Delaware Business Litigation Report

District Court Enjoins Plaintiff from Initiating Third-Party Proceedings Against Defendants and from Pursuing Global Settlement Strategy in Pending Asbestos Cases

Flowserve Corp. v. Burns Int'l Servs. Corp., C.A. No. 04-1294-JJF, 2006 WL 739886 (D. Del. Mar. 22, 2006). Plaintiff filed a complaint seeking a declaratory judgment of its right to indemnification in asbestos litigation under the terms of a stock purchase agreement executed by its predecessor-in-interest, which had acquired a subsidiary of Borg-Warner Corp. ("BWC"). Defendant Burns International Services Corp. ("Burns"), which had purchased BWC's insurance assets at a liquidation sale, filed a counterclaim alleging that its indemnification obligations to plaintiff only arose out of a later letter agreement, and that once BWC's insurance was exhausted, plaintiff had to pay the costs of defending and resolving the asbestos claims. During the pendency of the instant case, plaintiff informed Burns that (i) it had terminated the counsel chosen by Burns to defend the asbestos claims; (ii) it was choosing its own counsel; and (iii) it was directing its new counsel to file third-party complaints against defendants and to pursue global settlements in the underlying asbestos cases (together, the "threatened actions"). Burns then sought a temporary restraining order and preliminary injunction to enjoin plaintiffs from taking the threatened actions.

Burns did not deny that plaintiff was entitled to retain its own counsel and defend or settle the asbestos cases, but argued that, under the terms of the stock purchase agreement, plaintiff could do so only at its own expense. Burns also contended that it would suffer irreparable harm if plaintiff took the threatened actions because the filing of duplicative third-party claims would disrupt the defense and/or settlement of the underlying asbestos litigation. Burns also argued that plaintiff would likely try to settle the asbestos cases globally at a premium by assigning its rights to the available insurance proceeds to the plaintiffs, which would impact pending indemnification litigation in another state and encourage prospective plaintiffs to file more claims. Plaintiff responsed that it needed new counsel because the counsel chosen by the insurance carrier and supervised by Burns had inherent conflicts and had improperly compromised plaintiff's interests in the asbestos actions, and that because plaintiff had the right to access the insurance proceeds directly, it could assign that right to the asbestos plaintiffs. The Court granted the temporary restraining order and preliminary injunction, holding that (i) Burns had demonstrated that it would be irreparably harmed if plaintiff were permitted to take the threatend actions; (ii) plaintiff would not be harmed by the injunctive relief; (iii) the public interest would be served by the issuance of a preliminary injunction; and (iv) Burns had demonstrated a likelihood of success on the merits.

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