Document Page 1 of 18 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division : In re: : : Case No. 10-31607 GARLOCK SEALING TECHNOLOGIES : LLC., et al., : Chapter 11 : Debtors. 1 : (Jointly Administered) : FUTURE CLAIMANTS REPRESENTATIVE S RESPONSE TO THE PRELIMINARY CONFIRMATION OBJECTIONS OF THE OFFICIAL COMMITTEE OF ASBESTOS PERSONAL INJURY CLAIMANTS TO THE DEBTORS SECOND AMENDED PLAN OF REORGANIZATION The Future Claimants Representative (the FCR ) hereby responds to the Preliminary Confirmation Objections (the Preliminary Objections ) of the Official Committee of Asbestos Personal Injury Claimants (the ACC ) to the Debtors Second Amended Plan of Reorganization (the Debtors Plan or the Plan ). BACKGROUND As this Court recently noted, three questions are presented by the Debtors Plan: 1. Can the Debtors confirm their Plan, which discharges present and future asbestos claims, without relying on section 524(g) of the Bankruptcy Code (the Code ); 2. Is the FCR authorized to vote on behalf of future claimants to accept the Debtors Plan; and 3. Are present claimants unimpaired and therefore deemed to have accepted the Debtors Plan? See Tr. of Cont d Hrg. dated Feb. 20, 2015 at 121:16-23. The first two questions are legal in nature; the third is both factual and legal. See id. at 121:23-25. The Preliminary Objections list 1 The Debtors are Garlock Sealing Technologies, LLC ( Garlock ), Garrison Litigation Management Group, Ltd. ( Garrison ), and The Anchor Packing Company.
Document Page 2 of 18 what the ACC believes to be numerous factual and legal defects in the Plan. See Preliminary Objections [Dkt. # 4586]. The FCR understands that the Debtors will be responding to each of those objections. To avoid duplication, and hopefully to assist the Court, the FCR, for his part, will respond to the objections that relate to the first two questions. A. The Debtors Plan The Debtors Plan is the only plan currently filed with the Bankruptcy Court and the only plan being sent out to asbestos claimants for their vote. If confirmed, the Plan discharges all asbestos claims, both present and future. It relies on the general discharge provisions of section 524 of the Code, not section 524(g) specifically. Under the Plan, all asbestos claimants have the option of applying for a settlement offer from an asbestos trust governed by claims resolution procedures (the CRP ), or exercising their jury trial rights and litigating their claims against the Debtors. The goal of the CRP is to treat similarly-situated claimants fairly, both present and future, in a transparent and objective manner. The CRP requires claimants seeking a settlement offer to allege that they were exposed to asbestos fibers in the Debtors products from activities that have the potential to release such fibers, such as cutting, scraping, or brushing. This is consistent with the Debtors prepetition settlement practice, tort law, and this Court s findings in its Order Estimating Aggregate Liability [Dkt. # 3296] (the Estimation Opinion ). 2 2 See, e.g., Magee Dep. Tr. at 300:5-19, Apr. 11, 2013 (agreeing that it was Garlock s policy to require of a settling claimant a medical report or diagnosis satisfactory to Garlock, evidence of occupational exposure to asbestoscontaining Garlock products, and a release extending to Garlock and its affiliates); Estimation Hearing Transcript at 3195:7-20, Aug. 6, 2013 (Magee) ( [W]e required a mesothelioma diagnosis that our folks could review and determine was legitimate and required evidence of occupational exposure to a Garlock product [i]n the form of an affidavit or a co-worker affidavit or other evidence, again, sufficient to the Garrison team ); id. at 2363:23-2364:15, Aug. 1, 2013 (Turlik) ( The settlement packets submitted will contain the following qualifying information. Number one, exposure. Plaintiff or plaintiff s decedent worked with or around asbestos-containing products manufactured or sold by Garlock entities ); Monsanto Co. v. Hall, 912 So. 2d 134, 137 (Miss. 2005) (requiring - 2-
Document Page 3 of 18 The amount of the settlement offer will depend on knowable factors: occupation; disease; duration of exposure; age; life status; number of dependents; and economic losses. Contrary to the practice of many trusts, no claimant will receive more or less because of the identity of the law firm hired to file the claim. In fact, the CRP procedures are designed to permit claimants to file their claims without the assistance of counsel, thereby saving them expensive contingency fees for what is largely an administrative task. The CRP is modeled on the procedures for the Western MacArthur trust, where the Honorable Charles Renfrew, former United States District Court judge, is the future claimants representative. The Western MacArthur trust adopts a transparent valuation approach and has a strong track record of equal treatment of present and future claims. See Marc C. Scarcella, et al., A Reorganized Mess: The Current State of the Asbestos Bankruptcy Trust System, 14 Mealey s Asbestos Bankruptcy Report, no. 7, February 2015 at 3, Figure 2 (Western Asbestos/MacArthur data); Marc C. Scarcella, et al., Asbestos Bankruptcy Trusts: A 2012 Overview of Trust Assets, Compensation & Governance, 11 Mealey s Asbestos Bankruptcy Report, no. 11, June 2012 at 6, Ex. 6 (Western MacArthur-Western Asbestos Trust data); see also In re Western Asbestos Co., 2014 WL 3496858, *2 (Bankr. N.D. Cal. July 11, 2014) (dismissing current claimant s objection to 44% payment percentage because such payment percentage reflected the trustees determination that current claimants cannot be paid a higher percentage of their damages without creating an undue risk that future claimants will not receive the same percentage of their damages. ). Those claimants who decide to litigate must comply with a case management order (the CMO ), which streamlines discovery for all parties and addresses this Court s concerns about proof of both product identification and substantial cause); Estimation Opinion at 2 ( Garlock s products released asbestos only when disturbed, such as by cutting, scraping, wire brushing or grinding ). - 3-
Document Page 4 of 18 non-disclosure of co-defendant claims by certain plaintiff firms. The CMO is modeled on case management orders entered by other courts for the same purposes. The Plan provides for payment of $500 million over time, made up of: (i) $327.5 million for the asbestos settlement trust; (ii) $30 million for the asbestos litigation fund, with a further $132 million available if needed; and (iii) another amount, not yet fixed, to pay prepetition allowed settled claims in full. By comparison, this Court estimated that $125 million was needed to pay current and future mesothelioma asbestos claims in full. See Estimation Opinion at 113. All parties agree that mesothelioma claims are the substantial majority of all asbestos claims in amount. The Debtors are currently soliciting the votes of present claimants through their legal representatives and the votes of future claimants through the FCR. The FCR intends to vote on behalf of future claimants to accept the Plan. B. The ACC Opposes the Debtors Plan The ACC opposes the Debtors Plan. At bottom, the ACC wants the Debtors to contribute more money to the Plan. Further, the ACC wants claims to be processed in the same manner as they are by the majority of trusts already created for asbestos debtors. In those trusts, claims are rarely if ever litigated, so a detailed case management order is not needed; exposure to asbestos fibers can be presumed; and a black box process allows claims brought by certain law firms to be paid higher settlement offers. See, e.g., Owens Corning/Fibreboard Asbestos Personal Injury Trust Distribution Procedures (Rev. 2/2/2010), 3 5.3(b)(2) (listing the valuation factors to be considered in individual review, including settlement and verdict histories for the claimant s law firm for 3 See http://www.ocfbasbestostrust.com/wp-content/uploads/2014/07/revised-ocfb-tdp-dated-february_2_- 2010_final1.pdf - 4-
Document Page 5 of 18 similarly situated claims ); 5.7(b)(3) (defining debtor exposure as exposure to asbestos or asbestos-containing products supplied, specified, manufactured, installed, maintained, or repaired by the debtors). C. Trusts Employing the Historic TDP Have Failed to Pay Future Claims in Substantially the Same Manner as Current Claims Problematically, data provided by existing trusts in recent years has shown that many of them are discriminatory in their operation, i.e., current claims receive higher recoveries than future claims: Notwithstanding the statutory protections for future victims, the available public data shows that few trusts that have processed their initial claims remain in position to ensure equitable payments to future victims. Payments from the most recently established trusts declined as much as 90% following the initial claim processing period, and the median payment percentage across the trusts... has reached an all-time low of 14%. Roughly two-thirds of the trusts have reduced payments to claimants at least once since 2010, resulting in per-claim payment reductions of up to 93.3% in that time. In sum, although trusts are established on the promise to pay all current and future victims equitably, this promise has already been broken at all but a few trusts. S. Todd Brown, How Long is Forever This Time? The Broken Promise of Bankruptcy Trusts, 61 BUFF. L. REV. 537, 538-39 (2013). See also Scarcella, supra, 14 Mealey s Asb. Bankr. Rep., no. 7, 2015 at 1 ( Asbestos bankruptcy trust funds are intended to pay initial and future claims in an equitable manner decades into the future. However, due to the accelerated depletion of funds, many asbestos trust claimants receive only half as much today as compared to the amounts similarly situated claimants received from the same trusts just six years ago. ); Scarcella, supra, 11 Mealey s Asb. Bankr. Rep., no. 11, 2012. - 5-
Document Page 6 of 18 The following asbestos bankruptcy trusts all reduced their payments to future claimants just in the period 2010-2013: API, Inc. Lummus ARTRA National Gypsum Babcock & Wilcox OCF Fibreboard C.E. Thurston & Sons OCF Owens Corning Celotex Plibrico Combustion Engineering Raytech Eagle-Picher Industries Shook & Fletcher G-I Holdings T H Agriculture & Nutrition ( THAN ) H.K. Porter U.S. Gypsum Kaiser Aluminum & Chemical UNR DII Industries See Scarcella, supra, 14 Mealey s Asb. Bankr. Rep., no. 7, 2015 at 3, Figure 2. ARGUMENT The FCR responds herein to only two of the ACC s objections: first, that the Debtors Plan is contrary to, and does not comply with, section 524(g) of the Code; and second, that the FCR may not vote on behalf of future claimants to accept (or reject) any plan of reorganization, let alone the Debtors Plan. Both are without merit. I. SECTION 524(g) IS A SAFE HARBOR AND NOT AN EXCLUSIVE OPTION FOR RESOLVING ASBESTOS CLAIMS The ACC s first objection to the Plan is easily dealt with, as Congress has already spoken on the subject. Contrary to the ACC s suggestion, section 524(g) is not the exclusive mechanism for resolving asbestos claims in bankruptcy; rather, it is a safe harbor. Indeed, the Bankruptcy - 6-
Document Page 7 of 18 Reform Act of 1994, which enacted section 524(g), expressly provides that the section shall not be construed to modify, impair, or supersede any other authority the court has to issue injunctions in connection with an order confirming a plan of reorganization. Pub. L. No. 103-394 (Oct. 22, 1994), 111(b) (emphasis added). To be sure, the Debtors must persuade this Court that they have satisfied all applicable provisions of the Code when confirming their Plan. Section 524(g), however, is not one of them. II. THE FCR WAS APPOINTED AS THE LEGAL REPRESENTATIVE TO PROTECT HOLDERS OF FUTURE CLAIMS, WITH THE REQUISITE AUTHORITY AND CAPACITY TO ACCEPT OR REJECT A PLAN OF REORGANIZATION ON THEIR BEHALF A. The FCR Has the Right to Vote to Accept or Reject a Plan of Reorganization To answer the second question whether the FCR may vote on behalf of future claimants to accept the Debtors Plan it is necessary to review the Court s appointment of the FCR in 2010. On August 13, 2010, the Debtors filed their Motion for Appointment of Joseph W. Grier, III as Future Asbestos Claimants Representative [Dkt. # 387] (the Motion to Appoint FCR ). Therein, the Debtors explained the need for the FCR. See Motion to Appoint FCR at 13 ( No other constituency adequately represents future claimants. Future claimants are obviously in conflict with the debtor. They also have actual conflicts of interest with the current claimants. If future claimants do not receive representation in a bankruptcy case, they can be expected to receive worse treatment than current claimants. ). On September 16, 2010, this Court granted the Debtors Motion. See Order Granting Debtors Motion for Appointment of Joseph W. Grier, III as Future Asbestos Claimants Representative [Dkt. # 512] (the Appointment Order ). - 7-
Document Page 8 of 18 By that Order, the Court appointed the FCR, pursuant to both section 105(a) and section 524(g) of the Code, as the legal representative [] in these cases, effective September 16, 2010, to protect the rights of persons who may, subsequent to confirmation of the Debtors plans of reorganization, hold Future Asbestos Claims, defined as claims based on, arising out of, or related to asbestos-related injury, disease or death that has not manifested, become evident or been diagnosed as of the date an order is entered confirming a plan of reorganization in these cases. Appointment Order at 2 (emphasis added). The Appointment Order did not delineate or limit the FCR s authority in any way, stating that the FCR shall represent the interests of, appear on behalf of, and be a fiduciary to the holders of future claims. Appointment Order at 2. 4 There is legal significance to the fact that the FCR was appointed as the legal representative of holders of future asbestos claims, not demands. As the Debtors Motion to Appoint FCR noted, the Fourth Circuit has long held that a Code claim includes any claim based on pre-petition exposure to a company s products, even if the claimant s injuries manifest after confirmation. See In re A.H. Robins Co., 839 F.2d 198, 203 (4th Cir. 1988); see also In re JELD-WEN, Inc. v. Van Brunt (In re Grossman s Inc.), 607 F.3d 114, 125 (3d Cir. 2010) (adopting Fourth Circuit s view that personal injury claim based on pre-petition exposure to debtor s products is a Code claim, even if injury does not manifest until after the bankruptcy case); Motion to Appoint FCR at 12. Because the Debtors stopped making asbestos-containing products in 2001, almost every possible future claim against Garlock is a Code claim. See 4 It is noteworthy that the ACC has no need for broad legal authority to appear on behalf of current claimants. That is because current claimants already have their own individual counsel. As such, there is no Order in this case providing the ACC with powers similar to those conferred upon the FCR. - 8-
Document Page 9 of 18 Motion to Appoint FCR at 8-9. 5 A critical, and perhaps the most critical, due process right that protects holders of Code claims is enshrined in section 1126(a) of the Code. That section provides that all claim holders have the right to accept or reject 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. ). In the exercise of that right, the FCR may, as the legal representative of holders of future claims, accept or reject the Debtors Plan on their behalf. The Appointment Order further sets forth the following additional terms: the FCR shall be a party in interest in these cases; shall have standing under section 1109(b) of the Code to be heard on any issue in the cases in the Bankruptcy Court, the District Court, or any other courts; and shall have the powers and duties of a committee set forth in section 1103 of the Code as are appropriate for an FCR. See Appointment Order at 6. These terms supplemented, and were not a substitute for, the FCR s broad authority to appear on behalf of holders of future claims and protect their rights and interests, including, necessarily, the right to vote to accept or reject a plan of reorganization. See Motion to Appoint FCR at 34. 5 Though not directly relevant here in that the Debtors are not seeking to confirm a section 524(g) plan, that section requires the appointment of a legal representative for persons who might assert demands, not claims. See 11 U.S.C. 524(g)(4)(B)(i). The term demand is defined as a demand for payment, present or future, that (A) was not a claim during the proceedings leading to the confirmation of a plan of reorganization; (B) arises out of the same or similar conduct or events that gave rise to the claims addressed by the injunction issued under paragraph (1); and (C) pursuant to the plan, is to be paid by a trust described in paragraph 2(B)(i). 11 U.S.C. 524(g)(5) (emphasis added). But there are very few, if any, demands in this case, given the passage of time since the enactment of section 524(g). See Motion to Appoint FCR at 18. Notably, section 524(g)(2)(B)(IV)(bb) also requires that claimants, whose claims are to be addressed by a trust, vote, by at least 75% of those voting, in favor of the plan. Under controlling law, including the law of the Fourth Circuit, holders of future claims are claimants whose claims would be addressed by a trust. See In re A.H. Robins, 839 F.2d at 203. Accordingly, it would be consistent with Fourth Circuit law for the Court to authorize the FCR to vote on a 524(g) plan. To our knowledge, this specific question how future asbestos claims vote on a 524(g) plan has not been addressed by any court. That is not surprising. The vast majority of significant asbestos cases were filed in the Third Circuit, which, until recently, did not consider future claims to be holders of claims that are entitled to vote. See Avellino & Bienes v. M. Frenville Co. (Matter of M. Frenville Co.), 744 F.2d 332 (3d Cir. 1984) (holding that claim arose under the Code only when it arose under state law, which meant future claims were not Code claims), vacated by In re Grossman s Inc., 607 F.3d at 125 (holding that future claims are Code claims ). - 9-
Document Page 10 of 18 This Court had full discretion and authority to enter the Appointment Order. See In re A.H. Robins Co., 972 F.2d 77, 82 (4th Cir. 1992) (bankruptcy court possesses broad equity powers ); In re Johns-Manville Corp., 36 B.R. 743, 749 (Bankr. S.D.N.Y. 1984) (exercising discretion and authority to appoint future claimants representative because a separate and distinct representative for these parties in interest must be established so that these claimants have a role in the formulation of such a plan ); In re Amatex Corp., 755 F.2d 1034, 1042-43 (3d Cir. 1985) (exercising authority to appoint legal representative for future claimants because future claimants require their own representative ); In re UNR Indus., 46 B.R. 671, 676 (Bankr. N.D. Ill. 1985) (appointing future claimants representative to give these victims some voice regarding the ultimate fate of these Debtors which they currently do not possess ); ITT-Industrial Credit Co. v. Hughes, 594 F.2d 384, 386 (4th Cir. 1979) (Bankruptcy Court has the power to sift the circumstances surrounding any claim to see that injustice and unfairness is not done in the administration of the bankrupt estate ) (quotations and citation omitted); In re Tate, 253 B.R. 653, 668 n.9 (Bankr. W.D.N.C. 2000) (Whitley, J.) ( [T]he Code grants bankruptcy courts equitable power to enter whatever orders are necessary to effect its provisions ). In the last five years, the ACC never challenged either this Court s authority to enter the Appointment Order or the scope of the Appointment Order itself. B. It is Right and Proper that Future Claimants Should Have a Legal Representative With Full Requisite Authority It is right and proper that the holders of future claims should have a legal representative in these cases with full requisite authority. First, future claims are the largest creditor group. All parties claims experts agree that, as of the petition date (June 2010), future mesothelioma claims were at least 75% of all such claims in number. See Tr. of Estimation Trial at 3882:22-3883:2, 3902:14-18, 8/8/13 PM - 10-
Document Page 11 of 18 (Peterson) (ACC s expert estimating 4,754 present claimants and 25,813 future claimants); id. at 4169:20-4170:2, 8/9/13 (Rabinovitz) (FCR s expert estimating 4,379 present claimants and 21,389 future claimants); Rabinovitz Demonstrative PowerPoint at 46-47 (FCR-42) (providing Dr. Bates estimates of 2,177 present and 28,402 future claimants). The Court s Estimation Opinion similarly held that future mesothelioma claims were four times the amount of current claims, again as of the petition date. See Estimation Opinion at 106, 112 (concluding that a reasonable and reliable estimate of Garlock s liability to current and future claimants is $25 million and $100 million, respectively). The ratio for other diseases will likely be similar. Given the passage of time, there will now be fewer future claims but they are still the majority of all claims. See FCR s Post-Trial Brief Regarding the Estimation of Garlock s Mesothelioma Claims at 4. Second, current claims are squarely adverse to future claims. Absent an authorized legal representative for future claimants, current claimants will control the bankruptcy process to their benefit and to the detriment of future claimants. This is not idle speculation. As the Supreme Court has recognized, for the currently injured, the critical goal is generous immediate payments, but [t]hat goal tugs against the interest of exposure-only plaintiffs in ensuring an ample, inflation-protected fund for the future. Amchem Prods, Inc. v. Windsor, 521 U.S. 591, 626 (1997). As such, in every bankruptcy case, [a] central issue... is how to allocate the Trust s limited assets between present and future claimants In re Joint Eastern and Southern Dist. Asbestos Litig., 129 B.R. 710, 772 (Bankr. E.D.N.Y. 1991), rev d on other grounds, 982 F.2d 721 (2d Cir. 1992). As to that basic question, the interests of present and future claimants are in conflict. Id. - 11-
Document Page 12 of 18 Court after court has remarked on the conflict between present and future claimants, and rejected the notion that the ACC can be relied upon to represent future claimants. See, e.g., In re Johns-Manville Corp., 36 B.R. at 749 (noting adversity and responding skeptically to the ACC s cavalier suggestion that it could also represent future claimants); In re Amatex Corp., 755 F.2d at 1042-43 (noting adversity, rejecting ACC s request to exclude future claimants from any reorganization, and stating: [I]f future claimants are excluded from the reorganization plan, the current claimants will receive a larger portion of an obviously limited fund. ); In re UNR Indus., 46 B.R. at 675 (future claimants interests were not adequately represented by the Debtors or by the official committees of unsecured creditors ); In re H.K. Porter Co., 156 B.R. 16, 18 n.2 (Bankr. W.D. Pa. 1993) (noting adversity and denying motion to appoint a member of the ACC to serve as the FCR because his fiduciary duty was to represent pre-petition creditors, and the court was troubled over [his] apparent conflict in representing both prepetition and future claimants and his cavalier approach to such conflict. ). The Second Circuit succinctly summarized this conflict in Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir. 1988): Id. at 644. Both [current claimants] and future claimants wish to recover from the debtor for personal injuries. To the extent that [current claimants] [are] successful in obtaining more of the debtor s assets to satisfy [their] own claims, less will be available for other parties, with the distinct risk that the future claimants will suffer. Thus, we cannot depend on [current claimants] sincerely to advance the interests of the future claimants. The ACC itself has emphasized that future claimants may not look to it for protection. See Statement of the Official Committee of Asbestos Personal Injury Claimants [Dkt. # 4542] at 1 ( The bankruptcy court appointed the ACC to protect the interests of current asbestos claimants); id. at 2 ( The ACC s responsibility is to protect the shared interests of all current asbestos claimants. By contrast, the [FCR] has no responsibility for current claimants ); see - 12-
Document Page 13 of 18 also Information Brief of the Official Committee of Asbestos Personal Injury Claimants [Dkt. # 452] at 2 (describing the ACC and its counsel as representing the interests of all persons currently holding [asbestos] claims ) (emphasis added); see also id. at 16 (describing current claimants as the ACC s constituents and future claimants as the FCR s constituents). Mr. Inselbuch, lead counsel for the ACC, has made this equally plain in other cases. See In re Joint Eastern and Southern Dist. Asbestos Litig., 129 B.R. at 783 (letter from Elihu Inselbuch to FCR stating: we disagree with the suggestion that the Selected Counsel for the Beneficiaries act as fiduciaries for future claimants ). Indeed, the plaintiff firms that control the ACC in this and other cases have not been shy about advancing their own interests and those of current claims at the expense of future claims. In fact, the history of bankruptcy asbestos litigation is punctuated with case after case where courts have been called upon to rein in such discriminatory behavior or to address its consequences. See, e.g., In re Joint Eastern and Southern Dist. Asbestos Litig., 129 B.R. at 752-62 (noting that Johns-Manville trust was rapidly depleted in first two years of operation due to flood of current claims); In re Combustion Eng g, Inc., 391 F.3d 190 (3d Cir. 2004) (vacating plan confirmation where, inter alia, plan granted certain current claimants who negotiated a prepetition settlement a 95% payout, while future claimants who had not been represented in connection with pre-petition settlement negotiations, expected to receive an 18% payout); In re Am. Capital Equipment, LLC, 688 F.3d 145, 160 (3d Cir. 2012) (affirming order denying plan confirmation where, inter alia, plan created a payment fund to pay off creditors and insurers rather than to pay future asbestos claimants); In re ACandS, Inc., 311 B.R. 36, 42 (Bankr. D. Del. 2004) (denying confirmation of plan that discriminated between present and future claims); Scarcella, supra, 14 Mealey s Asb. Bankr. Rep., no. 7, 2015 at 2 (describing the THAN asbestos - 13-
Document Page 14 of 18 bankruptcy trust as the most egregious example of inequity between initial and future asbestos claimants, with initial claimants being paid a 333% premium compared to future claimants, and future claimants initially receiving $0.00 while current claimants received a 100% payout). The ACandS case is a prime example of this discriminatory conduct. There, prior to filing a Chapter 11 petition, ACandS, Inc. entered into negotiations with an asbestos plaintiffs committee. See In re ACandS, Inc., 311 B.R. at 40. The result was a trust agreement that paid current claimants in full, while future claimants were entitled only to a portion of insurance proceeds recovered, if any. See id. at 39-40. In addition, Kenesis Group, LLP ( Kenesis ), the entity retained by the debtor to review claims for a fee of $3 million, was owned by the debtors insurance counsel. In turn, Kenesis subcontracted the bulk of its work to Clearing House LLC ( Clearing House ), an entity whose sole principal was a paralegal on leave from the Chair of the prepetition committee s law firm, for a fee of $2 million. See id. at 40 (claims reviewer could not be considered independent even under the most imaginative use of the word ); see also In re Congoleum Corp., 426 F.3d 675, 683-84 (3d Cir. 2005) (same arrangement involving Kenesis and Clearing House). Chief Bankruptcy Judge Randall J. Newsome denied confirmation of the debtor s plan because, among other things, it discriminate[d] between present and future claims. Id. at 42. Finding that it was impossible to conclude that the plan was proposed in good faith given, among other things, the prepetition committee s continued influence as majority member of the post-petition committee, and its obvious self-dealing, Judge Newsome concluded: [I]t is fundamentally unfair that one claimant with nonsymptomatic pleural plaques will be paid in full, while someone with mesothelioma runs the substantial risk of receiving nothing. Both should be compensated based on the nature of their injuries, not based on the influence and cunning of their lawyers. The court is informed that other judges have confirmed plans with such - 14-
Document Page 15 of 18 discriminatory classifications. conscience. This judge cannot do so in good Id. at 43. 6 C. The ACC s Argument That the FCR Lacks the Authority to Accept or Reject a Plan of Reorganization on Behalf of Future Claimants Is Without Merit In its Preliminary Objections, the ACC argues that future claimants are unknown and unidentifiable persons and therefore it is not physically possible for them to cast a ballot accepting or rejecting a plan of reorganization. Preliminary Objections at 29. It is true, of course, that future claimants are unknown and unidentifiable at this time. But that is exactly why the Court appointed the FCR to protect such claimants. Next, the ACC argues that the FCR lacks legal capacity and authority to accept or reject a plan on behalf of Future Asbestos Claimants. Preliminary Objections at 30. From there, the ACC constructs two Code objections: the Plan violates section 1126(a) of the Code by providing that the FCR can cast a ballot for his constituency, and because of that, the Plan was not proposed in good faith and therefore violates section 1129(a)(3). See id. at B(1)(j), (B)(2). 7 The ACC s argument concerning whether the FCR can vote or not follows on from its proposed statement recently filed in connection with the Debtors Disclosure Statement. The ACC said there, as it does here, that the FCR should not be allowed to vote on the Debtors Plan and made the following plea to current claimants: the FCR s acquiescence [to the Debtors 6 [L]eaving the procedures for allocation of resources predominantly in the hands of private, conflicting interests has led to problems of fair and equal resolution among current and future claimants. In re Congoleum Corp., 426 F.3d at 694 (holding that debtors counsel, whose retention was recommended by asbestos claimants committee counsel, had disabling conflict of interest because he also represented claimants seeking recovery from insurers of asbestos defendants); In re Combustion Eng g, Inc., 295 B.R. 459, 478 (Bankr. D. Del. 2003) (disallowing $20 million fee paid by debtor s parent to current claimants committee representative because he had a conflict of interest: he was being paid both by [the debtor s] parent and by his clients who have claims against [the debtor] ), vacated on other grounds, 391 F.3d 190 (3d Cir. 2004) (vacating confirmation of plan that discriminated between current claimants and future claimants). 7 If this Court finds the FCR is authorized to vote as the legal representative for future claimants, then the ACC s corollary argument that the Debtors proposed their Plan in bad faith is moot. - 15-
Document Page 16 of 18 Plan] makes it especially important for holders of present asbestos claims to unite in voting to reject the Plan. Statement of the Official Committee of Asbestos Personal Injury Claimants Recommending that Asbestos Claimants Vote to Reject the Debtors Second Amended Plan of Reorganization [Dkt. # 4366] at 21. Ultimately, the Court struck such language from the ACC s statement. But the ACC s statement, together with the Preliminary Objections, is instructive in laying out their position: Despite holders of future claims being the majority of asbestos claims, their legal representative cannot accept a plan that treats them fairly, nor reject one that treat them poorly; holders of present claims, on the other hand, can vote through their legal representatives and bind all claimants to a plan of the present claimants choosing, including one that is prejudicial to future claimants. The ACC s arguments cannot be squared with the actual language of the Appointment Order. The ACC wants to amend the Appointment Order to say: The FCR shall not appear on behalf of future claimants; the FCR is not a fiduciary to future claimants; the FCR is not required to protect the rights of future claimants, including their right to vote; and the FCR may not accept or reject any plan of reorganization in these cases on behalf of future claimants. The Appointment Order says none of those things. The ACC s objection founders on that reality. 8 In other non-524(g) cases where future claimants representatives have been appointed, and the circumstances of the case presented the questions as to whether the representative can file a proof of claim and/or cast a ballot on behalf of future claims, courts have had little difficulty confirming that they can and should do so. See, e.g., In re Lykes Bros. S.S. Co., 233 8 To be sure, while the FCR firmly believes that the existing Appointment Order confers all necessary capacity and authority to him to protect his clients right to vote on the Debtors Plan there is, of course, no more fundamental bankruptcy right worthy of protection that is a question for the Court to decide. Should this Court ultimately decide there is a need to clarify or amend the Appointment Order, it is well within its discretion to do so. See In re UNR Indus., Inc., 71 B.R. 467, 479 (Bankr. N.D. Ill. 1987) (Bankruptcy Court can alter or amend [the FCR s] powers and responsibilities as circumstances might dictate. ). - 16-
Document Page 17 of 18 B.R. 497 (Bankr. M.D. Fla. 1997) (confirming plan where FCR cast ballot for future claimants in favor of reorganization plan); In re The Roman Catholic Bishop of Stockton, Case No. 14-20371- C-11, Order Authorizing Appointing a Legal Representative to Represent the Interests of Future Abuse Claimants and Minors, Dkt. # 263 (E.D. Cal. May 8, 2014) (appointing FCR and authorizing FCR to, inter alia, file proofs of claim by future claimants and file ballots by or for future claimants); In re The Catholic Bishop of Spokane, Case No. 4-08822-PCW11, Final Order Appointing a Legal Representative for Future Tort Claimants and Minors, Dkt. # 550 (Bankr. E.D. Wash. June 17, 2005) (same); In re Am. W. Dev. Inc., Case No. BK-S-12-12349-MKN, Order Granting Debtor s Motion to Approve Stipulation between Debtor and Future Claims Representative Regarding Voting Eligibility, Dkt. # 605 (Bankr. D. Nev. Aug. 29, 2012) (approving stipulation granting FCR authority to vote on behalf of future claimants); In re Roman Catholic Church of the Diocese of Tucson, Case No. 4-04-bk-04721-JMM, Ballot Report and Certification of Acceptances and Rejections of Chapter 11 Plan for Debtor s Third Amended and Restated Plan of Reorganization dated May 25, 2005, Dkt. # 733 (Bankr. D. Ariz. July 8, 2005) (noting that FCR voted to accept plan on behalf of future claimants); In re Roman Catholic Archbishop of Portland in Oregon, Case No. 04-37154-elp11, Order Appointing Future Claimants Representative, Dkt. # 723 (Bankr. D. Or. Dec. 20, 2004) (appointing FCR and granting FCR authority to vote on behalf of future claimants). - 17-
Document Page 18 of 18 CONCLUSION The ACC s objections to the Debtors Plan are without merit. The Debtors need not rely on section 524(g) to confirm their Plan, and the FCR may vote to accept that Plan on behalf of future claimants. Dated: May 22, 2015 Respectfully submitted, ORRICK, HERRINGTON & SUTCLIFFE LLP /s/ Jonathan P. Guy Jonathan P. Guy Kathleen A. Orr Gregory D. Beaman 1152 15th Street, NW Washington, DC 20005 Telephone: (202) 339-8400 Email: jguy@orrick.com korr@orrick.com gbeaman@orrick.com - 18- -and- A. Cotten Wright (State Bar No. 28162) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, NC 28246 Telephone: (704) 375-3720 Email: cwright@grierlaw.com Counsel for Joseph W. Grier, III, Future Asbestos Claimants Representative