Pg 1 of 12 Martin J. Bienenstock Timothy Q. Karcher Vincent Indelicato PROSKAUER ROSE LLP Eleven Times Square New York, NY 10036 Tel: (212) 969-3000 Fax: (212) 969-2900 Counsel to the Statutory Unsecured Claimholders Committee of Westinghouse Electric Company LLC, et al. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re Westinghouse Electric Company LLC, et al., Debtors. 1 Chapter 11 Case No. 17-10751 (MEW) (Jointly Administered) Toshiba Corporation, Movant, v. Statutory Unsecured Claimholders Committee, Respondent. Re: ECF Nos. 3742 & 4174 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), CE Nuclear Power International, Inc. (8833), Fauske and Associates LLC (8538), Field Services, LLC (2550), Nuclear Technology Solutions LLC (1921), PaR Nuclear Holding Co., Inc. (7944), PaR Nuclear, Inc. (6586), PCI Energy Services LLC (9100), Shaw Global Services, LLC (0436), Shaw Nuclear Services, Inc. (6250), Stone & Webster Asia Inc. (1348), Stone & Webster Construction Inc. (1673), Stone & Webster International Inc. (1586), Stone & Webster Services LLC (5448), Toshiba Nuclear Energy Holdings (UK) Limited (2348), TSB Nuclear Energy Services Inc. (2348), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WEC Engineering Services Inc. (6759), WEC Equipment & Machining Solutions, LLC (3135), WEC Specialty LLC (N/A), WEC Welding and Machining, LLC (8771), WECTEC Contractors Inc. (4168), WECTEC Global Project Services Inc. (8572), WECTEC LLC (6222), WECTEC Staffing Services LLC (4135), Westinghouse Energy Systems LLC (0328), Westinghouse Industry Products International Company LLC (3909), Westinghouse International Technology LLC (N/A), and Westinghouse Technology Licensing Company LLC (5961). By order dated September 25, 2018, [ECF No. 3956] the administration of the Debtors cases was consolidated at the case of Westinghouse Electric Company LLC, and the affiliated cases of certain Debtors were closed.
Pg 2 of 12 STATUTORY UNSECURED CLAIMHOLDERS COMMITTEE S (A) OBJECTION TO MOTION OF TOSHIBA CORPORATION FOR ENTRY OF AN ORDER (I) DIRECTING IMMEDIATE PAYMENT OF AN ADMINISTRATIVE EXPENSE CLAIM PURSUANT TO 11 U.S.C. 503(a), 503(b)(1)(A), AND 503(b)(3)(D); OR (II) IN THE ALTERNATIVE, ALLOWING TOSHIBA CORPORATION S AMENDED PROOF OF CLAIM AND (B) JOINDER TO THE OBJECTION OF W WIND DOWN CO LLC [ECF NO. 4174] To the Honorable Michael E. Wiles, United States Bankruptcy Judge: The statutory unsecured claimholders committee (the UCC ) of Westinghouse Electric Company LLC, et al. (the Debtors ) respectfully submits this objection (the Objection ) to the Motion of Toshiba Corporation for Entry of an Order (I) Directing Immediate Payment of an Administrative Expense Claim Pursuant to 11 U.S.C. 503(a), 503(b)(1)(A), and 503(b)(3)(D);or (II) In the Alternative, Allowing Toshiba Corporation s Amended Proof of Claim, [ECF No. 1828] (the Motion ), and joinder to Wind Down Co s Objection to Motions of Toshiba Corporation and Its Affiliates Requesting Allowance and Payment of Administrative Expense Claims (the Wind Down Co Objection ) [ECF No. 4174]. In support of the Objection and joinder to the Wind Down Co Objection, the UCC respectfully states as follows: Preliminary Statement 2 1. Toshiba seeks to renege on their deal. 2. As part of the global settlement resolving these chapter 11 cases, the UCC which was conducting a Rule 2004 investigation of Toshiba pursuant to this Court s order agreed to withdraw its investigation in exchange for a fixed sum of money to be set aside for the benefit of the UCC s constituency (holders all Allowed Class 3A General Unsecured Claims). 3. Through this resolution, Toshiba Corporation agreed to subordinate the vast majority of its Claims thereto. Claims not to be subordinated, and deemed to be Allowed Class 2 All capitalized terms undefined in this section shall have the meaning ascribed to them below in the Objection, or in the Modified Second Amended Joint Chapter 11 Plan of Reorganization (the Plan ) [ECF No. 2986], as appropriate. 2
Pg 3 of 12 3A General Unsecured Claims, were agreed to by the UCC and the Consenting Claimholder, an entity managed by an affiliate of the Baupost Group L.L.C., among other parties, and were enumerated in the Plan Support Agreement (the PSA ) 3 and attached Plan Term Sheet (the PTS ), memorializing the global resolution of these chapter 11 cases. 4. The $8,701,581.94 Toshiba now seeks, as an administrative expense, or in the alternative, a Class 3A General Unsecured Claim, is expressly prohibited by the terms of the PSA. The alternative relief Toshiba requests, in seeking to amend its proof of claim, likewise violates the terms of the PSA. If Toshiba is allowed to amend its proof of claim to assert such claim as a Class 3A General Unsecured Claim, such amendment would dilute the recoveries of other Allowed holders of unsecured Claims. Accordingly, the UCC objects to relief requested in the Motion, and joins the Wind Down Co Objection. 4 Background A. General Background 5. On March 29, 2017 (the Petition Date ), each Debtor commenced with this Court a voluntary case under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ). The Debtors continue to be authorized to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 6. On April 7, 2017, the Office of the United States Trustee for the Southern District of New York (the U.S. Trustee ) appointed the UCC to represent the interests of the Debtors 3 The executed Plan Support Agreement and Plan Term Sheet are attached as Exhibit A to the Declaration of Kei Nishida in Support of Motion of Debtors for Entry of Orders (I) Approving (A) Proposed Disclosure Statement, (B) Solicitation and Voting Procedures, (C) Notice and Objection Procedures for Confirmation of Debtors Plan and Other Relief, and (D) Procedures for Assumption and Assignment of Contracts; and (II) as Alternative Relief, Approving Sale of Debtors Assets. [ECF No. 2491]. 4 The UCC focuses its objection below on the alternative relief Toshiba requests; that Toshiba should not be permitted to amend its proof of claim to assert its claim in Class 3A. 3
Pg 4 of 12 unsecured claimholders in these chapter 11 cases pursuant to section 1102 of the Bankruptcy Code and filed the Notice of Appointment of Official Committee of Unsecured Creditors [ECF No. 160]. The current members of the UCC are: (a) Fluor Enterprises Inc.; (b) SSM Industries, Inc.; (c) and Pension Benefit Guaranty Corporation. See [ECF No. 3893]. 7. Additional information regarding the Debtors businesses, capital structure, and the circumstances leading to the commencement of these chapter 11 cases is set forth in the disclosure statement approved in connection with the Plan. [ECF No. 2623]. B. Toshiba Filed Its Proof of Claims 8. Toshiba filed numerous claims in these chapter 11 cases. See PTS at Exhibits 3 and 4 (listing many of the claims Toshiba filed). As relevant here, Toshiba filed proof of claim 3044 against Debtor Westinghouse Electric Company LLC, which it seeks to amend as alternative relief in its Motion, on September 1, 2017 (the Toshiba PoC ). 9. Toshiba s PoC alleges damages related to two distinct series of transactions. First, Toshiba alleges it made certain intercompany loans to the Debtors to support the Debtors ongoing business operations, and had claims in the aggregate totaling more than $690 million thereto (the Intercompany Claims ). Toshiba PoC at 2, 5. These Intercompany Claims are enumerated on Exhibit A to the Toshiba PoC and are referred to as claim numbers 3044-A-1-2- 3-4-5-6-7. 10. Second, Toshiba alleges it obtained certain letters of credit in order to ensure performance under certain customer contracts or other transactions involving the Debtors. Toshiba PoC at 2 3. While as of the Toshiba PoC filing date the letters of credit had not been drawn upon, Toshiba reserve[d] any and all rights to bring any and all additional claims for damages arising from draws against the L/Cs in the Chapter 11 Cases as appropriate. (the L/C Claims ). Toshiba PoC at 5. These L/C Claims are enumerated on Exhibit B to the Toshiba PoC 4
Pg 5 of 12 and are referred to as claim numbers 3044-B-1-2-3-4. C. The UCC Was Authorized to Investigate Toshiba, and the PSA Parties (Including Toshiba) Reached a Global Settlement to Resolve the Investigation and Toshiba s Claims, among others, and Exit These Chapter 11 Cases. 11. On August 8, 2017, the Court entered the Order on Consent Pursuant to Bankruptcy Rule 2004 Authorizing Statutory Unsecured Claimholders Committee to Take Discovery of Debtors and Toshiba [ECF No. 1106] (the Rule 2004 Order ). Pursuant to the Rule 2004 Order, the UCC was authorized to take document discovery and deposition testimony from Toshiba, among other parties, to investigate Toshiba s actions prior to the Petition Date, and any causes of action the UCC may have related to the Debtors commencement of these chapter 11 cases. 12. While the Rule 2004 investigation proceeded, the UCC, the Debtors, and Toshiba, among others, engaged in discussions to consensually resolve any claims that could be asserted against Toshiba and confirm the chapter 11 plan. On January 17, 2018, such agreement was reached, as the Debtors and the PSA Parties 5 signed the PSA, setting forth the substantive terms of the Plan. See Plan at 1.104. As part of the PSA, the UCC agreed to suspend and forbear from pursuing any pending document discovery and deposition testimony requests previously served upon... Toshiba[.] PSA 3.3. The treatment of Toshiba s claims, among others, is a settlement and compromise of the delay, expense, and uncertainty associated with extensive potential litigation[.] PTS at 9. D. The Plan Support Agreement Established the Treatment of Toshiba s Claims 13. The PSA established the treatment of Toshiba s Claims. Specifically, it provided: (i) Toshiba GUC Claims shall mean the Claims listed on Exhibit 3. PTS at 6 5 The PSA Parties are (i) Toshiba, (ii) the UCC, (iii) the Plan Investor (i.e., Brookfield WEC Holdings LLC), and (iv) the Consenting Claimholder. 5
Pg 6 of 12 n.13. (ii) On the Plan Effective Date, the Toshiba GUC Claims shall be Allowed as General Unsecured Claims in the amounts stated on Exhibit 3 annexed hereto. All amounts claimed in excess of such amounts shall be Disallowed. PTS at 9 (emphasis added). (iii) Toshiba GUC Claims shall be treated as Class 3A General Unsecured Claims. PTS at 9. (iv) Class 3B General Unsecured Claim shall mean a General Unsecured Claim to the extent set forth on Exhibit 4 annexed hereto. PTS at 7 n.15. (v) On the Plan Effective Date, Class 3B General Unsecured Claims shall be Allowed as Class 3B General Unsecured Claims in the amounts stated on Exhibit 4 annexed hereto. All amounts claimed in excess of such amounts shall be Disallowed. PTS at 10 (emphasis added). (vi) Toshiba shall waive, release, deem satisfied, or otherwise discharge any and Toshiba and all right to repayment of the claims outlined on Exhibit 5 annexed hereto TNEH UK against the Company Affiliates (the Released Toshiba Claims )[.] PTS at 10. 14. Exhibit 4 listed the claims to be Allowed as Class 3B General Unsecured Claims. Included on that list are the Intercompany Claims, numbered 3044-A-1-2-3-4-5-6-7. PTS at Exhibit 4, rows 17 23. The treatment of the L/C Claims is not explicitly mentioned in the PTS. 15. The PSA further described the PSA Parties commitments in connection with the PSA. Among other things, the PSA Parties agreed to not take any action inconsistent in any material respect with [the PSA,] PSA 3.01(d), and not file or support any motion with the Bankruptcy court seeking the entry of an order... granting any relief inconsistent with this PSA, the [Plan] Term Sheet, the Plan Funding Agreement, and/or the Plan Documents[.] PSA 3.01(i). 16. The Plan memorialized the treatment of the foregoing claims. See Plan 4.3(b) ( each holder of an Allowed Class 3A General Unsecured (other than holders of Cash Pool Claims) shall receive, in full and final satisfaction of such Claim... ); 5.3(a); (b) ( On the 6
Pg 7 of 12 Effective Date, the Toshiba GUC Claims shall be Allowed as Class 3A General Unsecured Claims in the amounts stated on Exhibit G hereto which amounts shall not exceed $43,665,642.48. All amounts claimed in excess of such amounts shall be Disallowed ); (d)(ii). E. Concurrent with the PSA, Toshiba Sold Their Claims to the Consenting Claimholder 17. The PSA also explained that, as of the date of the PSA, Toshiba would sell all of its Claims in Class 3B to the Consenting Claimholder pursuant to an Assignment and Purchase Agreement. See PSA 7.04; see, e.g., Exhibit 4, Allowed Class 3B General Unsecured Claims, Claimant for Proof of Claim Number 2132 (indicating Nucleus was the assignee of claims sold by Toshiba Corporation); see also PSA at p.1 ( Nucleus Acquisition LLC... [is] the prospective buyer of the Class 3B General Unsecured Claims detailed on Exhibit 4 of the [Plan] Term Sheet ). The Consenting Claimholder later filed a notice of transfer informing the Court and other parties in interest of the transfer of such Claims detailed on Exhibit 4 of the Plan Term Sheet to the Consenting Claimholder. [ECF No. 2256]. Objection A. It Would Be Inequitable to Allow Toshiba To Amend Its Claim 18. Courts considering amendments to claims typically engage in a two-step inquiry. First, they examine whether there was [a] timely assertion of a similar claim or demand evidencing an intention to hold the estate liable. An amendment will meet this threshold if it 1) corrects a defect of form in the original claim; 2) describes the original claim with greater particularity; or 3) pleads a new theory of recovery on the facts set forth in the original claim. Second, if an amendment does, in fact, relate back to the timely filed claim, courts will examine each fact within the case and determine whether it would be equitable to allow the amendment. In re Enron Corp., 419 F.3d 115, 133 (2d Cir. 2005) (internal citations omitted) (emphasis added). Here, it would not be equitable to allow the amendment. 7
Pg 8 of 12 19. In general, there are three factors courts in this circuit look to when examining if it would be equitable to allow an amendment to a claim: (i) whether the late claimant acted in good faith and the delay was justified; (ii) whether the opposing party would be unduly prejudiced by the amendment; and (iii) whether creditors would receive a windfall from disallowance of the amendment. See, e.g., In re Enron Corp., 419 F.3d at 133. Here, all three factors militate in favor of denying the amendment. 20. First, Toshiba s amendment violates its agreement with the UCC. As discussed above, the PSA parties comprehensively negotiated a settlement to these chapter 11 cases, including the treatment of Toshiba s Claims. The UCC specifically negotiated which of Toshiba s Claims would be Allowed in Class 3A. In agreeing to allow the Toshiba GUC Claims in Class 3A, the UCC permitted Toshiba to recover those Claims at face value (as is the expectation per the Disclosure Statement). 21. However, the PSA made clear that it explicitly capped such recoveries at the agreed-upon amount in the Toshiba GUC Claims: On the Plan Effective Date, the Toshiba GUC Claims shall be Allowed as General Unsecured Claims in the amounts stated on Exhibit 3 annexed hereto. All amounts claimed in excess of such amounts shall be Disallowed. PTS at 9 (emphasis added). Accordingly, Toshiba can have an Allowed Claim in Class 3A equal to the sum of the amounts of the Claims on Exhibit 3 of the PTS, and no more. 22. The same is true of Toshiba s Claims asserted in Class 3B. See supra 13. This conclusive treatment of Toshiba s Claims in the PSA is consistent with that document being a global resolution to the material claims and disputes in the Westinghouse chapter 11 cases. There were intense negotiations to reach the agreement in the PSA, and it is clear Toshiba s only Allowed Claims in Class 3A were put on Exhibit 3 of the PTS. The italicized language above is unambiguous, and was confirmatory of the PSA Parties agreement that Toshiba was to receive 8
Pg 9 of 12 the amounts asserted in the Toshiba GUC Claims in Class 3A and nothing more. Toshiba cannot exclude from the PSA mention of 4 of 11 Claims listed on its proof of claim, explicitly negotiate which of its Claims are going to be allowed in Class 3A, and then spring such Claims on the PSA Parties after the Plan had been confirmed and gone effective. See Gens v. Resolution Trust Corp., 112 F.3d 569, 575 (1st Cir. 1997) (a proof of claim amendment should not be allowed when the need to amend... [is] the product of bad faith or dilatory tactics on the part of the claimant. ). The alternative relief Toshiba seeks now is in contravention of the PSA Parties commitments upon signing that agreement. See 15. 23. Second, and relatedly, Toshiba had every opportunity to raise their alleged entitlement to reimbursement for the L/C Claims throughout the negotiation of the PSA and the Plan. Toshiba did not, and the UCC was not aware Toshiba was keeping in reserve such Claims while at the same time negotiating an agreement which would allegedly resolve all of their Claims in these chapter 11 cases. See In re Ridgewood Apartments of DeKalb Cty., Ltd., 174 B.R. 712, 717 (Bankr. S.D. Ohio 1994) (noting an amendment was prejudicial where plan projections were made without any indication the creditor, Fannie Mae, would be asserting a statutory attorney fees claim). Further, the majority of the invoices supporting the L/C Claims were attached to an email dated September 29, 2017 nearly a full year before Toshiba filed its motion (a much smaller amount of the total Toshiba seeks is pursuant to an invoice dated March 16, 2018). See, e.g., In re Varner, No. 14-61103, 2014 WL 4988236, at *3 (Bankr. N.D. Ohio Oct. 7, 2014) ( the longer an unexplained delay, the lower the opposing party s burden of showing significant prejudice ) (citing cases). 24. Third, the UCC agrees with Toshiba that creditors will not receive a windfall if their amended proof of claim is disallowed. Motion at 28. But, Toshiba has completely inverted the import of this prong: if a disallowance would lead to a windfall for other creditors, 9
Pg 10 of 12 then such disallowance is inequitable. See In re McLean Indus., Inc., 121 B.R. 704, 708 (Bankr. S.D.N.Y. 1990) (citing In re Saxe, 14 B.R. 161, 165 (Bankr. S.D.N.Y. 1981)). Here, where both parties agree disallowance does not lead to a windfall for holders of Allowed Class 3A General Unsecured Claims, disallowance is equitable. 25. Disallowing the amendment is consistent with the purpose of this prong of the test, which exists to prevent parties from an unexpected increase in recoveries due to technical victories or other non-substantive reasons. See generally In re Int l Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir. 1985) ( It is well accepted that the bankruptcy court is guided by the principles of equity, and that the court will act to assure that fraud will not prevail, that substance will not give way to form, that technical considerations will not prevent substantial justice from being done. ) (citing Pepper v. Litton, 308 U.S. 295, 305 (1939)). Here, unsecured creditors would not receive a windfall because the amount at issue is not large in the scheme of the case, see In re Parsons, 135 B.R. 283, 286 (Bankr. S.D. Ohio 1991), and the PSA and Plan were negotiated with the understanding and expectation that Toshiba would not recover in Class 3A any amounts greater than Allowed pursuant to the Toshiba GUC Claims. See In re C.P.M. Const., 124 B.R. 335, 338 (Bankr. D.N.M. 1991) (declining to allow an amendment to a claim where [t]he debtors propounded a plan based on the two disclosure statements and the objections thereto, all the while treating [the claim sought to be amended] as stated in the original proof of claim ); see also In re Clamp-All Corp., 235 B.R. 137, 141 (B.A.P. 1st Cir. 1999) (allowing a claim amendment where the debtor opposing the amendment knew all along of the nature of the [claims] ). B. Toshiba Doesn t Assert Any Basis for an Unsecured Claim 26. The expenses Toshiba seeks reimbursement for all arose post-petition. See Motion at 21 ( Toshiba s efforts in posting and underwriting the continuing post-petition costs 10
Pg 11 of 12 of the AP1000 L/Cs [support Toshiba receiving an administrative expense under Section 503(b)(3)(D) for making a substantial contribution to the case] ). Toshiba alleges, among other things, its claim should be allowed as conferring a substantial benefit to the estate. See Motion at 21. However, a substantial contribution claim is necessarily an administrative claim. See 11 U.S.C. 503(b)(3)(D) ( there shall be allowed administrative expenses... including the actual, necessary expenses... incurred by... an equity security holder... in making a substantial contribution in a case under chapter 9 or 11 ). And courts denying such substantial contribution claims do not simply relegate them to unsecured claims, but strike them entirely. See, e.g., In re AmFin Financial Corp., 2012 WL 652018 (Bankr. N.D. Ohio Feb. 28, 2012). 27. If the claim is independently an unsecured claim, because, for example, it arose out of a contractual obligation of the debtor, the creditor can assert it as such. See In re A. Tarricone, Inc., 83 B.R. 253, 255 (Bankr. S.D.N.Y. 1988) (citing In re United Merchants and Manufacturers, Inc., 674 F.2d 134 (2d Cir. 1982); Liberty National Bank and Trust Company of Louisville v. George, 70 B.R. 312 (W.D.Ky. 1987); In re Ladycliff College, 56 B.R. 765 (S.D.N.Y. 1985)). Here, however, Toshiba s Claim stems not from an agreement subject to assumption or rejection it had with the Debtors, but rather an agreement it had with two banks for the benefit of the Vogtle Owners and VC Summer Owners. See Motion at p.3. And Toshiba provides no case law support for the proposition that services performed and value provided postpetition not under a contract that was subject to assumption or rejection (because the contract was not with the Debtors) can lead to an unsecured claim. Accordingly, there is no independent basis for the claim to be amended to allow for Toshiba to assert a General Unsecured Claim. Joinder 28. The UCC hereby joins the Wind Down Co Objection. As discussed above, the PSA contemplated a global resolution of all material issues in the Westinghouse chapter 11 11
Pg 12 of 12 cases, and Toshiba s suggestion that it retained certain Claims notwithstanding such agreement is contrary to both the Consenting Claimholder s and the UCC s understanding of the PSA. Reservation of Rights 29. If the Motion is granted, the UCC reserves all rights to object to the Claim. Conclusion 30. Toshiba s belated and unexpected assertion of over $8 million in claims is against both the spirit and the letter of the PSA and the Plan. Accordingly, it would be inequitable to allow amendment of the Toshiba PoC, and Toshiba s Motion should be denied. WHEREFORE for the reasons set forth herein, the UCC respectfully requests the Court: (i) sustain the Objection; (ii) deny the Motion; and (iii) grant the UCC such other and further relief as the Court deems just and proper. Dated: January 28, 2019 New York, NY PROSKAUER ROSE LLP By: /s/ Timothy Q. Karcher Martin J. Bienenstock Timothy Q. Karcher Vincent Indelicato Eleven Times Square New York, New York 10036 Tel: (212) 969-3000 Fax: (212) 969-2900 Counsel to the Statutory Unsecured Claimholders Committee of Westinghouse Electric Company LLC, et al. 12