Opinion
Bankruptcy Case Nos. 390-37213-SAF-11 and 390-37214-SAF-11 Civil Action No. 3:01-CV-1506-G
June 18, 2002
MEMORANDUM ORDER
This is an appeal by the Center For Claims Resolution, Inc. ("CCR") from an order of the bankruptcy court granting partial summary judgment in favor of the defendants Asbestos Claims Management Corporation ("ACMC") and the NGC Settlement Trust ("the Trust") (collectively, "the defendants"). This appeal presents two issues: (1) whether the bankruptcy court erred in dismissing CCR's complaint for a declaratory judgment that the decision in Matter of National Gypsum Company, 219 F.3d 478 (5th Cir. 2000), cert. denied, 532 U.S. 1075 (2001), does not trigger any reimbursement obligations under an April 12, 1999 agreement among the defendants and CCR; and (2) whether the bankruptcy court erred in ruling that the agreement is unambiguous and that CCR's reimbursement obligations under that agreement are triggered by the Fifth Circuit's decision in Matter of National Gypsum Company. Brief for Appellant ("Appellant's Brief") at 1. Because this court answers both issues in the negative, the bankruptcy court's ruling is affirmed.
I. BACKGROUND A. History of the Parties
The CCR was established in 1988 by a group of former asbestos producers, including National Gypsum Company ("Old-NGC"), to act as a joint defense facility in handling asbestos personal injury claims asserted against its members. Appellant's Brief at 1; Appellees' Brief at 2. The CCR settles and/or litigates claims on behalf of its members and then bills each member for its allocated share of any resulting settlements or judgments. Appellant's Brief at 2; Appellees' Brief at 3. The defendants, ACMC and the Trust, emerged from the bankruptcy of Old-NGC. Appellant's Brief at 2.
As a result of the March 1993 First Amended and Restated Joint Plan of Reorganization (the "Plan"), the operating assets of Old-NGC's gypsum and wallboard products division were transferred to a new company ("New-NGC") formed by Old-NGC's financial creditors. Appellees' Brief at 3; Appellant's Brief at 2. The Trust was created to own the stock of Old-NGC, which was renamed ACMC. Appellees' Brief at 3. The assets of the Trust are to be used to pay present ("Current Claimants") and future asbestos disease claimants ("Unknown Claimants"). Id.
The bankruptcy court order confirming the Plan permanently enjoined Current Claimants from pursuing their claims against any entity other than ACMC. Appellant's Brief at 2-3; Appellees' Brief at 3. By contrast, the bankruptcy court temporarily enjoined Unknown Claimants, by a "channeling order," requiring those claimants to proceed against ACMC until ACMC's assets were exhausted, whereupon the channeling order would be lifted and the Unknown Claimants would be free to pursue other entities that might be liable to them. Id. at 3.
ACMC emerged from the bankruptcy proceedings as a member of the CCR and remained a member until approximately June 2000. Appellant's Brief at 3; Appellees' Brief at 4 n. 4. While ACMC was a CCR member, asbestos claims against it were resolved in the tort system, and ACMC paid in full any judgments or settlements produced by that system. Appellant's Brief at 3; Appellees' Brief at 3.
B. The Bankruptcy Court's Liability Ruling
The documents governing the Trust require the Trust to give all claims, whether current or unknown, "substantially equivalent" treatment. Appellees' Brief at 4. By 1997, ACMC became concerned that without additional funds, its assets would be insufficient to satisfy asbestos claims from both Current and Unknown Claimants. Appellant's Brief at 4; Appellees' Brief at 4. The Trust believed that the Plan maintained liability on New-NGC for any claims of Unknown Claimants that the Trust could not resolve and that the Trust could maintain ACMC's membership in the CCR, and continue to pay claimants in full, knowing that all unpaid Unknown Claimants remaining when the channeling order was lifted would have a full remedy against New-NGC. Appellees' Brief at 4; Appellant's Brief at 4. To confirm that this belief was correct, ACMC and the Trust filed a complaint against New-NGC in the bankruptcy court on February 5, 1998 seeking a determination that New-NGC would be liable to Unknown Claimants whose claims ACMC could not satisfy. Appellant's Brief at 4; Appellees' Brief at 4-5; Appellees' Appendix ("App.") at 0098-99 (Bankruptcy Court Liability Ruling, February 27, 1998) ("I[n] this adversary proceeding, the NGC Settlement Trust seeks a declaration that, pursuant to the National Gypsum Company plan of reorganization as confirmed by order of this court pursuant to the United States Bankruptcy Code, New-NGC is liable for nonBankruptcy Code asbestos disease claims not resolved by the Trust."). In that action, the bankruptcy court described the issue before it as follows:
This declaratory judgment action does not call upon this court to determine and apply a successor liability laws [sic] of any of the several states. Nor does this declaratory judgment action call upon the court to determine any individual tort claim. Rather, this declaratory judgment action calls upon the court to determine whether the plan this court confirmed pursuant to a final order of this court imposed or maintained liability for asbestos disease claims on New-NGC.
App. at 0100 (Bankruptcy Court Liability Ruling, February 27, 1998).
On February 27, 1998, the bankruptcy court ruled that under the Plan, New-NGC would be liable to Unknown Claimants whose claims ACMC could not satisfy. App. at 0101 (Bankruptcy Court Liability Ruling, February 27, 1998) ("the plan as confirmed by order of this court implicitly imposes or maintains liability on New-NGC for asbestos disease non-Bankruptcy Code claims not discharged by the confirmation order and not satisfied by the Trust."). On March 25, 1998, judgment was entered based on this ruling. App. at 0137-38 (Judgment, March 25, 1998).
Hereafter, this ruling is referred to as the "Liability Ruling."
According to CCR, the ruling "meant that such Unknown Claimants could hold New-NGC liable for OldNGC's torts without having to satisfy state successor liability laws." Appellant's Brief at 4.
C. Subsequent Developments and Proceedings
New-NGC appealed the bankruptcy court's Liability Ruling to the district court, arguing that it could only be liable, if at all, if Unknown Claimants could prevail in state court litigation by establishing successor liability under applicable state law. Appellant's Brief at 5; Appellees' Brief at 7; App. at 0005 (Transcript of Proceedings, January 4, 2001). The district court heard this appeal in July of 1998, but as of February 1999 it had yet to rule on New-NGC's appeal. App. at 0005 (Transcript of Proceedings, January 4, 2001). By that time, the Trust and ACMC decided to file a notice of their intention to withdraw from CCR. Id. Ultimately, after several weeks of negotiation, the defendants and CCR reached an agreement (hereafter, the "Agreement" or the "April 12, 1999 Agreement") whereby ACMC would remain in the CCR in exchange for a "contingent liability payment share adjustment or reimbursement (the Contingent Adjustment) to ACMC if the Bankruptcy Court's Liability Ruling were reversed. . . ." Appellees' Brief at 7; see also Appellant's Brief at 6. The Agreement provides, in pertinent part, that the Contingent Adjustment "shall become effective on the date ('the Trigger Date') on which all appeals . . . of the Liability Ruling . . . regarding the potential liability of New-NGC for Unknown Claims, are exhausted, if the appellate process results in a final unappealable ruling on the merits that New-NGC does not have potential liability for Unknown Claims." App. at 0074 (April 12, 1999 Agreement).
According to the defendants, "the basic concept behind the Contingent Adjustment is that ACMC would pay in full, normal liability payment share with respect to particular judgments or settlements pending resolution of the appeal, but would be entitled to 70% of that money back if the Bankruptcy Court's Liability Ruling were reversed. In that event, the Trust could then apply the money that was reimbursed by the CCR to make payments to those Unknown Claimants who had not yet been paid." Appellees' Brief at 7 n. 5.
On June 1, 1999, the district court affirmed the bankruptcy court's decision. See In re National Gypsum Company v. NGC Settlement Trust, Civ. No. A 398-CV-1032P, 1999 WL 354230 (ND. Tex. June 1, 1999) (Solis, J.). Over a year later, the Fifth Circuit reversed the bankruptcy court's liability ruling. See Matter of National Gypsum Company, 219 F.3d 478 (5th Cir. 2000), cert. denied, 532 U.S. 1075 (2001). In that decision, the Fifth Circuit held the Plan did not impose liability on New-NGC for unknown claims and that New-NGC could only be liable, if at all, under state successor liability laws. Id. at 479 ("Concluding that the Confirmation Order and other plan documents do not transfer liability for these Unknown Claims from Old-NGC to New-NGC, we reverse and remand.").
Following the Fifth Circuit's decision, the defendants and CCR moved for summary judgment in the bankruptcy court. In taking that action, the parties agreed that the Agreement is unambiguous, but disagreed as to how the bankruptcy court should have construed the Agreement in light of the Fifth Circuit's decision. App. at 0008,0022 (Transcript of Proceedings, January 4, 2001). CCR argued that under the language of the Agreement's trigger, payment to ACMC is required if the Fifth Circuit ruled that "New-NGC does not have potential liability under the plan for unknown claims." Id. at 0023-24. According to CCR, because the Fifth Circuit held that New-NGC could be liable to Unknown Claimants under state successor law, summary judgment should be granted in its favor. Id.; see also Appellant's Brief at 13. The Trust and ACMC disputed that characterization of the Fifth Circuit's decision and moved for summary judgment on the ground that the decision triggered the CCR's reimbursement obligations under the terms of the Agreement. App. at 0009 (Transcript of Proceedings, January 4, 2001) ("[T]he agreement is unambiguous, and the only reasonable interpretation of the agreement is that the share reduction was triggered by the 5th Circuit decision.").
On January 4, 2001, the bankruptcy court held a hearing on the parties' motions for summary judgment. In rendering its decision, the bankruptcy court observed, "the immediate issue for the Court is whether the agreement is ambiguous. If it is not ambiguous, then the Court, as a question of law, can construe the agreement on summary judgment. If the agreement is ambiguous, the Court has issues of fact." Id. at 0065. The bankruptcy court then took the initial step of determining whether the agreement was ambiguous by considering the written agreement itself and the bankruptcy court's prior Liability Ruling because that ruling was "specifically included in the definitional section of the agreement." Id. at 0066. In granting summary judgment in favor of ACMC and the Trust, the bankruptcy court analyzed as follows the relationship between the Liability Ruling and the phrase "potential liability of New-NGC for Unknown Claims" used in the Agreement:
The meaning of that definitional section of potential liability for New-NGC for unknown claims begins with the reference to the Court's liability ruling. The liability ruling states at the outset, ["]This declaratory judgment action does not call upon this Court to determine and apply successor liability laws of any of the several states, nor does this declaratory judgment action call upon the Court to determine any individual tort claim. Rather, this declaratory judgment action calls upon the Court to determine whether the plan this Court confirmed, pursuant to a final order of this Court, imposed or maintained liability for asbestos disease claims on New-NGC ["].
Accordingly the reference to liability ruling, as a defined term, and under the plan as part of the definition of potential liability, is referring to the question that was before this Court and decided by this Court and appealed to the United States District Court and then to the United States Court of Appeals to the 5th Circuit, namely, whether, not considering successor liability and not considering any liability, if you will, potential liability, on any individual claimant's particular claim, the plan imposed liability on New-NGC. This court concluded that it did, and that was appealed.
The next section, section 3, then says, ["]If the appellate process results in a final non-appealable ruling on the merits that New-NGC does not have potential liability for unknown claims,["] there would be a trigger. The issue, again, is, not considering state liability and successor liability, not considering potential liability for any individual tort claimant's rights, whether the plan imposed liability. The 5th Circuit held it did not. The 5th Circuit held if there was any liability, it's imposed under state law. That's the only reasonable reading that you can give to that agreement, and the 5th Circuit's decision having become final, there's a trigger.
Id. at 0067-68.
In light of the above analysis, the bankruptcy court declined to consider any extrinsic evidence submitted by the parties. Id. at 0069 ("Because the agreement is not ambiguous in that it is susceptible to only one reasonable reading, the Court does not need to look at extrinsic evidence.").
On August 27, 2001, CCR filed its brief appealing the bankruptcy court's ruling. On September 26, 2001, the Trust and ACMC filed a response. New-NGC and the legal representative for the Unknown Claimants also filed responses to CCR's brief that same day. See Appellee New National Gypsum Company's Brief; Adoption of the Brief of Appellees by Intervenor, Sander L. Esserman, Legal Representative for Future and Unknown Asbestos Disease Claimants. CCR timely filed its reply on October 16, 2001. Appellant's Reply. This appeal was originally before Judge Joe Kendall, but was transferred to the undersigned, following Judge Kendall's resignation, on January 24, 2002. See Docket Sheet.
II. ANALYSIS A. Standard of Review
On appeal, a bankruptcy court's findings of fact are reviewed for clear error and its legal conclusions are reviewed de novo. E.g., Matter of Young, 995 F.2d 547, 548 (5th Cir. 1993). This case is on appeal from a grant of partial summary judgment in favor of the defendants. Summary judgment is appropriate if the pleadings and evidence on file show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Matter of Criswell, 102 F.3d 1411, 1414 (5th Cir. 1997). Thus, this court reviews the bankruptcy court's summary judgment ruling de novo. Id.
B. Triggering Event
CCR, ACMC, and the Trust agree that the Agreement contains an unambiguous trigger that requires the CCR to reimburse the Trust upon a final appellate ruling that New-NGC does not have potential liability to the Unknown Claimants. Appellant's Brief at 13; Appellees' Brief at 21. The parties disagree, however, about whether the Fifth Circuit's ruling in Matter of National Gypsum Company, 219 F.3d 478 (5th Cir. 2000), cert. denied, 532 U.S. 1075 (2001), triggers CCR's reimbursement obligations.
CCR first contends that the bankruptcy court erred in dismissing its complaint for a declaratory judgment that the Fifth Circuit's decision did not trigger any reimbursement obligations for CCR. Appellant's Brief at 20-27. According to CCR, the Fifth Circuit's decision "did not trigger the Contingent Adjustment for the simple reason that the Court of Appeals did not hold that New-NGC does not have potential liability for Unknown Claims." Id. at 21. CCR asserts the Fifth Circuit actually held to the contrary — that New-NGC does have potential liability under state successor law. Id. at 22. In support of this contention, CCR points to language in the opinion where the Fifth Circuit noted that "there are at least three positions the Plan could have adopted: (1) New-NGC could be immune from Unknown Claims; (2) New-NGC could be liable for Unknown Claims that were not resolved by the Trust, but only to the extent of state law successor liability; or (3) New-NGC could have been liable for all Unknown Claims once the Trust was exhausted." Matter of National Gypsum Company, 219 F.3d at 484. CCR argues that the Fifth Circuit found that, under the Plan, New-NGC could be liable to Unknown Claimants under state successor law. Appellant's Brief at 22 (citing Matter of National Gypsum Company, 219 F.3d at 488) ("the bankruptcy court wanted to impose at least statelaw successor liability on New-NGC."). Accordingly, CCR contends that summary judgment should have been granted in its favor on the basis that the Fifth Circuit's decision did not trigger the Contingent Adjustment because the court held that New-NGC does have potential liability for Unknown Claims under state successor law. Appellant's Brief at 24-25.
In response, ACMC and the Trust argue that the bankruptcy court correctly entered summary judgment in their favor since the Agreement contains an unambiguous trigger that requires the CCR to reimburse the Trust upon a final appellate ruling that New-NGC does not, under the Plan, have potential liability to Unknown Claimants. Appellees' Brief at 21-31. According to the defendants, the Agreement expressly ties the phrase "potential liability" to the bankruptcy court's prior Liability Ruling, which found New-NGC had such potential liability to Unknown Claimants under the Plan, as opposed to under state successor liability law. Id. at 23-24. Consequently, the defendants contend, the reimbursement obligation under the Agreement was triggered by the Fifth Circuit's ruling because the Fifth Circuit's decision, at best, only found that New-NGC had potential liability to Unknown Claimants under state successor liability law, and not under the Plan. Id.
This appeal requires the court to review de novo the bankruptcy court's interpretation of the Agreement between the parties and the effect of the Fifth Circuit's decision in Matter of National Gypsum Company, 219 F.3d 478 (5th Cir. 2000), cert. denied, 532 U.S. 1075 (2001). The Agreement is governed by Texas law. App. at 0078 (April 12, 1999 Agreement) ("This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and, to the extent applicable, the Bankruptcy Code."). Consequently, this court applies Texas law in interpreting the Agreement. See Mid-Continent Casual Company v. Chevron Pipe Line Company, 205 F.3d 222, 230 (5th Cir. 2000) ("Of course, state law governs construction of the agreement."). "The primary concern of a court in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument." National Union Fire Insurance Company of Pittsburgh, Pennsylvania v. CBI Industries, Inc., 907 S.W.2d 517, 520 (Tex. 1995) (citation omitted). In construing a contract, the court must determine whether its meaning is ambiguous. "Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole. . . ." Id. (citations omitted). A written contract is ambiguous if its language "is subject to two or more reasonable interpretations" but is not ambiguous if it is "so worded that it can be given a definite or certain legal meaning." Id. (citations omitted). Mere disagreement between the parties about the correct interpretation of the contract terms will not render the term ambiguous, nor will it transform the issue of law into an issue of fact. D.E.W., Inc. v. Local 93, Laborers' International Union of North America, 957 F.2d 196, 199 (5th Cir. 1992) (citations omitted). Accordingly, "[w]hen the language is plain, it must be enforced as written," Phillips v. Union Bankers Insurance Company, 812 S.W.2d 616, 618 (Tex.App.-Dallas 1991, no writ), and the court should strive to "give effect to each and every provision of the contract." Equal Employment Opportunity Commission v. R.J. Gallagher Company, 181 F.3d 645, 651 (5th Cir. 1999) (applying Texas law).
As noted, both sides agree that the Agreement is unambiguous, see Appellees' Brief at 21; Appellant's Brief at 20, but differ as to how the bankruptcy court should have construed the Agreement in light of the Fifth Circuit's decision in Matter of National Gypsum Company, 219 F.3d 478 (5th Cir. 2000), cert. denied, 532 U.S. 1075 (2001). At the outset, the court notes that it agrees with the bankruptcy court's approach that there are essentially two pertinent portions of the Agreement that must be interpreted. App. at 0066 (Transcript of Proceedings, January 4, 2001). The court must first construe part of the recital section of the Agreement. That section provides:
Whereas, the CCR Withdrawal Motion was predicated on ACMC's determination that its continued participation in the Center for Claims Resolution ("CCR"), without a reduction in ACMC's liability payment shares with respect to claims resolved by the CCR, is inappropriate considering the length of time that will expire before the completion of all appeals of this Court's March 20, 1998 ruling ("the Liability Ruling") regarding the potential liability of New-NGC, under that certain amended and confirmed plan of reorganization for National Gypsum Company, for Unknown Asbestos Disease Claims (as defined in that plan) not resolved by ACMC (hereafter, "the potential liability of New-NGC for Unknown Claims"); and the possibility that the Liability Ruling may be overturned.
App. at 0072 (April 12, 1999 Agreement).
CCR disputes the bankruptcy court's interpretation of this section by arguing that by "importing" language into that section, it was able to reach the determination that the Fifth Circuit held CCR was not liable to Unknown Claimants under the Plan. Appellant's Brief at 22-24. The court rejects this contention and agrees with the bankruptcy court that it is necessary and appropriate to refer to the bankruptcy court's prior liability ruling because that ruling is specifically included in the recital section of the Agreement. App. at 0065-66 (Transcript of Proceedings, January 4, 2001); see also Castroville Airport, Inc. v. City of Castroville, 974 S.W.2d 207, 211 (Tex.App.-San Antonio 1998, no writ) (holding that a document is incorporated into an agreement where the agreement "plainly refers to the other writing") (citing MTrust Corp. N.A. v. LJH Corp., 837 S.W.2d 250, 253-54 (Tex.App. — Forth Worth 1992, writ denied)).
In the Liability Ruling, Judge Felsenthal held,
This declaratory judgment action does not call upon this court to determine and apply a successor liability laws [sic] of any of the several states. Nor does this declaratory judgment action call upon the court to determine any individual tort claim. Rather, this declaratory judgment action calls upon the court to determine whether the plan this court confirmed pursuant to a final order of this court imposed or maintained liability for asbestos disease claims on New-NGC.
App. at 0100 (Transcript of Proceedings, February 27, 1998).
The second part of the Agreement the court must consider is section 3. That section provides:
3. Effective Date of Contingent Sharing Arrangement.
(a) The Contingent Sharing Arrangement shall become effective on the date ("the Trigger Date") on which all appeals (including Supreme Court review, if any) of the Liability Ruling or of any other Bankruptcy Court ruling or, if the reference is withdrawn, of any direct ruling by the U.S. District Court for the Northern District of Texas, regarding the potential liability of New-NGC for Unknown Claims, are exhausted, if the appellate process results in a final unappealable ruling on the merits that New-NGC does not have potential liability for Unknown Claims.
(b) The Contingent Sharing Arrangement shall not become effective, and the Special Claim Category and the Contingent Sharing Arrangement shall become null and void, on the date on which all appeals (including Supreme Court review, if any) of the Liability Ruling or of any other Bankruptcy Court ruling, or, if the reference is withdrawn, of any direct ruling by the U.S. District Court for the Northern District of Texas, regarding the potential liability of New-NGC for Unknown Claims are exhausted, if the appellate process results in a final unappealable ruling on the merits that New-NGC does have potential liability for Unknown Claims.
App. at 0074-75 (April 12, 1999 Agreement).
CCR and the defendants both agree that the language of this section is unambiguous. CCR, however, contends that the trigger language of section 3(a) is not in effect because the Fifth Circuit held, on appeal of the Liability Ruling, that New-NGC does have "potential liability to Unknown" Claimants under state successor law. Appellant's Brief at 24. The defendants, on the other hand, argue that the trigger language is in effect because the Fifth Circuit's ruling only pertained to the potential liability to Unknown Claimants under the Plan, which does not include liability under state successor law. Appellees' Brief at 27.
Based on a review of the Agreement, the Liability Ruling, and the Fifth Circuit's decision in Matter of National Gypsum Company, 219 F.3d 478 (5th Cir. 2000), cert. denied, 532 U.S. 1075 (2001), the court concludes that the bankruptcy court did not err in granting summary judgment for the defendants. The language of the Agreement is unambiguous. The Agreement expressly ties the potential liability of New-NGC for unknown claims to the bankruptcy court's prior Liability Ruling. That ruling only concerned New-NGC's liability to Unknown Claimants under the Plan, independent of New-NGC's potential liability under state successor liability law. On appeal of that decision, the Fifth Circuit stated that the issue before it was whether New-NGC was liable "under the Plan." See Matter of National Gypsum Company, 219 F.3d at 479 ("[The Trust parties] filed this declaratory judgment action in bankruptcy court, seeking a determination that, under the Plan, New-NGC was liable for any unknown asbestos disease claims. . . . Following an adversary hearing, the bankruptcy court delivered a bench ruling in which it concluded that under the Plan, New-NGC was liable for Unknown Claims the Trust could not satisfy.") (emphasis added). The Fifth Circuit held that, while New-NGC could have liability to Unknown Claimants under state successor law, it did not have potential liability under the Plan. Id. ("Concluding that the Confirmation Order and other plan documents do not transfer liability for these Unknown Claims from Old-NGC to New-NGC, we reverse and remand."). Consequently, the bankruptcy court was correct in ruling that the reimbursement obligation under the Agreement was triggered by the Fifth Circuit's decision because the Fifth Circuit held that, at most, New-NGC had potential liability to Unknown Claimants under state successor liability law, not under the Plan.
In light of this ruling that the Agreement is unambiguous, the court will not consider the extrinsic evidence offered by CCR regarding its interpretation of the Agreement. See Appellant's Brief at 27-43; Appellant's Reply Brief at 6-23.
III. CONCLUSION
For the foregoing reasons, the judgment of the bankruptcy court is AFFIRMED.SO ORDERED.