Case KJC Doc 3244 Filed 03/11/15 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE.

Transcription

1 Case KJC Doc 3244 Filed 03/11/15 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Case No (KJC) EXIDE TECHNOLOGIES, Related Docket Nos.: 3096 Hrg. Date: March 27, 2015 at 10:00 a.m. Debtor. 1 OBJECTION OF THE SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT TO CONFIRMATION OF THE SECOND AMENDED PLAN OF REORGANIZATION OF EXIDE TECHNOLOGIES The South Coast Air Quality Management District (the District ) hereby objects to confirmation of the Second Amended Plan of Reorganization of Exide Technologies [Docket No. 3096] (as amended from time to time and including all exhibits and supplements thereto, the Plan ), filed on February 5, 2015, by Exide Technologies (the Debtor ) following the filing of the Second Amended Disclosure Statement With Respect to the Second Amended Plan of Reorganization of Exide Technologies [Bankr. Docket No. 3095] (the Disclosure Statement ). BACKGROUND 1. The District is the public agency through which the State of California meets and maintains state and federal air quality standards under the federal Clean Air Act and California law in the South Coast Air Basin, including the greater Los Angeles metropolitan area. As such, it is an Environmental Governmental Unit under the Plan. Plan The last four digits of the Debtor s taxpayer identification number are The Debtor s corporate headquarters are located at Deerfield Parkway, Building 200, Milton, Georgia

2 Case KJC Doc 3244 Filed 03/11/15 Page 2 of 9 2. The District is currently prosecuting a civil action against the Debtor in the Superior Court of the State of California, County of Los Angeles (the California Superior Court ), captioned People of the State of California ex rel. South Coast Air Quality Management District, a Public Entity v. Exide Technologies, Inc., Case No. BC (the Lawsuit ). The Lawsuit seeks civil penalties on account of the Debtor s prepetition and post-petition environmental violations, as more fully set out in the District s amended proof of claim (the Proof of Claim ), assigned Claim Number 3966 by the claims and noticing agent for this bankruptcy case The Proof of Claim asserts that the Debtor s prepetition violations give rise to a general unsecured claim (Class D under the Plan), whereas the Debtor s post-petition violations give rise to an administrative claim. See generally Reading Co. v. Brown, 391 U.S. 471, (1968); Penn. Dep t of Envtl. Res. v. Conroy, 24 F.3d 568, (3d Cir. 1994). (For the avoidance of doubt, the District is not seeking an adjudication at this time as to its entitlement to an administrative claim, as that would be premature prior to the adjudication in California Superior Court of the Lawsuit.) 4. The Lawsuit has been proceeding in the California Superior Court in accordance with the Stipulation and Agreed Order Regarding the Lawsuit Filed by South Coast Air Quality Management District [Docket No. 1510] (the Agreed Order ), entered by this Court on March 6, 2014, which provides: Notwithstanding the provisions of Bankruptcy Code section 362, the District shall be permitted to prosecute the Lawsuit through and including entry of judgment 2 The District timely filed its original proof of claim, assigned Claim Number 3317, on December 9, The amended proof of claim was timely filed on August 22,

3 Case KJC Doc 3244 Filed 03/11/15 Page 3 of 9 (including any appeals therefrom); provided, however, the District shall not seek to collect any money judgment entered in the Lawsuit absent further order of the Bankruptcy Court. Agreed Order 1. The Agreed Order recognizes the District s position that section 362 of the Bankruptcy Code has no bearing on the District s ability to prosecute the Lawsuit, id. 3; see 11 U.S.C. 362(b)(4); United States v. Nicolet, Inc., 857 F.2d 202, 207 (3d Cir. 1988); Penn Terra Ltd. v. Dep t of Envtl. Prot., 733 F.2d 267, 272 (3d Cir. 1984), but does not adjudicate that issue in light of the parties agreement that the Lawsuit may proceed regardless through and including entry of judgment (including any appeals therefrom), Agreed Order In accordance with the Agreed Order and consistent with the Plan, see Plan 10.1 ( For the avoidance of doubt, any Claim determined and liquidated pursuant to (a) an order of the Bankruptcy Court or (b) applicable non-bankruptcy law shall be deemed an Allowed Claim in such liquidated amount and satisfied in accordance with this Plan. ), the District is liquidating its Proof of Claim by prosecuting the Lawsuit in the California Superior Court, which is expected to hold a trial later this year. The Disclosure Statement explains: On January 16, 2014, the SCAQMD filed a civil lawsuit against the Company and along with unnamed individuals ( DOE Defendants ), subsequently amended, which alleges that the Company and the DOE Defendants failed to comply with several of the SCAQMD s rules related to lead and arsenic emissions at the Vernon Facility ( SCAQMD Penalty Lawsuit ). The SCAQMD is seeking penalties in an amount not less than $40 million and has recently moved to amend the SCAQMD Penalty Lawsuit to increase its penalty demand to $60 million, which remains pending. The Company denies the allegations in the lawsuit, 3

4 Case KJC Doc 3244 Filed 03/11/15 Page 4 of 9 believes the amounts asserted by the SCAQMD are overstated, and intends to vigorously defend itself against such allegations. There can be no assurance that the Company will be successful in its defense of the SCAQMD Penalty Lawsuit. The matter is in discovery and currently scheduled for trial on September 15, The ultimate adjudication or resolution of the SCAQMD Penalty Lawsuit cannot be predicted and may result in a material, post-emergence liability for the Debtor. Disclosure Statement at In addition to liquidating its Proof of Claim via the Lawsuit in California Superior Court, the District has also continued to monitor and regulate the Debtor s compliance with environmental laws and regulations, and will continue to exercise its regulatory functions after the Effective Date as specifically permitted by the Plan: Nothing in the Plan, Confirmation Order, or the Bankruptcy Code (and section 1141 thereof) discharges, releases, resolves, exculpates, precludes or enjoins: (i) any environmental liability to an Environmental Governmental Unit that is not a Claim; (ii) any environmental Claim of an Environmental Governmental Unit arising on or after the Effective Date; (iii) any environmental liability to any Environmental Governmental Unit on the part of any entity as the owner or operator of property after the Effective Date; or (iv) any liability to an Environmental Governmental Unit on the part of any Entity other than the Debtor or Reorganized Debtor. Plan 12.7 (second paragraph). 4

5 Case KJC Doc 3244 Filed 03/11/15 Page 5 of 9 ARGUMENT The Plan Fails to Clarify That the District s Lawsuit Will Proceed Post-Confirmation 7. The Plan provides that the automatic stay of section 362(a) of the Bankruptcy Code will terminate on the Plan s Effective Date, see Plan 15.11, and will be replaced by a broadly worded discharge injunction: Subject to Article of this Plan, the satisfaction, release, and discharge pursuant to this Article XII shall act as an injunction against any Entity commencing or continuing any action, employment of process, or act to collect, offset, or recover any Claim, Interest, or Cause of Action satisfied, released or to be released, exculpated or to be exculpated, or discharged under this Plan or pursuant to the Confirmation Order to the fullest extent authorized or provided by the Bankruptcy Code, including, without limitation, to the extent provided for or authorized by sections 524 and 1141 thereof. Plan Although it is unlikely that the Debtor intended this broadly-worded injunction to bar continuation of the Lawsuit (given, inter alia, the representations in the Disclosure Statement concerning the Lawsuit proceeding to trial in September 2015 and the caution that the Lawsuit may result in a material, post-emergence liability for the Debtor, Disclosure Statement at 42 (quoted above in 5)), any order confirming the Plan should be conditioned on a modification of section of the Plan to expressly provide for the continuation of the Lawsuit on the same terms as in the Agreed Order, i.e., prosecution through and including entry of judgment (including any appeals therefrom), with the proviso that the District shall not seek to collect any money judgment entered in the Lawsuit absent further order of the Bankruptcy Court, 5

6 Case KJC Doc 3244 Filed 03/11/15 Page 6 of 9 Agreed Order 1. Absent such a clarification, there would be no forum in which to finally liquidate the District s Proof of Claim. 9. Accordingly, the District requests that the order of confirmation provide that Notwithstanding any otherwise applicable injunction in the Plan or in the confirmation order, the South Coast Air Quality Management District shall be permitted to prosecute its lawsuit captioned People of the State of California, ex rel. South Coast Air Quality Management District, a Public Entity v. Exide Technologies, Inc., and Does 1 through 50, Case No. BC subject to, and in accordance with the terms of, that certain Stipulation approved by this Court by order entered March 6, 2014 [Docket No. 1510]. The Plan Improperly Denies Effect to Section 1141(d)(6) of the Bankruptcy Code 10. Section 1141 of the Bankruptcy Code is referenced more than a half dozen times in the Plan, see Plan 12.2, 12.6, 12.7 (three times), 12.8, 12.11, Art. XIV(l), yet nowhere does the Plan give effect to the important limitation that confirmation of a plan does not discharge a debtor that is a corporation from any debt of a kind specified in paragraph (2)(A) of section 523(a) that is owed to a domestic governmental unit. 11 U.S.C. 1141(d)(6)(A). The referenced section exempts from discharge debts for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud. 11 U.S.C. 523(a)(2)(A); see In re Hawker Beechcraft, Inc., 515 B.R. 416 (S.D.N.Y. 2014) (permitting qui tam plaintiffs to commence action under False Claims Act against reorganized debtor on account of prepetition claims for alleged fraud in connection with the sale of military aircraft to the government because the exceptions to discharge described in section 1141(d)(6) were self-executing, and not subject to deadline during the chapter 11 case). 6

7 Case KJC Doc 3244 Filed 03/11/15 Page 7 of Although it is premature for the Court to make any ruling on the scope or applicability of this statutory provision, it may come into play if, for example, ongoing discovery in the Lawsuit reveals that the Debtor obtained regulatory approvals by false pretenses, false representations, or actual fraud, including with respect to emissions of arsenic and lead at the Vernon Facility. Regardless of whether or how the issue might arise in the future, however, the Plan should not be silent with respect to an important statutory exception to the scope of the discharge. 12. Accordingly, the District requests that the Court s order of confirmation provide that Nothing in the Plan or herein shall operate to discharge any claim of the South Coast Air Quality Management District of a kind described in Section 1141(d)(6) of the Bankruptcy Code; provided, however, that the Reorganized Debtor shall reserve any and all defenses to such a claim. The Plan Does Not Comply With Section 1129(a)(5) of the Bankruptcy Code 13. Section 1129(a)(5) of the Bankruptcy Code conditions confirmation on certain disclosures: (A) (i) The proponent of the plan has disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the plan, as a director, officer, or voting trustee of the debtor, an affiliate of the debtor participating in a joint plan with the debtor, or a successor to the debtor under the plan; and (ii) the appointment to, or continuance in, such office of such individual, is consistent with the interests of creditors and equity security holders and with public policy; and 7

8 Case KJC Doc 3244 Filed 03/11/15 Page 8 of 9 (B) the proponent of the plan has disclosed the identity of any insider that will be employed or retained by the reorganized debtor, and the nature of any compensation for such insider. 14. The Plan provides that, [o]n the Effective Date, the term of the current members of the board of directors of Exide shall expire, and the New Board as selected by the majority of the Backstop Parties and the Holders of DIP Term Loan Claims that participate in the DIP/Second Lien Conversion Option, shall be appointed. Plan The defined term New Board means the initial board of directors of the Reorganized Debtor. Plan At best, the Plan provides the identity of the parties who will select the New Board, but it does not comply with the statute s directive to identify each individual new board member. This is not a minor omission, as the individuals placed in control of the Reorganized Debtor are very important to the District, which has ongoing regulatory authority over the Vernon Facility. Without knowing who will ultimately be responsible for the company, the Court cannot determine whether the appointment to, or continuance in, such office of such individual, is consistent with the interests of creditors and equity security holders and with public policy. 11 U.S.C. 1129(a)(5)(A)(ii). 8

9 Case KJC Doc 3244 Filed 03/11/15 Page 9 of 9 CONCLUSION WHEREFORE, for the reasons set forth herein, the District objects to confirmation of the Plan in its current form and respectfully requests that the Court condition confirmation on appropriate resolution of the matters described above. Dated: March 11, 2015 By: /s/ Jack Shrum J Jackson Shrum, Esq. WERB & SULLIVAN 300 Delaware Avenue, Suite 1300 Wilmington, Delaware Telephone: (302) Facsimile: (302) and - Thomas E. Patterson (Pro Hac Vice) Robert J. Pfister (Pro Hac Vice) KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 Avenue of the Stars, Thirty-Ninth Floor Los Angeles, California Telephone: (310) Facsimile: (310) Attorneys for the South Coast Air Quality Management District 9

10 Case KJC Doc Filed 03/11/15 Page 1 of 3 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In Re: Case No KJC EXIDE TECHNOLOGIES, Chapter 11 Debtor(s). / Honorable Kevin J. Carey CERTIFICATE OF SERVICE The undersigned certifies that on March 11, 2015, I caused a true and correct copy of the foregoing to be served upon all parties via CM/ECF and upon the persons below in the manner indicated. Date: March 11, 2015 /s/ Jack Shrum J Jackson Shrum (#4757)

11 Case KJC Doc Filed 03/11/15 Page 2 of 3 BY FEDERAL EXRESS OVERNIGHT Exide Technologies Deerfield Parkway Building 200 Milton, GA Attn: Phillip A. Damaska Anthony W. Clark Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square 920 N. King Street Wilmington, DE Kenneth S. Ziman J. Eric Ivester Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY James J. Mazza, Jr. Skadden, Arps, Slate, Meagher & Flom LLP 155 N. Wacker Drive Chicago, IL Wells Fargo Bank, N.A. 150 East 42 nd Street, 40 th Floor New York, NY Attn: James R. Lewis Mark F. Hebbeln Foley & Lardner LLP 321 North Clark Street, Suite 2800 Chicago, IL U.S. Bank National Association Global Corporate Trust Services 60 Livingston Avenue, EP-MN-WSID St. Paul, MN Attn: Cindy Woodward Andrew Silfen Arent Fox LLP 1675 Broadway New York, NY 10019

12 Case KJC Doc Filed 03/11/15 Page 3 of 3 Mark S. Kenney Office of the United States Trustee for the District of Delaware J. Caleb Boggs Federal Building Room 2207, Lockbox North King Street Wilmington, DE Mark D. Collins Richards, Layton & Finger, P.A. One Rodney Square 920 North King Street Wilmington, DE Pauline K. Morgan Young Conaway Stargatt & Taylor LLP Rodney Square 1000 King Street Wilmington, DE Kenneth A. Rosen, Esq. Sharon L. Levine, Esq. Paul Kizel, Esq. Lowenstein Sandler LLP 65 Livingston Avenue Roseland, NJ Alice Belisle Eaton Paul, Weiss, Rifking, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY Damian S. Schaible Davis, Polk & Wardwell LLP 450 Lexington Avenue New York, NY Gerald C. Bender, Esq. Lowenstein Sandler LLP 1251 Avenue of the Americas New York, NY Morris Nichols Arsht and Tunnell, LLP Attn: Robert J. Dehney 1201 North Market Street Suite 1600 Wilmington, DE 19801