UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

Transcription

1 SIEGAL, NAPIERKOWSKI & PARK 533 Fellowship Road, Suite 120 Mt. Laurel, New Jersey (856) CROWELL & MORING LLP 1001 Pennsylvania Avenue, N.W. Washington, D.C (202) O MELVENY & MYERS LLP Times Square Tower 7 Times Square New York, New York (212) Attorneys for Century Indemnity Company, Pacific Employers Insurance Company, ACE Property & Casualty Company, and ACE American Insurance Company UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY ) ) Chapter 11 In re: ) ) Case No (RG) BURNS & ROE ENTERPRISES, INC., et al., ) ) Hon. Rosemary Gambardella Debtors. ) ) Hearing Date: Jan. 24, 2007, 10:00 a.m. ) ) ACE INSURERS RESPONSE TO CNA s SUPPLEMENTAL BRIEF IN SUPPORT OF ITS MOTION TO COMPEL ADDITIONAL DOCUMENTS FROM WEITZ AND WILENTZ CNA s Supplemental Brief In Support Of Its Motion To Compel Additional Documents From Weitz and Wilentz ( CNA Brief, Dkt. No. 1880) demonstrates that several hundred persons who unquestionably do not have claims against Debtors estates, because their

2 lawsuit claims against Debtors had previously been dismissed with prejudice or settled, nevertheless submitted ballots purporting to accept Debtors plan of reorganization. While the balloting agent apparently has now recalculated the tally to exclude the votes of these persons, the entire episode raises a number of troubling issues that need to be forthrightly addressed in this bankruptcy case. As an initial matter, Century Indemnity Company, Pacific Employers Insurance Company, ACE Property & Casualty Company, and ACE American Insurance Company (collectively, the ACE Insurers ) fully support the efforts of CNA to determine if voting fraud or other voting irregularities have tainted this case. Accordingly, the ACE Insurers agree with CNA that further discovery should be permitted to flesh out these questions. Toward that end, the ACE Insurers urge that the Court order the Weitz and Wilentz law firms to provide the discovery requested in the outstanding subpoenas, which will assist in allowing the Court and parties in interest to determine the extent to which voting on the Plan complied with the provisions of the Bankruptcy Code and Rules. The revelation that several hundred persons with settled or dismissed claims that is, persons who are not creditors of the estate nevertheless cast ballots intended to influence the vote in this case, coupled with recent developments in other asbestos bankruptcy cases, suggests that the Court should, once the additional discovery has been obtained, evaluate whether a more far-reaching re-examination of voting in this case is warranted. In particular, the Court should at that time be open to considering whether the votes of other claimants can properly be considered here, consistent with the Bankruptcy Code and Rules. In this regard, the following issues may be presented: With one exception, discussed in the next bullet point, the Bankruptcy Code and Rules -2-

3 permit only persons with allowed claims to vote yet no asbestos claimant purporting to vote in this case has submitted a proof of claim that could be deemed allowed; Bankruptcy Rule 3018 permits persons without allowed claims to vote only if they carry a burden of proving to the Court that their claims should be temporarily allowed for voting purposes but no asbestos claimant has filed a Rule 3018 motion or otherwise attempted to demonstrate that his or her claim meets the requirements established for temporary allowance of a claim under Rule 3018; Ballots have undoubtedly been submitted by or on behalf of persons whose asbestos claims are (or would be) subject to the deferred dockets or pleural registries in effect in New York City and other jurisdictions. These persons do not have claims that are compensable under applicable non-bankruptcy law, and as such, they cannot properly be considered creditors of the estate entitled to vote on any plan; One of the plaintiffs law firms under subpoena in this case has acknowledged a practice of filing claims first, then investigating whether the claimant actually has a viable claim against a particular company based on exposure to asbestos for which that company has legal liability. In light of this practice, further scrutiny of the claims asserted against Debtors by any such purported claimants is required before their ballots can appropriately be counted; and Under the existing voting and solicitation order, all Class 5 asbestos claims are voted at the same $1 per vote amount regardless of whether the claimant is asserting a mesothelioma claim, a lung cancer claim, or an unimpaired asbestosis claim yet recent case law and practice has cast doubt on the legality of this vote-weighting practice. Given that (i) several hundred votes were submitted on behalf of claimants who -3-

4 unquestionably do not have claims against the estate and (ii) one of the two major claimants law firms involved has acknowledged that it follows a practice of filing suit before investigating the merits of the claim, reliance on the conclusory certification signed by counsel submitting master ballots which states that To the best of my information and belief, each such Asbestos Personal Injury Claimant holds a valid, compensable Claim against Burns and Roe Enterprises, Inc. for injury caused by Burns and Roe Enterprises, Inc. appears to be a plainly insufficient protection against improper voting. Indeed, once complete responses to the subpoenas have been received, it may prove to be appropriate to consider revising the solicitation and voting procedures order, in an attempt to ensure that only those persons who are entitled to vote under bankruptcy law and non-bankruptcy law actually do so. The Third Circuit has admonished bankruptcy courts that in asbestos-related bankruptcies such as this one, careful scrutiny of the entire process is required. Century Indem. Co. v. Congoleum Corp. (In re Congoleum Corp.), 426 F.3d 675, 693 (3d Cir. 2005) ( efficiency in asbestos-related bankruptcy cases must not be obtained at the price of diminishing the integrity of the process; the level of court supervision must be of a high order ). That particularly includes the process of voting. See In re Dune Deck Owners Corp., 175 B.R. 839, 845 (Bankr. S.D.N.Y. 1995) (when there is reason to question the truthfulness of certain votes, the Court must inquire into [such votes] in order to preserve the integrity of the Chapter 11 process ). The discovery which is the subject of the pending motion to compel is necessary to ensure that this bankruptcy case is conducted consistent with the requirements of the Bankruptcy Code and Rules and without a hint of fraud or other irregularities. For the reasons -4-

5 stated herein, the Court should compel the Weitz and Wilentz firms to produce the documents sought in the subpoenas and should hold an open mind about where that discovery may eventually lead. INTRODUCTION The revelation that counsel for certain asbestos claimants in this case submitted a master ballot purporting to vote on behalf of several hundred asbestos claimants who had already dismissed their asbestos claims against debtor Burns & Roe Enterprises, Inc. ( B&R ) opens an interesting window onto the way that voting in many asbestos bankruptcies has been permitted to deviate from the express requirements of the Bankruptcy Code and Rules. In a normal bankruptcy case, persons whose claims against a debtor have been dismissed with prejudice do not vote, even accidentally or inadvertently, because those persons have released the claim they hold against the debtor under non-bankruptcy law and thus are no longer creditors of the debtor s estate. In addition, in normal bankruptcy cases persons whose claims are merely disputed are not permitted to vote unless the Bankruptcy Court issues an order temporarily allowing the disputed claim for that limited purpose. (See Fed. R. Bankr. P. 3018(a).) That means that persons asserting contingent or disputed claims do not typically get to cast a vote on the plan. In asbestos bankruptcy cases, however, it has become common for claimants to be permitted to vote even though (i) they have not filed any proofs of claims or otherwise made even the feeblest attempt to show that they have valid claims against the debtor as defined in 11 U.S.C. 101(5) and (ii) the debtor or other parties in interest contest the debtor s liability to the claimants. In other words, bankruptcy courts have created special voting rules for asbestos bankruptcy cases which run contrary to the plain language of the Bankruptcy Code and -5-

6 Rules. In some asbestos bankruptcy cases, there is a long history of hundreds of thousands of claims against the debtor having been settled pre-petition for hundreds of millions of dollars. Perhaps in such a case it makes sense to assume that the debtor has massive asbestos liabilities, and to allow that assumption to color the voting procedures and how votes are counted. This is not such a case, however. Pre-petition, B&R paid only about $3.5 million to resolve asbestos claims, most filed against it in New York by the Weitz firm. Since then, New York has adopted a deferred docket system under which unimpaired claims i.e., on information and belief, most of the claims asserted by the Weitz firm against B&R are assigned to a special holding docket which preserves the claimants claim for statute of limitations purposes but does not allow further judicial proceedings to take place until the claimant actually develops some form of illness. To borrow a phrase used by Weitz & Luxenberg in another asbestos bankruptcy case, a significant number of the claims the Weitz firm is attempting to vote in this case likely have been tort-reformed out of existence. 1 There would appear to be no legitimate basis for permitting such tort reformed claims to vote on B&R s plan or for B&R s plan to provide compensation for such persons. Yet, that is what may be happening in this case, where the Weitz firm s master ballot is not subject to any kind of judicial review or quality control to ensure that the persons purporting to vote (i) have suffered any injury that would be compensable in the tort system or (ii) have been 1 See Objection Of The Ad-Hoc Committee Of Tort Victims To The Debtor s First Amended Disclosure Statement And Motion For An Order: (I) Approving Quigley s Disclosure Statement; (II) Approving Solicitation Procedures, Forms Of Ballots, And Manner Of Notice; (III) Estimating Each Asbestos PI Claim At $1.00 Solely For Voting Purposes; And (IV) Fixing Date, Time And Place For Confirmation Hearing And Deadline For Filing Objections Thereto, In re Quigley Co., No (Bankr. S.D.N.Y. Sept. 15, 2005), Dkt. No. 450, at 11 n

7 exposed to any asbestos for which B&R is legally responsible. Nor has any effort been made to have the votes reflect the value of any legitimate claims. The Weitz firm itself argued in Quigley that the votes of claimants who are actually ill should be weighted more heavily than the votes of persons who are unimpaired (to the extent unimpaired claimants should be permitted to vote at all). Yet here, where the vast majority of persons asserting claims against B&R are believed to be unimpaired, the Weitz firm (and the Debtors) would like to sing a different tune. ARGUMENT I. VOTING REQUIREMENTS UNDER THE BANKRUPTCY CODE AND RULES A. Basic Legal Background The Bankruptcy Code explicitly provides that only allowed claims are permitted to vote on a plan of reorganization. See 11 U.S.C. 1126(a) ( The holder of a claim or interest allowed under section 502 of this title may accept or reject a plan ). Unless the debtor schedules a claim as undisputed, liquidated, and non-contingent, a creditor must file a proof of claim in order for it to be deemed allowed. See 11 U.S.C. 502(a); Fed. R. Bankr. P. 3002(a) ( an unsecured creditor... must file a proof of claim... to be allowed ). Where a claim has been filed but a party in interest has objected, the claimant is not permitted to vote on the plan unless the Bankruptcy Court issues an order temporarily allowing the claim for voting purposes under Bankruptcy Rule See Fed. R. Bankr. P. 3018(a) ( Notwithstanding objection to a claim or interest, the court after notice and hearing may temporarily allow the claim or interest in an amount which the court deems proper for the purpose of accepting or rejecting a plan ). Such orders may be entered only after notice and hearing. Id. -7-

8 Thus, creditors are entitled to vote if they: (i) file proofs of claim, and no objection is filed to their claim; (ii) are scheduled as undisputed, liquidated, and non-contingent; or (iii) are temporarily allowed to vote by court order. No other party is entitled to vote on a debtor s plan. None of the claimants who have purported to vote on Debtors plans meet any of these requirements. Consequently, under the Code, none of them may vote. B. Temporary Allowance Of Claims For Voting Purposes If any of the asbestos claimants against B&R were to seek temporary allowance of their claims for voting purposes pursuant to Rule 3018, it is clear that the Court would be required to assess their claims using the legal rules applicable to the claims. Neither Rule 3018 nor the Code provides guidance as to the method a bankruptcy court should use in valuing a claim for purposes of voting. See In re Ralph Lauren Womenswear, Inc., 197 B.R. 771, 775 (Bankr. S.D.N.Y. 1996); Collier on Bankruptcy [5] at (15th ed. rev. 2005). Therefore, the matter is left to the reasonable discretion of the court. Id.; In re Quigley Co., 346 B.R. 647, 653 (Bankr. S.D.N.Y. 2006); Pension Benefit Guaranty Corp. v. Enron Corp., No. 04 Civ. 5499(HB), 2004 WL at *5 (S.D.N.Y. Nov. 1, 2004). In the end, however, any temporary claim allowance for voting purposes under Rule 3018 should ensure that the voting power is commensurate with the creditor s economic interests in the case. Quigley, 346 B.R. at 654, citing PBGC v. Enron, 2004 WL , at *5. In Ralph Lauren Womenswear, the court discussed the factors that should guide the court s exercise of discretion in valuing a claim for voting purposes under Rule The court s role is to assess the probabilities of the various contentions made by the parties. 197 B.R. at 775. To do this, the court must take into account the likelihood that each party s -8-

9 version [of the facts] might or might not be accepted by a trier of fact. Id., quoting In re Windsor Plumbing Supply Co., 170 B.R. 503, 521 (Bankr. E.D.N.Y. 1994). In exercising its discretion, the court is bound by the legal rules which may govern the ultimate value of the claim. Id., quoting In re Thomson McKinnon Securities, Inc., 191 B.R. 976, 979 (Bankr. S.D.N.Y. 1996). 2 An example of how this analysis is applied is In re Hydrox Chemical Co., 194 B.R. 617 (Bankr. N.D. Ill. 1996), where the court temporarily allowed RICO claims for voting purposes at two-thirds of the amount claimed, which the court after analysis believed properly reflected the uncertainty surrounding the claims actually coming to fruition. Id. at 628. See also PBGC v. Enron, 2004 WL at *5-*6 (affirming bankruptcy court ruling which permitted a claimant to vote in an amount commensurate with its actual economic interest in the case). Significantly, it is the party wishing to vote who bears the burden of proof on a motion for temporary allowance of a claim for voting purposes under Bankruptcy Rule See In re Armstrong, 294 B.R. 344, 354 (10th Cir. B.A.P. 2003) ( the burden of proof should be on the claimant to present sufficient evidence that it has a colorable claim capable of temporary evaluation ); In re FRG, Inc., 121 B.R. 451, 456 (Bankr. E.D. Pa. 1990) (on Bankruptcy Rule 3018 motion, court follows general burden of proof standard applicable to claims objections and claimant bears burden of proof by a preponderance of the evidence); In re King, 305 B.R. 152, (Bankr. S.D.N.Y. 2004) (objecting party is not required to disprove claim, only must refute one or more of the allegations essential to claim s legal sufficiency). 2 In Ralph Lauren Womenswear, the debtor s former CEO sought estimation of his claim, which had the potential to block confirmation of the debtor s proposed plan if voted against the plan. The bankruptcy court conducted an evidentiary hearing at which four witnesses testified live and others testified through their depositions. 197 B.R. at

10 When a claim arises out of a disputed cause of action, the claimant must present evidence at the Bankruptcy Rule 3018 hearing sufficient to prov[e] the validity of all elements of his claims by a preponderance of the truncated evidence. In re FRG, 121 B.R. at 457. Indeed, courts have only allowed disputed claims for voting purposes upon a finding that the claimants had presented a strong evidentiary case... that is legally viable. In re Hydrox Chemical Co., 194 B.R. 617, 628 (Bankr. N.D. Ill. 1996). See also In re Eli Witt Co., 213 B.R. at 400 (denying claim based on lack of evidence to estimate potential value). As shown below, application of these rules establishes that it would not be proper to permit unimpaired claimants to vote on the plan. Nor should persons who are unable to show exposure to B&R asbestos be permitted to vote. C. Estimation Of Asbestos Claims For Voting Purposes Treatment Of Unimpaired Claims Since Debtors commenced these bankruptcy cases, the trial court in New York City, where most of the claims against Burns & Roe were asserted pre-petition, has adopted a deferred docket which stays all litigation activity relating to unimpaired claims. New York City has had such a deferred docket for asbestos claims since See Order, In re New York City Asbestos Litig., 2002 WL (N.Y. Supreme Ct., N.Y. Cty. Dec. 19, 2002) (Exh. A hereto). The vast bulk of the claims in the Weitz firm s inventory likely in excess of 90% likely belong to claimants without any asbestos-related impairment or with insufficient impairment to avoid the deferred docket. See id. at 1 (New York order establishing deferred docket and stating that roughly 90% of the claims pending in New York state court, where Weitz is the main player, are asserted by claimants who are unimpaired). 3 3 Deferred dockets are in effect in many other jurisdictions throughout the country as well. (footnote continued on next page) -10-

11 Deferred dockets (also called inactive dockets or pleural registries) were created in recognition of the fact that many persons who claim to have been exposed to asbestos have not yet developed any symptoms. These persons are sometimes referred to as unimpaired or asymptomatic claimants to distinguish them from claimants who have been diagnosed with mesothelioma or cancer. Given both the scarcity of judicial resources and the large number of asbestos claims, deferred dockets permit those who are actually ill to have priority in advancing to trial. Those who are unimpaired or asymptomatic, by contrast, are not given any opportunity to advance to trial litigation of their claims is automatically stayed, by court order, at least until they develop an asbestos-related illness or disease. See In re USG Corp., 290 B.R. 223, n.3 (Bankr. D. Del. 2003) (stating that [t]he practical benefits of dealing with the sickest claimants first have been apparent to the courts for many years and have led to the adoption of deferred claim registries in many jurisdictions ). A plaintiff whose claim is assigned to a deferred docket may petition to have his or her case removed to the active docket and set for trial by presenting credible medical evidence that an impairing condition has developed. Behrens & Lopez, Unimpaired Asbestos Dockets: They Are Constitutional, 24 The Review of Litigation 253, 262 (2005). The upshot of deferred dockets is that the claims asserted by unimpaired or asymptomatic claimants have no litigation value or settlement value, since they cannot advance in the judicial system. Because of this, commentators have suggested that such persons cannot be treated as holders of claims under 11 U.S.C. 101(5), but instead should be regarded as holders of non-voting demands under 11 U.S.C. 524(g)(5) (i.e., future claimants ). See, e.g., See In re USG Corp., 290 B.R. 223, & n.3 (Bankr. D. Del. 2003); Behrens & Lopez, Unimpaired Asbestos Dockets: They Are Constitutional, 24 The Review of Litigation 253, (2005). -11-

12 William P. Shelley and Jacob C. Cohn, Unraveling the Gordian Knot of Asymptomatic Claimants: Statutory, Precedential and Policy Reasons Why Unimpaired Asbestos Claimants Cannot Recover in Bankruptcy, Mealey s Asbestos Bankr. Rep. Vol. 3, #10 (2004); Mark D. Taylor and Scott L. Alberino, Who Is Authorized to Vote on a Plan of Reorganization?: Issue Pending in the USG Bankruptcy Case Could Alter the Asbestos Bankruptcy Landscape, Mealey s Asbestos Bankr. Rep. Vol. 2, #6 (January 2003). As noted above, the Bankruptcy Code only permits holders of allowed claims to vote; holders of demands cannot do so. It is a general principle of bankruptcy law that state law governs the validity and amount of a claim. In re Federal-Mogul Corp., 330 B.R. 133 (D. Del. 2005), citing Raleigh v. Ill. Dept. of Revenue, 530 U.S. 15, 20 (2000), and Bittner v. Borne, 691 F.2d 134, 135 (3d Cir. 1982) (applying same principle to estimation proceedings under 502(c)); In re USG Corp., 290 B.R. 223 (Bankr. D. Del. 2003). Under the law of New York (and other jurisdictions), deferred docket plans mean a claimant who does not satisfy the specified requirements has a valueless claim. He or she therefore should not be allowed to vote on an asbestos bankruptcy plan. See In re Combustion Engineering, Inc., 391 F.3d 190, n.66 (3d Cir. 2004) (under 502(b)(1) of the Bankruptcy Code, a claim will not be allowable if it is unenforceable against the debtor under applicable non-bankruptcy law.... A claim against the bankruptcy estate, therefore, will not be allowed in a bankruptcy proceeding if the same claim would not be enforceable against the debtor outside of bankruptcy ). The Weitz firm itself has noted the importance of tort reforms like the New York deferred docket in determining whether asbestos claimants should be permitted to vote and, if so, how their votes should be weighted. In the Quigley asbestos bankruptcy case, a so-called Ad Hoc Committee of Tort Victims including, inter alia, clients of the Weitz firm argued that -12-

13 the court had to take into account, in tabulating votes on the plan, the extent to which claims may have effectively been tort-reformed out of existence, rendering that claimant unable to vote on the proposed Plan. 4 For all of these reasons, allowing claimants whose claims have been relegated to New York s deferred docket to vote on Debtors plan cannot be reconciled with the requirements of the Bankruptcy Code and Rules. Any estimation conducted under Rule 3018 for the purpose of temporarily allowing asbestos claimants to vote therefore must screen out persons whose claims are subject to the deferred docket, since under applicable state law their claims have no value. Discovery is one way to identify persons whose claims would be subject to the deferred docket in New York or elsewhere, and the discovery sought in the pending subpoenas contains requests that would illuminate this issue. D. Estimation Of Asbestos Claims For Voting Purposes Weighting Of Votes The bankruptcy court in Quigley addressed plan voting in the context of an asbestos bankruptcy case. The court noted that, to approve a plan seeking protection under 524(g), a class of asbestos claimants has to meet two separate requirements: the standard requirement that more than two-thirds, in amount, of the votes cast approve the plan; and a heightened requirement (compared to the usual Chapter 11 requirement) that 75% of the those voting asbestos claims approve the plan. Quigley, 346 B.R. at 653. The court further 4 See Objection Of The Ad-Hoc Committee Of Tort Victims To The Debtor s First Amended Disclosure Statement And Motion For An Order: (I) Approving Quigley s Disclosure Statement; (II) Approving Solicitation Procedures, Forms Of Ballots, And Manner Of Notice; (III) Estimating Each Asbestos PI Claim At $1.00 Solely For Voting Purposes; And (IV) Fixing Date, Time And Place For Confirmation Hearing And Deadline For Filing Objections Thereto, In re Quigley Co., No (Bankr. S.D.N.Y. Sept. 15, 2005), Dkt. No. 450, at 11 n

14 noted that, because the statutory principles governing voting are difficult to apply in... asbestos cases, many asbestos cases excuse asbestos claimants from the requirement to file claims because of the practical difficulties involved. Id. The court opined that while a onepage claim form with minimal information and an exorbitant or unliquidated demand is not helpful, a custom-designed claim form requiring submission of detailed medical and other information is cumbersome and best postponed for submission to the post-confirmation trust. Id. Accordingly, the court stated, bankruptcy courts often permit asbestos claimants to vote unfiled claims, sometimes via a master ballot submitted by counsel. Id. Even if the tort claimant files a claim, voting is still a problem. Tort claims are usually unliquidated, and hence, the Court must estimate their value for voting purposes. Id. The Quigley court then went on to review two proposed methods of weighting votes under Bankruptcy Rule Under one approach, all asbestos claims are valued at $1.00, regardless of the disease or condition alleged by the claimant or the likelihood of its establishing a right to recover from debtor. The second approach weights the votes by ascribing values based on the claimant s impairment. Id. at 654. After reviewing the case law, the Quigley court concluded that the $1.00 per vote method can only be used when support is overwhelming and a different voting method will not change the result. Where the harmless error rule cannot be applied, another approach may be necessary. Id. The court noted that the second method, weighing each vote based on the nature and impairment of each claimant s injury, more accurately aligns the voting strength with the ultimate claim value and prevents the holders of relatively small claims from disenfranchising the more severely impaired who hold larger claims. Id. The Quigley court then reviewed various methods of weighting the votes based on impairment e.g., based on scheduled TDP values in the proposed plan, or based on -14-

15 historical settlement values and decided, in the context of that case, that it was preferable to rely on TDP values. Id. at The Quigley court s valuation of asbestos claimants votes based on the particular disease or condition claimed by the claimants is hardly unusual. Commentators have argued for years in favor of just such a voting process. See, e.g., Mark D. Taylor and Scott L. Alberino, Who Is Authorized to Vote on a Plan of Reorganization?: Issue Pending in the USG Bankruptcy Case Could Alter the Asbestos Bankruptcy Landscape, Mealey s Asbestos Bankr. Rep. Vol. 2, #6 (January 2003). And debtors in other major asbestos bankruptcy cases have recently proposed to weight the votes in that way. See, e.g. Motion Of Debtors And Debtors In Possession For An Order Approving (I) Scope Of Resolicitation Of Fourth Amended Joint Plan Of Reorganization; (II) Procedures And Ballot Forms For Resolicitation Of Certain Votes To Accept Or Reject The Plan; (III) Procedures And Ballot Forms For Solicitation Of Votes On Plan Implementing Plan A Settlement From Holders Of Pneumo Asbestos Claims; And (IV) Supplemental Publication Notice Program at 28, Dkt. No , In re Federal-Mogul Global Inc., No (Bankr. D. Del. Nov. 21, 2006) ( For purposes of voting on the Plan, individual Asbestos Personal Injury Claims will be assigned values according to the Asbestos Personal Injury Trust Distribution Procedures ). The upshot is that any weighting of properly-voted asbestos claims at $1.00 per vote can only be used if weighting the votes by impairment would not change the outcome of the vote. In this case, that principle may ultimately require a re-vote, to determine if weighting the votes by impairment would result in a different outcome. The pending discovery may shed light on whether such a re-vote could be warranted. -15-

16 E. The Impact On The Vote Of The Weitz Firm s Acknowledged Practice Of Filing First, Investigating Later B&R contends that at the time it commenced this bankruptcy case, it faced approximately 11,000 asbestos claims, a number that the limited information available to the ACE Insurers at this point suggests is substantially overstated. The available records suggest that most of these claimants added Burns & Roe as one of a general list of defendants without information connecting their injuries to any fault on the part of B&R. We understand from communications with Debtor and the other Plan Proponents that more than 90% of the claims against B&R are part of the Weitz firm s claim inventory. The Weitz firm has previously admitted that its general practice is to sue all potential defendants and then, after suit has been filed, begin to investigate whether each defendant actually might be liable to the claimant the Weitz firm represents: It has been this firm s practice over the many years of this consolidated litigation in New York Supreme Court, which has involved thousand[s] of asbestos personal injury suits, to file a Standard Asbestos Complaint against a general list of numerous (currently approximately 100) defendants, which have been identified as making, selling, using, incorporating, installing, or providing premises with asbestos or asbestos products. The causes of action in the complaint are stated generally and jointly against all the defendants: During the course of [plaintiff s] employment, plaintiff was exposed to the defendants asbestos and asbestos containing materials to which exposure directly and proximately caused him to develop an asbestos related disease. The claims include negligent failure to warn, breach of express and implied warranties, defective product design, breach of duty to provide a safe and proper workplace, and loss of consortium. As discovery proceeds, including interrogatories, document requests, and the depositions of Plaintiffs and other witnesses, many defendants are dismissed out of each case through various procedures. Some of the defendants are not served with the complaint, some are stipulated out of the case, and some file motions to dismiss or for summary judgment, which are either opposed or not opposed by the Plaintiff. When the motions are opposed by Plaintiff, an order typically is issued by the court granting or denying the motion. Dkt. No. 1552, Exh. 6 thereto (excerpt from Arseneault brief) (citation omitted). -16-

17 In other words, the mere fact that the Weitz firm files a claim against a defendant such as B&R hardly can be taken as any kind of assurance that the Weitz firm has investigated the claim, that there is any basis for the claim, that the claim has any merit, or even that the claim should be permitted to proceed to discovery. B&R itself explained the practical impact of the Weitz firm s claim-filing practice in a press release: There are currently approximately 12,000 outstanding claims. This situation has arisen in spite of the fact that the Company believes it has little or no liability and many of these suits do not even involve the Company. In fact, historically, 80% of the cases which get to discovery are dismissed. Dkt. No. 1552, Exh. 7 thereto. This practice is reflected in the orders of dismissal attached to the Certification of Jake W. Harrell (Exh. 1 to CNA s Brief, Dkt. No. 1880). In each of those orders, the Weitz firm stipulated to the dismissal with prejudice of suits it had filed on behalf of claimants on whose behalf votes were submitted in this case, because plaintiff... has no evidence of identification of products containing asbestos, manufactured, distributed, used, or sold by defendant BURNS AND ROE ENTERPRISES, INC. to which the Plaintiff was exposed. Those dismissals were entered after B&R challenged the validity of the claims. So there is a long history of the Weitz firm having filed claims against B&R without any factual basis for doing so. Given the Weitz firm s acknowledged practice of filing suit first and then determining if there is any basis for suit, it is reasonable to wonder if it followed a similar practice in submitting votes on behalf of its clients in this case. Yet, there is no presentlyexisting mechanism in this case to subject any of these votes to even minimal scrutiny. As a result, votes on B&R s plan likely were cast by persons who have no evidence of identification of products containing asbestos, manufactured, distributed, used, or sold by [B&R] to which the -17-

18 [claimant] was exposed. Although the master ballots previously submitted in this case required the lawyer submitting the ballot to certify that To the best of my information and belief, each such Asbestos Personal Injury Claimant holds a valid, compensable Claim against Burns and Roe Enterprises, Inc. for injury caused by Burns and Roe Enterprises, Inc., the combination of the Weitz firm s admitted practice of filing first and investigating later, the (previous) lack of any check on the veracity of the certification (which has been shown to be demonstrably untrue with respect to the several hundred persons who had dismissed claims against B&R pre-petition), and the fact that the trust would make easy money available to claimants (and their contingency fee lawyers) with scarcely any scrutiny undoubtedly means that many persons voting claims against the estate almost certainly do not have one. Because it is virtually certain that many votes in this bankruptcy case were submitted by the Weitz firm on behalf of claimants who, in other cases, either failed to identify any exposure to B&R asbestos or affirmatively denied ever having been exposed to B&R asbestos, discovery is necessary to help ferret out such improper votes. F. The Use Of Questionnaires Bankruptcy courts presiding over asbestos bankruptcies have increasingly required that asbestos personal injury claimants answer detailed questionnaires providing information substantiating their claims. Indeed, this Court recently issued just such an order in the G-I Holdings case. See Opinion re: Debtors Motion to Establish Aggregate Estimation Protocol and for Entry of Scheduling Order, Dkt. No. 6190, In re G-I Holdings, Inc., No (RG) (Bankr. D.N.J. Aug. 11, 2006). While such questionnaires have typically been used to assist bankruptcy courts conducting proceedings to estimate an asbestos debtor s total current and future liability for -18-

19 asbestos bodily injury claims, there is no reason that a similar procedure could not be used by a court in estimating asbestos claims for voting purposes under Bankruptcy Rule 3018, in order to ensure compliance with the requirement that a claimant s right to vote on a plan be commensurate with the value of his or her economic interest in the case. Persons who have not suffered any asbestos-related injury at all, or persons who have suffered such injuries but cannot demonstrate that B&R has any responsibility for such injuries, simply have no claim against B&R under applicable state law and therefore should not be allowed to vote on B&R s plan. We therefore propose that the Court require each claimant wishing to cast a vote on Debtors plan to demonstrate some entitlement to vote under Rule This means each such claimant must carry a burden of proving that the person has suffered some asbestos-related injury and that Debtors likely have some degree of legal liability for such injury. See pp. 8-10, above (burden of proving entitlement to vote under Rule 3018 is on the claimant wishing to vote). If the Court believes that preparation of a questionnaire to be answered by claimants is an appropriate way to assist in this process, we would suggest that the Court order all parties in interest to meet and confer in order to craft such a questionnaire. If Rule 3018 were to be invoked as a basis for permitting claimants to vote, it would only be fair to subject to appropriate scrutiny the factual assertions made by claimants seeking temporary allowance of their claims. The attached discovery sought to be compelled would be at least a first step in that direction. II. THE MOTION TO COMPEL SHOULD BE GRANTED Any plan that is presented for confirmation in this case should not be subject to allegations of fraud or improper voting. The Weitz and Wilentz firms should therefore be required to produce documents in response to the pending subpoenas because such responses -19-

20 will help the Court and parties in interest to determine if any of the votes that have been cast in this case were improperly voted. After this discovery is completed, the Court should conduct a hearing to be advised of the outcome of the discovery and whether any party intends to raise issues about the propriety of any votes cast in this case. Based on this, the Court can either decide to address the voting issues before confirmation, as the bankruptcy court saw fit to do in Quigley, or instead to let parties in interest raise all voting-related objections as part of a confirmation hearing. The pending subpoenas contain requests that would require production of the following categories of information, all of which should be compelled: All orders dismissing any asbestos-related lawsuits filed by any claimant against (a) either of the Debtors or (b) any other person or entity. Documents sufficient to identify (a) all asbestos-related lawsuits filed by any claimant against any person or entity that has been stayed pursuant to, or placed on, any deferred docket and (b) all such lawsuits that have been moved from a deferred docket to an active docket. All documents and information provided by any claimant (or such claimant s counsel) to Debtors or Debtors balloting agent concerning the basis upon which any Claimant is asserting a claim against Debtors for bodily injury related to asbestos. All documents and information provided by any claimant (or such claimant s counsel) to Debtors or any person or entity concerning the extent of bodily injury, if any, suffered by any claimant who is asserting a claim against Debtors for bodily injury related to asbestos. All Documents and information provided by any claimant (or such claimant s counsel) to Debtors or any person or entity concerning the extent to which any claimant who is asserting a claim against Debtors for bodily injury related to asbestos was exposed to or harmed by asbestos for which Debtors allegedly bear legal liability. All asbestos-related claims filed with any bankruptcy trust by or on behalf of any claimant who is also asserting a claim against Debtors for bodily injury related to asbestos, and all documents referring to such claims. All documents that mention, discuss, or refer, directly or indirectly, to any claim submitted by any Claimant who is asserting a claim against Debtors for bodily injury -20-

21 related to asbestos. All deposition testimony, interrogatory responses, responses to requests for admissions, or trial testimony by any claimant who is asserting a claim against Debtors for bodily injury related to asbestos which discusses, mentions, or refers, directly or indirectly, to (a) the claimant s medical condition and (b) whether claimant was exposed to any asbestos for which Debtors allegedly bear legal liability. If compelled by the Court in response to the pending motion to compel, responses to this discovery will help serve two goals: (i) ensuring compliance with the requirements of the Bankruptcy Code and Rules, and (ii) ensuring that the voting process in this case is not infected by fraud or other improprieties. CONCLUSION Given the widespread allegations of fraud in asbestos claiming generally, the acknowledged fact that several hundred persons without claims attempted to vote in this case, the Weitz firm s acknowledged practice of asserting claims prior to investigation, the deferred docket in New York (and elsewhere) that means some persons asserting claims in fact do not have claims, and the requirements of the Bankruptcy Code and Rules restricting voting to holders of allowed claims and those who have carried a burden of proving under Rule 3018 that their disputed, contingent, or unliquidated claims should be temporarily allowed for voting purposes only, the Court should be careful to ensure that only persons who have an actual claim and right to vote are permitted to cast a ballot in this case. Accordingly, the ACE Insurers urge the Court to grant the pending motion to compel and require the Weitz and Wilentz firms to make complete productions of documents in response to the pending subpoenas. [signatures on next page] -21-

22 Dated: January 8, 2007 Respectfully submitted, /s/ Martin F. Siegal Martin F. Siegal Scott E. Levens SIEGAL, NAPIERKOWSKI & PARK 533 Fellowship Road, Suite 120 Mt. Laurel, New Jersey (856) Mark D. Plevin Paul Alp Leslie A. Epley CROWELL & MORING LLP 1001 Pennsylvania Avenue, N.W. Washington, D.C (202) Tancred V. Schiavoni O MELVENY & MYERS LLP Times Square Tower 7 Times Square New York, New York (212) Attorneys for Century Indemnity Company Pacific Employers Insurance Company ACE Property & Casualty Company ACE American Insurance Company