Fireman's Fund Insurance v. Plant Insulation Co. (In re Plant Insulation Co.)
734 F.3d 900
| 9th Cir. | 2013Background
- Plant Insulation (Plant) faced thousands of asbestos claims and had effectively ceased operations; most original insurers were exhausted or refused further coverage by 2001.
- Plant transferred its business to Bayside (a company operated by Plant’s former president), raising successor-liability concerns; Bayside later agreed to merge in principle as part of a reorganization plan.
- Plant filed Chapter 11; the proposed § 524(g) plan would create an asbestos trust funded mainly by cash from Settling Insurers (~$131.5M) and require the trust to purchase equity and instruments from reorganized Bayside (trust pays $2M for 40% equity valued at $500K, plus warrants, note, and loans).
- The plan includes an "open system": claimants may still sue Plant/Bayside, with Non-Settling Insurers defending; Settling Insurers receive a broad injunction protecting them from contribution claims by Non-Settling Insurers (Settling-Insurer Injunction).
- Non-Settling Insurers objected that the injunction improperly extinguished their equitable contribution rights without full compensation and that the trust did not meet § 524(g) requirements (funding by securities; entitlement to control majority voting shares).
- Bankruptcy court confirmed the plan; district court affirmed. Ninth Circuit reverses and remands, holding the plan fails § 524(g) because the trust does not meaningfully satisfy the securities-funding and control contingencies requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 524(g) permits enjoining contribution claims against settling insurers | Plan proponents: § 524(g) authorizes injunctions "with respect to" claims related to trust-funded asbestos demands, including contribution actions | Non-Settling Insurers: contribution claims are against insurers, not debtor, so outside § 524(g) scope | Court: § 524(g) text and scheme permit enjoining indirect claims "with respect to" asbestos claims, including contribution claims against insurers |
| Whether courts must fully compensate third parties (Non-Settling Insurers) whose contribution rights are extinguished | Plan: statute contains no explicit compensation requirement; bankruptcy equity powers and § 524(g) fairness test suffice | Non-Settling Insurers: equity principles (e.g., Dow Corning factors) require full compensation or trust-backstop | Court: § 524(g) prescribes the relevant fairness inquiry (focus on future claimants and benefits to trust); full compensation is not statutorily required; bankruptcy court’s balancing was permissible |
| Whether the trust is “funded in whole or in part by the securities of” the reorganized debtor (§ 524(g)(2)(B)(i)(II)) | Plan: trust will own debtor securities (40% plus warrant and note); statutory requirement satisfied even if trust pays cash to acquire them | Non-Settling Insurers: a net outflow of cash from the trust to buy overvalued securities de-funds the trust and fails the statute | Court: "funded" read in trust-law sense — the trust corpus includes securities it holds; statutory purpose satisfied because trust receives debtor securities and significant cash proceeds from insurers fund the trust |
| Whether the trust must "own, or be entitled to own if contingencies occur, a majority of voting shares" (§ 524(g)(2)(B)(i)(III)) | Plan: contingencies (warrant purchase, note-default security) allow the trust to reach 51% ownership | Non-Settling Insurers: contingencies are illusory or sham because trust unlikely to afford purchase and debtor can repurchase at fixed price plus interest | Court: contingencies must be realistic and meaningful (not sham); the plan’s buy and default contingencies are inadequate, so § 524(g) control requirement is not met |
Key Cases Cited
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (discusses mass-tort/asbestos settlement dynamics and aggregate resolution concerns)
- In re Combustion Eng’g, 391 F.3d 190 (3d Cir. 2004) (interpreting § 524(g) ongoing-business and trust-control expectations)
- In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012) (summarizing § 524(g) substantive and procedural requirements)
- In re Dow Corning Corp., 280 F.3d 648 (6th Cir. 2002) (articulating equitable factors for enjoining non-debtor claims under § 105(a))
- Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir. 1988) (early Johns-Manville jurisprudence informing § 524(g) model)
- In re Congoleum Corp., 362 B.R. 167 (Bankr. D.N.J. 2007) (rejecting sham contingencies for trust control under § 524(g))