Court Opinion

ID: 4303544
Source: CourtListenerOpinion
Date Created: 2018-08-14 17:00:14.666938+00
Date Added: 2024-06-11T14:33:40.337900
License: Public Domain

PRECEDENTIAL

       UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT
               ________________

                     No. 17-1208
                  ________________

            In re: W.R. GRACE & CO., et al,
                             Reorganized Debtors

      CONTINENTAL CASUALTY COMPANY;
    TRANSPORTATION INSURANCE COMPANY

                           v.

               JEREMY B. CARR, et al.

                             Jeremy B. Carr, et al.
                                         Appellants
                  ________________

On Direct Appeal from the United States Bankruptcy Court
               for the District of Delaware
           (Bankruptcy Case No. 01-bk-01139)
           (Bankruptcy Adv. No. 15-ap-50766)
       Bankruptcy Judge: Honorable Kevin Gross
      Bankruptcy Judge: Honorable Kevin J. Carey
                   ________________
                   Argued March 6, 2018

Before: MCKEE, AMBRO, and RESTREPO, Circuit Judges

              (Opinion filed: August 14, 2018)

Michael Busenkell
Gellert Scali Busenkell & Brown
1201 North Orange Street, Suite 300
Wilmington, DE 19801

Daniel C. Cohn       [Argued]
Taruna Garg
Murtha Cullina
99 High Street, 20th Floor
Boston, MA 02110

Allan M. McGarvey
McGarvey, Heberling, Sullivan & Lacey, P.C.
345 First Avenue East
Kalispell, MT 59901
       Counsel for Appellants

Brian T. Burgess
Michael S. Giannotto   [Argued]
Goodwin Procter
901 New York Avenue, N.W.
Suite 900 East
Washington, DC 20001

                                2
Scott D. Cousins
Evan T. Miller
Bayard P.A.
600 North King Street, Suite 400
Wilmington, DE 19801
       Counsel for Appellees

Robert M. Horkovich
Anderson Kill
1251 Avenue of the Americas
42nd Floor, 41-154W
New York, NY 10020

Edward J. Longosz, II
Mark A. Johnston
Kennedy L. Cabell
Eckert Seamans Cherin & Mellott
1717 Pennsylvania Avenue, N.W., 12th Floor
Washington, DC 20006

Jeffrey C. Wisler
Connolly Gallagher
1000 West Street
The Brandywine Building, Suite 1400
Wilmington, DE 19801
       Counsel for Amici Appellees

                    ________________

                OPINION OF THE COURT
                   ________________

                              3
AMBRO, Circuit Judge

        Mass-tort liability of entities with asbestos operations
typically results in their filing for bankruptcy protection. The
Bankruptcy Code allows a court to supplement a confirmed
plan of reorganization by entering an injunction that channels
this liability to a trust set up to compensate persons injured by
the debtor’s asbestos.

        In certain circumstances, channeling injunctions can
also protect the interests of non-debtors, such as insurers. The
question we answer is whether the claims of plaintiffs in
litigation begun in Montana (the “Montana Plaintiffs” or
simply “Plaintiffs”) fit a channeling injunction’s coverage.

        The Plaintiffs are a group of individuals suffering from
asbestos disease as a result of exposure to the asbestos mining
and processing operations in Libby, Montana (the “Libby
Facility”) of W.R. Grace & Co. and its related entities
(collectively “Grace”). They seek to hold Grace’s insurers,
Continental Casualty Company and Transportation Insurance
Company (collectively “CNA”), liable under various state-
law negligence theories for their injuries (the “Montana
Claims”). CNA, however, seeks to enforce a third-party-
claims channeling injunction (the “Injunction”) entered under
Grace’s confirmed plan of reorganization (the “Grace Plan”)
to bar the Montana Plaintiffs’ action.

       As the Montana Claims fit the text of the Injunction
and are not excluded from it, we affirm the Bankruptcy
Court’s decision as it pertains to this issue. We do not decide,
however, whether it could bar the Montana Claims within the
limits of 11 U.S.C. § 524(g)(4). Instead, we vacate this
portion of the Court’s decision and remand for it to make this
determination per the guidelines we note.

                               4
I.    Background

      A.      Channeling of Third-Party Claims in
              Asbestos Bankruptcy

       Section 524(g) of the Bankruptcy Code authorizes
bankruptcy courts to form a trust and issue an injunction to
channel certain claims to that trust in conjunction with a
confirmed plan of reorganization in asbestos bankruptcies. In
re Quigley Co., Inc., 676 F.3d 45, 48 (2d Cir. 2012); In re
Combustion Eng’g, Inc., 391 F.3d 190, 234 n.46 (3d Cir.
2004), as amended (Feb. 23, 2005). The injunction bars
asbestos-related actions against the debtor and claims against
certain third parties who are alleged to be directly or
indirectly liable for the debtor’s conduct along with claims or
demands against it. §§ 524(g)(1)(B), (4)(A)(ii). Instead, those
actions are directed to the trust, “generally funded by
insurance proceeds and securities in the reorganized debtor,”
which assumes the asbestos liabilities. In re Plant Insulation
Co., 734 F.3d 900, 906 (9th Cir. 2013); see also In re W.R.
Grace & Co., 729 F.3d 311, 315 (3d Cir. 2013); In re
Federal-Mogul Global Inc., 684 F.3d 355, 360 (3d Cir.
2012); In re Thorpe Insulation Co., 677 F.3d 869, 877 (9th
Cir. 2012), as amended (Apr. 3, 2012).

       Congress intended § 524(g) to address the “unique
problems and complexities associated with asbestos liability,”
Combustion Eng’g, 391 F.3d at 234, particularly the “long
latency period of many asbestos-related diseases, which . . .
typically creates a large pool of future claimants whose
disease has not yet manifested.” W.R. Grace, 729 F.3d at 323;
see also Plant Insulation, 734 F.3d at 905–06; Quigley, 676
F.3d at 58–59; H.R. Rep. No. 103-835, at 40 (1994),
reprinted in 1994 U.S.C.C.A.N. 3340, 3348. The statute
“seeks to use the broad equitable power of the bankruptcy
court to resolve th[is] dilemma in a way that is fair for both

                              5
present and future asbestos claimants.” Plant Insulation, 734
F.3d at 906. It “allows companies to emerge from bankruptcy
free of asbestos liability,” W.R. Grace, 729 F.3d at 315, and
to “facilitate[] [their] ongoing viability, which in turn
provides . . . trust[s] with an ‘evergreen’ source of funding to
pay future claims,” id. at 320 (citing Combustion Eng’g, 391
F.3d at 234) (quotation marks omitted). Many statutory
prerequisites designed to ensure fairness must be met before a
trust is formed and a channeling injunction entered under
§ 524(g). Combustion Eng’g, 391 F.3d at 234 n.45
(describing           statutory       prerequisites       under
§§ 524(g)(2)(B)(i)(I)–(IV), (ii)(I)–(V)); see also W.R. Grace,
729 F.3d at 320.

       Relevant here is the injunction and channeling of
certain actions against CNA as a third party. Under
§ 524(g)(4)(A)(ii),

       [a third-party-claims channeling] injunction
       may bar any action directed against a third party
       who is identifiable from the terms of such
       injunction . . . and is alleged to be directly or
       indirectly liable for the conduct of, claims
       against, or demands on the debtor to the extent
       such alleged liability of such third party arises
       by reason of—

       (I) the third party’s ownership of a financial
       interest in the debtor, a past or present affiliate
       of the debtor, or a predecessor in interest of the
       debtor;

       (II) the third party’s involvement in the
       management of the debtor or a predecessor in
       interest of the debtor, or service as an officer,

                               6
       director or employee of the debtor or a related
       party;

       (III) the third party’s provision of insurance to
       the debtor or a related party; or

       (IV) the third party’s involvement in a
       transaction changing the corporate structure, or
       in a loan or other financial transaction affecting
       the financial condition, of the debtor or a related
       party[.]

Id. Gateway keys are whether the third parties are identifiable
(as opposed to specifically identified) by the injunction and
whether the liability results, even if indirectly, from the
debtor. Protecting third parties like CNA against actions
alleging derivative liability “provide[s] [them with] an
incentive . . . to contribute to the trust.” Quigley, 676 F.3d at
59. They are provided this incentive because continued
exposure to indirect asbestos claims would create a “lingering
uncertainty regarding the scope of [their] liability [that]
would threaten the debtor’s recovery and hinder Congress’s
objective of providing an ‘evergreen’ source of funding to
pay future claims.” W.R. Grace, 729 F.3d at 325 (citing
Combustion Eng’g, 391 F.3d at 234) (quotation marks
omitted).

       B.     Facts

       We have previously discussed extensively the facts
surrounding Grace asbestos operations and its bankruptcy. In
re W.R. Grace & Co., 729 F.3d 332, 335–39 (3d Cir. 2013);
In re W.R. Grace & Co., 532 F. App’x 264, 265–66 (3d Cir.
2013); In re W.R. Grace & Co., 591 F.3d 164, 167–70 (3d
Cir. 2009); In re W.R. Grace & Co., 316 F. App’x 134, 135–
36 (3d Cir. 2009); In re W.R. Grace & Co., 115 F. App’x 565,

                               7
566 (3d Cir. 2004). So we include here only the pertinent
undisputed facts taken largely from the Bankruptcy Court’s
decision. See In re W.R. Grace & Co., No. 01-01139, 2016
WL 6068092, at *1–4 (Bankr. D. Del. Oct. 17, 2016).

       CNA issued a variety of insurance policies to Grace
between 1973 and 1985, including policies for workers’
compensation and employers’ liability (collectively the
“Workers’ Compensation & Employers’ Liability Policies” or
“CNA Policies”).1 See Statement of Undisputed Material
Facts of Continental Casualty Company and Transportation
Insurance Company in Support of Motion for Summary
Judgment (“CNA SUF”) ¶ 20, In re W.R. Grace & Co., 2016
WL 6068092 (No. 01-01139). Within the latter group of CNA
Policies, CNA is granted the right to inspect the Libby
Facility:

      Inspection and Audit: [CNA] . . . shall . . . be
      permitted but not obligated to inspect at any
      reasonable time the workplaces, operations,
      machinery and equipment covered by this
      policy. Neither the right to make inspections nor
      the making thereof nor any report thereon shall
      constitute an undertaking on behalf of or for the
      benefit of [Grace] or others, to determine or
      warrant that such workplaces, operations,

1
  The CNA Policies relevant to this appeal are the Workers’
Compensation & Employers’ Liability Policies No. WC
1205050R (1973–76) and No. WC 159 9420 (1977–85). We
do not see the relevance of CNA Policy No. WC 5 07415909
(1991–92) issued by the Transportation Insurance Company
(a CNA Company) because the Libby Facility was closed in
1990 and the policy applies only to injuries that occurred
during the policy period.

                             8
       machinery or equipment are safe or healthful, or
       are in compliance with any law, rule or
       regulation.

Workers’ Compensation & Employers’ Liability Policies No.
WC 1205050R (1973–76) at ¶ 4, No. WC 159 9420 (1977–
85) at ¶ 4 (emphasis in original).

       After Grace filed voluntary chapter 11 petitions in the
District of Delaware, the Bankruptcy Court confirmed the
Grace Plan. It included the Injunction under § 524(g) barring
certain suits against third parties and instead channeling them
to an asbestos personal injury trust (the “Asbestos PI Trust”)
designed to compensate those injured by Grace’s asbestos.
The Injunction states in pertinent part:

       On and after the Effective Date, the sole
       recourse of the Holder of an Asbestos PI Claim
       . . . shall be to the Asbestos PI Trust . . .[,] and
       such Holder shall have no right whatsoever at
       any time to assert its Asbestos PI Claim . . .
       against . . . any other Asbestos Protected Party
       . . . . [A]ll such Holders permanently and
       forever shall be stayed, restrained, and enjoined
       from taking any and all legal or other actions or
       making any Demand against any Asbestos
       Protected Party . . . for the purpose of, directly
       or indirectly, claiming, collecting, recovering,
       or receiving any payment, recovery,
       satisfaction, or any other relief whatsoever on,
       of, or with respect to any Asbestos PI Claims
       . . . other than from the Asbestos PI Trust . . . .

It applies “only to the extent[] provided by [§] 524(g) . . . .”
Excluded from the Injunction’s reach are “rights or
obligations [that] pertain solely to coverage for” “[c]laim[s]

                                9
. . . for benefits under      a    state[-]mandated   workers’
compensation system.”

       Along with the Grace Plan, CNA and Grace entered
into a settlement agreement (the “Settlement Agreement”) in
which CNA agreed to contribute $84 million over a period of
six years to the Trust, $13 million of which could be
reimbursed for any payments CNA makes for asbestos
personal injury claims that are not successfully channeled to
the Trust.

      C.     Procedural History

       Plaintiffs filed the Montana Claims in that State
against CNA, see CNA SUF ¶ 38, alleging it breached a duty
of care. Specifically, the Montana Claims allege:

      161. CNA was negligent in [its] undertaking to
      provide [industrial hygiene] services:

      (a) in failing to recommend or require sufficient
      measures and standards for employee education,
      warning the workers, their families and the
      community, protection against asbestos dust
      going into workers’ homes and into the
      community,         dust   control     (including
      housekeeping, ventilation, exhaust air cleaning
      and maintenance) and medical monitoring;

      (b) in failing to sufficiently test and monitor the
      effectiveness of dust control at all locations
      where there was dust;

      (c) in failing to obtain medical information on
      the incidence of disease and deaths at the Grace
      operations from Grace and from public
      agencies; and

                              10
      (d) in failing to sufficiently study and use the
      information on dust control and asbestos
      disease that it did have.

      162. CNA’s representatives with expertise in
      industrial hygiene inspected the Grace Libby
      operations.

      163. In so doing, CNA had a duty of reasonable
      care to the Libby workers, their families and to
      the community.

      164. CNA was negligent in inspection of the
      Grace Libby operations, in failing to report and
      act upon known hazardous conditions due to
      insufficient worker education, insufficient
      warnings to workers, their families and to the
      community, insufficient dust control . . . , and
      insufficient medical monitoring.

      165. As a direct and proximate result of the
      negligence of CNA, Plaintiffs have suffered
      from asbestos[-]related bodily injuries and
      incurred the damages alleged herein.
       CNA filed a complaint in the Bankruptcy Court
seeking a declaratory judgment that the Montana Claims fall
under the Injunction and accordingly must be enjoined and
channeled to the Trust. The Montana Plaintiffs filed a motion
to dismiss and CNA filed a motion for summary judgment.
The Asbestos PI Trust filed a brief as amicus curiae in
support of CNA. The Court, after hearing oral argument on
the motions, decided the Montana Claims must be enjoined
and thus denied the Montana Plaintiffs’ motion to dismiss and
granted summary judgment to CNA. W.R. Grace, 2016 WL
6068092, at *1.

                             11
       First, the Court considered whether the language of
§ 524(g)(4)(a) limits the scope of the Injunction such that it
does not bar the Montana Claims. It separately addressed (1)
whether the Montana Claims allege CNA is directly or
indirectly liable for the conduct of, claims against, or
demands on Grace, and (2) whether the alleged liability exists
“by reason of” CNA’s providing insurance to Grace.

       In answering the former, the Court relied on our
opinion in Combustion Engineering, 391 F.3d 190, and the
Bankruptcy Court’s ruling in In re Pittsburgh Corning Corp.,
453 B.R. 570 (Bankr. W.D. Pa. 2011). It found that the
Montana Claims are “derivative,” i.e., they seek to hold CNA
directly or indirectly liable for Grace’s conduct, because the
underlying injuries are based on exposure to Grace’s asbestos
products or operations.

       The Court then decided the Montana Claims can only
exist “by reason of” CNA’s provision of insurance to Grace
because any alleged duty CNA has to conduct industrial
hygiene services arises from the parties’ insurance policies.
The Court also ruled the Injunction does not exceed the
Bankruptcy Court’s jurisdiction because the Trust has a
contractual obligation to reimburse CNA for liability from
personal injury claims (including the Montana Claims)
affecting the assets of the bankruptcy estate. Finally, it
rejected the Montana Plaintiffs’ assertion that CNA’s
providing insurance is not legally relevant to the Montana
Claims, finding instead that they stem from CNA’s insurance
to Grace.

       Second, the Court addressed Plaintiffs’ contention that
(1) the Montana Claims trace to CNA’s Workers’
Compensation & Employers’ Liability Policies covering
Grace, and (2) thus the Injunction does not enjoin those
actions. It found the exception to the Injunction is for

                             12
workers’ compensation claims, not policies, and none of the
Montana Claims are for workers’ compensation. It also
concluded that, due to the Injunction’s workers’
compensation carve-out, there is no risk of federal bankruptcy
law preempting a state workers’ compensation scheme in this
context.

II.    Jurisdiction and Standard of Review

       We granted a direct appeal under 28 U.S.C.
§ 158(d)(2). We review de novo the Court’s grant of summary
judgment, In re AE Liquidation, Inc., 866 F.3d 515, 522 (3d
Cir. 2017), and we affirm only if, viewing the facts in the
light most favorable to the Montana Plaintiffs, we conclude
“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). Summary judgment is only appropriate if no
reasonable jury could find the Montana Claims were not
included under the terms of the Injunction or could not be
included in it under § 524(g)(4).

III.   Discussion

       We review the issues on appeal in the order they were
briefed (which differs from their order in the Bankruptcy
Court’s decision).

       A.    Applying the Injunction to the Montana
             Claims

       We turn first to the Montana Plaintiffs’ argument that
the Injunction does not, by its terms, bar the Montana Claims.
We have reviewed the Grace Plan, the Settlement Agreement,
and the CNA Workers’ Compensation & Employers’
Liability Policies. We conclude that the CNA Policies are
among those covered by the Injunction’s terms, though buried

                             13
in a befuddling maze of defined terms, and that the Montana
Claims do not fall under the Injunction’s workers’
compensation exclusion.

       Claims barred by the Injunction include tort claims
made against certain protected third parties directly or
indirectly resulting from personal injury and exposure to
Grace’s asbestos. Third parties protected from these claims
include CNA and other insurance companies who entered into
settlement agreements with Grace. They are protected,
however, only to the extent their policies are identified as
subject to a settlement agreement.

        Twenty-five CNA policies are identified in the
Settlement Agreement, along with a catch-all for “all known
and unknown policies, or portions of policies,” issued by
CNA to Grace through June 30, 1985 that actually or
potentially provide insurance coverage for asbestos-related
claims of bodily injury. These asbestos-related claims include
any made against Grace or CNA “arising in whole or in part
(directly or indirectly) by reason of” CNA’s provision of
insurance to Grace, if these claims involve bodily injury
caused by Grace’s asbestos. The Settlement Agreement
specifically covers any claims alleging CNA has a duty to
provide industrial hygiene, conduct inspections, provide
warnings or educational services, or protect third parties from
the danger of asbestos exposure. As noted, excluded from
protection are any rights or obligations that pertain solely to
CNA’s coverage for state workers’ compensation benefits.

       The Montana Plaintiffs argue the CNA Workers’
Compensation & Employers’ Liability Policies are not
included among the 25 listed policies and thus are not
covered by the Injunction. Our review, however, shows that
CNA entered into a settlement agreement with Grace, that the
catch-all for all “known and unknown policies” includes the

                              14
CNA Policies, and that the CNA Policies provide coverage
for bodily injuries caused by Grace asbestos. Hence they are
covered by the Injunction though they are not specifically
listed.

        Plaintiffs further contend that claims against CNA may
not be enjoined because it is a workers’ compensation insurer.
This argument misreads the workers’ compensation carve-
out: it excludes from the Injunction rights or obligations that
pertain solely to workers’ compensation benefits.2 CNA
provided not only workers’ compensation coverage but also
employers’ liability coverage; provisions of the CNA Policies
that pertain to both workers’ compensation and employers’
liability coverage do not “pertain solely” to workers’
compensation and thus are not excluded. The provisions
relevant to the Montana Claims—those that give CNA the
right, but not the obligation, to inspect the Libby Facility’s
industrial hygiene—apply to both types of coverage. They
appear outside the sections on employers’ liability and
workers’ compensation, and, unlike other provisions in the
CNA Policies, they contain no indication that they apply to
one type of coverage to the exclusion of the other.
Accordingly, claims tied to these provisions are barred by the
Injunction’s terms.
       The Montana Plaintiffs ask us to interpret the Plan and
Settlement Agreement’s terms to preserve all of CNA’s duties
as a workers’ compensation insurer and all rights of workers’
compensation claimants (which, they allege, state law
requires). To do otherwise, they claim, would impermissibly
preempt state law. We agree with the Bankruptcy Court and
see no conflict between our interpretation of these
2
  We depart from the Bankruptcy Court’s finding that the
exception is for workers’ compensation claims; it is for rights
or obligations that pertain solely to those claims.

                              15
documents’ terms and the state workers’ compensation
obligations to which Plaintiffs refer.3 Provisions of the CNA
Policies that solely cover claims to state workers’
compensation benefits are excluded from the terms of the
Injunction, and, moreover, the Montana Plaintiffs do not
allege any violation of state workers’ compensation laws. In
this context, we see no risk that the Grace Plan or the
Settlement Agreement would preempt Montana workers’
compensation law.

       B.     The Permissible Scope of the Injunction
              under Section 524(g)(4)

       To repeat, § 524(g)(4)(A)(ii) allows third-party-claims
channeling injunctions to “bar any action directed against a
third party who is identifiable . . . and is alleged to be directly
or indirectly liable for the conduct of, claims against, or
demands on the debtor to the extent such alleged liability . . .
arises by reason of” one of four statutory relationships
between the third party and the debtor. § 524(g)(4)(A)(ii).
The parties do not dispute that CNA is identified as protected
by the Injunction; this satisfies the first condition for coverage
by a third-party-claims channeling injunction. We assess only
the second and third conditions for protection: whether the
Montana Claims seek to hold CNA “directly or indirectly
liable for the conduct of, claims against, or demands on”
Grace, i.e., the “derivative liability” requirement, and whether
CNA’s alleged liability “arises by reason of” its provision of
insurance to Grace, i.e., the “statutory relationship”

3
  They cite obligations under Montana law that include
reporting, investigation, and notification requirements for
workers’ compensation claims. See, e.g., Mont. Code Ann.
§§ 39–71–101, et seq.

                                16
requirement. See, e.g., Combustion Eng’g, 391 F.3d at 234–
35 (distinguishing the “derivative liability” requirement from
the “statutory relationship” requirement).

              i.     The “Derivative Liability”
                     Requirement

        The Montana Plaintiffs contend that the Montana
Claims do not seek to hold CNA “directly or indirectly liable
for the conduct of, claims against, or demands on” Grace and,
as a result, may not be enjoined under § 524(g)(4). They
argue that unlike direct or indirect actions against CNA to
recover from its insurance policies for Grace’s liabilities, the
Montana Claims, which are based on CNA’s own misconduct,
are beyond the Injunction’s scope. CNA disagrees. It repeats
the Bankruptcy Court’s conclusion that suits against it for
allegedly failing to prevent injuries caused by Grace’s
asbestos operations are per se attempts to hold it indirectly
liable for the conduct of and claims against Grace.

       In Combustion Engineering we interpreted the relevant
statutory language to permit channeling injunctions to enjoin
“actions against third parties . . . where a third party has
derivative liability for the claims against the debtor.” 391
F.3d at 234. By contrast, “the plain language of the statute
makes clear[] [it] does not permit the extension of a
channeling injunction to include . . . non-derivative third-
party actions,” i.e., “claims against [third parties that] allege
independent liability[] wholly separate from any liability
involving [the debtor].” Id. at 235. With this understanding,
we are not convinced by either the Montana Plaintiffs’ or
CNA’s interpretation of § 524(g)(4) because the former is
overly narrow and the latter overly broad.

       We first set aside the Montana Plaintiffs’ attempt to
constrain the meaning of “direct[] or indirect[] liab[ility] for

                               17
the conduct of, claims against, or demands on” a debtor to
actions for insurance proceeds. In an insurance context, a
direct action against an insurer—whereby a beneficiary may
sue the insurer directly rather than sue the insured—is no
doubt an attempt to hold the insurer “directly liable” for
claims against its insured. But the statute’s text in no way
indicates that this is the sole form of an insurer’s “direct[]
liab[ility]” for the conduct of, claims against, or demands on a
debtor. § 524(g)(4)(A)(ii). And nothing in the statute’s text
supports indirect insurer liability only where a claimant seeks
to recover from insurance proceeds.

        Additionally, that a third party is alleged to have
engaged in some wrongdoing is not enough to render a claim
against it independent if its liability depends on the debtor’s
liability.4 Theories of liability exist that involve a third-
party’s wrongdoing but are no less derivative of a principal’s

4
  The Montana Plaintiffs cite to the Second Circuit’s decision
in In re Johns-Manville Corp., 517 F.3d 52 (2d Cir. 2008),
rev’d sub nom. Travelers Indemn. Co. v. Bailey, 557 U.S. 137
(2009), to support their position. Beyond the fact that the
decision was reversed by the Supreme Court, it involved a
channeling injunction entered into prior to the enactment of
§ 524(g)(4), and, further, in that case “it [was] undisputed that
many of the plaintiffs [sought] to recover from [the insurer],
not indirectly for [the debtor’s] wrongdoing, but for [the
insurer’s] own alleged violations of state law.” Bailey, 557
U.S. at 143. This stands in contrast to the dispute before us,
which centers on whether, following § 524(g)(4), the
Montana Claims seek to recover from CNA directly or
indirectly for Grace’s wrongdoing.

                               18
wrongdoing or liability.5 See N.Y. State Elec. & Gas Corp. v.
FirstEnergy Corp., 766 F.3d 212, 224 (2d Cir. 2014);
Quigley, 676 F.3d at 60; cf. In re Tronox Inc., 855 F.3d 84,
88–89 (2d Cir. 2017); see also Dodds v. Richardson, 614 F.3d
1185, 1195 (10th Cir. 2010) (explaining indirect respondeat
superior liability and direct liability through failure to
supervise); Gass v. V.I. Tele. Corp., 311 F.3d 237, 241 (3d
Cir. 2002) (citing Restatement (Second) of Torts §§ 410, 414
(1965)).

       Likewise, CNA’s proposed interpretation is equally
unpersuasive: that a debtor’s product caused a plaintiff’s
injury is not enough to render a third party liable “for the
conduct of, claims against, or demands on the debtor.” After
our decision in Combustion Engineering, the Bankruptcy
Court agreed with CNA’s position and found claims against
protected third parties based on the claimant’s injury from or
exposure to the debtor’s asbestos products were “derivative.”6

5
   We do not overlook a third-party’s “direct[] or indirect[]
liab[ility]” based on claims for which it is not alleged to have
engaged in any independent wrongdoing. In the context of
insurance, examples include indemnification or contribution
claims brought by a non-settling insurer against a settling
insurer for payments made due to the debtor’s liability. See
Plant Insulation, 734 F.3d at 911; Monarch Life Ins. Co. v.
Ropes & Gray, 65 F.3d 973, 980, 982 (1st Cir. 1995).
Another example, outside the insurance context, is successor
liability. Quigley, 676 F.3d at 60.
6
  CNA contends our decision in W.R. Grace, 729 F.3d 311,
agrees with its position. It misconstrues the legal issue and
our reasoning in that case. The State of Montana and the
Canadian Crown sought indemnification from Grace for

                              19
See In re Pittsburgh Corning, 417 B.R. 289, 293 (Bankr.
W.D. Pa. 2006) (“[T]o the extent [the third parties] are
alleged to be jointly and severally liable for [the debtor’s]
products . . . or conduct, . . . we find that the claims against
the [third parties] are derivative and can be channeled under
§ 524(g).”). Such a rule, however, has the potential to include
third-party liability that is wholly separate from a debtor’s
liability.

        The involvement of the debtor’s asbestos is relevant,
but not dispositive. For instance, where the third-party’s
liability is based on exposure to a non-debtor’s asbestos, it is
clearly not derivative of the conduct of or a claim against the
debtor. See Combustion Eng’g, 391 F.3d at 231. But there
may be cases in which the involvement of the debtor’s
product is only incidental (for example, if a piece of building
material containing Grace asbestos in a CNA office fell and

failure-to-warn suits brought against them. Their effort came
into conflict with § 524(g)(1)(B), which allows an injunction
to bar legal actions 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
. . . .” Id. The issue was not whether Montana and the
Crown’s liability was “indirect;” rather, it was whether
indemnification by Grace would constitute “indirectly
collecting . . . with respect to any claim . . . that . . . is to be
paid . . . by [the] [T]rust . . . .” § 524(g)(1)(B). The claim for
indemnification depended on whether Grace was liable for
the underlying personal injury suits, and claims of that sort in
indemnification suits were properly channeled to the Trust.
729 F.3d at 324.

                                20
struck someone). There too the presence of the debtor’s
asbestos would not render the third-party’s liability
derivative.

        The proper inquiry is to review the law applicable to
the claims being raised against the third party (and when
necessary to interpret state law) to determine whether the
third-party’s liability is wholly separate from the debtor’s
liability or instead depends on it.7 This does not require the
reviewing court to decide state-law claims on the merits. It
does, however, require it to ascertain what liability under the
relevant law demands. We do not undertake this analysis here
because we have not been fully briefed on which state’s law
applies under a choice-of-law analysis or on what that state’s
law requires for CNA to be liable as alleged in the Montana
Claims. Instead, we vacate this portion of the Bankruptcy
Court’s decision and remand for it to make this
determination.

        Though we rely on the plain language of the statute,
we note this mode of analysis is also supported by the
structure and purpose of the Bankruptcy Code as it pertains to
asbestos liability in bankruptcy. The incentive for third
parties, particularly insurers, to contribute to an asbestos
personal injury trust is their diminished exposure to asbestos
liability from the asbestos debtor’s conduct or claims against
it. Protecting these third parties from derivative exposure

7
  Our framework comports with that developed by the Second
Circuit in Quigley, wherein it looked to the relevant state law
to determine whether the plaintiff’s rights derived from the
debtor’s rights and the alleged duty the third party owed to
the plaintiffs derived from the duty it owed to the debtor. 676
F.3d at 54–58.

                              21
resolves lingering uncertainty about their liability and sustains
the trust’s ability to compensate current and future claimants.

              ii.    The “Statutory Relationship”
                     Requirement

        Plaintiffs and CNA contest whether a third-party’s
“alleged liability . . . arises by reason of” its statutory
relationship to the debtor, § 524(g)(4)(A)(ii), when the third-
party’s liability is a factual consequence (what we know as
“but-for causation”) or a “legal consequence” of the
relationship (i.e., “the relationship, in light of the debtor’s
conduct or the claims asserted against it, [is] a legal cause of
or a legally relevant factor to the third party’s alleged
liability.”). Quigley, 676 F.3d at 60. The Bankruptcy Court
did not adopt either interpretation. Rather, it decided that,
even assuming the “legal consequence” standard applied,
“[t]he basis for the alleged undertakings by CNA (i.e.,
industrial hygiene services or inspections of Grace’s
facilities) arise wholly out of the insurance relationship,” and
accordingly the insurance relationship is “legally relevant” to
the Montana Claims. W.R. Grace, 2016 WL 6068092, at *13.
It cited to § 324A of the Restatement (Second) of Torts, from
which it stated the Montana Claims stem. Id. at *12.

       We do not disturb the Bankruptcy Court’s assumption
that CNA’s provision of insurance to Grace must be a
“legally relevant factor” to its alleged liability.8 But even

8
   Though CNA calls the required connection “but-for”
causation, it actually describes a “legal consequence”
connection: it states its alleged duty (certainly a legally
relevant factor in negligence claims) derives directly from its
provision of insurance to Grace, which includes routine
inspection practices by CNA. Hence we see no conflict

                               22
under this assumption, the Court should review the applicable
law to determine the relationship’s legal relevance to the
third-party’s alleged liability.9 Similar to the “derivative
liability” analysis above, the Court should examine the
elements necessary to make the Montana Claims under the
applicable law (here, state law), and determine whether
CNA’s provision of insurance to Grace is relevant legally to
those elements. At this juncture, the record is not sufficiently
developed for us to undertake that analysis, prompting us also
to remand for the Bankruptcy Court to do so.

       C.     Jurisdiction

       Next, the Montana Plaintiffs argue the Settlement
Agreement provision allowing for $13 million in
reimbursements to CNA for any payments made for asbestos
personal injury claims does not confer jurisdiction on the
Bankruptcy Court to enjoin the Montana Claims. Whether the
Court had jurisdiction was not an issue before it. Rather, the
Court discussed its jurisdiction in the context of addressing
the Montana Plaintiffs’ argument that third-party-claims
channeling injunctions under § 524(g)(4) are limited to claims
against insurance proceeds. The Court rejected this argument
and stated correctly that the relevant jurisdictional inquiry is
whether the claims affect the assets of the bankruptcy estate.

between the parties’ suggested interpretations of the statute’s
requirement.
9
  We reach no conclusion on whether § 324A of the
Restatement (Second) of Torts applies to the Montana Claims
because, as already stated, we have not been fully briefed on
what state’s law applies under a choice-of-law analysis. Nor
have we been briefed on whether that State applies the
Restatement provision as its own law.

                              23
In this case the indemnification provision in Grace and
CNA’s Settlement Agreement does so.

       We agree with CNA’s argument that the Montana
Plaintiffs misread our precedent in Combustion Engineering
and jurisdiction was not an issue before the Court. Thus we
address the issue only briefly. In that case, we reiterated our
oft-repeated Pacor standard for “related to” jurisdiction in
bankruptcy: a proceeding is “related to” a Chapter 11
proceeding if “the outcome of that proceeding could
conceivably have any effect on the estate being administered
in bankruptcy.” 391 F.3d at 226 (citing Pacor, Inc. v.
Higgins, 743 F.2d 984, 994 (3d Cir. 1984), overruled in part
by Things Remembered, Inc. v. Petrarca, 516 U.S. 124
(1995)) (emphasis omitted); see also Nuveen Mun. Trust v.
WithumSmith Brown, P.C., 692 F.3d 283, 293–95 (3d Cir.
2012). “‘[R]elated to’ jurisdiction [exists] over actions
[against] non-debtors involv[ing] contractual indemnity
obligations between the debtor and non-debtor that
automatically result in indemnification liability against the
debtor.” Combustion Eng’g, 391 F.3d at 226. Such is the case
here, as the Trust is obligated by contract to indemnify CNA
up to $13 million for its asbestos personal injury liability
within the meaning of § 524(g)(4). Hence we do not doubt the
Bankruptcy Court’s jurisdiction to enforce the Injunction.

IV.   Conclusion

        We affirm the Bankruptcy Court’s decision that the
Montana Claims are included in the terms of the Injunction.
We vacate its decision that the Montana Claims may be
enjoined under § 524(g)(4) and (as we see no defect in its
jurisdiction to enforce the Injunction) remand to it with
guidelines. First, to determine whether a claim seeks to hold a
third party derivatively liable for the debtor, the Court must
decide whether the third-party’s alleged liability is “wholly

                              24
separate” from the debtor’s liability under the applicable law
or instead depends on it. Second, even assuming the statutory
relationship must be a “legally relevant factor” to the third-
party’s alleged liability, the Court should decide whether it is
relevant to the elements required for the liability alleged
under the applicable law.

       Thus we affirm in part and vacate and remand in part
to the Bankruptcy Court.

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