PHILADELPHIA (Legal Newsline) - A temporary injunction staying asbestos claims against a bankrupt company will not be broadened to postpone claims against the State of Montana.

The U.S. Court of Appeals for the Third Circuit made the ruling Dec. 31 in a case involving the bankruptcy of W.R. Grace, which is charged with harming the residents of Libby, Mont., by mining, processing and exporting asbestos-tainted vermiculite.

The federal government even charged the company with knowingly endangering the town, but W.R. Grace was acquitted May 8. In 2001, lawsuits against the company were stayed pending the outcome of the bankruptcy.

A class of Libby citizens wants to sue the State of Montana, claiming it should have warned the town of the asbestos-related dangers of the mine. The state Supreme Court agreed with the class and remanded the case to determine if the State had breached that duty.

Montana wanted the stay on Grace claims lifted so it could be named as a third-party defendants. Grace wanted the injunction expanded to include claims against the State.

In 2007, Grace's motion was denied, with the bankruptcy court writing, "Montana must first be found liable in state court and then pursue its claim for indemnification in bankruptcy court."

A Delaware district court and the Third Circuit agreed. The decision says subject-matter jurisdiction does not exist for the federal courts to expand the injunction to include state court actions against Montana.

"Grace will not be bound by any judgment against the third party in question," the decision says.

"Rather, an entirely separate action would be necessary for any liability incurred by Montana to have an impact on Grace's estate. Specifically, Montana would first have to be found liable by its state courts and would then have to successfully bring an indemnification or contribution claim against Grace in the Bankruptcy Court."

Judge Kent Jordan wrote the opinion. Judges Maryanne Trump Barry and D. Michael Fisher joined in hearing the issue.

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