (A-731-32). Allowing

Former Members to maintain their breach of contract actions

against G-I does not conflict with this provision for several

reasons. Most notably, Section XIV.4 provides that in the

event of nonpayment, the Center’s Board may direct the

Center to institute an ADR. This language is permissive, not

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mandatory or exclusive. Language in Section IV clearly

articulates the Center’s “exclusive authority” and role as the

Members’ “sole agent” in administering asbestos-related

claims brought against Members. The drafting parties

therefore knew how to draft a provision giving the Center

“sole” or “exclusive” authority. In concluding that the Center

had the exclusive right to bring an action for G-I’s

nonpayment, the courts below changed “may” into

“exclusively has the authority to.” We will not read

“exclusive authority” into the contract “when the contract

could easily have been drafted to expressly provide for it.”

Allied Capital Corp., 910 A.2d at 1035.

Consideration of the third element of a breach of

contract claim – damages – is the key to understanding why

the Former Members’ right to pursue a breach of contract

action is consistent with Section XIV.4. The Former

Members suffered damages once they were required to make

additional payments to cover the shortfall caused by G-I’s

breach. Before the Former Members were required to cover

the shortfall, the harm G-I caused fell upon the Center, as the

Center was unable to collect payments and therefore fulfill its

settlement obligations to asbestos plaintiffs. In such a

situation, the Center would rely upon Section XIV.4 to

enforce the nonpaying Member’s obligations. But once the

other Members paid G-I’s share, the harm to the Center was

remedied – the Center fulfilled its obligations to asbestos

plaintiffs – and became a harm to the Members who paid

more than their share due under the Producer Agreement.

Sections X and XIV.4 are particularly consistent with one

another when viewed in light of the timing considerations

outlined above. Section XIV.4 allows the Center to “enforce

payment” before the Center has required others to cover the

breaching signatory’s share, when the Center is responsible

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for the money due to asbestos plaintiffs. Section X allows

Members to bring a breach of contract action after the Center

has required them to cover and pay the breaching signatory’s

share, when the Center has fulfilled its obligations to asbestos

plaintiffs and the damage caused by the breach has shifted

onto those Members.5

5

If the Center were to bring and carry through to

judgment an ADR on behalf of all Members harmed by one

Member’s breach, it is possible that Section XIV.4 would

foreclose those Members’ ability to sue under Section X even

if the non-breaching Members had covered and paid the

breaching Member’s share. Under these circumstances, the

Center would have recovered on behalf of all Members who

covered and paid, and their right to recovery would be

foreclosed as their injury would have been remedied by the

Center, acting on their behalf. Since the Center would have

obtained this recovery, perhaps adjustments would be made to

these Members’ future obligations to the Center.

But that is not what happened here. While the Center

did institute an ADR in 2000, that ADR was stayed after G-I

declared bankruptcy. Ultimately, the Center resolved its own

claims and claims on behalf of present members of the Center

in 2009 through a settlement approved by the Bankruptcy

Court. As further discussed below, this settlement did not

include Former Members’ claims – it explicitly stated that the

settlement covered only the Center’s claims and the claims of

eight listed “Members,” not including U.S. Gypsum or

Quigley. Therefore, the Center’s ADR right under Section

XIV.4 and the Former Members’ right to bring a breach of

contract action under Section X do not conflict under the

events that have transpired here.

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We therefore conclude that the Former Members’ right

to bring a breach of contract action for G-I’s nonpayment

under Section X does not conflict with “the agreement’s

overall scheme or plan.” E.I. du Pont de Nemours, 498 A.2d

at 1113. Indeed, reading the Producer Agreement to allow

such an action when one Member pays another Member’s

share is the only way to give all of its provisions meaning.

The way that the courts below read the Producer Agreement

renders meaningless the third sentence in Section X, writes

out the qualifying phrase “with respect to asbestos-related

claims” in Section XIV.1, and turns “may” into “exclusively

has the authority to” in Section XIV.4. We eschew their

reading in favor of one that “gives effect to every term of the

instrument.” Council of Dorset Condo. Apartments v.

Gordon, 801 A.2d 1, 7 (Del. 2002). We will therefore vacate

the District Court’s order affirming the Bankruptcy Court’s

order granting summary judgment to G-I, as the Producer

Agreement allows Former Members to pursue a breach of

contract action against G-I.

B.

We will briefly address the argument that the Former

Members cannot pursue their breach of contract action

against G-I because their claims are not direct claims, but are

instead derivative of the Center’s claim. The District Court

did not reach this argument, but the Bankruptcy Court did,

holding in the alternative that even if the Producer Agreement

did not prevent the Former Members’ claims, they were

barred due to their derivative nature.

Generally, if a cause of action belongs to a

corporation, only the corporation may bring that action.

Under some circumstances, a shareholder may bring a

“derivative” claim on behalf of a corporation for harm done

to the corporation with recovery going to the corporation.

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Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d 1031, 1036

(Del. 2004). When a shareholder is injured in a way that

affects his or her legal rights as a shareholder, however, the

shareholder retains the right to bring a “direct” claim, with

recovery going directly to shareholders. Id. The Supreme

Court of Delaware has set forth a standard – the Tooley

standard – to use in determining whether a shareholder’s

claim is direct or derivative. The inquiry “turn[s] solely on

the following questions: (1) who suffered the alleged harm

(the corporation or the suing stockholders, individually); and

(2) who would receive the benefit of any recovery or other

remedy (the corporation or the stockholders, individually)?”

Id. at 1033.

We can see no reason why the direct/derivative inquiry

should apply in this situation. Under the case law, the

distinction applies to claims brought by shareholders in a

corporation. See id. (“We set forth in this Opinion the law to

be applied henceforth in determining whether a stockholder’s

claim is derivative or direct.”). G-I and the Former Members

were not shareholders or investors in the Center, which, as a

non-profit, non-stock corporation, has no shareholders. G-I

has not brought to light any cases bearing any similarity to the

situation here. Cases applying the distinction elsewhere in

corporate and partnership law – such as to limited

partnerships and LLCs – are inapplicable, as the Center’s

structure and relationship with its Members is not similar to

those corporate forms. See, e.g., Metro. Life Ins. Co. v.

Tremont Grp. Holdings, Inc., No. 7092, 2012 WL 6632681,

at *9 (Del. Ch. Dec. 20, 2012) (holding that claims brought

by partners and investors in a limited partnership were

derivative where the injury was suffered by the limited

partnership); Matthew v. Laudamiel, No. 5957, 2012 WL

605589, at *21 (Del. Ch. Feb. 21, 2012) (holding that claims

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brought by LLC members were still derivative even after the

dissolution of the LLC).

The Former Members and G-I are in contractual

privity with one another but not with the Center via the

Producer Agreement. It seems illogical to inquire whether

one contract signatory’s breach of contract claim against

another signatory is derivative of a non-signatory’s claim.

While the Center was granted rights under the Producer

Agreement, this does not make the Former Members’ claims

derivative. Once the Former Members were required to make

additional payments to cover the shortfall in amounts due to

asbestos plaintiffs caused by G-I’s nonpayment, the Former

Members suffered damages and had a straightforward breach

of contract claim.

Even if we were to consider whether the Former

Members’ claims are derivative or direct under the Tooley

rubric, it is clear that their claims are direct. As to the first

question, the Former Members, not the Center, suffered the

harm caused by G-I’s breach. The Former Members, and any

other Members who were required to pay additional amounts

to cover for G-I’s nonpayment, suffered a harm when they

paid amounts beyond what was contractually required. The

Center, on the other hand, suffered no harm once it required

the other Members to cover for G-I’s nonpayment and made

the payments due to asbestos plaintiffs. As to the second

question, the Former Members would receive the benefit of

any recovery in the breach of contract action between two

signatories to the contract. The Bankruptcy Court erred in

concluding that the Former Members’ claims are derivative of

the Center’s claim, and we conclude that this issue does not

present a barrier to the Former Members’ actions for breach

of contract against G-I.

C.

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The Bankruptcy Court further concluded that

permitting the Former Members to recover on claims that the

Center had already asserted and resolved under the Settlement

Agreement would allow “an impermissible double recovery”

against G-I. (A-70). The District Court declined to reach this

issue. G-I asserts that it “understood the [Center’s]

Settlement Agreement to govern all [Center]-related claims,

and the payment amount was the exclusive source of recovery

for such claims.” (G-I Br., at 39). But such a belief is in

direct conflict with the explicit terms of both the Order and

the Settlement Agreement. We reject G-I’s argument and the

Bankruptcy Court’s conclusion for several reasons.

The Order approving the Settlement Agreement

between the Center and G-I provided: “For the avoidance of

doubt, nothing in this Order or the [Center’s] Settlement

Agreement shall release, prejudice, compromise or otherwise

affect the claims, if any, that Former Members . . . have or

may have against the G-I Plan Parties.” (A-476). This

language clearly reserves the Former Members’ right to bring

a breach of contract action and suggests that the Settlement

Agreement did not cover the Former Members’ claims.

Indeed, the terms of the Settlement Agreement itself

show that the Former Members’ claims were not a part of the

Center’s settlement recovery. The Settlement Agreement

provides that the settlement payment that G-I pays to the

Center represents “G-I’s entire liability to the [Center] for its

share of liability payments and allocated expenses under the

terms of the Producer Agreement and Attachment A thereto.”

(A-428) (emphasis added). The Settlement Agreement states

that upon the Center’s receipt of the settlement payment, the

Center and “the Members” release all claims and causes of

action that they had or may have against G-I, including claims

for any alleged breach of the Producer Agreement. (A-430).

26

The Settlement Agreement defines “Members” as “the

present members of [the Center],” listing eight companies

specifically. (A-423). The Former Members are not included

in the eight companies listed as “Members” under the

Settlement Agreement, nor were they “present members of

[the Center]” on the date of the Settlement Agreement.

The Center had its own claim for damages based upon

the settlement agreements worth $222 million that were

voided due to G-I’s breach. And the Former Members were

not the only Members of the Center required to pay additional

sums to cover G-I’s share of asbestos settlements. To the

extent that some of these companies are still Members of the

Center, the Center could bring these claims against G-I on

their behalf. Under the terms of the Settlement Agreement

and the Order approving it, these were the claims that the

Settlement Agreement resolved, not the Former Members’

claims.

Further, the issue of “impermissible double recovery”

goes to apportionment of liability, not to the Former

Members’ right to bring a cause of action under the Producer

Agreement. G-I seems to recognize this point, by arguing

that the Center’s agreement to indemnify G-I against the

Former Members’ breach of contract claims, memorialized in

the Settlement Agreement, has no bearing on the construction

of the Producer Agreement. While we maintain that the

Former Members’ claims were not included in the Settlement

Agreement, even if they were, this would not affect our

reading of the Former Members’ ability to bring a breach of

contract action against G-I, because the terms of a settlement

agreement to which the Former Members were not parties

cannot change the construction of the Producer Agreement.

In conclusion, we are not concerned, as the Bankruptcy Court

was, that allowing the Former Members to assert breach of

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contract claims against G-I would lead to an impermissible

double recovery. The Center’s recovery for its own claims

and claims it brought on behalf of present Members of the

Center have no bearing on the Former Members’ claims,

particularly when they were explicitly excluded from the

Settlement Agreement between the Center and G-I.

IV.

For the foregoing reasons, we vacate the District

Court’s order affirming the Bankruptcy Court’s grant of

summary judgment in G-I’s favor and remand to the District

Court. The District Court should vacate its opinion and

remand to the Bankruptcy Court for further proceedings

consistent with this opinion. We have determined that the

Producer Agreement does not prohibit the Former Members’

breach of contract actions against G-I. The merits of the

Former Members’ claims – whether G-I breached the

Producer Agreement, whether they can show damages, and

whether G-I has any valid defenses – are not before this Court

and we make no comment on their likelihood of success. On

remand, the Bankruptcy Court may allow discovery and

additional summary judgment motions on the merits of these

claims or proceed to trial.

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