Free Appellant's Brief - District Court of Delaware - Delaware

Case 1:08-cv-00246-RLB

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
In re:

)

W. R. GRACE & CO., et a!.,
Debtors.

) ) )
) )

No.08-CV-246 Hon. Ronald L. Buckwalter United States District Judge

W. R. GRACE & CO., et al.
Appellants,
v.

) )
)

MARGARET CHAKARIAN, et al., AND JOHN DOES 1-1000,
Appellees.

) ) ) ) ) ) ) )
)

On Appeal From The United States Bankptcy Court For The District of Delaware (Fitzgerald, J.) Case No. 01-01139, Adversary No. A-01-771
APPELLANTS' BRIEF
David M. Bernick, P.c.

Janet S. Baer Salvatore F. Bianca KIAND & ELLIS LLP 200 East Randolph Drive Chicago, IL 60601 (312) 861-2000
May 28, 2008

Barbara M. Harding Amanda C. Basta Brian T. Stansbury KIRAND & ELLIS LLP 655 Fifteenth St., NW

Laura Davis Jones James E. O'Neil Timothy P. Cairns
PACHUSKI, STANG, YOUNG &

JONES

Washington, DC 20005
(202) 879-5000
Counsel for Appellants

919 N. Market Street, 17th Floor Wilmington, DE 19899 (302) 652-4100

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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES... ....... ..... .................... ............. ....... .......... ....... ......... .......... ........... .... ii

INTRODUCTION ...........................................................................................................................1
STATEMENT OF JURISDICTION.... ................ ........................... ..... ......... ..... ..............................1

STATEMENT OF THE ISSUE ................................. ................... ......... ............. ......................... ....2

STATEMENT OF THE CASE AND FACTUAL BACKGROUND .............................................2

A. The Court Has Acted To Protect The Litigation Of The Core Issues In
This Case Since The Commencement Of

These Chapter 11 Cases.........................2

B. Grace Seeks To Expand The Injunction To Include Claims Against the

State of Montana. ....... ............................................ ..... .............. ........................... ....4

C. The Bankptcy Court Applies Pacor and Federal-Mogul Rather Than
Gerard. ..................................................................................................................... 6

ARGUMENT ...................................................................................................................................7

1. The Bankptcy Court Did Not Properly Construe The Relevant Third Circuit Precedent That Governs The Exercise Of Subject Matter Jurisdiction. ..............................8
CONCLUSION ..............................................................................................................................12

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TABLE OF AUTHORITIES
Page(s)

Cases
Fagan v. City of

Vineland, 22 F.3d 1283 (3d Cir. 1994).............................................................................................. 10

Flesher, et a!. v. State of

Montana, et a!., Cause No. DV-01-86 (Mont. 19th Jud. Dist. Ct.)............................................................... 4

In re Combustion Engineering, 391 F.3d 190 (3d Cir. 2004)........................................................................................ 10, 11
In re Federal-Mogul Global Inc.,

300 F.3d 368 (3d Cir. 2002),
cert. denied sub nom.
DaimlerChrysler v. Offcial Committee of Asbestos Claimants,

537 U.S. 1 148 (2003)................................................................................................6, 7, 11

In re Federal-Mogul, 282 B.R. 301 (Bank. D. DeL. 2002) ................................................................................. 11
In re WR. Grace & Co. (Gerard v. WR. Grace & Co.),

No. 03-3453, 115 Fed. Appx. 565,2004 WL 2404546 (3d Cir. Oct. 28, 2004)........ passim

In re WR. Grace & Co., 2006 WL 1313190 (D. DeL. May 10, 2006)........................................................................ 5
Pacor v. Higgins,

743 F.2d 984 (3d Cir. 1984)................................................................................ 6, 7, 10, 11

Stonington Partners, Inc. v. Lernout & Hauspie Speech Prods., N v., 310 F.3 d 1 1 8 (3d Cir. 2002)................................................................................................ 8
WR. Grace & Co. v. Chakarian (In re WR. Grace & Co.),

366 B.R. 295 (Bank. D. DeL. 2007) ...................................................................................6

Statutes
1 1 U.S. C. § 105. .................... .............. ......... .... ......... ................................... ............... ...... .......... 7, 9

28 U. S. C. § 1292............................................................................................................................. 5
28 U. S. C. § 13 34(b ) ................................................................................................................ 2, 6, 7
28 U .S.C. § 1 58( a)(3)........ ............ ........... ......... ..... ....... .............. .................... .......... .................. 1, 5
11

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Page(s)

Rules
Internal Operating Procedure 5.3 .................................................................................................. 10

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INTRODUCTION
This appeal presents the issue of whether the bankptcy court has subject matter

jurisdiction over a debtor's motion to modify an injunction entered in its own bankptcy
proceeding. This very issue has already been to the Third Circuit in this very litigation, and the

Third Circuit declared that it was "a non-issue" because an "adversary proceeding seeking
injunctive relief initiated by the debtor in its own chapter 11 case" is "assuredly 'related to' the

case, and, further it definitely 'arose under' the bankptcy proceeding (and was perhaps even a 'core' proceeding)." In re WR. Grace & Co. (Gerard v. WR. Grace & Co.), No. 03-3453, 115
Fed. Appx. 565, 567-68, 2004 WL 2404546, at *3 (3d Cir. Oct. 28, 2004) (emphasis added). If
the banptcy court had jurisdiction to enter the injunction in the first place, then it certainly has

jurisdiction over a motion to modify the injunction. That straightforward point is the beginning
and the end ofthe matter.

The real issue presented by a debtor's motion to modify an injunction entered in its own
bankptcy proceeding, as the Third Circuit further explained in Gerard, is not the bankptcy

court's jurisdiction, but instead whether the requested modification is waranted as an equitable
matter. Because the bankptcy court here erroneously concluded that it lacked jurisdiction to

modify the injunction, it never reached the merits of that equitable question. Accordingly, this
Court should vacate the bankptcy court's order and remand for further proceedings.

STATEMENT OF JURISDICTION
As explained in Grace's Motion for Leave to Appeal, this Court has jurisdiction to hear

this appeal pursuant to 28 U.S.c. § 158(a)(3). See 4/1 1/08 Motion ofW.R. Grace for Leave to
Appeal Order Denying Inj. at 6-7 (Adv. Pro. D.1. 494) ("Motion for Leave").

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STATEMENT OF THE ISSUE

Whether the bankptcy court erred by concluding that it lacked subject matter
jurisdiction under 28 U.S.c. § 1334(b) over Grace's motion to modify an injunction entered by
the bankptcy court.

STATEMENT OF THE CASE AND FACTUAL BACKGROUND

A. The Court Has Acted To Protect The Litigation Of The Core Issues In This
Case Since The Commencement Of These Chapter 11 Cases.
On April 2, 2001 (the "Petition Date"), Grace filed its voluntary petition for relief under

Chapter 11 of the Bankptcy Code. On the same day, Grace also filed an adversary complaint
seeking to stay asbestos-related litigation against various affiliates of Grace and third parties (the

"Affiliated Entities") whose purported asbestos liability was derivative of the debtors' liability.
See 4/2/01 Verified Compl. for Declaratory Inj. Relief

(Adv. Pro. D.1. 1).

A temporary restraining order was entered on the Petition Date that specifically sought to

protect the bankptcy court's core jurisdiction, which is the resolution of Grace's personal
injury liabilities. Accordingly, it enjoined the commencement or prosecution of asbestos actions

against Grace and other parties that have the potential to interfere with the bankptcy court's
exercise of that core jurisdiction. In particular, the restraining order was designed-in part-to

protect the Affiliated Entities from collateral attacks by the Libby Claimants, who allege
personal injury claims arising from Grace's operation of a vermiculate mine in Libby, Montana.
On May 3, 2001, the bankptcy court issued a preliminary injunction barrng the prosecution of

currently pending actions against the Affiliated Entities. On January 22, 2002, the court
expanded the scope of the preliminar injunction to include certain additional Affiliated Entities
and to reinstate the bar against commencement of new actions against Affiliated Entities arising

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from alleged exposure to asbestos whether indirectly or directly caused by Grace (the
"Injunction"). See 1/22/02 Order Granting Modified Preliminary Inj. (Adv. Pro. D.1. 87).

Since the entry and modification of the original temporary injunction, the Libby

Claimants have mounted a concerted effort to evade the Injunction by launching numerous

lawsuits against third-party entities seeking compensation for injuries allegedly caused by
exposure to vermiculite originating from Grace's mining operations in Libby. In each case, the

Bankptcy Court has had to act to preserve its jurisdiction.

The first target of the Libby Claimants' efforts was one of Grace's insurers, Maryland
Casualty Company ("MCC"). On February 4, 2002, the Libby Claimants sought to modify the

Injunction in order to pursue an alleged direct cause of action against MCC. The Bankptcy
Court denied the Libby Claimants' motion and that decision was later affirmed by the Third

Circuit in Gerard.

Thereafter, the Libby Claimants attempted to pursue asbestos personal injury claims

arising from Grace's Montana mining operations, by commencing suit against Montana
Vermiculite Company ("MVC"), the former owner of Grace's Montana operations. See 7/21/03
Debtors' Mot. to Expand the Prelim. Inj. to Include Actions Against MVC (Adv. Pro. D.1. 153).
Grace moved to expand the injunction to include MVC, and the banptcy court subsequently

amended the preliminary injunction to stay actions against MVC. See 2/28/05 Am. Order
Granting Mot. to Expand Prelim. Inj. to Include Actions Against MVC (Adv. Pro. D.1. 358).

After the Court amended the preliminary injunction to include the actions against MVC,
the Libby Claimants once again attempted to litigate asbestos personal injury claims arising from

Grace's Montana mining operations by pursuing lawsuits against Burlington Northern & Santa

Fe Railroad ("BNSF"). On April 11, 2008, after another request by Grace to expand the

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injunction, the bankptcy court issued an order expanding the preliminary injunction to include

personal injury actions against BNSF arising from exposure to Grace vermiculite products.

B. Grace Seeks To Expand The Injunction To Include Claims Against the State
of Montana.
This proceeding involves the Libby Claimants' fourth attempt to pursue actions-outside
of

the Grace bankruptcy-for injuries allegedly caused by exposure to Grace's vermiculite from

its operations in Libby, Montana. Since Grace has filed its Chapter 1 1 petition, the Libby

Claimants have pursued the State of Montana (the "State"), naming the State as a defendant in at

least 123 separate actions involving Grace's Montana mining operations (the "Montana
Actions"). In those actions, the Libby Claimants allege negligence against the State for failing to

warn the Libby Claimants about the risks of asbestos at Grace's work place and mine in Libby,
Montana. See 11/5/01 Am. Compl. and Jury Demand, Flesher, et al. v. State of Montana, et al., Cause No. DV-01-86 (Mont. 19th Jud. Dist. Ct.) ir ir XXIV, XXVII-XXVIII (attached as Ex. 2
to the Motion for Leave) ("Amended Complaint"). The Libby Claimants further allege that these
actions "aid( ed) and ab ett

( ed) Grace in the concealment of its abnormally dangerous business

activities." Id. ir XVIII; see also id. ir XXIV ("The State has thereby aided and abetted ....

Grace in the concealment of this enormous human health disaster from the public."). As a
consequence of the filing of the Montana Actions, on or about March 25, 2003, the State filed a

proof of claim against Grace for contribution and indemnification under Montana statutory and

common law for liability potentially arising from the Montana Actions. See Claim No.
00006101 (attached as Ex. 2 to the Motion for Leave).

On June 9, 2005, the State fied a motion seeking relief from the automatic stay in order

to join Grace as a third-party defendant in the Montana Actions (the "Lift Stay Motion"). See
6/9/05 Mot. of State of Montana for Relief

from the Automatic Stay (Bankr. Case D.1. 8582). In
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that motion, the State alleged that Grace's presence and involvement in the Montana Actions was

"mandatory" for the State's defense against the Libby Claimants' allegations and that forcing the

State to defend without the presence of Grace "would cause grave harm." 4/9/08 Mot. of State

of Montana for Stay Pending Appeal in District Court at 10 (Adv. D.1. 486). The Lift Stay

Motion was opposed by Grace, the Asbestos Property Damage Committee, the Asbestos
Personal Injury Claimants' Committee, and the Unsecured Creditors' Committee.

On August 22, 2005, Grace filed a motion to expand the Injunction to include actions
against the State (the "Montana Injunction Motion"). See 8/22/05 Debtors' Mot. to Expand Its

Prelim. Inj. to Include Actions Against the State of Montana (Adv. Pro. D.1. 360). Concurrent
with the Montana Injunction Motion, Grace filed a related motion for leave to file an amended
complaint in the adversar proceeding (the "Motion to Amend"). See 8/22/05 Debtors' Mot. for

Leave to Am. Compl. (Adv. Pro. D.1. 360).

On December 19, 2005, the bankptcy court heard arguments on Grace's Montana
Injunction Motion, Grace's Motion to Amend and the State's Lift Stay Motion. At the

conclusion of the hearng, the banptcy court indicated that it would take Grace's Montana

Injunction Motion and Motion to Amend under advisement. Pending its ruling on the Montana

Injunction Motion and the Motion to Amend, the bankptcy court temporarily stayed the
Montana Actions and all other similar actions that have been or may be brought against the State.

See 12/19/05 Hr'g Tr. at 203-04. This temporary stay was memorialized in a January 17, 2006
Order. i

The Libby Claimants appealed the stay order to ths Court, arguing that the order was reviewable as a preliminary injunction under 28 U.S.C. § 1292. This Court dismissed the Libby Claimants' appeal because it failed to meet the requirements for an interlocutory appeal under 28 U.S.C. § l58(a)(3). See In re W.R. Grace &
Co., 2006 WL 1313190 (D. DeL. May 10, 2006).

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On April 16, 2007, the bankptcy court issued a decision denying Grace's Montana

Injunction Motion. See Mem Op. and Order Denying Grace's Mot. to Expand the Prelim. Inj.
(Adv. Pro. D.1. 419 and 420) (Reported as WR. Grace & Co. v. Chakarian (In re WR. Grace &
Co.), 366 B.R. 295 (Bankr. D. DeL. 2007)) (the "Injunction Denial Order"). Grace and the State

subsequently filed motions for reconsideration. See Debtors' Mot. to Alter or Amend the Court's

Order Denying Its Request to Expand the Prelim. Inj. to Include Actions Against the State of
Montana (Adv. Pro. D.1. 427); State of Montana's Mot. for Reconsideration of

Court's Op. and

Order Denying Debtors' Mot. for Expansion of

Prelim. Inj. (Adv. Pro. D.1. 426). After hearing

arguments on May 21, 2007, the bankptcy court took the reconsideration motions under

advisement. On March 31, 2008, the bankptcy court entered a decision denying the
reconsideration motions, the substance of which is described below. See 3/27/08 Mem. Op.
(Adv. Pro. D.1. 483) and 3/27/08 Order (Adv. Pro. D.1. 484) (the "Reconsideration Order").
C. The Bankruptcy Court Applies Pacor and Federal-Mogul Rather Than

Gerard.

In both the Injunction Denial Order and the Reconsideration Order, the bankptcy court
concluded that it lacked jurisdiction under 28 U.S.C. § 1334(b) to expand the injunction to

include the Montana Actions. The bankptcy court engaged in an analysis of whether or not
there was "related-to" jurisdiction, relying on Pacor v. Higgins, 743 F.2d 984 (3d Cir. 1984), and

In re Federal-Mogul Global Inc., 300 F.3d 368 (3d Cir. 2002), cert. denied sub nom.
DaimlerChrysler v. Offcial Committee of Asbestos Claimants, 537 U.S. 1148 (2003). The
banptcy court stated that in a "related-to" analysis, the test for whether it could assert

jurisdiction over the Montana Actions was "whether 'the outcome of that proceeding could
2

The Bankptcy Court also issued another temporary stay order, which the Libby Claimants again
appealed. The Distrct Court dismissed that appeal on January 24,2008 (Adv. Pro. D.1. 474).

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conceivably have any effect on the estate being administered in bankptcy.'" Injunction Denial

Order at 6-7 (quoting Pacor, 743 F.2d at 994.) The bankptcy court also recognized that the
"application of this test has proven to be most difficult with cases involving indemnification and

contribution." Id. at 7. Reading Pacor and Federal-Mogul together, the banptcy court
concluded that there is no "related-to" subject matter jurisdiction under § 1334(b) where the

outcome of the third-pary litigation "wil not be binding on the estate and wil not have a direct
impact on the estate without additional intervening adjudication." See Injunction Denial Order at
11. The bankptcy court held that it lacked subject matter jurisdiction over third-party litigation

"unless there is a contractual indemnity" between Grace and the third-party defendant in the

ancilary litigation. See 4/21/08 Hr'g Tr. at 33-34 ("(T)he Third Circuit law, as I view it, tells me

that unless there is a contractual indemnity essentially in the concepts of this case ... then there
is not the type of 105 injunction relief that this Court can do.") (emphasis added); see also

Reconsideration Order at 10 ("Allegations of common law indemnification against Debtors ...

were found to be an insufficient basis for related-to jurisdiction.... In contrast, MCC in Gerard
asserted contractual indemnity rights which could have a direct impact on the estate.").
Because the bankptcy court concluded that it lacked subject matter jurisdiction over the

Montana Actions, it did not reach the issue of whether the expansion of the injunction to include
the Montana Actions would be appropriate. See Injunction Denial Order at 1 1 ("Without a

finding of such (subject matter) jurisdiction, it is unnecessary to conduct an analysis of whether
an injunction under § 105(a) is appropriate."). This appeal follows.

ARGUMENT

The bankptcy court erred as a matter of law by holding that it lacks subject matter

jurisdiction over a debtor's motion to modify an injunction entered in its own bankptcy
proceeding. That holding cannot be squared with the Third Circuit's decision in Gerard, which
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explained that a bankptcy court "assuredly" has subject matter jurisdiction over such a motion.

See Gerard, 115 Fed. Appx. at 567-68, 2004 WL 2404546, at **3. Because the bankptcy court
erred as a matter of law by misconstruing governing precedent, its decision is reviewable de

novo. See Stonington Partners, Inc. v. Lernout & Hauspie Speech Prods., NV., 310 F.3d 118,
121 (3d Cir. 2002).
I. The Bankruptcy Court Misconstrued The Relevant Third Circuit Precedent That

Governs The Exercise Of Subject Matter Jurisdiction.
As the Third Circuit explained in Gerard, the decision whether a bankptcy court should

issue (or modify) an injunction under 11 U.S.c. § 105 to stay third-party litigation during the

pendency of a Chapter 11 case requires a two-step analysis. See 115 Fed. Appx. at 567-68, 2004

WL 2404546, at **2. The first step is to ask whether the court has subject matter jurisdiction
over the proceeding. Id. The second step is to ask whether, under relevant case law, the entry

of

the injunction is warranted. Id. The former is a question of whether a court has the power to act
at all. The latter is a question of

whether the court should exercise that power.

Applying this framework, the Gerard court decisively answered the question of subject

matter jurisdiction where (as here) a debtor seeks the court's protection from the deleterious
effect on the estate of litigation against third parties. The decisive answer is that under those
circumstances there is subject matter jurisdiction.

Gerard, which is law of this case, arose when the Libby Claimants made their first
attempt to circumvent the automatic stay. In Gerard, the Libby Claimants had sought to modify

the § 105 injunction to allow them to pursue claims under a purported independent cause of
action against one of

Grace's insurers, MCC. See id. at 567, 2004 WL 2404546, at **2.

In its refusal to modify the injunction, the bankptcy court in Gerard did not address the

issue of subject-matter jurisdiction; rather, it simply refused to modify the injunction on the
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merits. On appeal, however, the district court reversed the bankruptcy court on the ground that
the bankptcy court lacked "related-to" jurisdiction over the state court litigation against MCC,

relying on Pacor and Federal-MoguL. Id. The Third Circuit in turn reversed the District Court
on this jurisdictional point, which the Third Circuit characterized as a "detour from the precise

issue that should have been presented on appeal, namely, whether the Bankptcy Court
improperly refused to modify the scope of the Injunction" under § 105. See id. Indeed, the

Third Circuit emphasized that when a debtor seeks protection from litigation that may result in a

collateral determination as to the core issue in the bankptcy-namely, the debtor's personal
injury liabilities-the bankptcy court need not engage in an analysis of

whether the jurisdiction

is "related-to" the bankptcy. Rather, the Third Circuit held that when such relief is requested,

that relief is "clearly" within the bankptcy court's jurisdiction. See id. at 567-68. As the Third
Circuit explained:

Clearly, the ruling on appeal to the District Court resulted from the adversary proceeding seeking injunctive relief initiated by the debtor in its own chapter 1 1
case. Thus, the proceeding was assuredly "related-to" the case, and further, it

definitely "arose under" the banptcy proceeding (and was perhaps even a
"core" proceeding). Thus, the issue of bankptcy court jurisdiction to entertain the motion relating to the Injunction was in reality a non-issue. The Injunction was issued pursuant to 11 U.S.C. § 105 in the adversary proceeding initiated by Grace, and the Banruptcy Court clearly had jurisdiction to enforce it.
!d.

The circumstances here are identicaL. Here, as II Gerard, Grace is asking that the
Bankptcy Court prevent the Libby Claimants from doing an end-run around the automatic stay

by continuing to bring collateral litigation against third parties seeking the adjudication of
liabilities allegedly caused by exposure to vermiculite that came from Grace's Libby, Montana

mining operations. The adjudication and disposition in the bankruptcy case of Grace's liability
for personal injury actions arising from Grace's operation ofthe Libby mine is central to Grace's
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ability to emerge from these bankrptcy cases. Under Gerard, the bankptcy court has
jurisdiction to preside over an adversary proceeding initiated by the debtor in the bankptcy
cases to ensure that that very liability is resolved in the bankptcy cases and not in some other
court. See id And the court similarly has jurisdiction to consider whether to modify or expand

an existing injunction under the same reasoning. See id. As Gerard is law of this case, it must
be followed by the bankptcy court. See, e.g., Fagan v. City of

Vineland, 22 F.3d 1283 (3d Cir.

1994). Accordingly, the bankptcy court's failure to recognize that Gerard dispositively
addresses the issue of jurisdiction and to apply this precedent is an error of law that requires

reversal ofthe Injunction Denial Order.3

The Libby Claimants try to obfuscate this simple issue by relying on Pacor, FederalMogul, and In re Combustion Eng'g, 391 F. 3d 190 (3d Cir. 2004). However, these cases are
inapposite. In each of them, the courts were not dealing with adversary proceedings initiated by
the debtors that involved core issues in the bankptcy cases. Accordingly, the courts in those

cases were required to engage in the "related-to" jurisdiction inquiry in order to determine
whether-though not automatic-the court had the power to exercise jurisdiction over the
proceedings.

In both Pacor and Federal-Mogul, the question before the respective courts was not
whether, at the debtor's request, the banptcy court should enjoin third-party litigation that had
3

The fact that the Thid Circuit Opinion is marked as "Not precedential" does not make it any less relevant or controlling in this case. According to the Third Circuit's Internal Operating Procedure 5.3, an opinion marked as "not precedential" is so designated because it "appears to have value only to the tral court or the parties. . ." The "not precedential" designation is clearly not intended to suggest that the opinion is not "law of the case" in the precise case in which it was decided and where the court and the parties are the same. Moreover, the Libby Claimants' contention that there are different parties is a red herrng. While it is tre that the Libby Claimants have chosen to pursue a different nominal defendant, the parties involved in seeking and contesting the expansion ofthe Injunction (i.e., the Libby Claimants and Grace) have paricipated each time this issue has come up relating to the various Montana actions brought by the Libby Claimants against, MCC, MVC, BNSF, and the State of Montana.

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collateral consequences as to the debtors' underlying liabilities. Rather, the issue was whether,

at the request of the third-party defendants, the federal bankptcy court should reach out and
remove the Pacor-Higgins action and the Friction Products actions from the state courts and
bring them into the federal court systemfor all purposes. Pacor, 743 F.2d at 986; In re Federal-

Mogul, 282 B.R. 301, 303-04 (Bank. D. DeL. 2002). Thus, as the Gerard court explained:
(I)n both Pacor and Federal-Mogul, the issue presented was whether the

Banptcy Court had jurisdiction to remove to the Bankptcy Court, and thus hear and decide, in the Bankptcy Court, litigation pending in state court. But,
here, the issue before the Bankruptcy Court was not whether it should exercise jurisdiction over suits pending elsewhere, nor even whether it should enjoin such suits, but, rather, whether it should modify an injunction already entered in the Bankptcy Court in favor of Grace and MCC.

115 Fed. Appx. at 567, 2004 WL 2404546, at **2 (emphasis in original). Indeed, the Gerard
court accused the Libby Claimants of "misdirect(ing)" the court's attention to this red-herrng

jurisdictional issue. See id. And in Combustion Engineering, bankptcy protection was being
sought not only on behalf of the debtor, but also on behalf of two affiliated companies of the
debtor that sold "different products (from the debtor), (which were) involved in different
asbestos-containing materials, and were sold to different markets." In re Combustion Eng'g, 391

F.3d at 231. This fact created an issue with respect to subject matter jurisdiction over personal

injury liabilities that were not derivative of, but rather separate from, the debtors' liabilities.
Under these circumstances, the Third Circuit held that there was not "related-to" jurisdiction.
In short, as Gerard makes clear (and nothing in Pacor, Federal-Mogul, or Combustion

Engineering calls into question) the issue here is not one of subject matter jurisdiction, but

instead one of the propriety of extending the § 105 injunction as an equitable matter. Because

the bankptcy court did not address that issue, this Court should remand this proceeding to the

bankptcy court to do so.

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CONCLUSION
For the foregoing reasons, this Court should vacate the bankptcy court's order denying
Grace's motion to modify the injunction for lack of subject matter jurisdiction, and remand for
the banptcy court to address that motion on the merits.

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Dated: May 28, 2008

KIAND & ELLIS LLP
David M. Bernick, P.C. Janet S. Baer Salvatore F. Bianca 200 East Randolph Drive Chicago, IL 60601
Telephone: (312) 861-2000 Facsimile: (312) 861-2200

Barbara M. Harding Amanda C. Basta Brian T. Stasbur 655 Fifteenth Street, NW Washington, DC 20005
Telephone: (202) 879-5000 Facsimle: (202) 879-5200

- and -

P ACHULSKl, STANG, YOUNG & JONES LLP

a i. avis Jones (Bar No. 2436)
J E. O'Neil (Bar No. 4042)

~

Katheen P. Makowski (Bar No. 3648)
Timothy P. Cais (Bar No. 4228)

919 North Market Street, 16th Floor P.O. Box 8705 Wilmigton, DE 19899-8705 (Courier 19801)
Telephone: (302) 652-4100 Facsinie: (302) 652-4400
Co-Counsel for Appellants

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IN THE UNED STATES DISTRCT COURT FOR TH DISTRICT OF DELAWAR
In re:
)
) )

W. R. Grace & Co., et aI.,
Debtors.

Civil Action No. 08-246

) )
) )

W. R. Grace & Co., et aI., and
the State of

Montaa
Appellants,
v.

)

)
)
)
Banptcy Case No. 01-1139
Adversary Case No. 01-771

Libby Claimants,
Appellee.

) ) ) ) )

Appeal No. 08-19

)
)

CERTIFICATE OF SERVICE
I, James E. O'Neil, hereby certify that on the 28th day of May, 2008, I caused a

copy of the following documents to be served on the individuas on the attched service list in
the maner indicated:

APPELLANTS BRIEF.

w7t
~

91100-001\DOCS_DE:137709.2

l

Case 1:08-cv-00246-RLB

Document 12-2

Filed 05/28/2008

Page 2 of 4

W.R. Grace - Montana District Court Appeal Service List (08-246)
Dist. Ct. Case No. 08-246
Doc. No. 137705

03 - Hand Delivery

Hand Delivery

Montana) Francis A. Monaco, Jr., Esquire Kevin J. Mangan, Esquire Womble Carlyle Sandrdge & Rice PLLC 222 Delaware Avenue, 15th Floor Wilmington, DE 19801
(Appellant - State of

Hand Delivery (Appellee - Libby Claimants)
Kerr King Mumford, Esquire

Landis Rath & Cobb LLP 919 Market Street, Suite 600 P.O. Box 2087 Wilmington, DE 19899
Hand Delivery (Appellee - Offcial Committee of Asbestos Personal Injury Claimants) Marla Rosoff Eskin, Esquire Campbell & Levine 800 North King Street, Suite 300 Wilmington, DE 19801

91100-001\DOCS_DE:I3770S.I

Case 1:08-cv-00246-RLB

Document 12-2

Filed 05/28/2008

Page 3 of 4

W. R. Grace Core Group Service List Case No. 01-1139 (JKF)
Document Number: 27348

Hand Delivery (Counsel for The Chase Manhattan Bank)

07 - Hand Delivery 1 1 - First Class Mail
(Counsel to Debtors and Debtors in Possession) Laura Davis Jones, Esquire James E. O'Neill, Esquire Pachulski Stang Ziehl & Jones LLP 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Copy Service)
Parcels, Inc.

Mark D. Collns, Esquire Deborah E. Spivack, Esquire Richards, Layton & Finger, P.A. One Rodney Square
P.O. Box 551

Wilmington, DE 19899
Hand Delivery (Counsel for Property Damage Claimants) Michael B. Joseph, Esquire Ferry & Joseph, P.A. 824 Market Street, Suite 904 P.O. Box 1351

Wilmington, DE 19899
Hand Delivery (United States Trustee) David Klauder, Esquire Office of the United States Trustee 844 King Street, Room 23 1 1

Vito 1. DiMaio 10th & King Streets Wilmington, DE 19801

Hand Delivery (Counsel to Official Committee of
Unsecured Creditors)

Wilmington, DE 19801
Hand Delivery (Equity Committee Counsel)

Michael R. Lastowski, Esquire Richard W. Riley, Esquire Duane, Morrs & Heckscher LLP 1100 North Market Street, Suite 1200 Wilmington, DE 19801-1246
Hand Delivery (Local Counsel to DIP Lender) Steven M. Yoder, Esquire The Bayard Firm 222 Delaware Avenue, Suite 900 P.O. Box 25130

Teresa K. D. Currer Klett Rooney Lieber & Schorling
1 000 West Street, Suite 1410

Wilmington, DE 19801

First Class Mail
(Counsel to Debtor) David B. Bernick, P.c. Janet Baer, Esquire

Wilmington, DE 19899
Hand Delivery (Local Counsel to Asbestos Claimants) Marla Eskin, Esquire Mark T. Hurford Campbell & Levine 800 North King Street, Suite 300 Wilmington, DE 19801

Kirkland & Ells LLP 200 East Randolph Drive Chicago, IL 60601

First Class Mail
(W. R. Grace & Co.) Mark Shelniz W.R. Grace and Co. 7500 Grace Drive Columbia, MD 21044

Case 1:08-cv-00246-RLB

Document 12-2

Filed 05/28/2008

Page 4 of 4

First Class Mail
(Offcial Committee of

Unsecured

First Class Mail (Counsel to Official Committee of
Unsecured Creditors)

Creditors)
Lewis Krger, Esquire

Kenneth Pasquale, Esquire Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, NY 10038-4982

William S. Katchen, Esquire Duane Morrs LLP 744 Broad Street Suite 1200 Newark, NJ 07102-3889

First Class Mail
Personal Injury Claimants) Elihu Inselbuch, Esquire Rita Tobin, Esquire Caplin & Drysdale, Chartered
(Offcial Committee of

First Class Mail
(Counsel to DIP Lender) J. Douglas Bacon, Esquire
Latham & Watkins

Sears Tower, Suite 5800 Chicago, IL 60606

375 Park Avenue, 35th Floor

New York, NY 10152

First Class Mail
(Counsel for David T. Austern) Roger Frankel, Esquire Richard H. Wyron, Esquire Matthew W. Cheney, Esquire Orrck Herrngton & Sutcliffe LLP Columbia Center
1152 15th Street, N.W.

First Class Mail
Property Damage Claimants) Scott L. Baena, Esquire Member Bilzin Sumberg Dunn Baena Price & Axelrod LLP First Union Financial Center 200 South Biscayne Blvd, Suite 2500 Miami, FL 33131
(Offcial Committee of

Washington, DC 20005-1706

First Class Mail
(Counsel to David T. Austern, Future Claimant's Representative) Philips, Goldman & Spence, P .A. John C. Phillps, Jr. 1200 North Broom Street Wilmington, DE 19806

First Class Mail
(Equity Committee Counsel) Philip Bentley, Esquire Douglas Mannal, Esquire Kramer Levin Naftalis & Frankel LLP 1 1 77 Avenue of the Americas New York, NY 10036

First Class Mail
Peter Van N. Lockwood, Esquire Julie W. Davis, Esquire Trevor W. Swett, III, Esquire Nathan D. Finch, Esquire Caplin & Drysdale, Chartered One Thomas Circle, N.W. Washington, DC 20005