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Case 1:11-cv-01312-JGK Document 10

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IN THE UNITED STATES DISTRICT COURT


FOR THE SOUTHERN DISTRICT OF NEW YORK
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In re Johns-Manville Corp., et al.,


Debtors.

Civil Action No. 1:11-cv-01312-JGK


On Appeal from The United States
Bankruptcy Court for the Southern District of
New York (Burton R. Lifland, J.)

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BRIEF FOR APPELLANTS THE TRAVELERS INDEMNITY


COMPANY AND TRAVELERS CASUALTY AND SURETY COMPANY

Barry R. Ostrager
Andrew T. Frankel
SIMPSON THACHER & BARTLETT LLP
425 Lexington Avenue
New York, New York 10017-3954
Telephone: (212) 455-2000
Facsimile: (212) 455-2502
Attorneys for The Travelers Indemnity
Company and Travelers Casualty and Surety
Company

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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ..................................................................................................... iii

PRELIMINARY STATEMENT................................................................................................. 1
STATEMENT OF APPELLATE JURISDICTION..................................................................... 7
QUESTIONS PRESENTED....................................................................................................... 7
STANDARD OF REVIEW ........................................................................................................ 7
STATEMENT OF THE CASE................................................................................................... 7
A.

Nature of the Case ............................................................................................... 7

B.

Course of the Proceedings ................................................................................... 8

C.

Disposition in the Court Below............................................................................ 8

STATEMENT OF FACTS ......................................................................................................... 8


A.

The 1986 Orders.................................................................................................. 8

B.

The Direct Actions........................................................................................... 9

C.

The Settlement Agreements............................................................................... 10

D.

The Clarifying Order is Entered But Rejected By The Second Circuit ............... 12

E.

The Bankruptcy Courts Ruling ......................................................................... 14

ARGUMENT ........................................................................................................................... 15
I.

THE BANKRUPTCY COURTS JUDGMENT IS CONTRARY TO THE PLAIN


AND UNAMBIGUOUS TERMS OF THE AGREEMENTS. ....................................... 15
A.

The Bankruptcy Courts Justification for Nullifying the Parties Agreed


Condition Precedent is Fundamentally Flawed, and Contrary to the
Agreements, the Intentions of the Parties and Clear New York Law. ................. 15

B.

Equitable Powers May Not Be Used To Rewrite a Contract............................... 20

II.

SETTLEMENT COUNSEL DID NOT SATISFY OTHER CONDITIONS


PRECEDENT ............................................................................................................... 22

III.

THE BANKRUPTCY COURT ERRED IN AWARDING PREJUDGMENT


INTEREST FROM JUNE 2009 .................................................................................... 23

CONCLUSION ........................................................................................................................ 24

ii

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TABLE OF AUTHORITIES
Page(s)

Cases
Beal Sav. Bank v. Somme, 865 N.E.2d 1210 (N.Y. 2007)............................................................17
Bugg v. Am. Standard, Inc., No. 84829, 2005 WL 1245043 (Ohio App. Ct. May 26, 2005) ..........3
Civil Serv. Employees Assn, Inc. v State Univ. of Stony Brook, 368 N.Y.S.2d 927 (N.Y. Sup. Ct.
1974) ..............................................................................................................................18
Denney v. Deutsche Bank AG, 443 F.3d 253 (2d Cir. 2006) .................................................. 20, 21
Friedman v. State, 242 A.D. 314 (N.Y. App. Div. 1934).............................................................17
Goldman v. C.I.R., 39 F.3d 402 (2d Cir. 1994)............................................................................15
Greenfield v. Philles Records, Inc., 780 N.E.2d 166 (N.Y. 2002).......................................... 20, 21
IDT Corp. v. Tyco Group, S.A.R.L., 918 N.E.2d 913 (N.Y. 2009) ..................................... 7, 19, 21
In re Johns-Manville Corp., 340 B.R. 49 (S.D.N.Y. 2006)...................................................passim
In re Johns-Manville Corp., 517 F.3d 52 (2d Cir. 2008) ...............................................................3
In re Johns-Manville Corp., 600 F.3d 135 (2d Cir. 2010).....................................................passim
In re Johns-Manville Corp., 78 B.R. 407 (S.D.N.Y. 1987)........................................................8, 9
In re Marine Midland Motor Vehicle Leasing Litig., 155 F.R.D. 416 (W.D.N.Y. 1994) ..............18
In re Motors Liquidation Co., 428 B.R. 43 (S.D.N.Y. 2010) .......................................................21
In re XO Commcns, Inc., 330 B.R. 394 (Bankr. S.D.N.Y. 2005)................................................18
Ipar Realty Corp. v. Herbert Const. Co., Inc., 596 N.Y.S.2d 466 (N.Y. App. Div. 1993) ............17
MHR Capital Partners LP v. Presstek, Inc., 912 N.E.2d 43 (N.Y. 2009)........................... 5, 19, 21
Oppenheimer & Co. v. Openheim, Appel, Dixon & Co., 660 N.E.2d 415 (1995) ............. 17, 19, 21
Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186 (2d Cir. 2003) .............................................7
Prisco v. A & D Carting Corp., 168 F.3d 593 (2d Cir. 1999) ......................................................23
State v. Warren Bros. Co., Inc., 593 N.Y.S.2d 308 (N.Y. App. Div. 1993)..................................17
Travelers Indem. Co. v. Bailey, 557 U.S. ___, 129 S. Ct. 2195 (2009) .................................passim
Venizelos, S.A. v. Chase Manhattan Bank, 425 F.2d 461 (2d Cir. 1970)......................................17

iii

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PRELIMINARY STATEMENT1
This is an appeal from a final judgment of the Bankruptcy Court holding The
Travelers Indemnity Company and Travelers Casualty and Surety Company (collectively,
Travelers) liable to make payments on three settlement agreements despite a clear failure of
conditions precedent to any obligation to make such payments. It is undisputed, as the court below
previously found, that the Statutory Direct Action Settlement Agreement, the Hawaii Direct Action
Settlement Agreement, and the Common Law Settlement Agreement (collectively referred to as
Settlement Agreements)2 were the product of extensive, good faith, private, arms-length
negotiations among sophisticated parties, and are complete, clear and unambiguous on their face.
In 1986, to settle insurance coverage disputes related to its issuance of insurance
policies to Johns-Manville Corporation, Travelers agreed to make payments which served as the
initial corpus of the Manville Trust. In connection with that settlement, the Bankruptcy Court
enjoined all Persons from commencing any suit against Travelers based upon, arising out of
relating to any of the Policies. Years after the Bankruptcy Courts orders became final, certain
asbestos claimants brought direct lawsuits against Travelers based on Travelers insurance
relationship with Manville that were in violation of the plain terms of the injunctions contained in the
1986 Orders. After Travelers moved to enjoin the actions, the Bankruptcy Court entered a temporary
restraining order, and referred the parties to mediation, which resulted in the Settlement Agreements.

All citations to R.__ refer to the appendix of items designated by parties as found in Travelers
Counter Designation of Bankruptcy Record on Appeal (Docket No. 3) in Case No. 1:11-cv-01329. The
record for each appeal differs only by two entries out of forty-seven and the appendix notes these
differences.
2

Unless otherwise indicated, capitalized terms are defined in the Settlement Agreements: Statutory
Direct Action Settlement Agreement, R. 4, Declaration of Kent A. Bronson dated Sept. 2, 2010, Ex. 1
(Ex. 1); Hawaii Direct Action Settlement Agreement, R. 4, Declaration of Kent A. Bronson dated Sept.
2, 2010, Ex. 2 (Ex. 2); Common Law Direct Action Settlement Agreement, R. 4, Declaration of Kent A.
Bronson dated Sept. 2, 2010, Ex. 3 (Ex. 3).

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Pursuant to the Settlement Agreements, Travelers and three groups of asbestos


claimants agreed that Travelers would pay substantial sums even though the underlying claims had
never succeeded in any state or federal court. However, the parties explicitly agreed that Travelers
would have no payment obligation under the Settlement Agreements unless Travelers obtained
complete finality and peace from these and similar lawsuits.
The express conditions precedent to which all of the parties agreed could not have
been clearer: Travelers payment obligation was made subject to and made expressly contingent
upon the satisfaction of each of the conditions precedent, including the entry of an order (referred to
as the Clarifying Order) containing prohibitions against Claims at least as broad as those
contained in a proposed order attached to the Settlement Agreements, each of which prohibited all
claims against Travelers of any kind or nature whatsoever related to Travelers handling of
asbestos claims, and expressly including all claims for contribution or indemnity. R. 4, Ex. 1 at

Ex. A 3 (emphasis added). The Settlements Agreements required that [a]ll parties will use their
best efforts to obtain the Clarifying Order. The parties specifically agreed that the Clarifying Order
must become a Final Order, which was defined as the order providing these protections having
been affirmed by the highest court to which such order was appealed or certiorari has been denied
and the time to take any further appeal or petition for certiorari shall have expired. R. 4, Ex. 1 at
2(a) (emphasis added); R. 4, Ex. 2 at 2(b),(d); R. 4, Ex. 3 at 2(a). All parties thus understood, and
expressly agreed in plain and unambiguous terms under each of the Settlement Agreements, that:
Notwithstanding anything else in [the] Settlement Agreement[s] to the contrary and
separate and apart from any other terms and conditions set forth herein, the nonoccurrence or failure to satisfy any of the conditions precedent . . . shall relieve
Travelers from any obligation whatsoever under th[e] Settlement Agreement[s],
including, but not limited to, the obligation to pay any portion of the Settlement
Amount. . . .
R. 4, Ex. 1 & 3 at 3(c) (emphasis added); see also R. 4, Ex. 2 at 2 (Travelers obligations
hereunder . . . are subject to and made expressly contingent upon the satisfaction of each of the

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following conditions precedent.). Protection from contribution claims was particularly important,
given the possibility that liability could be imposed upon Travelers indirectly and the fact that
numerous other insurers had been named in many of the suits and could be named in such suits in the
future. See, e.g., Bugg v. Am. Standard, Inc., No. 84829, 2005 WL 1245043 (Ohio App. Ct. May 26,
2005) (asbestos-related direct action against 47 insurance defendants). The Settlement Agreements
contained additional conditions to payment, such as dismissal of pending lawsuits and the provision of
general releases to Travelers.
Over the objections of non-settling parties (including non-settling asbestos claimants
and other insurers), and after a contested evidentiary hearing the Bankruptcy Court agreed that the
direct actions and any related contribution claims, were barred by the 1986 Orders. On appeal, this
Court affirmed, In re Johns-Manville Corp., 340 B.R. 49 (S.D.N.Y. 2006), but the Second Circuit
reversed on the basis that the Bankruptcy Court lacked jurisdiction to enter the injunctions it did in
1986. In re Johns-Manville Corp., 517 F.3d 52 (2d Cir. 2008). Following the Second Circuits
ruling, and notably without the support of Hawaii and Statutory Settlement Counsel, Travelers
successfully petitioned the United States Supreme Court for a writ of certiorari. In Travelers Indem.
Co. v. Bailey, 557 U.S. ___, 129 S. Ct. 2195 (2009), the Supreme Court reversed the Second Circuit,
holding that the 1986 injunctions were incorporated into a final judgment that could not be collaterally
attacked years after the fact. The Supreme Court remanded back to the Second Circuit, however, for
consideration of preserved objections that were not before the Supreme Court, including objections by
Chubb Indemnity Insurance Company (Chubb) to the bar of contribution claims on grounds of lack
of notice and objections being asserted by other non-settling asbestos personal injury plaintiffs.
On remand, the two-judge panel of the Second Circuit once again reversed this Court,
finding that Chubb could assert contribution claims against Travelers, and concluding, once again,
that the Bankruptcy Court lacked subject matter jurisdiction in 1986. In re Johns-Manville Corp., 600
F.3d 135 (2d Cir. 2010) (Manville II). Believing the Second Circuits ruling was erroneous for

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numerous reasons, Travelers filed timely petitions for reargument and/or rehearing en banc and, when
those were denied, for writ of mandamus and for certiorari, arguing that the Second Circuits ruling
violated the Supreme Courts mandate in Bailey and that the decision was wrong on the merits. R. 40
& 41. These petitions were denied on November 29, 2010.
Thus, despite extensive efforts by Travelers, as a result of the Second Circuits
reversal, there is no Final Order barring the assertion of contribution actions against Travelers by
Chubb and potentially others. As a result, Travelers has not obtained the finality to which all parties
specifically agreed was an express condition to Travelers payment obligations. Indeed, the Second
Circuit was aware of the possibility that by reversing this Court, the conditions to settlement would
not be satisfied, though that court left it to others to decide that issue. Manville II, 600 F.3d at 158-59
(In [Manville I], however, we declined in light of our holding to determine the prospective status of
these [settlement] agreements or to resolve arguments relating to technical objections and the 2004
Direct Action Settlement's overall fairness. See [Manville I], 517 F.3d at 58 n. 13, 68 n. 26. Prudence
counsels the same course here.).
Rather than support Travelers in its effort to seek affirmance of the Clarifying Order,
the Hawaii, Statutory and Common Law Settlement Counsel filed motions seeking payment under the
Settlement Agreements notwithstanding the fact that conditions precedent had not be satisfied. The
Bankruptcy Court granted Settlement Counsels motions and construed the Settlement Agreements as
requiring immediate payment. Notwithstanding the clear and unequivocal terms of the extensively
negotiated Settlement Agreements, the Bankruptcy Court essentially held that since the condition
precedent was not met, it is null and void and Travelers must still be required to make the payments.
The Bankruptcy Court reasoned that to enforce the condition would be to construe a contract in a
manner that was illegal and invalid. R. 15, at 14. The Bankruptcy Court compounded this error by

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agreeing with the Appellees request for prejudgment interest calculated based on the date of the
Supreme Courts ruling in Bailey.3 On January 20, 2011, the Bankruptcy Court entered judgment
against Travelers in the amount of over $573 million, including more than $65 million in prejudgment
interest.
The Bankruptcy Court erred by re-writing the terms agreed to by the parties in the
Settlement Agreements. All parties to this appeal agree that whether Travelers has any payment
obligations depends upon the plain and unambiguous terms of the Settlement Agreements. All parties
also agree that those agreements must be construed in accordance with New York law. New York law
is clear that where, as here, parties to a settlement agreement agree on conditions precedent, those
conditions must be strictly performed. MHR Capital Partners LP v. Presstek, Inc., 912 N.E.2d 43, 47
(N.Y. 2009). Courts may not rewrite the terms of agreements under principles of equity or for other
reasons where, as here, the parties themselves have agreed to the terms and conditions in plain and
unambiguous terms.
The Bankruptcy Courts reasoning ignores the entire point of a condition precedent in
a settlement agreement: to condition payment on an event that is uncertain to occur. It was precisely
because it was uncertain whether the court would enter the Clarifying Order and, if so, whether such
an order would be upheld on appeal, that the parties bargained-for and agreed in no uncertain terms
that Travelers would have [no] obligation whatsoever to pay any portion of the Settlement
Amount[s] (R. 4, Ex. 1 & 3 at 3(c)) if the specified protectionsincluding the bar against all

The Bankruptcy Court provided no reasoning for its decision to award prejudment interest on this
basis. The ruling was manifestly incorrect because, irrespective of whether there could be a Final Order
following the Second Circuits reversal after remand, Travelers could not possibly have had any payment
obligation triggering the accrual of prejudgment interest until the time to appeal . . . [or] petition for
certioriari . . . expired and to which no appeal, petition for certiorari or other proceeding for reargument
or rehearing shall be pending . . . . R. 4, Ex. 1-3 at 1. In Bailey, the Court specifically reverse[d] the
judgment of the Court of Appeals and remand[ed] for further proceedings, consistent with [its] opinion,
including consideration of additional objections. 129 S. Ct. at 2207.

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contribution claimswere not only approved by the Bankruptcy Court but upheld on appeal by way
of a Final Order. In short, the Bankruptcy Court confused the enforceability of its prior order with
the enforceability of the parties Settlement Agreements. There was nothing illegal and invalid
about the Settlement Agreements or the express conditions precedent. Indeed, in analogous contexts
parties to settlement agreements commonly condition payment on final court approval. The
Bankruptcy Courts reasoning would render such provisions unenforceable or ineffective precisely
when they are needed.
The Bankruptcy Court also found that it was inequitable for Travelers not to make the
settlement payments because, in the course of the litigation over the Clarifying Order, the Supreme
Court confirmed Travelers original position that the direct action claims were barred and had always
been barred by the 1986 Orders, consistent with this Courts 2006 ruling. The Bankruptcy Court thus
stated that it was concerned that Travelers is getting something for nothing. R. 15, at 17. But
equity does not favor construction of a contract that is contrary to the terms agreed to by the parties.
Travelers justifiably believed that it was fully and finally extricate[d] from the Manville morass
when it paid a historic settlement to the Manville Trust in 1986, and it is undisputed and confirmed by
the Supreme Court that all of the underlying asbestos claims at issue are barred and have been barred
for decades. Thus, in no way is Travelers getting something for nothing. Indeed, given that
Travelers could be held liable indirectly for claims asserted against Chubb given that Chubb may now
sue Travelers for contribution, it would be the Settlement Counsel who would be getting something
for nothing if Travelers is required to make payment notwithstanding the failure of the condition
precedent.
The incentives of parties to enter settlement agreements would be drastically
undermined if parties could not rely on courts to uphold bargained-for conditions, and payment is
ordered irrespective of their failure. Enforcement of the terms of a settlement agreement not only
serves the interest of efficient dispute resolution but is also essential . . . to the integrity of the

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litigation process. IDT Corp. v. Tyco Group, S.A.R.L., 918 N.E.2d 913, 916 (N.Y. 2009) (citation
omitted).
STATEMENT OF APPELLATE JURISDICTION
The Bankruptcy Court entered a final judgment on January 20, 2011. Travelers filed a
timely notice of appeal on January 21, 2011. Fed. Bankr. R. 8002(a). This Court has jurisdiction over
the appeal pursuant to 28 U.S.C. 158(a).
QUESTIONS PRESENTED
1.

Did the Bankruptcy Court err in requiring payment of over $500 million under three
Settlement Agreements despite the fact that all of the parties to those agreements expressly
agreed that such payment would be required if, but only if, all conditions precedent were met,
including, but not limited to, the condition that a Final Order be entered that contained
protections barring the assertion of asbestos-related direct action lawsuits against Travelers
and any Claims for contribution, and where such protections have not been provided under a
Final Order as a result of the Second Circuits decision in In re Johns-Manville Corp., 600
F.3d 135 (2010)?

2.

Even assuming arguendo that all of the conditions precedent were ultimately satisfied and that
there was a Final Order triggering Travelers payment obligations under the Settlement
Agreements, did the Bankruptcy Court err in granting without explanation the Appellees
request for prejudgment interest of 9% from the date of the Supreme Court decision in June
2009 in Travelers Indem. Co. v. Bailey, 557 U.S. ___, 129 S. Ct. 2195 (2009), despite the fact
that there could not have been any payment obligation at that time given that the Clarifying
Order did not become final until after appellate proceedings concluded upon the Supreme
Courts denial of certiorari and mandamus on November 29, 2010?
STANDARD OF REVIEW
All questions in this appeal involve issues of law as to which the standard of review is

de novo. See, e.g., Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 198-99 (2d Cir. 2003). In
particular, the Bankruptcy Courts interpretation of a contract and the measure of damages are
questions of law and reviewed de novo. See, e.g. id. at 196, 198-99.
STATEMENT OF THE CASE
A.

Nature of the Case


This is an appeal of the Bankruptcy Courts final judgment. That judgment was

predicated on the Courts ruling that Travelers was obligated to make payments pursuant to the

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Settlement Agreements and that express conditions precedent were unenforceable. This appeal
involves construction of the terms of the Settlement Agreements under governing New York law.
B.

Course of the Proceedings


The prior proceedings leading to the order appealed from is discussed further below

and has been set forth extensively in prior briefing before this Court. In September 2010, Settlement
Counsel filed Motions to Compel Payments of Proceeds under the Settlement Agreements,
notwithstanding the fact that the Bankruptcy Courts order barring actions, including contribution
actions, was not affirmed on appeal. R. 4 & 5. On December 16, 2010, the Bankruptcy Court entered
an order granting the Motions to Compel. R. 15. The Bankruptcy Court requested additional briefing
on the issue of pre-judgment interest. R. 17, 22, 23, 25 & 26. Separately, Common Law Settlement
Counsel filed a motion for sanctions against Travelers. R. 23.
C.

Disposition in the Court Below


On January 20, 2011, the Bankruptcy Court issued a final judgment against Travelers

as follows: 1) $454,203,584.00 to Statutory Direct Action Settlement Counsel; 2) $17,139,758.00 to


Hawaii Direct Action Settlement Counsel; and 3) $102,167,212.31 to Common Law Settlement
Counsel. R. 30 at 2-3. The final judgment included over $65 million in prejudgment interest under
the Settlement Agreements calculated from June 2009, when Bailey was decided, as requested by the
Settlement Counsel. Id. The Bankruptcy Court denied Common Law Settlement Counsels motion
for sanctions. R. 27, at 11:1-5; R. 30, at 5.
STATEMENT OF FACTS
A.

The 1986 Orders


In 1982, beset by a rapidly growing number of asbestos-related lawsuits, the Johns-

Manville Corporation sought bankruptcy protection. Its Chapter 11 filing commenced what is said to
be the most complex bankruptcy reorganization in history. In re Johns-Manville Corp., 78 B.R.
407, 408 (S.D.N.Y. 1987). Manvilles most valuable asset was its insurance coverage, including in

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particular, more than 425 policies issued by Travelers, Manvilles primary insurer for decades.
Bailey, 129 S. Ct. at 2198-2200. The Insurance Settlement Order, considered the cornerstone of the
Manville reorganization, involved Travelers and other insurers contributing settlements that
constituted the corpus of the Manville Trust in exchange for an injunction that channeled all claims
related to policy claims to the Manville Trust and a complete release for Travelers of liabilities that
were related to or based on Manville. In re Johns-Manville Corp., 340 B.R. at 55; see also Bailey,
129 S. Ct. at 2199.4 There would have been no such payment without the injunction in the
December 18, 1986 order which prohibited all Persons from commencing and/or continuing any
suit, arbitration or other proceeding of any type or nature against Travelers that seeks to collect any
and all claims, demands, allegations, duties, liabilities and obligations (whether or not presently
known) which have been, or could have been, or might be, asserted by any Person against [Travelers]
based upon, arising out of or relating to Travelers insurance relationship with Manville. Bailey,
129 S. Ct. at 2199; R. 1, at SPA-272 (emphasis added). The settling insurers were entitled to
terminate the settlements if the injunctive orders [were] not issued or if they [were] set aside on
appeal. Bailey, 129 S. Ct. at 2199.
As this Court previously noted, [w]ith the Insurance Settlement Order and the
Confirmation Order (together, the 1986 Orders), Travelers thought it had secured finality and a full
and complete release of liabilities related to Manville. In re Johns-Manville Corp., 340 B.R. at 55.
The 1986 Orders were affirmed by this Court and the Second Circuit on direct appeal. Bailey, 129 S.
Ct. at 2199; In re Johns-Manville Corp., 78 B.R. at 408.
B.

The Direct Actions


Some 15 years after the 1986 Orders became final, Travelers was named as a

In the period leading up to the reorganization, Travelers was embroiled in litigation with Manville
and a host of third parties, including asbestos plaintiffs, vendors of Manville products, and numerous other
insurers. See In re Johns-Manville Corp., 340 B.R. at 55; Bailey, 129 S. Ct. at 2199.

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defendant in a number of asbestos-related actions in various state courts claiming that Travelers
conspired with Manville to conceal the dangers of asbestos. Bailey, 129 S. Ct. at 2200. While those
claims had not been met with success in the various state courts, Travelers believed that the Direct
Actions violated the plain terms of the 1986 Orders, and in 2002 Travelers moved the Bankruptcy
Court to enjoin them. The Bankruptcy Court entered a temporary restraining order (which it extended
from time to time) and referred the parties to mediation. 340 B.R. at 55; see also Bailey, 129 S. Ct. at
2200.
Under the auspices of the court-appointed mediator, the Honorable Mario Cuomo,
Travelers and the Statutory, Hawaii and Common Law Settlement Counsel entered into the three
Settlement Agreements. The Settlement Agreements were extensively negotiated and held to be the
product of good faith, arms-length negotiations among the parties. R. 1, Findings of Fact 95.
Those asbestos claimants that settled were represented by some of the most sophisticated, successful
and experienced law firms in the country specializing in asbestos and other mass-tort litigation,
including a consortium of firms that included Motley Rice, LLC, Baron & Budd, P.C., Wilentz,
Goldman & Spitzer, Thornton & Naumes LLP and others and which routinely negotiate with some of
the largest corporations in the world.
C.

The Settlement Agreements


The three Settlement Agreements provide that the Bankruptcy Courts entry of a

Clarifying Order containing prohibitions against Claims as least as broad as those contained in Exhibit
A, which orders shall become a Final Order(s) is a condition precedent to Travelers payment
obligations. R. 4, Ex. 1 at 2(a); see also R. 4, Ex. 2 at 2(b),(d); R. 4, Ex. 2 at 2(a). The parties
defined Final Order explicitly: such order [containing the bar of direct actions and contribution
claims] shall have been affirmed by the highest court to which such order was appealed or certiorari
has been denied and the time to take any further appeal or petition for certiorari shall have expired.
R. 4, Ex. 1-3 at 1 (emphasis added).

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The form of the order attached as Exhibit A to the Settlement Agreements set forth the
minimum protections that would be required as a condition to payment if such an order were affirmed
on appeal in a Final Order. Those protections included, in addition to specific injunctions against
pending lawsuits, an order clarifying that the prior injunctions encompassed a bar against the
commencement of claims related in any way to Travelers knowledge of asbestos or handling of
asbestos claims and specifically including claims for contribution and indemnification. R. 4, Ex. 1 at
Ex. A 3; R. 4, Ex. 2 at Ex. A 4; R. 4, Ex. 3 at Ex. A 2. The Settlement Agreements contained
other conditions precedent, for example, general releases from claimants and dismissals with
prejudice of pending claims against Travelers.5 A critical component of each of the Settlement
Agreements was the parties agreement that the non-occurrence or failure to satisfy any of the
conditions precedent . . . shall relieve Travelers from any obligation whatsoever under th[e]
Settlement Agreement[s], including, but not limited to, the obligation to pay any portion of the
Settlement Amount[s]. R. 4, Ex. 1 & 3 at 3(c) (emphasis added); R. 4, Ex. 2 at 2.
In short, Travelers agreed it would make very substantial payments, even for claims
that had yet to be successful in any court in the country and even though Travelers believed (correctly
as the Supreme Court later confirmed) the plaintiffs were barred from asserting such claims as a result
of the 1986 Orders, but the parties agreed that such payments would be made if and only if Travelers
was assured of total finality. Such finality included a bar against claims by asbestos claimants directly
as well as indirectly through contribution actions, such as contribution claims by insurers such as
Chubb. After extensive arms-length negotiations, all parties agreed to these terms as reflected in the

Specifically relevant here, the Statutory Direct Action Settlement Agreement required, as a
condition precedent, the delivery of a certification to Travelers that at least 49,000 general releases had
been delivered into escrow. R. 4, Ex. 1 at 2(c). The Hawaii Direct Action Settlement Agreement
required, as a condition precedent, that all named plaintiffs would dismiss with prejudice all Claims
against Travelers. R. 4, Ex. 2 at 2(d). The Common Law Settlement Agreement required, as a
condition precedent, execution and delivery into escrow of no fewer than 14,000 general releases. R. 4,
Ex. 3 at 2(c).

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Settlement Agreements.
D.

The Clarifying Order is Entered But Rejected By The Second Circuit


Chubb, a major insurer that has paid billions of dollars for asbestos liabilities and

which was a co-defendant with Travelers in some of the Direct Actions, objected to the proposed
Clarifying Order.6 Specifically, Chubb sought to preserve its ability to bring contribution and
indemnity claims against Travelers, now or in the future. Chubb joined with other non-settling
asbestos claimants in arguing that the Bankruptcy Court lacked subject matter jurisdiction to enjoin
non-derivative claims against Travelers, and also asserted that Chubb lacked constitutionally
sufficient notice of the Manville confirmation hearing. Manville II, 600 F.3d at 143. After a
contested evidentiary hearing, the Bankruptcy Court rejected the objections and entered the Clarifying
Order.
Chubb and others appealed. This Court affirmed, and ruled in a thorough opinion,
inter alia, that Chubbs objection to notice of the 1986 Orders was without merit because (1) Chubb
had actual notice; (2) actual notice was not required given the broad publication notice upheld on
direct appeal; and (3) where a special remedial scheme exists, non-parties such as Chubb may be
bound by prior judgment. In re Johns-Manville Corp., 340 B.R. at 68-69. The Second Circuit
reversed this Court. Manville I, 517 F.3d at 67. The Second Circuit acknowledged that the claims fell
within the literal terms of the injunctions, but held that the Bankruptcy Court exceeded its jurisdiction
when it enjoined claims that did not directly affect the res of the bankruptcy estate. Id. at 66. In
view of its jurisdictional holding, the Second Circuit did not rule on Chubbs notice objection in

According to its 10-K filings, Chubb reported to its investors that between 2002 and 2008, Chubb
had been named as a defendant in direct actions in Texas, Ohio and California. See, e.g., The Chubb
Corp., 2003 Annual Report (Form 10-K) at 13 (Feb. 27, 2004), available at
http://www.sec.gov/Archives/edgar/data/20171/000095012304003193/y87394e10vk.htm; The Chubb
Corp., 2007 Annual Report (Form 10-K) at 17 (Feb. 28, 2008), available at
http://www.sec.gov/Archives/edgar/data/20171/000095012308002250/y37838e10vk.htm#105.

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Manville I or certain other objections by non-settling asbestos claimants. Id. at 68.


The Supreme Court granted certiorari and reversed in Bailey. The Supreme Court
agreed that the 1986 Orders unambiguously apply to Direct Actions, and held that because the
1986 Orders became final on direct review over two decades ago . . . whether the Bankruptcy Court
had jurisdiction and authority to enter the injunction in 1986 was not properly before the Court of
Appeals in 2008. Bailey, 129 S. Ct. at 2203-04. Thus, [s]o long as respondents or those in privity
with them were parties to the Manville bankruptcy proceeding, and were given a fair chance to
challenge the Bankruptcy Courts subject-matter jurisdiction, they cannot challenge it now by
resisting enforcement of the 1986 Orders. Id. at 2205-06. The Supreme Court did not decide
whether any particular respondent is bound by the 1986 Orders, however, and remanded to the Court
of Appeals to consider objections that were previously raised by not ruled upon by the Second Circuit.
Id.
Both Chubb and non-settling asbestos claimants continued to assert objections to the
Clarifying Order in the Second Circuit. On remand, in a per curiam decision by Judges Calabresi and
Wesley,7 the Second Circuit again concluded that the Bankruptcy Court exceeded its jurisdiction in
1986 to the extent it barred Chubbs contribution claims, notwithstanding the Supreme Courts
holding that it was error for the Court of Appeals to have considered the Bankruptcy Courts
jurisdiction in the panels prior opinion. Manville II, 600 F.3d at 149. The Second Circuit reasoned
that unlike parties or those who were in privity with participants in the prior proceedings, if the 1986
Orders could not bind Chubb because such a holding would violate the due process, then Chubb may
challenge the bankruptcy courts jurisdiction. Id. at 148. Having allowed Chubb to mount a
collateral challenge, the Second Circuit:

Then-Judge Sotomayor was on the prior panel but by the time of remand had been elevated to the
Supreme Court.

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[R]emain[ed] persuaded that the 1986 Orders, as interpreted in 2004, exceed the
bounds of the bankruptcy courts in rem jurisdiction. In 2004, the bankruptcy court
interpreted the 1986 Orders to enjoin non-derivative claims by Chubb that seek to
impose liability on Travelers separately. The bankruptcy court, in essence, interpreted
the 1986 Orders to have an in personam effect. . . . [O]ur due process analysis must
take into account the in personam manner in which the 1986 Orders were interpreted
by the bankruptcy court in 2004. Viewed from this perspective, the district courts
reasoning unravels.
Id. at 153. Therefore, the Second Circuit held Chubb was not afforded constitutionally sufficient
notice of the 1986 Orders and [a]s such, Chubb is not bound by the bankruptcy courts 2004
interpretation of those orders. Accordingly, the district courts order is reversed as to Chubb . . . .
Id. at 138 (emphasis added).8
Believing the Second Circuits ruling violated the Supreme Courts mandate and was
wrong on the merits, Travelers filed timely motions for reargument and/or rehearing en banc, which
were denied on May 25, 2010. R. 41, at 2. Travelers thereafter filed petitions for writ of certiorari
and mandamus to the Supreme Court. R. 40 & 41. Settlement Counsel failed to join Travelers in
attempting to obtain affirmation of the Clarifying Order, and instead filed Motions to Compel the
settlement payments. On November 29, 2010, the Supreme Court denied Travelers petitions.
E.

The Bankruptcy Courts Ruling


The Bankruptcy Courts December 16, 2010 ruling found that payment was due under

the Settlement Agreements. The Bankruptcy Court agreed with the parties that the Settlement
Agreements should be enforced according to their plain meaning in accordance with New York law.
However, the Bankruptcy Court reasoned that the condition precedent had been satisfied
notwithstanding Manville IIs reversal because an order barring Chubbs contribution claims would,
under Manville II, be illegal and invalid. R. 15, at 14. Therefore, [t]he only legally permissible
reading, . . . is that the scope of the 2004 Clarifying Order is constrained by necessity to enjoin only

The non-settling asbestos claimants withdrew their appeals on the eve of oral argument.

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claims of those parties originally bound by the 1986 Orders. Accordingly, this Court finds that
[Manville II] does not disturb the Settlements. R. 15, at 15. The Bankruptcy Court also held that the
Clarifying Order became a Final Order when the Supreme Court issued Bailey, and used the date of
Bailey to fix the date of accrual for pre-judgment interest. R. 15, at 16.
The Bankruptcy Court made no findings of fact nor provided any reasoning as to how
other conditions precedent that were required under the Settlement Agreements were satisfied. See
Point II, infra. Nor did the Bankruptcy Court issue any findings or conclusions to support its award of
over $65 million in prejudgment interest requested by Settlement Counsel. See Point III, infra. In its
final judgment, the Court entered a money judgment against Travelers of over $573 million.
ARGUMENT
I.

THE BANKRUPTCY COURTS JUDGMENT IS CONTRARY TO THE PLAIN AND


UNAMBIGUOUS TERMS OF THE AGREEMENTS.
A.

The Bankruptcy Courts Justification for Nullifying the Parties Agreed


Condition Precedent is Fundamentally Flawed, and Contrary to the Agreements,
the Intentions of the Parties and Clear New York Law.
The Bankruptcy Court correctly held, and no party disputes, that the [Settlements]

were the product of good-faith, arms-length negotiations, are complete, clear and unambiguous on
their face and must be enforced according to the plain meaning of their terms. R. 14, at 11 (internal
quotations omitted); see Goldman v. C.I.R., 39 F.3d 402, 405-06 (2d Cir. 1994) (finding that
settlement agreements are binding and enforceable contracts between the parties, which are subject to
general principles of contract law). The Bankruptcy Court erred, however, when it disregarded this
basic principle by nullifying the requirement that contribution claims be barred in view of the Second
Circuits ruling in Manville II.
As set forth above, the plain language of the Settlement Agreements leave no room for
doubt that all of the parties agreed that Travelers would have no payment obligations whatsoever
unless each of the conditions precedent was satisfied. Those conditions plainly included a bar not

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only of pending and future Direct Actions, but any claims for contribution or indemnity relating in
any way to the Direct Actions must also be permanently enjoined as against Travelers . . . . R. 4,

Ex. 1 at Ex. A 3. Further, the parties each agreed that the order providing such protections must
have been affirmed by the highest court to which such order was appealed or certiorari has been
denied and the time to take any further appeal or petition for certiorari shall have expired. R. 4, Ex. 13 at 1. Here, while certain direct action claims have been held to have been barred under the
Bankruptcy Courts 1986 Orders, the Second Circuit reversed this Courts ruling affirming the
Bankruptcy Courts order as to contribution claims.
The heart of the Bankruptcy Courts reasoning that led it to conclude that it was free to
ignore the agreed contract language was its erroneous conclusion that to do otherwise would somehow
require it to construe the Settlement Agreements in an unlawful manner:
Travelers position cannot be squared with fundamental principles of contract law that
require this Court to adopt a construction [of an agreement] . . . which renders the
contract valid. . . . Travelers reading of the Settlements would require this Court to
enter an order clarifying that all Direct Action claims were enjoined by the 1986
Orders, regardless of whether the parties bringing these claims received
constitutionally sufficient notice of the 1986 Orders. However, a reading of [a]n
agreement which violates a provision of the constitution is illegal and void and the
law will not presume that the parties intended to make an illegal contract.
R. 15, at 15 (internal citations omitted).
The Bankruptcy Courts reasoning conflates the validity of the courts order with the
validity of the conditions precedent in the Settlement Agreements that the proposed order be entered
and affirmed on appeal. The Agreements did not purport to require entry of the proposed order
something the parties obviously had no ability to require. Instead, the parties agreed that if such an
order were entered and if it was affirmed on appeal, under those circumstances Travelers would make
the agreed settlement payments (assuming the other conditions precedent were likewise established).
That payment was conditioned on such an outcome was made crystal clear, and no party has claimed
that they did not understand the Settlement Agreements or that it is in any way ambiguous in this

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regard. Indeed, it was precisely because of the risk that the protections against Direct Actions and
related contribution claims would not be entered or affirmed on appeal that the parties spelled out in
plain and unambiguous terms the consequences of such a result. See State v. Warren Bros. Co., Inc.,
593 N.Y.S.2d 308, 310 (N.Y. App. Div. 1993) (It is axiomatic that if such a condition does not occur,
performance under a contract is not due.). The fact that the order ultimately was found to be
unlawful as to the relevant contribution claims does not render the Settlement Agreements in any way
unlawful or invalid.9
Indeed, there would have been no reason for the parties to have agreed that the order
must be a Final Order and thus affirmed on appeal if reversal simply resulted in rendering the
conditions invalid. See Beal Sav. Bank v. Somme, 865 N.E.2d 1210, 1213-14 (N.Y. 2007) (The court
should construe the agreements so as to give full meaning and effect to the material provisions. A
reading of the contract should not render any portion meaningless. (internal citations and quotations
omitted)). Under the Bankruptcy Courts reasoning, if a condition precedent turns out to be
unobtainable or impossible, the condition will simply be deemed unenforceable. That is not the law.
See Oppenheimer & Co. v. Openheim, Appel, Dixon & Co., 660 N.E.2d 415, 419 (1995); Ipar Realty
Corp. v. Herbert Const. Co., Inc., 596 N.Y.S.2d 466, 467-68 (N.Y. App. Div. 1993).10

In its prior Findings of Fact and Conclusions of Law, the Bankruptcy Court noted, [t]he Mediator
has reported that each [of the] [S]ettlement [Agreements] was the product of good faith, arms-length
negotiations among the parties, and the Court agrees. R. 1 at 95.
10

None of the cases relied upon by the Bankruptcy Court supports the Courts invalidating of the
conditions precedent. Indeed, the Bankruptcy Court did not cite a single case where a court has reformed
a contract because a condition precedent of a court order was not obtained. Instead, the cases cited by the
Bankruptcy Court involve constructions that would require a party to the contract to commit an illegal act
or interpretations of ambiguous contracts that leave a contract meaningless, neither of which are found
here. See Venizelos, S.A. v. Chase Manhattan Bank, 425 F.2d 461, 464-67 (2d Cir. 1970) (interpreting a
contract in light of understanding of the parties that a certain size shipment was too large to make in a
single delivery); Friedman v. State, 242 A.D. 314, 316-17 (N.Y. App. Div. 1934) (holding that a contract
to co-host wrestling matches would not be interpreted in a way that would require parties to intentionally
violate state licensing and tax laws); Civil Serv. Employees Assn, Inc. v State Univ. of Stony Brook, 368

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In fact, it is quite common for settlement agreements to require court approval by way
of final order as a condition precedent to payment. Indeed, the Supreme Court in Bailey noted the
importance of such provision to the incentives of parties to settle in this case in 1986. See Bailey, 129
S. Ct. at 2199. (The insurers were entitled to terminate the [1986] settlements if the injunctive
orders [were] not issued or if they [were] set aside on appeal. (quoting MacArthur, 837 F.2d at 9194)). Other courts have routinely approved settlement agreements that have as condition precedent
entry of a court order. See, e.g., In re XO Commcns, Inc., 330 B.R. 394, 408-09 (Bankr. S.D.N.Y.
2005); In re Marine Midland Motor Vehicle Leasing Litig., 155 F.R.D. 416, 426-27 (W.D.N.Y. 1994).
Such ubiquitous and obviously important provisions in settlement agreements would be rendered
invalid under the Bankruptcy Courts reasoning, which would substantially impede the ability of
litigants to settle.
The Bankruptcy Courts reasoning also results in a construction that would lead to
absurd results which are contrary to the clear intent of the parties. For example, there would have
been no reason Travelers would have agreed to any payment (let alone payment of such substantial
sums) without regard to whether the protections that were the sine qua non of the agreement were
enforceable. Indeed, under the Bankruptcy Courts reasoning, Travelers would have been required to
make payment even if none of the Direct Action claims was barred and no aspect of the Bankruptcy
Courts 1986 or 2004 orders survived on appeal. Obviously, none of the parties contemplated such an
absurd result.
Moreover, New York law is clear that conditions precedent to a settlement agreement
must be performed according to their literal terms: Express conditions must be literally performed;
substantial performance will not suffice. MHR Capital Partners, 912 N.E.2d at 47 (emphasis

N.Y.S.2d 927, 929-30 (N.Y. Sup. Ct. 1974) (holding that a contract to restrict the use of state facilities
would not be interpreted such that the State had explicitly contracted to violate the First Amendment).

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added); see IDT Corp., 918 N.E.2d at 916-17 (holding that a valid settlement agreement never became
enforceable because the agreed-upon conditions were not met); Oppenheimer, 660 N.E.2d at 418
(Express conditions must be literally performed . . . .).
The Bankruptcy Courts ruling could be read implicitly to suggest that there has been
substantial performance of the condition when it concluded that Travelers received everything that it
bargained for: an order clarifying that to the extent a Direct Action claim (including any related
contribution or indemnification claim) was enjoined under the 1986 Confirmation Order, such claim
was indeed enjoined . . . . R. 15, at 16 (emphasis added). But that is not at all what the parties
agreed to under the Settlement Agreements. The clarification that Travelers sought was that all of the
Direct Action claims, including contribution and indemnification claims, were permanently enjoined.
Because the Clarifying Order was reversed on appeal by the Second Circuit in a way that renders
Travelers potentially exposed to contribution claims and indirectly liable for Direct Actions, Travelers
has not received the benefit of the bargain to which it and the Appellees expressly agreed.
Even assuming the bar against contribution claims could be considered immaterial
under the agreementsa claim none of the Appellees has made or could makethat would be
irrelevant to enforceability of an express condition precedent. Substantial performance or
materiality is simply not a proper consideration under New York law for express contractual
conditions. See Oppenheimer, 660 N.E.2d at 419 (If the parties have made an event a condition of
their agreement, there is no mitigating standard of materiality or substantiality applicable to the nonoccurrence of that event.).
Further, even if mere substantial compliance was enough to support enforcement of a
condition (contrary to New York law), there is nothing in the record to support the notion that the bar
of contribution claims was in any way immaterial to the Settlement Agreements. To the contrary, it
was expressly included in each of the Agreements, and clearly potential liability for contribution
would mean that Travelers did not obtain the finality that was the condition of settlement, particularly

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for claims that were barred and had always been barred by the plain language of the 1986. See
Denney v. Deutsche Bank AG, 443 F.3d 253, 273 (2d Cir. 2006) (discussing how the potential liability
of unbarred contribution claims would diminish the incentive to settle).
Indeed, this Court noted the importance of finality at the time the prior appeals were
before this Court:
Travelers thought it had secured finality and a full and complete release of liabilities
related to Manville. In re Johns-Manville Corp., 340 B.R. at 56 (emphasis added).
As the Bankruptcy Court concluded: The Courts repeated use of the term arising
out of and related to were not gratuitous or superfluous, they were meant to provide
the broadest protection possible to facilitate global finality for Travelers as a
necessary condition for it to make a significant contribution to the Manville estate.
Id. (quoting R. 1, Conclusions of Law 23) (emphasis added).
The Bankruptcy Court understood that insurers would not contribute funds [to the
Manville Trust] without receiving assurances that any liabilities arising from or
relating to their insurance relationships would be fully and finally resolved. Id. at
61 (quoting R. 1, Conclusions of Law 20) (emphasis added).
While the Bankruptcy Court dismissed the importance of complete and total peace for
Travelers as a subjective concept that no tribunal can ever guarantee, the parties did not contract for
an abstract or subjective notion of complete and total peace. R. 15, at 16. The parties specified and
enumerated precisely what finality and peace for Travelers constituted, and it included a bar against
contribution claims. See Greenfield v. Philles Records, Inc., 780 N.E.2d 166, 170-71 (N.Y. 2002)
(holding a contract unambiguous if the language it uses has a definite and precise meaning,
unattended by danger of misconception in the purport of the [agreement] itself, and concerning which
there is no reasonable basis for a difference of opinion). So long as Chubb may bring contribution
claims against Travelers for Direct Actions, Travelers has not received the benefit of finality, and
effectively is in no better position than it was before the Settlements.
B.

Equitable Powers May Not Be Used To Rewrite a Contract


To the extent the Bankruptcy Courts ruling was prompted by the courts invoking of

its equitable powers to ensure that substantial justice is achieved, R. 15, at 17, New York law is

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absolutely clear that that is an impermissible basis to modify or ignore the terms of a contract. See
MHR Capital Partners, 912 N.E.2d at 47 (partys time to voice its displeasure with the wording and
requirements of the documents expired when it accepted and signed the agreement). Thus, if the
agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the
contract to reflect its personal notions of fairness and equity. Greenfield, 780 N.E.2d at 171 (internal
citations omitted); see In re Motors Liquidation Co., 428 B.R. 43, 62 & n.29 (S.D.N.Y. 2010).
Rewriting the terms of a contract would run counter to the strong public policy under
New York law favoring the strict enforcement of the bargained-for terms of a settlement agreement:
the strict enforcement [of settlement agreements] not only serves the interest of efficient dispute
resolution but is also essential to the . . . integrity of the litigation process. IDT Corp., 918 N.E.2d
at 916 (emphasis added) (internal citation omitted). Bargained-for conditions make settlements
possible; if those conditions are not honored and parties are still required to make payments, there is a
disincentive to enter settlement agreements. See Denney, 443 F.3d at 273. Principles of equity should
not be used to rewrite the conditions of a settlement agreement. Oppenheimer, 660 N.E.2d at 418
(Since an express condition . . . depends on for its validity on the manifested intention of the parties,
it has the same sanctity as the promise itself. Though the court may regret the harshness of such a
condition, as it may regret the harshness of a promise, it must, nevertheless, generally enforce the will
of the parties . . . . (quoting 5 Williston, Contracts 669, at 154 (3d ed.))).
Nor would enforcement of the agreed terms be in any way inequitable. The
Bankruptcy Court noted that it is concerned that Travelers is getting something for nothing. R. 15,
at 17. The Bankruptcy Courts concern apparently stemmed from the fact that Bailey confirmed
Travelers original position that the plain terms of the 1986 Orders enjoined those who were parties to
the Manville Confirmation or in privity with them from pursuing Direct Action claims against
Travelers. But this is not something for nothing. Travelers paid to settle those claims in 1986, and
is entitled to rely on the injunction in the 1986 Orders. The Direct Action claimants have no legal or

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equitable claim to additional settlement payments beyond their contractual rights under the Settlement
Agreements to which they expressly agreed after extensive, arms-length negotiations. There is
nothing inequitable about requiring parties to such agreements to comply with the terms and
conditions to which they agreed.
II.

SETTLEMENT COUNSEL DID NOT SATISFY OTHER CONDITIONS PRECEDENT


In addition to the fact that the Final Order condition was not satisfied under each of

the Settlement Agreements, the Bankruptcy Court further erred in requiring payment under the Hawaii
and Common Law Settlement Agreements because of the Settlement Counsels failure to satisfy other
conditions precedent under the Hawaii Direct Action Settlement Agreement and the Common Law
Settlement Agreement.
As the party seeking to compel payment, it was Settlement Counsels burden to
demonstrate that each of the conditions precedent had been met. There is nothing in the record to
support a finding that the Common Law Settlement Counsel and Hawaii Settlement Counsel have
satisfied all conditions precedent in their respective Settlement Agreements. R. 4, Ex. 2 & 3.
Specifically, there is no evidence that the Hawaii Settlement Counsel satisfied the condition in the
Hawaii Direct Action Settlement Agreement that all named plaintiffs have dismissed with prejudice
all Claims against Travelers. R. 4, Ex. 2 at 2(d). There is no evidence that Common Law
Settlement satisfied the Common Law Settlement Agreement condition that no fewer than 14,000
general releases were executed and delivered into escrow. R. 4, Ex. 3 at 2(c). Thus, the Bankruptcy
Court erred in entering judgment against Travelers as to the Hawaii and Common Law Settlement
Agreements.11

11

Rather than providing such evidence, Settlement Counsel argued below that Travelers somehow
waived the right to require that Settlement Counsel establish satisfaction with these conditions in its
opposition to the Motions to Compel. Yet the principal issue raised by those Motions was whether the
Final Order conditions had been met. Travelers noted that the issue of the date of any alleged breach

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III.

Filed 03/11/11 Page 26 of 28

THE BANKRUPTCY COURT ERRED IN AWARDING PREJUDGMENT INTEREST


FROM JUNE 2009
Unsupported by any reasoning, the Bankruptcy Court granted Settlement Counsels

request for prejudgment interest from the date of Bailey, which amounted to more than $65 million R.
27, at 12:2-8; R. 30. Irrespective of whether Manville II precluded a finding that there was a Final
Order, in no event could Travelers have had any payment obligation triggering the accrual of
prejudgment interest until, at the very earliest, after the Supreme Court denied Travelers petitions for
mandamus and certiorari. The Settlement Agreements provided that there could be no payment
obligation until 5 days (in the case of the Statutory and Hawaii Settlement Agreements) and 30 days
(in the case of the Common Law Settlement Agreement) after a Final Order, which was defined to
mean when the time to appeal, petition for certiorari, motion for reargument or rehearing has expired
and as to which no appeal, petition for certiorari or other proceeding for reargument or rehearing shall
be pending . . . . R. 4, Ex. 1 at 2(a); R. 4, Ex. 2 at 2(b),(d); R. 4, Ex. 2 at 2(a). When the
Supreme Court issued its decision in Bailey, it remanded the case to the Second Circuit to consider
objections that had been preserved and not considered in Manville I or Bailey. Indeed, after Bailey
was decided, non-settling asbestos claimants filed supplemental briefs with the Second Circuit
pressing numerous objections to the Clarifying Order, including the assertion that asbestos plaintiffs
were not bound by the Bankruptcy Courts injunctions. R. 33. Chubb also continued to press its
objections, which ultimately resulted in the Second Circuits reversal of this Courts prior ruling. The

was not properly presented in the Motions to Compel and that it was in no way conceding that any breach
had occurred. See R. 13, at 7 n. 5. In the December 16 Ruling, the Bankruptcy Court noted Travelers
reservation and invited further submissions and argument. R. 15, at 16. Travelers raised the failure of the
other conditions while briefing was still open and before entry of final judgment. Doctrines of preclusion
such as those relied on by Settlement Counsel are informed principally by the concern that disregard of an
earlier ruling not be allowed to prejudice the party seeking the benefit of the doctrine. . . . [and] [p]rejudice
in this context does not mean harm resulting from the failure to adhere to the prior decision, but instead
refers to a lack of . . . sufficient opportunity to prepare armed with the knowledge that the prior ruling is
not deemed controlling. Prisco v. A & D Carting Corp., 168 F.3d 593, 607 (2d Cir. 1999). Settlement
Counsel had every opportunity to respond to Travelers contentions and failed to do so.

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Clarifying Order thus did not become final, and hence could not have been a Final Order, before the
Supreme Court denied Travelers petitions for writs of mandamus and certiorari on November 29,
2010.
The Bankruptcy Court thus compounded its other errors by its punitive award of tens
of millions of dollars in prejudgment interested from the date of the Bailey decision. Even assuming
arguendo all of the conditions precedent had been met, Travelers could not possibly have had any
payment obligation triggering prejudgment interest until, at the very earliest, December 6, 2010 (in the
case of the Statutory and Hawaii Settlement Agreements) and December 29, 2010 (in the case of the
Common Law Settlement Agreement).
In the final analysis, however, in view of the fundamental errors by the Bankruptcy
Court in nullifying the conditions precedent agreed to by the parties, this Court need not reach the
Bankruptcy Courts failure to find that other conditions were satisfied or its erroneous and punitive
award of prejudgment interest. Nonetheless, these errors illustrate the extent to which the Bankruptcy
Courts reasoning was divorced from the terms and conditions of the agreements and governing New
York law.
CONCLUSION
For the foregoing reasons, the Bankruptcy Courts judgment should be reversed.
Dated: New York, New York
March 11, 2011

Respectfully submitted,
SIMPSON THACHER & BARTLETT
By:

s/: Barry R. Ostrager


Barry R. Ostrager (BRO-5379)
Andrew T. Frankel (ATF-5202)
425 Lexington Avenue
New York, New York 10017-3954
Tel.: (212) 455-2000
Fax: (212) 455-2502
Attorneys for The Travelers Indemnity Company and
Travelers Casualty and Surety Company

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CERTIFICATE OF SERVICE
I, Barry R. Ostrager, certify that on the 11th day of March 2011, I caused a true and
correct copy of the foregoing BRIEF FOR APPELLANTS THE TRAVELERS INDEMNITY
COMPANY AND TRAVELERS CASUALTY AND SURETY COMPANY to be served via the

Courts electronic filing system. I also certify that on said date, I caused to be served a true and
correct copy of the aforementioned document(s) via Fed Ex, postage prepaid, upon the following:
Ronald Barliant
Goldberg Kohn Ltd.
55 East Monroe Street, Suite 3300
Chicago, Illinois 60603-5792
(312) 201-4000
ronald.barliant@goldbergkohn.com
Eric Bogdan
Bogdan Law Firm
4910 Wright Road, Suite 190
Stafford, Texas 77477
bogdanlaw@aol.com

Matthew Gluck
Kent A. Bronson
Milberg LLP
One Pennsylvania Plaza
48th Floor
New York, NY 10019
(212) 594-5300
mgluck@milberg.com
kbronson@milberg.com

Dated: March 11, 2011


New York, New York
s/: Barry R. Ostrager
Barry R. Ostrager