729 F.3d 332
3d Cir.2013Background
- W.R. Grace filed Chapter 11 in 2001 while AMH’s South Carolina class action for asbestos-related property damage was pending; Grace’s plan (filed 2009) proposed §524(g) trusts and a channeling injunction for present and future asbestos PD claims.
- AMH (Anderson Memorial Hospital) did not settle and objected to confirmation; most other PD claimants settled (407 settled by 2012) and voted overwhelmingly to accept the Plan.
- PD claim filings were litigated and reduced after disputes about unauthorized proofs of claim by AMH’s counsel; AMH’s class-certification efforts were denied in the bankruptcy process.
- The Plan funded a PD Trust with initial cash (Grace reserved ~$37.3 million) and obligates reorganized Grace to make further periodic contributions to pay allowed PD claims; expert testimony (Dr. Denise Martin and Pamela Zilly) supported the existence of future demands and the Plan’s feasibility.
- Bankruptcy and District Courts confirmed the Plan and approved the §524(g) trust and injunction over AMH’s objections; AMH appealed arguing failures as to §524(g), equal treatment (§1123(a)(4)), good faith (§1129(a)(3)), and feasibility (§1129(a)(11)). The Third Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (AMH) | Defendant's Argument (Grace) | Held |
|---|---|---|---|
| Whether Plan meets §524(g) requirements (future demands, necessity, fairness) | No likely substantial future PD demands; §524(g) demand definition excludes PD; trust unnecessary to equitably handle PD claims; procedures treat similar claims differently | Expert testimony showed substantial future demands; §524(g) properly covers PD demands and trusts are necessary to equitably resolve present and future liabilities | Affirmed: record supports likely future PD demands; §524(g) may cover PD future demands; trust procedures satisfy statute |
| Whether Plan violates §1123(a)(4) (equal treatment within class) | AMH singled out: forced to litigate in bankruptcy forum and denied its chosen state jury forum, unlike other claimants | All claimants who filed proofs of claim submitted to bankruptcy jurisdiction; class members receive equal opportunity for recovery; differences reflect status (present vs. future claimants) not unequal value | Affirmed: Plan provides substantially equal treatment within Class 7A; AMH submitted to bankruptcy jurisdiction by filing claims |
| Whether Plan was proposed in good faith (§1129(a)(3)) | Plan resulted from secret deals, lacked arm’s-length negotiation with AMH, and advantaged certain constituencies (procedural unfairness) | Negotiations were arms-length, involved judiciary participation and future-claim representative, and Plan was designed to achieve Code objectives | Affirmed: Plan proposed in good faith; objective record (negotiations, settlements, creditor vote) supports good-faith finding |
| Whether Plan is feasible (§1129(a)(11)) | Grace failed to show adequate funding or estimate of future PD liabilities; expert relied on assumptions and the $37.3M reserve is unexplained | Feasibility requires reasonable likelihood not certainty; expert testimony and Grace’s financial projections (and ability to fund up to $1.6B over time) support feasibility | Affirmed: Court satisfied that success is reasonably likely; record evidence (uncountered expert testimony) supports feasibility |
Key Cases Cited
- In re Combustion Eng’g, Inc., 391 F.3d 190 (3d Cir.) (discusses §524(g) trusts, class voting, and concerns about two-trust structures and ‘‘stub claims’’)
- Matter of M. Frenville Co., 744 F.2d 332 (3d Cir.) (defines when a state-law cause of action accrues for bankruptcy claim purposes)
- In re Grossman’s Inc., 607 F.3d 114 (3d Cir.) (en banc) (superseded Frenville on when exposure constitutes a bankruptcy ‘‘claim’’)
- Wright v. Owens Corning, 679 F.3d 101 (3d Cir.) (addressed post-confirmation issues relevant to asbestos trust notice and claims)
- Langenkamp v. Culp, 498 U.S. 42 (U.S.) (holding that filing a proof of claim submits creditor to bankruptcy court jurisdiction)
- Begier v. Internal Revenue Service, 496 U.S. 53 (U.S.) (discusses equality of distribution as central policy of the Bankruptcy Code)
- AOV Indus., Inc. v. FMC Corp., 792 F.2d 1140 (D.C. Cir.) (addresses ‘‘same treatment’’ principle under plan confirmation)