In re Western Asbestos Settlement Trust

Background

The Western Asbestos Settlement Trust was created under Bankruptcy Code section 524(g) to address asbestos-related personal-injury claims for which Western Asbestos Company, Western MacArthur Company, and/or MacArthur Company had legal responsibility. Edward Darden worked with asbestos-containing materials at Bay Area shipyards during the 1960s and 1970s.

In 1983, Darden sued Western MacArthur in California state court for non-malignant asbestosis. In 1986, he settled that case for $1,300 and signed a release covering known and unknown asbestos-related personal-injury, loss-of-consortium, and wrongful-death claims. The state-court dismissal was with prejudice as to Western MacArthur and “any predecessors and/or alternative entities and/or successors.”

After Darden was diagnosed with asbestos-related mesothelioma in 2016, he filed a personal-injury claim with the Trust in 2017. The Trust later rejected the claim after finding the release resolved Darden’s asbestos-related claims against Western Asbestos and Western MacArthur. After Darden’s death, Marvie Darden pursued the claim as his successor in interest, and the Dardens also asserted wrongful-death claims.

The parties filed cross-motions for summary judgment in the Bankruptcy Court. The Bankruptcy Court issued separate decisions concerning the personal-injury and wrongful-death claims. Its final judgment stated that the release, by itself, did not bar the wrongful-death claims; that the release did bar the June 2017 personal-injury claim; that the Trust was not authorized and therefore was not required to consider or compensate the wrongful-death claims; and that the Trust’s remaining requests for declaratory relief were dismissed without prejudice.

Appeal and jurisdiction

The Dardens appealed and argued, among other things, that the Bankruptcy Court lacked constitutional authority to enter a final judgment on their state-law personal-injury and wrongful-death claims because they had not consented to that procedure. The district court reviewed the Bankruptcy Court’s summary-judgment rulings anew, meaning it independently reviewed the legal conclusions and record.

The district court held that the Bankruptcy Court had jurisdiction. The claims were closely connected to the Chapter 11 plan and the Trust because resolving them required interpreting and implementing the Trust documents and could affect the Trust’s ability to meet its bankruptcy-related obligations. The district court therefore concluded that the Bankruptcy Court properly entered judgment.

Personal-injury claim

The district court affirmed the ruling that the 1986 release included Western Asbestos. The release expressly covered Western MacArthur’s predecessors, alternative entities, and successors, and the court concluded that Western Asbestos was Western MacArthur’s predecessor. The court also relied on evidence about the companies’ corporate history, the circumstances surrounding the release, the broad language of the release, and the parties’ understanding of Western Asbestos’s relationship to Western MacArthur.

The court further affirmed the Bankruptcy Court’s ruling under claim preclusion, a doctrine that generally bars a later case seeking relief for the same underlying harm after a final judgment. Applying California’s “primary rights” approach, the court concluded that Darden’s earlier case and the June 2017 Trust claim involved the same right—not to be exposed to dangerous asbestos products—even though the later claim was framed as negligence rather than product liability. The court also found that Western Asbestos was sufficiently connected to Western MacArthur to be in privity for purposes of claim preclusion. Accordingly, the 1983 action precluded the personal-injury claim.

Wrongful-death claims

The district court agreed with the Bankruptcy Court that the release itself did not eliminate the heirs’ wrongful-death claims. But it separately held that the Joint Plan and Trust documents did not require or authorize the Trust to compensate those claims. The Dardens did not allege that they themselves were exposed to asbestos products; their claims sought damages for financial losses resulting from Darden’s death. The court concluded that, without an underlying asbestos-exposure and illness claim that the Trust could compensate, the Trust could not pay the wrongful-death claims.

Motion to strike

The appellees moved to strike portions of the Dardens’ reply brief. The district court found that the Dardens had raised four arguments for the first time in reply: that the Bankruptcy Court had improperly valued or liquidated the wrongful-death claims; that California’s primary-rights theory did not apply to asbestos cases; that all laws were incorporated into the release; and that California follows an objective theory of contract interpretation. Because the arguments had not been presented in the opening brief and the appellees had not had a fair opportunity to respond, the court declined to consider them and granted the motion to strike portions of the reply brief.

Disposition

The court affirmed the Bankruptcy Court’s holdings that the 1986 release included Western Asbestos, that the 1983 action precluded the personal-injury claim, and that the Trust could not compensate the wrongful-death claims. It also granted the appellees’ motion to strike portions of the Dardens’ reply brief and directed the clerk to close the file.