Many of you may have read the book or seen the 1998 movie “A Civil Action” starring John Travolta as lawyer Jan Schlichtmann, an attorney who sues Beatrice Foods, Unifirst and W.R. Grace alleging the chemicals they released into the water supply of Woburn, MA caused a high incidence of leukemia in children. After settling the case against Beatrice, Unifirst, and eventually W.R. Grace for much less than the claims were estimated to be worth, and forgoing much of his fees and expenses, Mr. Schlichtmann filed personal bankruptcy. The EPA later concluded that Beatrice and W.R. Grace had contaminated the water supply but it was too late for Mr. Schlichtmann to recover further damages.
Skip ahead to 2001 and W.R. Grace is at it again, but this time it is was them that filed for bankruptcy, specifically under Chapter 11. However, W.R. Grace did not file because it was nearly broke, after all the current recession was seven years away, but to delay payment of the health care costs of plaintiffs who filed a large number of claims against its asbestos business. Those claims were not paid until 2008, years after they were filed and likely decades after the harm was caused. But fear not, W.R. Grace is back on its feet again; its shares up 76% in June 2011 compared with the previous year and it is now seeking court permission to enter a new financing agreement that would allow it to take advantage of its “substantial cash reserves” and increase its profit further. Business Chapter 11’s are the only chapter that allows, and even encourages, Debtors to make a profit at the expense of their creditors and W.R. Grace has certainly done so.