In Re G-I Holdings, Inc.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______
Nos. 13-3335 and 13-3336
______
IN RE: G-I HOLDINGS, INC.,
formerly known as GAF Corporation,
Debtor
UNITED STATES GYPSUM COMPANY,
Appellant No. 13-3335
QUIGLEY COMPANY, INC.,
Appellant No. 13-3336
______
On Appeal from United States District Court
for the District of New Jersey
(D. N.J. No. 2-12-cv-6933)
District Judge: Dennis M. Cavanaugh
______
Argued April 8, 2014
Before: FISHER and SCIRICA, Circuit Judges, and
MARIANI,* District Judge.
(Filed: June 17, 2014)
Rachel S. Bloomekatz, Esq. ARGUED
Jones Day
Suite 600
325 John H. McConnell Boulevard
Suite 600, P.O. Box 165017
Columbus, OH 43215
Brad B. Erens, Esq.
Brian J. Murray, Esq.
Jones Day
77 West Wacker Drive
Suite 3500
Chicago, IL 60601
Counsel for Appellant United States Gypsum Co.
John P. DiIorio, Esq.
Shapiro Croland
411 Hackensack Avenue
Hackensack, NJ 07601
*
The Honorable Robert D. Mariani, District Judge for
the United States District Court for the Middle District of
Pennsylvania, sitting by designation.
2
Stephen D. Hoffman, I, Esq. ARGUED
Wilk Auslander
1515 Broadway
43rd Floor
New York, NY 10036
Counsel for Appellant Quigley Co. Inc.
Mark E. Hall, Esq.
Dennis J. O'Grady, Esq.
Riker, Danzig, Scherer, Hyland & Perretti
One Speedwell Avenue
Headquarters Plaza
Morristown, NJ 07962-0000
Andrew J. Rossman, Esq. ARGUED
Scott C. Shelley, Esq.
Jacob J. Waldman, Esq.
Quinn, Emanuel, Urquhart & Sullivan
51 Madison Avenue
22nd Floor
New York, NY 10010
Counsel for Appellees
______
OPINION OF THE COURT
______
3
FISHER, Circuit Judge.
Due to the rising number of asbestos-related personal
injury lawsuits filed in the 1980s, a group of producers of
asbestos and asbestos-containing products (“Members” or
“Participating Producers”) joined together and formed the
Center for Claims Resolution (the “Center”) to administer
asbestos personal injury claims on behalf of the Members.
The Members negotiated and signed the Producer Agreement
Concerning Center for Claims Resolution (the “Producer
Agreement”), which established and set forth the mechanics
of the Center and the obligations of the Members. Appellants
United States Gypsum Company (“U.S. Gypsum”) and
Quigley Company, Inc. (“Quigley”) and the predecessor-in-
interest of Appellee G-I Holdings, Inc. (“G-I”) were among
the roughly twenty asbestos producers who signed the
Producer Agreement, thereby becoming Members of the
Center.
After G-I failed to pay its contractually-calculated
share due to pay out personal injury settlements and cover
Center expenses, U.S. Gypsum and Quigley were obligated to
pay additional sums to cover G-I’s payment obligations. G-I
filed for bankruptcy and the Center, U.S. Gypsum, and
Quigley each filed a proof of claim in the Bankruptcy Court
seeking to recover for G-I’s nonpayment under the Producer
Agreement. The Center eventually settled its claim with G-I.
Although arising in the context of a bankruptcy
proceeding, this case concerns claims for breach of contract
under Delaware law. We are asked to decide whether, under
the Producer Agreement, U.S. Gypsum and Quigley
(together, the “Former Members”) may maintain a breach of
contract action against G-I. We hold that the Producer
Agreement permits the Former Members to pursue a breach
of contract action against G-I for its failure to pay
4
contractually-obligated sums due to the Center, in light of the
Former Members’ payment of G-I’s share. We therefore
vacate the District Court’s order affirming the Bankruptcy
Court’s grant of summary judgment in G-I’s favor.
I.
A.
Facing a growing number of asbestos-related personal
injury lawsuits, a group of producers of asbestos and
asbestos-containing products joined together to form the
Center in order to more effectively defend against and resolve
the lawsuits. The Center was incorporated as a non-profit,
non-stock Delaware corporation in September 1988 to
“administer and arrange for the evaluation, settlement,
payment, and defense of asbestos-related bodily injury
claims.” (A-684).
The Producer Agreement sets forth the Members’
purposes in entering the agreement and establishing the
Center. The Members stated that they “believe it is important
to establish an organization that will, on behalf of all
Participating Producers, resolve meritorious asbestos-related
claims in a fair and expeditious manner and, where necessary,
defend asbestos-related claims efficiently and economically.”
(A-715). They also sought to “enter into a constructive
relationship with one another and to resolve any cross or
counter claims that they may have against each other.” (Id.).
The Center was governed by a five-person Board of
Directors. A producer became a Member of the Center by
signing the Producer Agreement, and membership could be
terminated by a Member’s written notice, by a Member’s
bankruptcy, or by resolution of the Board of Directors.
However, even after termination of membership, the former
Member would “continue to have and to honor all of the
obligations incurred by it [under the Producer Agreement] or
5
on its behalf as a member prior to the effective date of its
membership termination.” (A-720).
The Producer Agreement designates the Center as each
Member’s “sole agent to
administer and arrange on its behalf for the evaluation,
settlement, payment or defense of all asbestos-related claims
against such Participating Producer.” (A-721). The Producer
Agreement defines “asbestos-related claims” as “claims or
lawsuits against any Participating Producers or the Center . . .
seeking monetary relief . . . for bodily injury, sickness,
disease or death, alleged to have been caused in whole or in
part by any asbestos or asbestos-containing product.” (A-
716). After settling or otherwise resolving claims on behalf
of the Members, the Center would bill and collect each
Member’s allocated share of liability payments and expenses
based upon a formula set forth in an attachment to the
Producer Agreement.
If a Member failed to pay its share of liability
payments or expenses in a timely manner, the Producer
Agreement provides that “the Center’s Board of Directors
may direct the Center to institute an ADR on behalf of the
Center’s Participating Producers against such Participating
Producer to enforce payment of such obligations.” (A-731-
32). With respect to claims between Members, the Producer
Agreement provides that “[s]o long as it is a member of the
Center each Participating Producer shall forego with respect
to asbestos-related claims for contribution or indemnity (other
than for contribution or indemnity assumed under written
agreement) against all other Participating Producers that are
members of the Center.” (A-730-31).
Finally, the Producer Agreement sets forth that it is
“not intended to confer any rights or benefits upon any other
persons” aside from Members, the Center, and some of the
6
Members’ insurers. (A-727). Other than the Center, a
signatory Member, or a Member’s insurer, “[n]o person . . .
shall have any legally enforceable rights under the
Agreement.” (Id.). “All rights of action for any breach of
this Agreement by any signatory hereto are hereby reserved to
the Center, Participating Producers and to Supporting Insurers
that are paying unallocated expenses incurred by the Center.”
(Id.).
G-I is the successor-in-interest to GAF Corporation,
which was named in a large number of asbestos-related
lawsuits. G-I’s membership in the Center was terminated by
the Center’s Board of Directors after the Board determined
that G-I had breached the Producer Agreement by failing to
pay its share of settlements and expenses. G-I’s termination
was effective January 17, 2000. Shortly after the termination
of G-I’s membership, the Center notified G-I that it owed the
Center almost $300 million and commenced an ADR for
payment. The ADR was stayed once G-I filed for bankruptcy
in January of 2001. The Center sought additional payments
from the remaining Members to satisfy G-I’s share of
settlements and expenses.
U.S. Gypsum and Quigley were Members of the
Center at the same time as G-I. On February 1, 2001, Quigley
withdrew from the Center, thereby terminating its
membership. On June 25, 2001, U.S. Gypsum filed for
Chapter 11 bankruptcy, which terminated its membership.
U.S. Gypsum and Quigley assert that they made payments to
the Center to cover the shortfall caused by G-I’s failure to
pay.
B.
G-I filed for Chapter 11 bankruptcy on January 5,
2001. The Bankruptcy Court fixed October 15, 2008 as the
date by which all proofs of claim against any interest in the
7
debtor had to be filed. On October 9, 2008, the Center filed a
proof of claim alleging that G-I was liable to the Center for a
total of $254.7 million due to its breach of the Producer
Agreement.1 The Center alleged that it paid out $29.5 million
to asbestos claimants on G-I’s behalf before it stopped paying
out G-I’s share of the settlements to asbestos claimants. It
also asserted that G-I owed it $2.6 million for G-I’s share of
the Center’s expenses. Finally, the Center claimed damages
for settlement agreements that asbestos claimants had voided
after G-I’s membership terminated. Although the Center had
not paid out any of these settlements, it claimed that G-I owed
it $222.6 million as damages for the settlements that would
not have been voided but for G-I’s breach. In its proof of
claim, the Center did not state whether it had sought
reimbursement from the remaining Members of the Center for
the $29.5 million it paid on G-I’s behalf.
Both of the Former Members filed a separate proof of
claim seeking to recover sums paid to the Center to cover G-
1
The amount of the Center’s claim as of the date of G-
I’s bankruptcy filing differs from the amount of the claim as
of the date of filing the proof of claim. See A-775 (“As of
January 6, 2001 (the “Petition Date”), the [Center] had a
claim against G-I Holdings, Inc. (the “Debtor”) in the
aggregate principal amount of $299,510,764 plus interest and
attorneys’ fees. As of the date of the filing of this Proof of
Claim, the [Center] has a claim against the Debtor in the
aggregate principal amount of $254,705,373 plus interest,
fees, and expenses.”). The Center had sought the $299.5
million figure from G-I shortly after its membership
terminated. We use the $254.7 million figure because that is
the amount stated as presently owed in the proof of claim that
G-I and the Center eventually settled.
8
I’s obligations. U.S. Gypsum filed its proof of claim on
October 15, 2008, asserting a breach of contract claim. U.S.
Gypsum maintained that in November 2000, the Center
sought reimbursement from the remaining Members of the
Center, including U.S. Gypsum, for the Center’s payment of
$30 million to asbestos claimants on G-I’s behalf. U.S.
Gypsum paid roughly $6.3 million to the Center to reimburse
the Center for the payments made on G-I’s behalf. Quigley
filed a proof of claim on October 13, 2008 seeking
unliquidated damages for G-I’s breach of the Producer
Agreement. G-I filed objections to the proofs of claim.
The Center and G-I settled the Center’s claim against
G-I seeking $254.7 million for a cash payment of $9.9
million. On September 4, 2009, G-I moved for approval of
the Settlement Agreement in the Bankruptcy Court. The
Former Members objected to the settlement and sought
clarification that the Settlement Agreement would not affect
or release their claims against G-I. The Bankruptcy Court
added language to the Order approving the Settlement
Agreement, which was entered on September 24, 2009,
providing that the Settlement Agreement was “binding on all
entities asserting claims against G-I that derive from [the
Center] or depend upon [the Center’s] rights.” (A-476).
However, “[f]or the avoidance of doubt, nothing in this Order
or the [] Settlement Agreement shall release, prejudice,
compromise or otherwise affect the claims, if any, that
Former Members . . . have or may have against the G-I Plan
Parties . . . .” (Id.).
The District Court and Bankruptcy Court approved G-
I’s Eighth Amended Joint Plan of Reorganization on
November 12, 2009. In the Eighth Amended Plan, G-I
maintained that the Former Members’ claims were derivative
of the Center’s settled claim, and should therefore be
9
considered settled. But the Plan set forth that to the extent
that the Former Members’ claims would be allowed, they
would receive cash equal to 8.6% of the allowed claim
amount.
G-I filed for summary judgment on the Former
Members’ claims on July 15, 2010. After briefing, the
Bankruptcy Court issued an opinion on August 13, 2012
granting the motion for summary judgment in G-I’s favor.
The Bankruptcy Court concluded that the Center was
authorized to resolve G-I’s breach by nonpayment, and the
Producer Agreement barred the Former Members from
pursuing claims, including for breach of contract, against G-I.
The Bankruptcy Court also determined that the Former
Members’ claims were derivative of the Center’s claim,
which provided an additional reason that Former Members
could not maintain their claims against G-I.
U.S. Gypsum and Quigley appealed to the District
Court, which affirmed the Bankruptcy Court’s decision on
June 26, 2013. The District Court agreed with the
Bankruptcy Court that the Former Members were
contractually barred from pursuing an independent breach of
contract action against G-I, reasoning that the Producer
Agreement sought to avoid all litigation between Members.
The District Court explained that, when read in the context of
Section X’s title (“Third-Party Rights”) and the rest of the
Producer Agreement, language reserving rights of action for
breach to the Members did not create a right to bring breach
of contract claims. It also concluded that the section
permitting the Center to bring an ADR for a Member’s failure
to pay did not “leav[e] open the option for independent
members to bypass the sole authority of the [Center] to
remedy [the breach] on their own.” (A-7). The District Court
did not reach the issue of whether the Former Members’
10
claims were direct or derivative. U.S. Gypsum and Quigley
both filed a timely notice of appeal.
II.
The Bankruptcy Court had jurisdiction over this core
matter in G-I’s bankruptcy proceeding pursuant to 28 U.S.C.
§ 1334(b) and 28 U.S.C. § 157. The Former Members timely
appealed the Bankruptcy Court’s final order to the District
Court, which exercised its jurisdiction under 28 U.S.C.
§ 158(a)(1) and Bankruptcy Rule 8001(a). We have
jurisdiction to review the District Court’s final order under 28
U.S.C. § 158(d)(1) and 28 U.S.C. § 1291.
“We review a district court’s grant of summary
judgment de novo, applying the same standard the district
court applied.” Viera v. Life Ins. Co. of N. Am., 642 F.3d 407,
413 (3d Cir. 2011). “We also review the legal interpretation
of contractual language de novo.” Id.
Summary judgment is proper “if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). “An issue is genuine only if there is a sufficient
evidentiary basis on which a reasonable jury could find for
the non-moving party, and a factual dispute is material only if
it might affect the outcome of the suit under governing law.”
Kaucher v. Cnty. of Bucks, 455 F.3d 418, 423 (3d Cir. 2006)
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). In conducting our review, we view the record in the
light most favorable to the non-moving party and draw all
reasonable inferences in that party’s favor. Bowers v. Nat’l
Collegiate Athletic Ass’n, 475 F.3d 524, 535 (3d Cir. 2007).
A motion for summary judgment is properly denied if “a fair-
minded jury could return a verdict for the plaintiff on the
evidence presented.” Anderson, 477 U.S. at 252.
III.
11
The Former Members argue that the District Court
erred in holding that the Producer Agreement bars them from
pursuing a breach of contract claim against G-I. They also
urge us not to adopt the Bankruptcy Court’s conclusions that
the Former Members’ claims are derivative of the Center’s
claim and that allowing Former Members’ claims would lead
to a double recovery. We will address each issue in turn.
A.
In determining whether the Former Members may
maintain a breach of contract action against G-I under the
Producer Agreement, we must heed the guidance of the
Delaware courts2 and “give priority to the parties’ intentions
as reflected in the four corners of the agreement.” GMG
Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36
A.3d 776, 779 (Del. 2012). “In upholding the intentions of
the parties, a court must construe the agreement as a whole,
giving effect to all provisions therein.” E.I. du Pont de
Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113
(Del. 1985). A court should interpret the contract “in such a
way as to not render any of its provisions illusory or
meaningless.” Sonitrol Holding Co. v. Marceau
Investissements, 607 A.2d 1177, 1183 (Del. 1992). “[C]lear
and unambiguous terms” in a contract are interpreted
according to their ordinary meaning. GMG Capital Invs., 36
A.3d at 780. However, “the meaning which arises from a
particular portion of an agreement cannot control the meaning
of the entire agreement where such inference runs counter to
the agreement’s overall scheme or plan.” E.I. du Pont de
Nemours, 498 A.2d at 1113.
2
The parties agree that the law of the state of
Delaware governs the Producer Agreement.
12
We also must keep in mind the elements that a plaintiff
must prove for breach of contract. For a successful breach of
contract claim, a party must prove: “1) a contractual
obligation; 2) a breach of that obligation by the defendant;
and 3) a resulting damage to the plaintiff.” H-M Wexford
LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003).
With these principles in mind, we turn to the terms of
the Producer Agreement. We will first address the language
that is most relevant to Former Members’ ability to sue G-I
for its breach by nonpayment, which is found in Section X.
We will then address whether allowing Former Members to
bring a breach of contract action under Section X is consistent
with the purpose of the Producer Agreement and with its
other provisions and overall scheme.
The third sentence of Section X provides: “All rights
of action for any breach of this Agreement by any signatory
hereto are hereby reserved to the Center, Participating
Producers and to Supporting Insurers . . . .” (A-727). G-I and
Former Members were signatories to the Agreement and
Participating Producers at the time of G-I’s alleged breach.
For the purposes of this appeal, we will assume that G-I did
breach the Producer Agreement by failing to make required
payments.3 If this case involved only G-I’s nonpayment of its
3
The District Court ruled on summary judgment that
the Agreement barred Former Members from bringing a
breach of contract action against G-I as a matter of law. It did
not reach the merits of the breach of contract claim – i.e.
whether G-I failed to make required payments and thereby
breached the Producer Agreement. G-I disputes the breach;
however, as Former Members are the non-moving parties, we
will construe the facts in their favor and assume G-I’s breach
through nonpayment.
13
obligations to the Center, the Former Members would be
unable to maintain a breach of contract action against G-I
because they would not yet have suffered damages. But once
the Former Members were required to make additional
payments to cover the shortfall caused by G-I’s nonpayment,
they suffered damages and accrued a cause of action for
breach of contract. Section X reserves the right of the Former
Members – Participating Producers at the time of G-I’s
breach – to maintain an action for breach of the Producer
Agreement against G-I – a signatory.
Section X makes explicit a basic contract law
principle. “It is axiomatic that either party to an agreement
may enforce its terms for breach thereof.” Triple C Railcar
Serv., Inc. v. City of Wilmington, 630 A.2d 629, 633 (Del.
1993) (citing Richard A. Lord, Williston on Contracts, § 1:1
(4th ed. 1990)). Section X expands the universe of entities
that may bring a breach of contract action under the Producer
Agreement beyond the Members (who were the only
signatories to the Producer Agreement) to include the Center
and some of the Members’ insurers. It was not necessary for
the Producer Agreement to acknowledge the Members’
ability to sue for breach because such an ability is inherent in
contract law. But because the Producer Agreement does
clearly provide for such a suit, we should not lightly overlook
Section X as it is the most relevant provision to the issue at
hand.
G-I argues – and both the Bankruptcy and District
Courts agreed – that this language merely limits third party
rights under the Producer Agreement. Section X is titled
“Third-Party Rights.” But we will not discount the plain
language of the third sentence of that section merely because
of the title. A court “may examine the [contract] heading ‘as
additional evidence tending to support the contract’s
14
substantive provisions.’” Fulkerson v. MHC Operating Ltd.,
01C-07-020, 2002 WL 32067510, at *5 (Del Super. Ct. Sept.
24, 2002) (emphasis added) (quoting Cantor Fitzgerald, L.P.
v. Cantor, 724 A.2d 571, 582 n.35 (Del. Ch. 1998)). The title
of a section cannot contradict or rewrite the plain language of
the contractual provisions within that section. “Contract
headings do not constitute controlling evidence of a contract’s
substantive meaning.” Id.
G-I also relies upon the other provisions in Section X
to write off the third sentence. The first two sentences of
Section X make it clear that the Producer Agreement does not
confer rights or benefits upon third parties, and that the only
entities with legally enforceable rights under the Agreement
are the Center, signatories to the Producer Agreement, and
certain insurers. G-I would read the third sentence to merely
reiterate what the first two already make express – that
unnamed parties are prevented from enforcing the contract. 4
But this reading would drain the third sentence of meaning
and would “render a provision or term” – i.e., the language
reserving rights of action for breach of contract –
“meaningless or illusory.” Osborn ex rel. Osborn v. Kemp,
991 A.2d 1153, 1159 (Del. 2010) (internal quotation marks
4
G-I also takes a different tack by arguing that even if
the third sentence can be read as allowing Participating
Producers to bring breach of contract actions, it need not be
read to allow actions for nonpayment, and instead should be
read as reserving the right to remedy breaches other than for
nonpayment. But this runs counter to the plain language of
the provision, which specifically reserves “all” rights to bring
actions for “any” breach of the Agreement. (A-727). These
words imply that actions for breach due to nonpayment are
included.
15
omitted). This would violate the rule of contract
interpretation that we must “give each provision and term
effect, so as not to render any part of the contract mere
surplusage.” Id. (internal quotation marks omitted) (quoting
Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d
393, 396-97 (Del. 2010)). We therefore decline G-I’s
invitation to read the third sentence of Section X as a
reiteration of or further clarification on the preclusion of third
party rights under the Producer Agreement. Unless the
language of Section X regarding breach of contract actions is
irreconcilably inconsistent with the Producer Agreement’s
purpose, other provisions, or overall contractual scheme, we
should give effect to the “clear and unambiguous” language
reserving the Former Members’ right to bring a breach of
contract action against G-I. GMG Capital Invs., 36 A.3d at
780.
We believe that the plain language of Section X is
perfectly consistent with the overall purpose of the Producer
Agreement. We consider the purpose of the Producer
Agreement because we must “give priority to the parties’
intentions,” id. at 779, and because we do not allow the
meaning of a particular provision in an agreement to control
the meaning of the agreement as a whole where that meaning
“runs counter to the agreement’s overall scheme or plan.”
E.I. du Pont de Nemours, 498 A.2d at 1113.
The introductory statements to the Producer
Agreement set forth its purposes. One statement provides
that the Members “desire to enter into a constructive
relationship with one another and to resolve any cross or
counter claims that they may have against each other.” (A-
715). The courts below relied in part upon this statement in
concluding that the purpose of the Producer Agreement was
to prevent “internecine” litigation – i.e. all litigation
16
occurring between Members. (A-5, A-51). This goes too far
and assumes intent to avoid a lawsuit such as this one where
no such intent was expressed. The Producer Agreement
states that the Members sought to resolve cross and
counterclaims that they might have against one another.
Cross and counterclaims refer to claims that Members could
have against one another in the thousands of asbestos-related
personal injury lawsuits that were the main concern of the
Producer Agreement. The words crossclaim and
counterclaim presume the existence of an underlying claim
already being litigated. See Black’s Law Dict. 433 (9th ed.
2009) (defining crossclaim as “[a] claim asserted between
codefendants or coplaintiffs in a case and that relates to the
subject of the original claim or counterclaim”); Black’s Law
Dict. 402 (9th ed. 2009) (defining counterclaim as “[a] claim
for relief asserted against an opposing party after an original
claim has been made”). If the Members sought to avoid all
litigation – as the courts below concluded – they could have
drafted the Producer Agreement to provide that they sought to
resolve any claims that they might have against each other,
instead of any cross or counterclaims. “[C]ourts should be
most chary about implying a contractual protection when the
contract could easily have been drafted to expressly provide
for it.” Allied Capital Corp. v. GC-Sun Holdings, L.P., 910
A.2d 1020, 1035 (Del. Ch. 2006).
Unlike the courts below, we cannot say that allowing
Former Members to pursue a breach of contract action against
G-I for its nonpayment is inconsistent with the overall
purpose of the Producer Agreement. The Producer
Agreement sought to avoid litigation over the allocation of
liability in the thousands of asbestos-related personal injury
suits that inspired the creation of the Center in the first place.
The desire to resolve these cross and counterclaims says
17
nothing about the type of claim here – a claim among
Members for breach of contract, unrelated to any individual
asbestos-related claim. The expansive reading of purpose
endorsed by the courts below – preventing internecine
litigation – colored their analysis of the entire Producer
Agreement, leading them to conclude that the Former
Members’ suit against G-I was barred. We will not adopt
such a broad interpretation and instead conclude that the
Former Members’ right to bring a breach of contract action is
consistent with the purpose of the Producer Agreement.
We turn now to consider whether allowing the Former
Members to sue G-I for its breach under Section X is
consistent with the other provisions of the Producer
Agreement. “In upholding the intentions of the parties, a
court must construe the agreement as a whole, giving effect to
all provisions therein.” E.I. du Pont de Nemours, 498 A.2d at
1113. If a meaning that arises from one portion of the
agreement conflicts with the agreement’s “overall scheme or
plan,” it cannot control. Id. In interpreting the entire
agreement, “[s]pecific language in a contract controls over
general language, and where specific and general provisions
conflict, the specific provision ordinarily qualifies the
meaning of the general one.” DCV Holdings, Inc. v.
ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005). Section X is a
general provision, broadly setting forth the right to bring a
breach of contract action. If this provision conflicts with a
more specific provision elsewhere in the Producer Agreement
or with its overall scheme or plan, we should not allow
Section X to control.
We turn first to Section IV’s designation of the Center
as the Members’ “sole agent.” By signing the agreement,
“each Participating Producer hereby designates the Center as
its sole agent to administer and arrange on its behalf for the
18
evaluation, settlement, payment or defense of all asbestos-
related claims against such Participating Producer.” (A-720-
21). This provision does not conflict with Former Members’
ability to bring a breach of contract claim against G-I,
because the Center’s role as “sole agent” applies only to
“asbestos-related claims.” “Asbestos-related claims” are
specifically defined in the Producer Agreement as lawsuits
against Participating Producers or the Center “seeking
monetary relief . . . for bodily injury, sickness, disease or
death, alleged to have been caused in whole or in part by any
asbestos or asbestos-containing product.” (A-716). The
Former Members’ claims are breach of contract claims made
by one party to an agreement against another party seeking
remuneration for the breaching party’s failure to pay its
contractually-allocated share of payments to settle asbestos-
related claims. Their claims are not themselves “asbestos-
related claims.” Allowing the Former Members to sue G-I for
its nonpayment does not interfere with the Center’s role as
“sole agent” for the purposes of administering and settling
these asbestos personal injury claims.
Next we turn to the first paragraph of Section XIV
(“Section XIV.1”), which provides that during its
membership, “each Participating Producer shall forego with
respect to asbestos-related claims for contribution or
indemnity (other than for contribution or indemnity assumed
under written agreement) against all other Participating
Producers that are members of the Center.” (A-730-31).
Like the “sole agent” provision in Section IV discussed
above, because Section XIV.1 qualifies its application to
“asbestos-related claims” only, it does not conflict with
Section X. In limiting suits for contribution and indemnity in
asbestos personal injury lawsuits, this provision implements
the Producer Agreement’s stated purpose of resolving cross
19
and counterclaims among the Members. Asbestos-related
claims for contribution or indemnity seek to reapportion
damages based upon each tortfeasor’s proportionate share of
liability in the underlying personal injury lawsuits. See e.g.,
Black’s Law Dict. 378 (9th ed. 2009) (defining contribution
as “[o]ne tortfeasor’s right to collect from joint tortfeasors
when – and to the extent that – the tortfeasor has paid more
than his or her proportionate share to the injured party, the
shares being determined as percentages of causal fault”). The
Former Members’ breach of contract actions seek to recover a
set amount of money that they paid to cover G-I’s obligation
as calculated under a contractual formula. These claims are
not based upon G-I’s share of the “fault” in the asbestos
personal injury actions; rather, they are based upon the
Producer Agreement. We cannot read Section XIV.1, which
limits suits for contribution and indemnity for asbestos-
related claims, as being in conflict with the Former Members’
ability to bring suit for breach of the Producer Agreement
under Section X.
Finally, we turn to the fourth paragraph of Section
XIV (“Section XIV.4”), which addresses a Member’s
nonpayment. This section provides: “In the event that any
Participating Producer’s percentage shares of liability
payments or allocated expenses are not paid in a timely
manner, the Center’s Board of Directors may direct the
Center to institute an ADR on behalf of the Center’s
Participating Producers against such Participating Producer to
enforce payment of such obligations.” (A-731-32). Allowing
Former Members to maintain their breach of contract actions
against G-I does not conflict with this provision for several
reasons. Most notably, Section XIV.4 provides that in the
event of nonpayment, the Center’s Board may direct the
Center to institute an ADR. This language is permissive, not
20
mandatory or exclusive. Language in Section IV clearly
articulates the Center’s “exclusive authority” and role as the
Members’ “sole agent” in administering asbestos-related
claims brought against Members. The drafting parties
therefore knew how to draft a provision giving the Center
“sole” or “exclusive” authority. In concluding that the Center
had the exclusive right to bring an action for G-I’s
nonpayment, the courts below changed “may” into
“exclusively has the authority to.” We will not read
“exclusive authority” into the contract “when the contract
could easily have been drafted to expressly provide for it.”
Allied Capital Corp., 910 A.2d at 1035.
Consideration of the third element of a breach of
contract claim – damages – is the key to understanding why
the Former Members’ right to pursue a breach of contract
action is consistent with Section XIV.4. The Former
Members suffered damages once they were required to make
additional payments to cover the shortfall caused by G-I’s
breach. Before the Former Members were required to cover
the shortfall, the harm G-I caused fell upon the Center, as the
Center was unable to collect payments and therefore fulfill its
settlement obligations to asbestos plaintiffs. In such a
situation, the Center would rely upon Section XIV.4 to
enforce the nonpaying Member’s obligations. But once the
other Members paid G-I’s share, the harm to the Center was
remedied – the Center fulfilled its obligations to asbestos
plaintiffs – and became a harm to the Members who paid
more than their share due under the Producer Agreement.
Sections X and XIV.4 are particularly consistent with one
another when viewed in light of the timing considerations
outlined above. Section XIV.4 allows the Center to “enforce
payment” before the Center has required others to cover the
breaching signatory’s share, when the Center is responsible
21
for the money due to asbestos plaintiffs. Section X allows
Members to bring a breach of contract action after the Center
has required them to cover and pay the breaching signatory’s
share, when the Center has fulfilled its obligations to asbestos
plaintiffs and the damage caused by the breach has shifted
onto those Members.5
5
If the Center were to bring and carry through to
judgment an ADR on behalf of all Members harmed by one
Member’s breach, it is possible that Section XIV.4 would
foreclose those Members’ ability to sue under Section X even
if the non-breaching Members had covered and paid the
breaching Member’s share. Under these circumstances, the
Center would have recovered on behalf of all Members who
covered and paid, and their right to recovery would be
foreclosed as their injury would have been remedied by the
Center, acting on their behalf. Since the Center would have
obtained this recovery, perhaps adjustments would be made to
these Members’ future obligations to the Center.
But that is not what happened here. While the Center
did institute an ADR in 2000, that ADR was stayed after G-I
declared bankruptcy. Ultimately, the Center resolved its own
claims and claims on behalf of present members of the Center
in 2009 through a settlement approved by the Bankruptcy
Court. As further discussed below, this settlement did not
include Former Members’ claims – it explicitly stated that the
settlement covered only the Center’s claims and the claims of
eight listed “Members,” not including U.S. Gypsum or
Quigley. Therefore, the Center’s ADR right under Section
XIV.4 and the Former Members’ right to bring a breach of
contract action under Section X do not conflict under the
events that have transpired here.
22
We therefore conclude that the Former Members’ right
to bring a breach of contract action for G-I’s nonpayment
under Section X does not conflict with “the agreement’s
overall scheme or plan.” E.I. du Pont de Nemours, 498 A.2d
at 1113. Indeed, reading the Producer Agreement to allow
such an action when one Member pays another Member’s
share is the only way to give all of its provisions meaning.
The way that the courts below read the Producer Agreement
renders meaningless the third sentence in Section X, writes
out the qualifying phrase “with respect to asbestos-related
claims” in Section XIV.1, and turns “may” into “exclusively
has the authority to” in Section XIV.4. We eschew their
reading in favor of one that “gives effect to every term of the
instrument.” Council of Dorset Condo. Apartments v.
Gordon, 801 A.2d 1, 7 (Del. 2002). We will therefore vacate
the District Court’s order affirming the Bankruptcy Court’s
order granting summary judgment to G-I, as the Producer
Agreement allows Former Members to pursue a breach of
contract action against G-I.
B.
We will briefly address the argument that the Former
Members cannot pursue their breach of contract action
against G-I because their claims are not direct claims, but are
instead derivative of the Center’s claim. The District Court
did not reach this argument, but the Bankruptcy Court did,
holding in the alternative that even if the Producer Agreement
did not prevent the Former Members’ claims, they were
barred due to their derivative nature.
Generally, if a cause of action belongs to a
corporation, only the corporation may bring that action.
Under some circumstances, a shareholder may bring a
“derivative” claim on behalf of a corporation for harm done
to the corporation with recovery going to the corporation.
23
Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d 1031, 1036
(Del. 2004). When a shareholder is injured in a way that
affects his or her legal rights as a shareholder, however, the
shareholder retains the right to bring a “direct” claim, with
recovery going directly to shareholders. Id. The Supreme
Court of Delaware has set forth a standard – the Tooley
standard – to use in determining whether a shareholder’s
claim is direct or derivative. The inquiry “turn[s] solely on
the following questions: (1) who suffered the alleged harm
(the corporation or the suing stockholders, individually); and
(2) who would receive the benefit of any recovery or other
remedy (the corporation or the stockholders, individually)?”
Id. at 1033.
We can see no reason why the direct/derivative inquiry
should apply in this situation. Under the case law, the
distinction applies to claims brought by shareholders in a
corporation. See id. (“We set forth in this Opinion the law to
be applied henceforth in determining whether a stockholder’s
claim is derivative or direct.”). G-I and the Former Members
were not shareholders or investors in the Center, which, as a
non-profit, non-stock corporation, has no shareholders. G-I
has not brought to light any cases bearing any similarity to the
situation here. Cases applying the distinction elsewhere in
corporate and partnership law – such as to limited
partnerships and LLCs – are inapplicable, as the Center’s
structure and relationship with its Members is not similar to
those corporate forms. See, e.g., Metro. Life Ins. Co. v.
Tremont Grp. Holdings, Inc., No. 7092, 2012 WL 6632681,
at *9 (Del. Ch. Dec. 20, 2012) (holding that claims brought
by partners and investors in a limited partnership were
derivative where the injury was suffered by the limited
partnership); Matthew v. Laudamiel, No. 5957, 2012 WL
605589, at *21 (Del. Ch. Feb. 21, 2012) (holding that claims
24
brought by LLC members were still derivative even after the
dissolution of the LLC).
The Former Members and G-I are in contractual
privity with one another but not with the Center via the
Producer Agreement. It seems illogical to inquire whether
one contract signatory’s breach of contract claim against
another signatory is derivative of a non-signatory’s claim.
While the Center was granted rights under the Producer
Agreement, this does not make the Former Members’ claims
derivative. Once the Former Members were required to make
additional payments to cover the shortfall in amounts due to
asbestos plaintiffs caused by G-I’s nonpayment, the Former
Members suffered damages and had a straightforward breach
of contract claim.
Even if we were to consider whether the Former
Members’ claims are derivative or direct under the Tooley
rubric, it is clear that their claims are direct. As to the first
question, the Former Members, not the Center, suffered the
harm caused by G-I’s breach. The Former Members, and any
other Members who were required to pay additional amounts
to cover for G-I’s nonpayment, suffered a harm when they
paid amounts beyond what was contractually required. The
Center, on the other hand, suffered no harm once it required
the other Members to cover for G-I’s nonpayment and made
the payments due to asbestos plaintiffs. As to the second
question, the Former Members would receive the benefit of
any recovery in the breach of contract action between two
signatories to the contract. The Bankruptcy Court erred in
concluding that the Former Members’ claims are derivative of
the Center’s claim, and we conclude that this issue does not
present a barrier to the Former Members’ actions for breach
of contract against G-I.
C.
25
The Bankruptcy Court further concluded that
permitting the Former Members to recover on claims that the
Center had already asserted and resolved under the Settlement
Agreement would allow “an impermissible double recovery”
against G-I. (A-70). The District Court declined to reach this
issue. G-I asserts that it “understood the [Center’s]
Settlement Agreement to govern all [Center]-related claims,
and the payment amount was the exclusive source of recovery
for such claims.” (G-I Br., at 39). But such a belief is in
direct conflict with the explicit terms of both the Order and
the Settlement Agreement. We reject G-I’s argument and the
Bankruptcy Court’s conclusion for several reasons.
The Order approving the Settlement Agreement
between the Center and G-I provided: “For the avoidance of
doubt, nothing in this Order or the [Center’s] Settlement
Agreement shall release, prejudice, compromise or otherwise
affect the claims, if any, that Former Members . . . have or
may have against the G-I Plan Parties.” (A-476). This
language clearly reserves the Former Members’ right to bring
a breach of contract action and suggests that the Settlement
Agreement did not cover the Former Members’ claims.
Indeed, the terms of the Settlement Agreement itself
show that the Former Members’ claims were not a part of the
Center’s settlement recovery. The Settlement Agreement
provides that the settlement payment that G-I pays to the
Center represents “G-I’s entire liability to the [Center] for its
share of liability payments and allocated expenses under the
terms of the Producer Agreement and Attachment A thereto.”
(A-428) (emphasis added). The Settlement Agreement states
that upon the Center’s receipt of the settlement payment, the
Center and “the Members” release all claims and causes of
action that they had or may have against G-I, including claims
for any alleged breach of the Producer Agreement. (A-430).
26
The Settlement Agreement defines “Members” as “the
present members of [the Center],” listing eight companies
specifically. (A-423). The Former Members are not included
in the eight companies listed as “Members” under the
Settlement Agreement, nor were they “present members of
[the Center]” on the date of the Settlement Agreement.
The Center had its own claim for damages based upon
the settlement agreements worth $222 million that were
voided due to G-I’s breach. And the Former Members were
not the only Members of the Center required to pay additional
sums to cover G-I’s share of asbestos settlements. To the
extent that some of these companies are still Members of the
Center, the Center could bring these claims against G-I on
their behalf. Under the terms of the Settlement Agreement
and the Order approving it, these were the claims that the
Settlement Agreement resolved, not the Former Members’
claims.
Further, the issue of “impermissible double recovery”
goes to apportionment of liability, not to the Former
Members’ right to bring a cause of action under the Producer
Agreement. G-I seems to recognize this point, by arguing
that the Center’s agreement to indemnify G-I against the
Former Members’ breach of contract claims, memorialized in
the Settlement Agreement, has no bearing on the construction
of the Producer Agreement. While we maintain that the
Former Members’ claims were not included in the Settlement
Agreement, even if they were, this would not affect our
reading of the Former Members’ ability to bring a breach of
contract action against G-I, because the terms of a settlement
agreement to which the Former Members were not parties
cannot change the construction of the Producer Agreement.
In conclusion, we are not concerned, as the Bankruptcy Court
was, that allowing the Former Members to assert breach of
27
contract claims against G-I would lead to an impermissible
double recovery. The Center’s recovery for its own claims
and claims it brought on behalf of present Members of the
Center have no bearing on the Former Members’ claims,
particularly when they were explicitly excluded from the
Settlement Agreement between the Center and G-I.
IV.
For the foregoing reasons, we vacate the District
Court’s order affirming the Bankruptcy Court’s grant of
summary judgment in G-I’s favor and remand to the District
Court. The District Court should vacate its opinion and
remand to the Bankruptcy Court for further proceedings
consistent with this opinion. We have determined that the
Producer Agreement does not prohibit the Former Members’
breach of contract actions against G-I. The merits of the
Former Members’ claims – whether G-I breached the
Producer Agreement, whether they can show damages, and
whether G-I has any valid defenses – are not before this Court
and we make no comment on their likelihood of success. On
remand, the Bankruptcy Court may allow discovery and
additional summary judgment motions on the merits of these
claims or proceed to trial.
28