In Re American Capital Equipment, LLC
688 F.3d 145
3rd Cir.2012Background
- Skinner Engine Co. and American Capital filed Chapter 11 in 2001 amid thousands of asbestos claims; MDL/MARDOC proceedings connected these claims to Skinner
- Skinner sought multiple reorganization plans; Third Plan proposed a §524(g) asbestos trust funded by insurance recoveries and Skinner stock
- Fifth Plan introduced a CADP-based claims process and a 20% surcharge funded by asbestos claimants, with Skinner itself not contributing funds
- Insurers challenged the plan’s structure, arguing conflicts of interest and lack of protection for insurers and claimants
- Bankruptcy Court found the Fifth Plan not feasible and not proposed in good faith, and converted Skinner’s case to Chapter 7; District Court affirmed
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a bankruptcy court may rule on plan confirmability at the disclosure statement stage | Skinner/Bartel argue the court should wait for a confirmation hearing | Insurers argue about proper procedures for confirmation | Yes; court may determine patently unconfirmable plan at disclosure stage |
| Whether the Fifth Plan is patently unconfirmable under §1129(a)(3),(11) | Plan could be confirmed with future creditor voting and feasibility | Plan is infeasible and not in good faith due to reliance on speculative proceeds and inherent conflicts | Patently unconfirmable; not feasible and not proposed in good faith |
| Whether the conversion to Chapter 7 was an abuse of discretion | A Chapter 11 plan could be modified or continued | There is no reasonable possibility of confirmable plan within a reasonable time; conversion appropriate | No abuse of discretion; conversion to Chapter 7 affirmed |
Key Cases Cited
- In re Acequia, Inc., 787 F.2d 1352 (9th Cir. 1986) (confirmability hearing may be used for plan issues at disclosure stage)
- In re Williams, 850 F.2d 250 (5th Cir. 1988) (hearing on confirmation may be combined with disclosure statement hearing)
- In re Monroe Well Serv., Inc., 80 B.R. 324 (Bankr. E.D. Pa. 1987) (patently unconfirmable analysis at disclosure stage when no disputes of fact remain)
- In re Combustion Eng’g, Inc., 391 F.3d 190 (3d Cir. 2004) (feasibility and good faith under §1129(a)(3)-(11))
- In re SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) (abuse of discretion review and §1112(b) considerations)