In re W.R. Grace & Co.

Section 524(g) enables bankruptcy courts handling asbestos-related companies’ cases to establish a trust for future claimants against the debtor company as part of the debtor company’s reorganization plan. Through the resulting channeling injunction, Section 524(g) diverts all claims against the debtor to the trust. Certain third parties can also benefit from a Section 524(g) channeling injunction. In order for a third-party to benefit, the party must satisfy a three-element test. Here, only the “derivative liability” and “statutory relationship” requirements were at issue. The Third Circuit held that the claims met the derivative liability requirement, but that the Court could not determine whether they met the statutory relationship requirement. As such, the Third Circuit remanded the matter to the District Court for further fact finding.

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