605 B.R. 43
Bankr. W.D.N.C.2019Background
- Bestwall LLC (debtor) filed Chapter 11 on Nov. 2, 2017 to resolve mass asbestos claims and to pursue a §524(g) trust; ~64,000 claims were pending at filing with many more projected through 2050.
- Bestwall was created via a July 31, 2017 Texas divisional merger that transferred Old GP’s asbestos liabilities to Bestwall and other businesses to a non-debtor affiliate, New GP.
- Bestwall holds cash, real estate in North Carolina, and equity in PlasterCo (non-debtor) valued pre-petition at ~ $145 million and projected EBITDA of $18 million annually beginning 2019.
- Bestwall and New GP entered a Funding Agreement obligating New GP (without repayment by Bestwall) to fund Bestwall’s ordinary course costs, chapter 11 administrative costs, and to provide funding for a §524(g) trust to the extent Bestwall’s assets are insufficient.
- The Official Committee of Asbestos Claimants moved to dismiss the case as a bad-faith filing under 11 U.S.C. § 1112(b) or, alternatively, to transfer venue under 28 U.S.C. § 1412 (seeking Delaware); Court held hearings and received stipulated evidence including Bestwall’s submission and a declaration.
Issues
| Issue | Committee's Argument | Bestwall's Argument | Held |
|---|---|---|---|
| Whether dismissal for bad faith is warranted (objective futility + subjective bad faith required under Carolin) | Case is objectively futile because Bestwall lacks sufficient assets and relies on contractual support from New GP that should be disregarded; thus filing is bad faith | Bestwall can reorganize: owns assets, ongoing businesses, cash, and has enforceable Funding Agreement providing necessary funding (including non-debtor funding for a §524(g) trust) | Denied. Court found no objective futility; therefore did not reach subjective bad faith; dismissal inappropriate |
| Whether the Funding Agreement should be disregarded | Funding Agreement is illusory and could be evaded; if ignored, Bestwall cannot fund a §524(g) trust | Funding Agreement is enforceable, New GP has performed and provided financials; non-debtor funding is permissible under §524(g) | Denied. Court treated the Funding Agreement as valid and enforceable; non-debtor funding acceptable |
| Whether Bestwall satisfies §524(g) requirements (ongoing business/ability to fund trust) | Bestwall is essentially a holding/shell company and cannot meet ongoing business or funding requirements | Bestwall owns operating assets/subsidiaries producing cash (PlasterCo), has cash and the Funding Agreement, and meets ongoing business needs | Denied. Court held Bestwall satisfies ongoing business and funding potential for §524(g) |
| Whether venue should be transferred (28 U.S.C. §1412) | Transfer to Delaware promotes judicial economy and convenience given other asbestos jurisprudence and counsel locations | Venue in W.D.N.C. is proper; Bestwall domiciled here; assets, witnesses, and operations are closer to this district; transfer would cause delay and added costs | Denied. Court gave deference to debtor’s valid venue and found interests of justice and convenience factors do not favor transfer |
Key Cases Cited
- Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989) (establishes the two-prong test for dismissal of Chapter 11 as bad faith: objective futility and subjective bad faith)
- In re Manville Forest Prods. Corp., 896 F.2d 1384 (2d Cir. 1990) (promotes efficient administration, judicial economy, and fairness as central to venue-transfer analysis)
- In re Dunes Hotel Assocs., 188 B.R. 162 (Bankr. D.S.C. 1995) (noting the high burden and stringency of Carolin standard for dismissal)
- In re Patriot Coal Corp., 482 B.R. 718 (Bankr. S.D.N.Y. 2012) (discussed by parties; court distinguished its facts regarding manufactured venue and shell filers)
- In re Garlock Sealing Tech., LLC, 504 B.R. 71 (Bankr. W.D.N.C. 2014) (local precedent illustrating the court’s experience with asbestos-related bankruptcies)