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In re Johns-Manville Corp._ Travelers Dist Ct Brief Opposing Payment 2011

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					          Case 1:11-cv-01312-JGK Document 10                             Filed 03/11/11 Page 1 of 28



IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
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                                                                     :
                                                                     :
                                                                     :
                                                                     :   Civil Action No. 1:11-cv-01312-JGK
In re Johns-Manville Corp., et al.,                                  :
                                                                     :   On Appeal from The United States
                                              Debtors.               :   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
            Case 1:11-cv-01312-JGK Document 10                                Filed 03/11/11 Page 2 of 28



                                                  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 Court’s Ruling ......................................................................... 14

ARGUMENT ........................................................................................................................... 15

I.        THE BANKRUPTCY COURT’S JUDGMENT IS CONTRARY TO THE PLAIN
          AND UNAMBIGUOUS TERMS OF THE AGREEMENTS. ....................................... 15

          A.        The Bankruptcy Court’s 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 Ass’n, 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 Commc’ns, 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
         Case 1:11-cv-01312-JGK Document 10                   Filed 03/11/11 Page 4 of 28



                                   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 Court’s 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.




1
        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”).


                                                     1
         Case 1:11-cv-01312-JGK Document 10                  Filed 03/11/11 Page 5 of 28



                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 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. . . .

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



                                                    2
         Case 1:11-cv-01312-JGK Document 10                  Filed 03/11/11 Page 6 of 28



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 Circuit’s

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 Circuit’s ruling was erroneous for


                                                    3
         Case 1:11-cv-01312-JGK Document 10                   Filed 03/11/11 Page 7 of 28



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 Circuit’s ruling

violated the Supreme Court’s 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 Circuit’s

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




                                                     4
            Case 1:11-cv-01312-JGK Document 10                    Filed 03/11/11 Page 8 of 28



agreeing with the Appellees’ request for prejudgment interest calculated based on the date of the

Supreme Court’s 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 Court’s 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 protections—including the bar against all




3
            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 Circuit’s 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 claims—were 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 Court’s 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 Court’s 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


                                                       6
        Case 1:11-cv-01312-JGK Document 10                Filed 03/11/11 Page 10 of 28



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 Circuit’s 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
       Court’s 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 Court’s 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 Court’s final judgment. That judgment was

predicated on the Court’s ruling that Travelers was obligated to make payments pursuant to the



                                                  7
        Case 1:11-cv-01312-JGK Document 10                Filed 03/11/11 Page 11 of 28



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 Court’s 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 Counsel’s 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). Manville’s most valuable asset was its insurance coverage, including in



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particular, more than 425 policies issued by Travelers, Manville’s 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



4
        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.



                                                     9
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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 Court’s 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



5
           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).



                                                        11
         Case 1:11-cv-01312-JGK Document 10                 Filed 03/11/11 Page 15 of 28



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 Chubb’s 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 Chubb’s notice objection in




6
        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.


                                                   12
        Case 1:11-cv-01312-JGK Document 10                  Filed 03/11/11 Page 16 of 28



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 Court’s 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 Chubb’s contribution claims, notwithstanding the Supreme Court’s

holding that it was error for the Court of Appeals to have considered the Bankruptcy Court’s

jurisdiction in the panel’s 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 court’s jurisdiction.” Id. at 148. Having allowed Chubb to mount a

collateral challenge, the Second Circuit:




7
      Then-Judge Sotomayor was on the prior panel but by the time of remand had been elevated to the
Supreme Court.


                                                   13
        Case 1:11-cv-01312-JGK Document 10                   Filed 03/11/11 Page 17 of 28



         [R]emain[ed] persuaded that the 1986 Orders, as interpreted in 2004, exceed the
        bounds of the bankruptcy court’s 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 court’s
        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 court’s 2004

interpretation of those orders. Accordingly, the district court’s order is reversed as to Chubb . . . .”

Id. at 138 (emphasis added).8

                Believing the Second Circuit’s ruling violated the Supreme Court’s 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 Court’s Ruling

                The Bankruptcy Court’s 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 II’s reversal because an order barring Chubb’s 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




8
        The non-settling asbestos claimants withdrew their appeals on the eve of oral argument.



                                                    14
        Case 1:11-cv-01312-JGK Document 10                  Filed 03/11/11 Page 18 of 28



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 COURT’S JUDGMENT IS CONTRARY TO THE PLAIN AND
        UNAMBIGUOUS TERMS OF THE AGREEMENTS.

        A.      The Bankruptcy Court’s 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




                                                    15
        Case 1:11-cv-01312-JGK Document 10                  Filed 03/11/11 Page 19 of 28



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. 1-

3 at § 1. Here, while certain direct action claims have been held to have been barred under the

Bankruptcy Court’s 1986 Orders, the Second Circuit reversed this Court’s ruling affirming the

Bankruptcy Court’s order as to contribution claims.

                The heart of the Bankruptcy Court’s 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 Court’s reasoning conflates the validity of the court’s 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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        Case 1:11-cv-01312-JGK Document 10                   Filed 03/11/11 Page 20 of 28



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 Court’s 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




9
        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 Court’s 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 Ass’n, Inc. v State Univ. of Stony Brook, 368



                                                    17
         Case 1:11-cv-01312-JGK Document 10                    Filed 03/11/11 Page 21 of 28



                  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 91-

94)). Other courts have routinely approved settlement agreements that have as condition precedent

entry of a court order. See, e.g., In re XO Commc’ns, 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 Court’s reasoning, which would substantially impede the ability of

litigants to settle.

                  The Bankruptcy Court’s 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 Court’s 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

Court’s 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).



                                                      18
        Case 1:11-cv-01312-JGK Document 10                    Filed 03/11/11 Page 22 of 28



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 Court’s 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 agreements—a claim none of the Appellees has made or could make—that 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 non-

occurrence 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


                                                    19
        Case 1:11-cv-01312-JGK Document 10                   Filed 03/11/11 Page 23 of 28



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 Court’s 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 Court’s ruling was prompted by the court’s invoking of

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



                                                    20
         Case 1:11-cv-01312-JGK Document 10                   Filed 03/11/11 Page 24 of 28



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 (party’s 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 Court’s 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


                                                     21
        Case 1:11-cv-01312-JGK Document 10                  Filed 03/11/11 Page 25 of 28



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 Counsel’s 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 Counsel’s 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



                                                   22
         Case 1:11-cv-01312-JGK Document 10                     Filed 03/11/11 Page 26 of 28



III.    THE BANKRUPTCY COURT ERRED IN AWARDING PREJUDGMENT INTEREST
        FROM JUNE 2009

                 Unsupported by any reasoning, the Bankruptcy Court granted Settlement Counsel’s

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 Court’s injunctions. R. 33. Chubb also continued to press its

objections, which ultimately resulted in the Second Circuit’s reversal of this Court’s 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.


                                                       23
        Case 1:11-cv-01312-JGK Document 10                  Filed 03/11/11 Page 27 of 28



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 Court’s 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

Court’s reasoning was divorced from the terms and conditions of the agreements and governing New

York law.

                                           CONCLUSION

                For the foregoing reasons, the Bankruptcy Court’s judgment should be reversed.

Dated: New York, New York                    Respectfully submitted,
March 11, 2011
                                             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



                                                     24
        Case 1:11-cv-01312-JGK Document 10                Filed 03/11/11 Page 28 of 28




                                  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

Court’s 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                                        Matthew Gluck
Goldberg Kohn Ltd.                                     Kent A. Bronson
55 East Monroe Street, Suite 3300                      Milberg LLP
Chicago, Illinois 60603-5792                           One Pennsylvania Plaza
(312) 201-4000                                         48th Floor
ronald.barliant@goldbergkohn.com                       New York, NY 10019
                                                       (212) 594-5300
Eric Bogdan                                            mgluck@milberg.com
Bogdan Law Firm                                        kbronson@milberg.com
4910 Wright Road, Suite 190
Stafford, Texas 77477
bogdanlaw@aol.com


Dated: March 11, 2011
New York, New York
                                                                  s/: Barry R. Ostrager
                                                                     Barry R. Ostrager

				
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