United States Gypsum Company has returned to bankruptcy court to fend off a $16.77 million lawsuit from Ohio, arguing that the state's claims for subsidence stabilization costs were discharged under its 2006 Chapter 11 plan and that Ohio's pursuit of the matter violates federal bankruptcy law.
In an adversary complaint filed September 19, 2025, in the U.S. Bankruptcy Court for the District of Delaware, USG contends that Ohio knew about potential subsidence issues as early as 2005 – more than a year before USG's reorganization plan became effective – but failed to assert any claims during the bankruptcy proceedings. The company is seeking declaratory judgment and injunctive relief to halt Ohio's state court lawsuit.
The dispute centers on costs Ohio incurred between 2013 and 2015 to stabilize areas under State Route 2 where USG had previously operated gypsum mines. Ohio claims USG breached its duty to provide adequate subsurface support, leading to the need for costly grouting work to prevent potential road collapse.
Bankruptcy Background and Discharge Provisions
USG filed for Chapter 11 protection on June 25, 2001, in Case No. 01-02094 (KBO). The company's reorganization plan was confirmed on June 16, 2006, and became effective four days later on June 20, 2006. The final decree closing the case was entered on June 30, 2009.
The confirmed plan contained broad discharge and release provisions that, according to USG, released the company "from all Claims or other Liabilities that arose on or before the Effective Date" and "from all Liabilities from the beginning of time." The plan also included injunctive provisions permanently barring the prosecution of any claims that arose before the plan's effective date.
Critically, Ohio's Attorney General had filed a Notice of Appearance in the bankruptcy case on January 21, 2003, and the state was properly served with the plan solicitation package on April 21, 2006, giving it ample opportunity to assert any claims it might have had.
Timeline of Subsidence Issues
According to the complaint, the roots of Ohio's current claims trace back to events that occurred well before USG's plan became effective:
Pre-Confirmation Events:
- April 29, 2004: USG offered to install ground subsidence monitoring equipment on the property
- December 8, 2004: Ohio met with Ottawa County officials about monitoring devices, with a state spokesperson saying "mine owners would be liable for the cost of repairing any damage attributable to the tunnels"
- March 26, 2005: A significant sinkhole developed on USG's property near State Route 2 on Easter Sunday
- September 2005: Ohio received an engineering report (the "CTL Report") recommending monitoring and permanent stabilization to "support SR-2 and prevent subsidence that could prove tragic to the traveling public"
Despite these events and Ohio's apparent knowledge of potential claims, the state took no action in the bankruptcy proceedings to assert or reserve any rights related to subsidence issues.
Post-Confirmation Developments
After the bankruptcy plan became effective, Ohio proceeded unilaterally with stabilization efforts:
- 2010: Ohio began its own subsidence monitoring program
- 2013-2015: Ohio hired contractors to complete grouting work under State Route 2
- Throughout this period: Ohio never sought payment from USG or consulted the company about the work
The complaint notes that Ohio acted "in a manner evidencing that USG was not liable or responsible for the stabilization work" and had "the unilateral right to fill the subsurface mine voids beneath SR-2 without USG's involvement or consent."
This behavior continued until March 16, 2023, when Ohio suddenly sent USG a demand letter seeking reimbursement for the stabilization costs – nearly 17 years after the bankruptcy discharge became effective.
Current Legal Battle
When USG responded in May 2023 that Ohio's claims were discharged in bankruptcy, the state ignored the warning and filed suit in Ottawa County, Ohio Court of Common Pleas on January 13, 2025, seeking $16.77 million.
USG initially tried to resolve the matter efficiently by filing a Motion to Enforce the confirmation order in bankruptcy court on March 20, 2025, while also seeking dismissal or a stay of the state court action. However, Ohio opposed these efforts and instead "served USG with extensive discovery requests in the State Court Action, including requests for admission, interrogatories and document requests seeking more than fifty years of information and documents."
On August 7, 2025, the Ohio state court denied USG's motions to dismiss and stay, forcing the company to defend the lawsuit while simultaneously pursuing bankruptcy court relief.
Legal Arguments and Historical Context
USG's complaint emphasizes several key arguments:
Timing of Claims: Under both the predominant Third Circuit "Grossman's test" and the earlier "Frenville test," Ohio's claims arose when the state knew or should have known of the potential subsidence issues – no later than the Easter 2005 sinkhole or September 2005 CTL Report, both well before the June 2006 plan effective date.
Property Transfer History: USG notes that it sold land to Ohio for State Route 2 construction in 1965 and executed a quit-claim deed in 1977 releasing subsurface rights and support obligations. This history suggests Ohio assumed responsibility for the subsurface areas.
Voluntary Cooperation: The complaint details how USG offered in 2004-2005 to voluntarily install monitoring equipment, but Ohio rejected this assistance and chose to handle the matter unilaterally.
Stakes and Implications
The case represents a significant test of the finality of bankruptcy discharges, particularly regarding claims that creditors knew about but failed to assert during the bankruptcy process. USG argues that allowing Ohio's lawsuit to proceed would undermine the fundamental principle that bankruptcy provides a "fresh start" by cutting off pre-petition claims.
"The Plan and Confirmation Order are res judicata as to all aspects of the Discharge Injunction," USG contends, noting that confirmation orders become final judgments that bar all challenges that could have been raised during the bankruptcy process.
The matter is being handled for USG by Daniel J. DeFranceschi, Brendan J. Schlauch, and Zachary J. Javorsky of Richards, Layton & Finger, P.A. in Delaware, along with W. Timothy Miller, Mark T. Hayden, and Connor D. Hicks of Taft Stettinius & Hollister LLP in Ohio.
A hearing date for the adversary proceeding has not yet been scheduled. The case highlights the ongoing complexities that can arise decades after a bankruptcy case closes, particularly when involving long-term environmental or infrastructure issues.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 37 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.