Dana Corporation v. Celotex Asbestos Settlement Trust, Intervenor-Appellant, Fireman's Fund Insurance Companies

Citations: 251 F.3d 1107; 2001 U.S. App. LEXIS 11543; 2001 WL 589172Docket: 99-4494, 99-4493

Court: Court of Appeals for the Sixth Circuit; June 4, 2001; Federal Appellate Court

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In the case 251 F.3d 1107 (6th Cir. 2001), the Sixth Circuit affirmed the district court's decisions regarding Dana Corporation's (Plaintiff-Appellee) declaratory judgment action against the Celotex Asbestos Settlement Trust (Intervenor-Appellant). The Trust appealed the district court's August 20, 1999, order granting summary judgment to Dana, concluding that Dana had no indemnification obligation for asbestos-related claims stemming from a 1969 Stock Purchase Agreement with Philip Carey Corporation, the Trust's predecessor. Additionally, the Trust contested the October 25, 1999, order that permanently enjoined it from asserting any indemnification rights against Dana and required claimants to the Trust to acknowledge they had no claims against Dana before receiving payments.

The litigation centers on the indemnification provisions of the Agreement, particularly Section 6.1, which mandated Dana to indemnify Philip Carey for liabilities of S&K incurred prior to November 30, 1968. Dana, having liquidated S&K shortly after its acquisition and maintaining that S&K was independently managed and not its alter ego, argued it bore no responsibility for the Trust's claims. The court upheld both lower court rulings, affirming Dana's position that it owed no indemnification to the Trust and that the Trust could not pursue claims against Dana outside the specified jurisdiction.

The prior draft of the agreement required Dana to indemnify and hold harmless both Philip Carey and S&K, which Dana rejected, likely due to the imposition of an obligation not previously existing before the sale. Philip Carey became the sole shareholder of S&K on February 18, 1969, shortly after which S&K was renamed Philip Carey Corporation, distinguishing the two entities involved in the transaction as Philip Carey (Ohio) and Philip Carey (NJ). In 1970, Philip Carey merged with Briggs Manufacturing Company, forming Panacon Corporation, which then owned all stock of Philip Carey (NJ). On May 30, 1972, while Celotex Corporation was the controlling shareholder of Panacon, Panacon liquidated Philip Carey (NJ), assuming all its assets and liabilities in return for its outstanding stock, resulting in the dissolution of Philip Carey (NJ). The liquidation followed a resolution qualifying under Section 332 of the Internal Revenue Code. Subsequently, on June 29, 1972, Panacon merged with Celotex, which assumed all rights, privileges, and liabilities of Panacon, preserving creditor rights and ensuring that debts and obligations continued to be enforceable against Celotex as if incurred by it.

In 1982, Celotex faced lawsuits for asbestos-related claims linked to S&K products and sought indemnification from Dana based on a 1969 Agreement, which Celotex argued allocated S&K's preclosing liabilities, including asbestos liabilities, to Dana. Dana contended that Celotex's liabilities arose from Panacon's 1972 assumption of Philip Carey’s liabilities and its subsequent merger with Celotex. In 1983, Dana sued its insurers, including Fireman's Fund, in the Northern District of Ohio to determine their obligation to defend and indemnify against the asbestos claims. The district court ordered Celotex to join the action, prompting Dana to seek declaratory relief regarding its indemnification obligations to Celotex.

Subsequently, cases involving Dana and Celotex were consolidated in the Northern District of Ohio. Notably, two cases were transferred from Georgia and Florida concerning asbestos-related claims and Celotex's cross-claim for indemnity. On January 12, 1987, the district court denied Celotex's motion for summary judgment on its indemnity claim in the Lee case and ruled in favor of Dana. Following this, Celotex refused to continue a stipulated order that barred it from initiating new claims, leading Dana to seek and obtain a preliminary injunction in 1987.

Celotex appealed the injunction, and the appeal was affirmed. However, on October 12, 1989, Celotex filed for Chapter 11 bankruptcy, resulting in a stay of its litigation. Celotex's reorganization plan was confirmed in 1998, creating a Trust that inherited Celotex's rights under the Agreement. The Trust dismissed the pending appeal in the Lee case and was substituted for Celotex in the ongoing consolidated cases in Ohio.

The Trust and Dana filed motions for summary judgment in a consolidated case, with the Trust seeking judgment based on an indemnification clause in their Agreement, while Dana sought a cross-motion on that clause and additional grounds of res judicata, equitable discharge, release, and late notice. The district court denied the Trust's motion and granted Dana's, stating that a merger involving Philip Carey of New Jersey altered the indemnification risks for Dana, relieving it of obligations under the agreement. The court noted that the resolution of the indemnification agreement interpretation and the merger's effects rendered other issues moot, including Dana's complex motion for equitable discharge related to the Celotex Plan of Reorganization. The Trust has appealed the district court's rulings. Following these decisions, the parties sought a final judgment under Fed. R. Civ. P. 54(b). Dana requested a permanent injunction to prevent the Trust from dispersing "Dana rights" to numerous claimants, fearing that such actions could lead to fragmented litigation across various jurisdictions, which would disadvantage Dana. The district court addressed the main issues concerning the Trust's potential transfer of "Dana rights" and the necessary notice to claimants about the exclusive jurisdiction of the court for litigation related to the indemnity provision.

Dana's concerns arose from the strategy of asbestos claimants' counsel to pursue claims against Dana in multiple jurisdictions rather than consolidating them in a single court. The district court referenced the Lee case from Georgia and a separate suit filed by Celotex in Florida as instances of this fragmented litigation. It highlighted Celotex's failure to request that its claim against Dana be resolved within the bankruptcy proceedings, opting instead to support Anderson Memorial Hospital's pursuit of recovery against Dana in South Carolina, violating a 1987 injunction.

The court noted that Celotex assigned part of its claim to a class of asbestos claimants to facilitate Anderson's legal action against Dana under the indemnity provisions of an agreement. Dana's motion against Anderson in South Carolina resulted in a contempt ruling against Anderson for breaching the 1987 injunction. The court raised concerns that the plan permitted the splitting of Celotex's unitary claim into numerous separate claims, which had no equivalent provision for Celotex's insurers and was unprecedented in other asbestos-related bankruptcy plans. The court concluded that the aim of this claim-splitting was to pressure Dana into settling the claim for indemnity under a stock purchase agreement.

Consequently, the district court granted Dana's motion for injunctive relief and certified its order for summary judgment as final under Rule 54(b). The Trust is appealing this permanent injunctive relief in Case No. 99-4493. In Case No. 99-4494, the court emphasized that summary judgment is appropriate when there are no material factual disputes. It upheld that Dana's indemnification obligations, as defined in their agreement with Philip Carey, were limited to instances where Philip Carey incurred damages due to unsuccessful defenses or payments related to claims against S&K. This conclusion was based on a straightforward interpretation of the indemnification clause and other related provisions that benefitted all parties involved.

The district court determined that §6.1(c) of the Agreement explicitly excludes S&K from being an indemnitee, contrasting it with earlier drafts. The Trust's interpretation that Dana was responsible for all of S&K's pre-closing obligations and liabilities was rejected, as it conflicted with the agreed transfer of a $900,000 note from Smith, Kanzler Company to Philip Carey and the allocation of any undisclosed liabilities of Philip Carey. The court emphasized that under Ohio common law, indemnification agreements differ from payment commitments. The court supported Dana's position that the Agreement allowed Philip Carey to acquire a subsidiary whose liabilities were not transferable to Dana due to shareholder immunity, thus limiting Dana's liability to that of its ownership of S&K. The final language of §6.1(c) indicates Dana's obligation to indemnify only Philip Carey for liabilities arising from S&K’s actions, not S&K itself. The Trust’s argument against the need for examining prior drafts was dismissed, as the Agreement's language does not support indemnifying S&K for tortious conduct. Ultimately, the court ruled that Dana's indemnification obligation would only arise once Philip Carey suffered actual damage due to S&K's tortious conduct, in line with Ohio law.

The Trust contends that the district court misinterpreted Dana's indemnification obligation to Philip Carey, asserting that Dana agreed to cover "liabilities" arising from S&K's conduct, not just "losses." This distinction implies that Dana's obligation commenced when the liabilities accrued, rather than when Philip Carey experienced an actual loss. The Trust differentiates between two types of indemnification agreements: one requiring an out-of-pocket loss before payment and another that protects against accruing liabilities. It cites Wilson v. Stilwell, 9 Ohio St. 467 (1869), to support its position, arguing that the court's interpretation of this case was incorrect.

In Wilson, the obligation was contingent upon John M. Tooker settling all liabilities of a defunct firm, with the court concluding that the phrase "settle up and liquidate" equated to a duty to pay debts, distinguishing it from a simple indemnification obligation. The Supreme Court of Ohio established that a mere indemnity contract necessitates proof of damage before recovery, whereas an affirmative obligation to pay does not require the indemnitee to demonstrate damage to trigger payment. This principle has been consistently upheld in subsequent Ohio cases, which state that a claim for indemnity only arises upon payment unless otherwise specified in the contract. Under Ohio law, the right to indemnity becomes enforceable only when the claimant has satisfied the entire obligation, reinforcing the distinction between indemnity and payment obligations.

The contract stipulates that Dana is responsible for reimbursing and indemnifying Philip Carey, with the district court determining that this constitutes an indemnification agreement under Ohio law. Dana's obligation to pay arises only after Philip Carey suffers a loss due to S&K's tortious conduct. This interpretation is supported by the language in §6.1(c), which, alongside subsections (a) and (b), clarifies that indemnification is contingent upon specific types of loss or damage rather than a general obligation to pay. Subsections (a) and (b) outline particular conditions triggering indemnity, distinguishing them from subsection (c), which lacks such specificity.

Further, §7.6 reinforces the limitation of Dana's indemnification responsibility by stating that the agreement does not confer rights to any third parties, including S&K, indicating that S&K remains liable for its own obligations. Additionally, in §2.8, Dana warrants that S&K's balance sheet accurately reflects all liabilities, reserving any undisclosed liabilities under $10,000. Interpreting the indemnification provision as making Dana liable for all of S&K's liabilities would contradict this section and violate principles of contract construction by rendering it meaningless.

S&K Comp's $900,000 note owed to Dana and transferred to Philip Carey without recourse was a key factor in the district court's ruling that supported Dana's position and opposed the Trust's claims. The court emphasized that interpreting the indemnification provision to hold Dana liable for all of S&K's pre-closing obligations would contradict the agreement allowing the note's transfer without recourse. Consequently, the court concluded that Dana's indemnification obligation under §6.1(c) of the Agreement was not triggered until Philip Carey was actually damnified. After Carey (now Panacon) merged with Celotex three years post-stock purchase, the liabilities became Celotex's, validating the district court's summary judgment dismissal in favor of Dana.

In a separate matter, the district court granted Dana a permanent injunction against the Trust, prohibiting it from asserting claims against Dana related to the Celotex Asbestos Settlement Trust and requiring claimants to acknowledge they hold no rights against Dana. This decision was made despite the Trust's arguments that the injunction was speculative and conflicted with its bankruptcy reorganization plan. The district court found the potential harm to Dana significant enough to warrant the injunction, affirming its proper issuance based on the court's discretion in equity jurisdiction.

The determination to issue an injunction requires balancing the hardships faced by both the plaintiff and defendant. The plaintiff must show they are threatened by an injury that lacks an adequate legal remedy, demonstrating a real and substantial danger of the injury occurring, rather than mere speculation. If the conduct in question has ceased, injunctive relief may be denied on the grounds of mootness, provided there is no reasonable expectation of future harm. The likelihood of recurring issues must be assessed without relying solely on the defendant's assurances.

In the current case, the district court found that Dana faced potential injury from multiple lawsuits if the Trust assigned "Dana rights" to claimants, despite the absence of ongoing litigation threats. The Trust contended that the summary judgment order negated the need for injunctive relief, but the court disagreed, emphasizing that distributing these rights could irreparably harm Dana and disrupt judicial processes. The court assessed the potential harm to Dana against that of the Trust, concluding the Trust's harm was less significant, particularly as distributing "worthless rights" served no party's interests. The Trust's argument about non-compliance with a reorganization plan was dismissed, with the court noting that impossibility is a valid defense against contempt charges if an injunction is issued.

The court determined that the "Dana rights" sought to be transferred by the Trust hold no value following the summary judgment in favor of Dana. Initially, these rights may have had potential value, but the judgment rendered them worthless. The court criticized the confirmed plan's requirement for the Trust to distribute these rights to claimants, asserting it contradicts Judge Potter's injunction and undermines principles of judicial administration, leading to inconsistent judgments across multiple courts. The court found that the risk of irreparable harm to Dana significantly outweighs any potential harm to the Trust, justifying an injunction against the Trust from transferring "Dana rights." This injunction does not conflict with the reorganization plan, as the plan did not establish the existence of these rights, which the district court determined do not exist. Any potential contempt citation against the Trust for not issuing Dana rights would not hold, as the Trust would have a defense of impossibility. The appellate court affirmed the district court's orders in both relevant cases, agreeing with its reasoning.