POST-TRIAL FINDINGS OF FACT AND CONCLUSIONS OF LAW
Quigley Company Inc. (“Quigley”) commenced this case under chapter 11 of the Bankruptcy Code (the “Code”) on September 3, 2004 (the “Petition Date”), and now seeks to confirm its
Fourth Amended and Restated Plan of Reorganization,
modified as of August 6, 2009 (J47
(“Fourth
Plan”)).
1
The Official Committee of Unse
The Court conducted a 15-day bench trial during which it heard numerous fact and expert witnesses, and received scores of documentary exhibits. The case was exceptionally well-tried on all sides. For the reasons that follow, the application to confirm the Fourth Plan is denied. In addition, Quigley’s motion to exclude portions of the testimony, illustrative slides, and expert report of Dr. Israel Shaked is granted in part and denied in part, the motion made or joined in by various Settling Law Firms to seal certain information is denied, and the United States Trustee’s objection to the Street Employment Motion is overruled.
BACKGROUND
A. Quigley’s Asbestos Liability
Quigley, founded in 1916, was a manufacturer of refractory products used primarily in the iron, steel, power generation, petroleum, chemical, and glass industries. (Pre-Trial Order; Undisputed Facts at ¶¶ 1-2, dated Aug. 12, 2009 {“PTO Undisputed Facts”) (ECF Doc. # 1885).) Between the 1940s and 1970s, 2 Quigley manufactured and sold three asbestos-containing products: In-sulag, Panelag, and Damit. {PTO Undisputed Facts ¶ 5.)
Pfizer acquired Quigley in 1968 and remains Quigley’s sole shareholder. (Tr. 1398:10-13 (Kilian); Tr. 223:25-224:2; 376:5-7 (Berland).) Pfizer is a research-based, global pharmaceutical company that develops and manufactures prescription medicines. (J466 at 1 (Pfizer 2008 10-K).) Before it streamlined its business to focus on pharmaceuticals, Pfizer also manufactured asbestos-containing products including Kilnoise, an acoustical plaster, (Tr. 146:6-8 (Kany)), and Firex, used to treat and insulate armaments in the military. (Tr. 2432:15-18, 2433:5-6 (Cooney).) Pfizer also manufactured, and in some cases faced, product liability claims relating to the Shiley Heart Valve, Howmedica hip and knee products, and various other household and pharmaceutical products. (Tr. 2697:3-13 (Berland).) After Quigley became a Pfizer subsidiary, many of Pfizer’s liability policies provided joint coverage to both companies.
In September 1992, Quigley sold substantially all of its operating assets to Specialty Refractories, Inc. (“SPI”). (Tr. 178:17-179:2 (Kany); Tr. 252:16-17 (Ber-land).) SPI subsequently transferred the assets to Minerals Technologies, Inc. (“MTI”). (Tr. 522:24-523:8 (Berland).) Quigley did not operate any business between the time that its assets were sold and just prior to the Petition Date. (Tr. 311:13-313:19 (Berland).)
Pfizer was also a defendant with respect to 280,343 of the 411,100 claims asserted against Quigley. (Fifth Disclosure Statement at 35.) Most if not all of these claims were based on exposure to Quig-ley’s products rather than Pfizer’s products such as Kilnoise or Firex. In other words, the plaintiffs in these lawsuits sued Pfizer, Quigley’s wealthy parent, for injuries resulting from Quigley’s alleged misconduct relating to the manufacture and sale of Insulag or one of Quigley’s other asbestos-containing products. The claims against Pfizer based on Quigley products are referred to as derivative claims.
Over the years, Quigley and Pfizer tried various methods to deal with the growing number of asbestos claims. In June 1985, they executed the “Wellington Agreement,” (PTO Undisputed Facts ¶ 9), 3 under which personal injury claims against Quigley, Pfizer, and other participating companies were administered by the Asbestos Claims Facility (“ACF”). (PTO Undisputed Facts ¶ 10.) The Wellington Agreement allocated a fixed share of the costs of the ACF to each signatory, which was then billed to insurers. (Tr. 156:13-158:15 (Kany); Fifth Disclosure Statement at 25.) The ACF dissolved in 1986 due to disputes among the members regarding the allocation of liability. (Tr. 220:18-22 (Berland); Tr. 159:13-22 (Kany).)
After the dissolution of the ACF, the Center for Claims Resolution (the “CCR”), a non-profit organization, administered asbestos personal injury claims asserted against, among others, Quigley and Pfizer. (PTO Undisputed Facts ¶ 11.) The CCR members were each charged a share of defense and indemnity costs, based on formulas that evolved over time, and each member billed its own insurer for its allocated share. (Tr. 159:23-160:22 (Kany); Tr. 220:13-221:7 (Berland); Tr. 1450:9-15 (Jenkins).) Each CCR settlement or release provided for a release of every member, including those against whom no claim had been filed. (PTO Undisputed Facts ¶ 12.) Quigley and Pfizer terminated their membership in the CCR in July 2001. (Tr. 231:16-19 (Berland); Tr. 1450:16-18 (Jenkins).)
In addition to their participation in the ACR and CCR, Pfizer and Quigley tried
By 2001, a substantial number of “front-line defendants” or major producers of asbestos had sought bankruptcy relief. (Tr. 219:17-19 (Berland).) Plaintiffs began to assert claims against the remaining solvent ex-CCR members. (Tr. 2024:10-25 (Rozen).) In January 2002, Pfizer formed a claims-handling unit (“CHU”) to process asbestos personal-injury claims and certain other personal-injury claims asserted against Quigley and Pfizer. (Tr. 172:25-173:22 (Kany).) Kim Jenkins, a Pfizer employee, ran the CHU. (PTO Undisputed Facts ¶ 28.)
B. Pfizer’s Global Strategy
As of 2003, Quigley was a non-operating wholly-owned subsidiary of Pfizer. Both companies faced diminishing shared insurance and increasing litigation. They had failed to resolve their asbestos liabilities through the ACR, CCR, legislation and the Georgine class action. It was around this time that Pfizer devised its global strategy to deal with their asbestos liability, a strategy that involved two discrete but related components. First, Pfizer would resurrect Quigley as an independent, operating entity with the goal of filing a chapter 11 case. Second, Pfizer would enter into agreements with asbestos personal injury claimants — whether or not they had asserted claims against Pfizer — to settle its own liabilities (but not Quigley’s), and make the settlement payments contingent on the confirmation of a Quigley plan that included an injunction in Pfizer’s favor under 11 U.S.C. § 524(g). To accomplish the global strategy, the following occurred:
1. Establishing Quigley’s Independence
As of early 2003, the three Quigley Board members included Susan Grant, Kathleen Ulrich and Charles Raeburn, all Pfizer employees. (J219 (Quigley Board Minutes, dated Feb. 27, 2003).) Around this time, Bruce Zirinsky, Esq., a bankruptcy attorney representing Pfizer, spoke to Sanford Berland, a Pfizer in-house counsel, about hiring independent management for Quigley. Apparently obtaining Bor-land’s agreement, Zirinsky contacted Paul Street, the president of Impala Partners, LLC, an advisory and investment firm specializing in distressed companies, (PTO Undisputed Facts ¶ 23-24), and sounded him out about becoming a member of the Quigley Board. (PTO Undisputed Facts ¶ 16; Tr. 682:16-25, 717:8-22 (Street); Tr. 260:8-20 (Berland); Tr. 2278:5-20 (Rae-burn).) Street agreed, and in May 2003, became president of Quigley and a member of its board of directors. (Tr. 684:25-685:4 (Street); J220 (Quigley Board Minutes, dated May 27, 2003).) On the recommendation of Street, Kevin Altit became the second independent member of the Quigley board on June 22, 2004, (Tr. 2279:13-16 (Raeburn); Tr. 261:14-262:1 (Berland); Tr. 873:1-874:24 (Altit)), and Ulrich and Grant resigned their positions. (Tr. 1508:8-25 (Jenkins).) Charles Rae-burn, a Pfizer attorney, remained a board member, (Tr. 262:2-9 (Berland)), but was now outnumbered by non-Pfizer board members.
The transfer of the CHU gave Quigley a business but no operating income; the CHU had operated as a division of Pfizer handling the claims asserted against Pfizer and Quigley. However, on August 31, 2004, three days prior to the Petition Date, Quigley and Pfizer executed the Shared Services Agreement. (PTO Undisputed Facts ¶ 31.) Under the Shared Services Agreement, (J447), Pfizer agreed to pay Quigley $50,000 per month and provide Quigley with numerous services, including, inter alia, accounts-payable services for settlements with plaintiffs, access to Pfizer and the CHU’s computer servers, a disaster-recovery plan, email accounts, internet access, offsite storage for Quigley-related documents, payroll-processing services, purchasing discounts for office supplies, security badges for access to Pfizer facilities, and office hardware, such as copiers, faxes, computers, and printers. (J447 at 4, B-l (Shared Services Agreement); Tr. 696:8-10 (Street).) Quigley values these various services at approximately $100,000 per month (in addition to the $50,000 monthly cash payment.) (Tr. 1471:14-20, 1472:7-9; 1553:7-9 (Jenkins).)
Following the transfer, the CHU processed claims for Pfizer, Quigley, and American Optical, a Pfizer subsidiary, (Tr. 1535:8-10 (Jenkins); J466 at 85 (2008 Pfizer 10-K)), and since the Petition Date, Quigley has processed approximately 155,-000 claims in connection with the Pfizer settlements, discussed below, pursuant to the Shared Services Agreement. (Tr. 1468:22-1469:3 (Jenkins).) The CHU has not operated profitably, and Quigley has been sustained largely through loans from Pfizer. Between August 31, 2004 and August 31, 2009, Quigley received a total of $3.2 million under the Shared Services Agreement, but suffered operating losses of roughly $46 million. (See J164 at 3 (Statement of Operations).)
Pfizer and Quigley also took the preliminary legal steps necessary to prepare for Quigley bankruptcy. In the fourth quarter of 2003, and with the advance approval of Pfizer, Quigley retained Schulte Roth and one of its partners, Michael Cook, as its bankruptcy counsel. (Tr. 1520:1-7 (Jenkins); Tr. 731:8-732:5 (Street).) Also prior to the bankruptcy filing, Togut was contacted by Zirinsky to serve as the representative of holders of future asbestos personal-injury demands (the “Futures”) against Quigley and certain affiliated parties. (PTO Undisputed Facts ¶ 58; Tr. 2141:19-2142:14 (Togut).) Prior to the Petition Date, Togut participated in negotiations and reached an “agreement in principle” with Pfizer regarding Pfizer’s contribution to a Quigley Plan, which consisted primarily of shared insurance. (Tr. 2183:15-24 (Togut); J300 at 3, ¶ 7 (FCR Application); A4289 (email from Milin, attorney for FCR, to Greenspan).)
2. The Pfizer Settlement Agreements
The centerpiece of the global strategy was the execution of the Pfizer Settlement Agreements primarily in August 2004. Historically, Pfizer and Quigley settled their alleged liabilities to a claimant at the
On September 13, 2003, shortly after Street became Quigley’s president, Pfizer and Quigley executed the “Joint Defense Agreement.” (See J445 (“Joint Defense Agreement”).) The Joint Defense Agreement memorialized the settlement practices followed by Pfizer and Quigley since the Wellington Agreement, (Tr. 371:8-14, 520:14-24 (Berland)), and enabled Pfizer and Quigley to maintain a single network of counsel across the country. (Tr. 378:11-20 (Berland).) To facilitate this approach, Quigley delegated “full authority to Pfizer to investigate, defend, settle or otherwise resolve or dispose of the Claims.” (Joint Defense Agreement at 3.) Following the execution of the Joint Defense Agreement, Pfizer continued, for a time, to settle asbestos claims against Quigley in the same manner that it had settled cases prior to the execution of the Joint Defense Agreement. (Tr. 1522:9-13 (Jenkins); Tr. 2087:10-20 (Rozen); Tr. 519:16-521:19 (Berland).)
Eventually, however, Pfizer changed its approach to settling claims to accommodate its global strategy. It continued to negotiate settlements, but now settled only its own liability, and did not obtain a release for Quigley. This was a departure from Pfizer’s historical practice of settling on behalf of both itself and Quigley. (Tr. 160:6-14, 283:1-284:8 (Berland).) Despite the departure, the settlement approach remained consistent. The claimants’ lawyers were guided by their history of settlements with Pfizer and Quigley, and no one tried to “parse out the Pfizer piece” and negotiate on that basis. (Tr. 2039:10-22 (Rozen).)
Prior to the Petition Date, Pfizer entered into approximately sixty-six agreements (the “Pfizer Settlement Agreements”) with law firms (the “Settling Law Firms”) on behalf of roughly 175,000 clients (the “Settling Claimants”) for the aggregate amount of $450 million. (Tr. 829:9-11 (Street);
see
J467-79, J481-532, J536.) After the Petition Date, Pfizer entered into four more Pfizer Settlement Agreements with other Settling Law Firms representing at least 18,000 claimants for roughly $49 million total.
(See
J480; J533-J535) Typically, Pfizer settled with a law firm for a lump sum amount based on the levels of impairment of the claimants covered by the settlement.
(See
P3003 §§ 2.1; 2.2; 2.3 (Form Pfizer Settlement Agreement
(“Form PSA”).)
A Settling Claimant was not guaranteed payment; he or she still had to prove an impairment. This entailed the submission of evidence to and review by Pfizer.
(Form PSA
§§ 2.1, 2.2.) Applying Rabi-novitz’s qualification rates, the tort system value of the Settling Claimants’ claims is roughly $835.6 million, and the value of the
Pfizer had originally hoped to condition all settlement payments on the entry of a final confirmation order. (Tr. 2042:10-23, 2099:15-2100:12 (Rozen).) The Settling Law Firms and their clients refused, (Tr. 2042:10-23 (Rozen)), leading to a compromise. Pfizer agreed to pay 50% of the settlement amount on the earlier of the Quigley’s Plan confirmation or December 1, 2005 (“First Payment”) and the remaining 50% within five business days after the entry of a final order of the District Court for the Southern District of New York confirming the Plan (“Second Payment”). 5 (Tr. 2042:10-23 (Rozen); see also Form PSA §§ 4.1(g), 4.2.) If, however, Quigley solicited plan acceptance before December 1, 2005, and less than 75% of the voting claimants accepted Quigley’s plan, Pfizer was relieved of the obligation to pay any amount to the Settling Law Firms or the Settling Claimants. (Id. § 4.3.) 6 Furthermore, Pfizer could terminate the Settlement Agreements at any time before the plan effective date and limit payment to the First Payment. (Id. § 5. 1.) Finally, if the Plan was not confirmed, Pfizer could bill the First Payments to the remaining insurance coverage. (Tr. 250:7-21 (Berland); Tr. 1773:3-1775:17 (Snow).) As of September 24, 2009, Pfizer had paid between $200 million and $220 million to the Settling Claimants. (Tr. 250:7-21 (Berland).) 7
The payment terms gave the Settling Claimants the economic incentive to vote to accept any Quigley plan. Other provisions in the Pfizer Settlement Agreement required or encouraged the Settling Law Firms and the Settling Claimants to support the plan as well as other actions taken by Pfizer and Quigley during the Quigley bankruptcy. Among other things:
i. To the extent consistent with their independent professional judgment, counsel was required to “recommend that the Plaintiff take all steps necessary to support Quig-ley’s Consensual Plan and to vote in favor of Quigley’s Consensual Plan.” (Form PSA § 3.2(c).) 8
ii. The Settling Law Firms agreed to cooperate with Pfizer and Quigley in the prosecution of Quigley’s chapter 11 case, including all proceedings and appeals, and to oppose any motion to appoint a trustee or examiner. (Id. § 3.3(d).) 9
iii. The Settling Law Firms agreed to appear in court or file papers, or both, to support any action by Pfizer or Quigley to enjoin further prosecution of claims by any personal injury claimant against the Pfizer Protected Parties. (Id. § 4.1(d).) 10
iv. Each Settling Plaintiff and Settling Law Firm agreed to support the imposition and continuation of the automatic stay under § 362 of the Bankruptcy Code for the benefit of Quigley and the Pfizer Protected Parties. (Id. § 6.1). 11
3. The 90% Subordination Provision
As noted, the Pfizer Settlement Agreements settled Pfizer’s liability, but not Quigley’s. Nevertheless, the Settling Claimants agreed, in substance, that if the assets in the Asbestos PI Trust (the “Trust”) created under the plan were insufficient to pay 100% of the value under the Trust Distribution Procedures (“TDP”) schedule — a foregone conclusion — the Settling Claimants would only receive 10% of the payment otherwise due
from the Trust.
C. The Chapter 11 Case
Throughout the summer of 2004, Quig-ley’s financial situation “worsened] dramatically every day.” (Tr. 875:24-25; 1047:15-19 (Altit).) The Quigley board held four formal meetings with independent counsel, (see J225 at 4; J226 at 2; J227 at 1; J228 at 3), and several informal meetings, (Tr. 693:8-697:4 (Street); Tr. 876:8-878:1 (Altit)), to discuss Quigley’s options: continue to operate and use shared insurance until depleted, (Tr. 876:21-24 (Altit)); sell the CHU; remain a Pfizer affiliate, (Tr. 687, 693:13-14 (Street)); wait for federal legislation to create a fund for asbestos-related liabilities, (J227 at 1; Tr. 693:16-22 (Street); Tr. 876:11-14 (Altit)); liquidate under chapter 7, (Tr. 876:15-17 (Altit); but see Tr. 802:10-12 (Street unable to recall the discussion to liquidate under chapter 7)); or reorganize under chapter 11 (Tr. 693:14-15 (Street); Tr. 876:18-20 (Altit)). The board concluded that filing a chapter 11 petition with financial support from Pfizer was the best alternative. (Tr. 878:2-13 (Altit); J226 at 2; J227 at 1.) Absent reorganization, Quigley’s claimants would receive payment on a first-come-first-serve basis, and nothing would remain for the Futures. (Tr. 697:10-16 (Street).)
Quigley filed its chapter 11 petition on September 3, 2004. 13 In due course, the United States Trustee appointed the Committee, which consisted of seven individual asbestos claimants, four of whom were Settling Claimants represented by Settling Law Firms. (PTO Undisputed Facts ¶¶ 65-66.) The Court also approved the selection of Togut as FCR; until then, he had acted without authority. Finally, three non-settling law firms, Cooney & Conway, Weitz & Luxenberg, PC, and the Law Offices of Peter G. Angelos, PC, joined together to form the AHC.
On October 6, 2005, Quigley filed its Third Amended Plan of Reorganization (“Third Plan”).
(See
J16.) The 90% Subordination in the Pfizer Settlement Agreements had a dramatic impact on the prospects for its success: over 175,000 Quigley claimants with “stub” claims were entitled to vote. Moreover, Quigley asked the Court to estimate the Class 4 Asbestos PI Claims at $1.00 for voting purposes only.
14
The AHC challenged Quigley’s proposed estimation on two grounds. First, each Asbestos PI Claimant’s vote should be valued for purposes of 11 U.S.C. § 1126(c) based on the severity of the claimant’s impairment rather than at $1.00 regardless of the impairment. For example, the TDP scheduled the “value” of a mesothelioma claim at $200,000 and an Asbestosis/Pleural Disease (Level I) claim at $2,000.
See In re Quigley Co.,
The Court concluded that the votes of Settling Claimants should be valued at 10% of the TDP scheduled value, giving effect to the 90% Subordination (the “Tabulation Ruling”).
Quigley I,
D. The Fourth Plan
Quigley subsequently filed the Fourth Plan, which is the subject of the confirmation application. It is a lengthy and complex document that may only be modified with the consent of Pfizer. {Fourth Plan at 59.) The following summary is intended to highlight the provisions that are germane to the disputed issues.
1. The Parties’ Contributions
a. Pfizer
i. Cash
Pfizer was not contributing any cash under the Third Plan, which envisioned paying the Asbestos PI Claimants 7.5% of the TDP value corresponding to the claimant’s impairment. The waiver of the 90% Subordination in the Fourth Plan diluted the recoveries, and called for an additional contribution from Pfizer to bring claimants and Futures back up to the 7.5% dividend. The FCR negotiated with Pfizer to increase its contribution to ensure at least the same recovery for Futures that they would have expected to receive under the original plan. Eventually, the parties agreed that the financial impact to the Trust from the waiver of the 90% Subordination was $59,727,738. (Q2007 (Pfizer-FCR Make-Whole Calculation); A4329 at 3 (May 14, 2007 email).)
ii. Insurance
A. The Pfizer/AIG Annuity
The AIG Companies (“AIG”) had issued insurance policies to Pfizer in prior years, and some of these policies covered Quigley. In August 2004, Pfizer, Quigley and AIG entered into a settlement to resolve disputes regarding certain insurance receivables. AIG agreed to pay Quigley and Pfizer $405,746,856 over ten years, (see P3000 at 3 (Insurance Settlement Proceeds Trust Agreement); Tr. 245:13-19, 460:22-461:4, 463:17-464:16 (Berland)), and Pfizer and Quigley agreed to deposit the joint AIG proceeds and any other insurance recoveries (excluding certain preexisting receivables) into a trust (the “Insurance Settlement Proceeds Trust”). At the time of the trial, the AIG proceeds amounted to $179.5 million, including interest. (Updated Snow Report at 13). AIG had yet to pay $225,711,538 of face value of the annuity, with a present value of $85,770,384. (J47b at 2 (dated November 1, 2009 (“Updated Liquidation Analysis ”)).) Pfizer and Quigley on the one hand, and the AHC on the other, dispute the value of Pfizer’s and Quigley’s respective rights in the AIG settlement proceeds. The dispute is discussed below.
Under the Fourth Plan, Quigley will surrender its rights in the AIG settlement to Pfizer. (Fourth Plan §§ 1.1, 12.1.) In exchange, Pfizer will pay the Trust a $405-million 40-year annuity, with a net present value between $161 million and $174.5 million (the “Pfizer Annuity”). (Tr. 2581:9-2582:21 (Shaked); Updated Snow Report at 21.)
B. Other Insurance
Pfizer and Quigley have rights in other non-AIG insurance policies. These rights fall into one of four buckets depicted in the following chart:
Face
Nature of Other Insurance Value ($)
Non-AIG Proceeds in Insurance Settle- 41,650,114 ment Proceeds Trust 16
Shared Insurance Coverage without 101,866,116 Asbestos Restrictions 17
Shared Insurance Coverage with 190,965,000 Asbestos Restrictions 18
Insolvent Insurers without Asbestos 190,000,000 Restrictions 19
Total 524,481,280.00
The first category reflects the proceeds of settlements or recoveries that are already in hand. The second category reflects unrestricted, available coverage owed by solvent insurers. The last two categories are problematical as they encompass policies that either contain restrictions on asbestos coverage or were issued by insurers who are presently insol
iii. Quigley Stock
Pfizer will contribute the stock of Reorganized Quigley to the Trust. (Fourth Plan §§ 1.1, 12.1.) The Parties estimate the value of Reorganized Quigley to be between $3.8 and $6.6 million.
iv. The Pfizer Lien
On or about March 6, 2003, Quigley and Pfizer entered into a Credit and Security Agreement, which was amended from time to time. (See J446.) The agreement grants Pfizer a security interest in substantially all of Quigley’s assets other than certain insurance policies. (Fifth Disclosure Statement at 34.) By the time of the confirmation hearing, Pfizer held a secured claim in the approximate amount of $76 million. (Liquidation Analysis at 2.) The Fourth Plan states that Pfizer will waive $30 million of this secured claim. At trial, however, its counsel stated that Pfizer would waive the entire claim. (Tr. 63:13-19.)
b. Quigley Contribution
Quigley’s contribution to the Trust consists primarily of Quigley’s insurance rights. 20 (Fifth Disclosure Statement at 65-66.)
2. § 524(g) Channeling Injunction
In return for these contributions, the Fourth Plan grants Quigley and, more importantly, Pfizer, among others, the protection of an 11 U.S.C. § 524(g) channeling injunction. The plan limits the recourse of asbestos claimants to the Trust and enjoins each claimant from taking action against Quigley, Reorganized Quigley or any other Asbestos Protected Party, including Pfizer. 21 (Fourth Plan § 11.6.)
3. Claim Processing Business
As discussed above, Quigley has operated the CHU since the summer of 2004, but at a significant loss. Under the Third Plan, Pfizer proposed to license the income from four drug lines to Quigley that would continue to be produced, marketed, and sold by Pfizer. (J22, Ex. L (Product Licenses and Services Agreement (“L & S Agreement ”)).) The proposal was intended to give Quigley an “ongoing business” to meet the requirements of § 524(g). (Tr. 357:9-18 (Berland).) The L & S Agreement provided for quarterly payments, and included a make-whole provision that required Pfizer to pay Quigley the difference if the profit from the licensing agreement fell below $21.7 million after the first five years, effectively insuring that amount for Quigley. (L & S Agreement § 5.5.) After five years, Quigley would continue to receive the operating profits from the drug lines but also become obligated to pay Pfizer any operating losses every quarter. (Id.) Street did not discuss the licensing of drug lines with Pfizer and did not participate in their selection; Pfizer simply told Quigley what it intended to do. (Tr. 982:6-984:3 (Street).)
The Fourth Plan provides that Quigley will also perform the claims-handling work for the Trust until either the termination of the Trust, or by notice of one of the parties after five years, or by mutual agreement of the parties. (Fourth Plan, Ex. J at 6.)
4. The Vote
Before the vote on the Fourth Plan, Quigley sought approval of the disclosure statement and proposed ballots.
23
The Ad Hoc Committee, among others, objected. The Court overruled these objections,
In re Quigley Co., Inc.,
The ballot streamlined the voting process for Asbestos PI Claimants. Counsel representing more than one claimant could submit a single “Master Ballot” on behalf of all consenting claimants, including a summary of the number of accepting and rejecting votes for each disease category. (Id. § 4(c)). 24 Counsel could only vote for its claimants individually or in a Master Ballot if it could “certify [it] ha[d] the authority to cast a Ballot on the Plan on behalf of the (claimants).” (Id.)
Ultimately, each impaired class accepted the Fourth Plan. (J78 at 4-5
(“BMC Declaration
”);
PTO
Undisputed Facts ¶ 72.) The members of Class 4, the Asbestos PI Claimants, cast 261,790 ballots.
25
Of these, 254,215 were cast by Master Ballot.
E. The Parties’ Contentions
The AHC and the United States Trustee object to confirmation, 26 and all of the parties submitted post-trial proposed findings of fact and conclusions of law, or memo-randa in lieu of proposed conclusions of law. The disputes center on four main areas, and raise a host of issues under several Code provisions:
First, the AHC contends that Pfizer manufactured this entire bankruptcy for its own benefit, and “bought the votes” through the Pfizer Settlements to ensure its success. The AHC’s charges implicate questions of good faith, 11 U.S.C. 1129(a)(3), artificial impairment, 11 U.S.C. § 1129(a)(10), and by separate motion, designation of the votes of the Settling Claimants. 27 11 U.S.C. § 1126(e).
Second, the AHC asserts that the plan is not “fair and equitable,” a condition to the issuance of the channeling injunction that effectively discharges Pfizer’s liability for derivative claims. 11 U.S.C. § 524(g)(4)(B)(ii). According to the AHC, the value of the injunction to Pfizer greatly exceeds the value of Pfizer’s contribution to the Trust. Pfizer rejects the comparative approach, and argues that I must determine whether the contribution is “substantial” without regard to the released liability. The AHC also argues that MTI, who has not made a contribution to the Trust, is not entitled to the benefit of the channeling injunction.
Third, the AHC maintains that Reorganized Quigley’s claims handling business will not be viable. Consequently, Quigley cannot satisfy what the AHC describes as the “ongoing business” requirement imposed under 11 U.S.C. § 524(g)(2)(B)(i)(II) or the feasibility requirement under 11 U.S.C. § 1129(a)(ll).
Fourth the AHC argues that the Fourth Plan fails to satisfy the “best interest of creditors” test, 11 U.S.C. § 1129(a)(7), because the claimants that voted to reject the Fourth Plan do not receive a greater distribution under the plan than they would in a hypothetical chapter 7 liquidation. Specifically, if the Fourth Plan is not confirmed, the Non-Settling Claimants will be free to prosecute their derivative claims against Pfizer, and the value of this right exceeds anything that might be distributed to them under the Fourth Plan. In contrast, the Settling Claimants, who received the First Payment, have already released
This difference in rights against Pfizer also results in unequal treatment under 11 U.S.C. § 1124(a)(4). The Non-Settling Claimants must release their derivative claims against Pfizer in exchange for their 7.5% distribution. The Settling Claimants have already released Pfizer and do not have to give up anything more to get their 7.5% distributions. Hence, the Non-Settling Claimants must pay greater consideration to get the same distribution.
In addition to the specific confirmation issues discussed, several unresolved motions are pending. In May 2007, Quigley filed a motion seeking approval of the extension of the Paul Street employment agreement from May 2007 to May 2008 (the “Street Employment Motion”). (J324). In September 2007, the United States Trustee filed an objection to the Street Employment Motion (the “United States Trustee Street Objection”). (J341.) The parties agreed at December 2007 hearing to postpone the resolution of the motion. In its opposition, the United States Trustee argues that Street’s continued employment, or the justifications of the Street Employment Motion, did not meet the “business judgment” standard for non-ordinary course use of property of the estate under 11 U.S.C. § 363(b), and implies that Street should disgorge some or all of the compensation he received.
Baron & Budd, a Settling Law Firm, filed a motion aimed at protecting confidential information. See 11 U.S.C. § 107(b)(1). 28 It asked the Court to redact or seal information — principally found in the Pfizer Settlement Agreements but also discussed in expert reports and testimony — that refers to the settlement amounts, whether by claimant, jurisdiction, or disease level, because the amounts are commercial information under 11 U.S.C. § 107(b)(1). Some but not all of the other Settling Law Firms joined in this motion. 29
Finally, Quigley filed a post-trial motion to exclude portions of the testimony, illustrative slides, and report of Israel Shaked, the AHC’s valuation expert. 30 Quigley argues that trial testimony and slides of Shaked were improperly based on new information that was not included in his report.
DISCUSSION
A debtor seeking to confirm a plan under 11 U.S.C. § 524(g) must satisfy the requirements of both § 524(g) and § 1129 of the Bankruptcy Code.
In re Western Asbestos Co.,
A. The Pfizer Settlement Agreements
1. Good Faith
Pursuant to 11 U.S.C. § 1129(a)(3), the party seeking confirmation must show that “[t]he plan has been proposed in good faith and not by any means forbidden by law.” “Good faith” is not defined in the Bankruptcy Code, but as explained in
In re Madison Hotel Assocs.,
Though the term “good faith,” as used in section 1129(a)(3), is not defined in the Bankruptcy Code, the term is generally interpreted to mean that there exists “a reasonable likelihood that the plan will achieve a result consistent with the objectives and purposes of the Bankruptcy Code.” ... Thus, for purposes of determining good faith under section 1129(a)(3) ... the important point of inquiry is the plan itself and whether such plan will fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code.
Id.
at 424-25 (citations omitted);
accord Kane v. Johns-Manville Corp.,
Section 1129(a)(3) “speaks more to the process of plan development than to the content of the plan.”
In re Bush Industries, Inc.,
Here, Pfizer wrongfully manipulated the voting process to assure confirmation of the Quigley plan, and thereby gain the benefit of the channeling injunction for itself and the other Pfizer Protected Parties. Initially, this is a Quigley bankruptcy in name only. Pfizer conceived and executed the global strategy, including the resuscitation of the moribund Quigley and the filing of the chapter 11 case contemplated in the Pfizer Settlement Agreements. Pfizer funded the chapter 11; Quigley suffered postpetition losses of $75.8 million before taxes as of August 31, 2009, including nearly $50 million just from operations. (J164 at 3.) Pfizer is also providing the bulk of the plan funding. The Fourth Plan, like the plans that preceded it, is designed to free the Pfizer Protected Parties from derivative liability, and only incidentally, to reorganize Quig-ley to the extent necessary to confirm the plan. Pfizer, the parent of Quigley, the architect of the global strategy, the only source of chapter 11 and plan financing and the principal beneficiary of the channeling injunction, is the real proponent of
In a nutshell, Pfizer bought enough votes to assure that any plan would be accepted. To do so, it had to first alter its historical approach to settling asbestos claims. Prior to the Pfizer Settlement Agreements, the same lawyer represented Pfizer and Quigley. Counsel settled the claims against Quigley based upon Quig-ley’s historic settlement values, and obtained a release for Pfizer at no additional cost. During the period when Pfizer was attempting to establish Quigley as an independent entity, Pfizer and Quigley entered into the Joint Defense Agreement, under which Quigley delegated the authority to settle its cases to Pfizer. In theory, the delegation of settlement authority continued this historical approach to the settlement of Quigley and Pfizer asbestos liability.
To effect its global strategy, Pfizer deviated from this practice and began entering into settlements that expressly excluded Quigley. Remarkably, Pfizer failed to inform Quigley’s directors about the new approach to settling claims. Each of Quig-ley’s directors testified that they were not aware of the Pfizer Settlement Agreements at the time they were executed. Street testified that he did not learn of the settlements until after they were made. (Tr. 721:12-19.) Altit testified that he did not learn of the settlements until some time in 2005. (Tr. 1048:2-9.) Raeburn said he did not know “anything about those settlements” until after the filing. (Tr. 2283:17-2284:2.) 33
The record supports the finding that Pfizer could have also settled Quigley’s liability at the same time for little, if anything, more. According to Rozen, the Settling Law Firms did not attempt to parse out Pfizer’s share of the liability in connection with the negotiations leading up to the Pfizer Settlement Agreements. I infer from this that they continued to settle at Quigley’s historical settlement values. In the past, Pfizer would have settled Quig-ley’s liability under the same criteria and obtained a Pfizer release without any additional payment. Had Pfizer structured the settlements in this manner, it could have obtained the release of both Pfizer and Quigley liabilities for the amount that Pfizer agreed to pay for the release limited to the Pfizer Parties.
The decision not to settle Quig-ley’s liability, and instead, grant the Settling Claimants 10% stub claims was purposeful. The stub claims gave the Settling Claimants the status of creditors in the anticipated bankruptcy with the financial incentive to vote for
any
Quigley plan in order to receive the Second Payment.
34
In truth, at the time that the Pfizer Settlement Agreements were executed, a majority of the Settling Claimants had little or no expectation of any distribution under the draft TDP attached to the Settlement Agreements. {E.g., J519, Ex. C.) Most Settling Claimants — indeed most of Class 4 — suffered from asbestosis/pleural disease, the least serious disease level. 35 The TDP divided asbestosis/pleural disease into two categories. The scheduled value under “Asbestosis/Pleural Disease I” (“Level I”) was $2,000.00. (Id., Ex. C § 5.3(a)(3)). The scheduled value under “Asbestosis/Pleural Disease II” (“Level II”) was $250.00. {Id., Ex. C § 5.3(a)(3).) 36 In light of the 90% Subordination, a maximum distribution would pay only $200.00 and $25.00, respectively, and the agreements even acknowledged “that the Settling Plaintiffs are not likely to receive 100% of their Quigley Claim Amount.” (E.g., J502 § 2.4(b).) The Trust was not, however, required to make distributions in an amount less than $100.00. (Id., Ex. C § 4.4.) In short, the Settling Claimants with Level II would never receive any distribution under the TDP, and those with qualified Level I claims would not receive a distribution unless and until the Trust held sufficient assets to make a 50% distribution against the scheduled values. In fact, Quigley subsequently projected a 7.5% distribution against the TDP values.
The elimination of the 90% Subordination in the Fourth Plan did not alter the Settling Claimants’ financial incentive to accept the plan in order to receive the Second Payment. The ballot results depict a high correlation between the Pfizer Settlement Agreements and the rate of acceptance. Settling Claimants accepted the Fourth Plan by a margin of 99.48% in number and 98.53% in amount. This is only slightly higher than the approximate 97% of Settling Claimants that voted to accept the Third Plan, which included the 90% Subordination.
Quigley I,
I infer from this disparity that the Settling Claimants, through the Settling Law Firms, were motivated to accept the Fourth Plan by virtue of the financial incentive under the Pfizer Settlement Agreements. Ironically, Pfizer had the legal means to obtain the benefit of the § 524(g) channeling injunction without manipulating the vote. It could have simply bypassed the Pfizer Settlement Agreements entirely, and increased its contribution to the Trust in a like amount, to be shared equally by all asbestos claimants present and future. Alternatively, if the release of direct claims — not possible under § 524(g) — was that important, it could have entered into the same Pfizer Settlement Agreements but secured a release for Quigley as well as Pfizer. Finally, it could have explored with Quigley the possibility of separately classifying the Settling Claimants and Non-Settling Claimants and requiring that each class accept the plan. See, e.g., In re Combustion Eng’g, No. 03-10495, 2005 Bankr.LEXIS 2623, at *68-69 (Bankr.D.N.J. Dec. 19, 2005). This would have removed any suggestion that the settlements tainted the vote.
These alternatives, however, presented risks to the global strategy. If Pfizer contributed the settlement funds to the Trust under a confirmed plan, the asbestos claimants might have rejected it, or sought substantially more. It is always more difficult, in this regard, to negotiate with an organized class of creditors than with creditors individually. “Divide and conquer” is cheaper. If Pfizer procured a release for Quigley, it would eliminate a motivated subclass with the incentive to vote in favor of a plan. Lastly, if Quigley separately classified the two groups, Pfizer faced the risk that the Non-Settling Claimants’ class would reject the plan, as essentially occurred. Instead, Pfizer created and incen-tivized an impaired subclass consisting of the majority of the members of Class 4 to vote in favor of Quigley’s plan. I conclude that the Fourth Plan was proposed in bad faith since it was designed to achieve acceptance through a tainted vote.
2. Designation
The AHC moved to designate (i.e., disqualify) the votes cast by the Settling Claimants, 37 and Pfizer cross-moved to designate the votes of the claimants represented by the AHC. 38 Quigley joined in Pfizer’s motion. 39 The parties served their motions on counsel but did not personally serve the individual claimants they sought to disenfranchise. The Court sua sponte questioned whether the parties had properly served their designation motions, and afforded the parties the opportunity to brief the issue. Pfizer and Quigley contend that the AHC failed to effect proper service because the Settling Law Firms were not authorized to receive service on behalf of the Settling Claimants. The AHC does not contest service of Pfizer’s designation motion.
The designation motions commenced contested matters. The movants were required to serve their motions in the same manner as a summons and complaint provided by Rule 7004 of the Federal Rules of Bankruptcy Procedure. Fed. R. BANKR.P. 9014(b). As all of the members of Class 4 are individuals, the motion could
The Settling Law Firms were not expressly authorized by statute, rule or agreement to accept service of the designation motion on behalf of their clients. Nevertheless, an attorney that takes an active role on behalf of a client in a bankruptcy case has implied authority to receive service of process initiating a proceeding in that case.
Solow v. Kalikow (In re Kalikow),
While some of the approximately seventy Settling Law Firms participated more than others in the case, all represented their respective clients in the case. In particular, every attorney was authorized to cast a Master Ballot on behalf of its clients provided that the attorney certified the authority to do so. More than 97% of the votes were cast by counsel through a Master Ballot. In addition, each of the Settling Law Firms represented their clients in the very asbestos litigation that served as the raison d’etre for the bankruptcy case. In connection with that role, each Settling Law Firm entered into a Pfizer Settlement Agreement with Pfizer on behalf of the Settling Claimant. Accordingly, I conclude that the Settling Law Firms were implicitly authorized to receive service of the AHC’s designation motion, rendering service sufficient under Rule 7004(b)(8).
Turning to the substance of the motions, I conclude that the findings of bad faith under § 1129(a)(3) also support the conclusion that the votes of the Settling Claimants should be designated. Section 1126(e) of the Bankruptcy Code provides:
On request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of this title.
The provision “grants the bankruptcy court discretion to sanction any conduct that taints the voting process, whether it violates a specific provision or is in ‘bad faith.’ ”
Century Glove, Inc. v. First Am. Bank of New York,
The cases have generally recognized two types of bad faith: (1) where a claimholder attempts to extort a personal advantage not available to other creditors, or (2) where the claimholder has an “ulterior motive.”
DBSD,
Pfizer sidesteps the question by arguing that the Pfizer Settlement Agreements, which it likens to plan-support agreements, were not improper solicitations under 11 U.S.C. § 1125(b), primarily because they did not require the Settling Claimants to vote in favor of a Quigley plan.
(Post-Trial Brief and Conclusions of Law of Pfizer Inc. in Support of Confirmation of Quigley Company, Inc. ’s Fourth Amended and Restated Plan Of Reorganization,
dated Jan. 5, 2010, at 87-40
(“Pfizer Brief
’).) The point is debatable, but in any event lacks merit. To begin with, the Pfizer Settlement Agreements do not involve the typical lockup or postpetition plan agreement that provides for payments under a plan by the debtor (or gifted by a secured creditor) to an
entire
class.
E.g., In re Journal Register Co.,
Furthermore, a plan based on a lockup agreement that secures an advantage for insiders at the expense of the creditors is not one proposed in good faith.
See In re Bush Indus., Inc.,
More significantly, Pfizer’s argument ignores the “procuring” language in § 1126(e). “Procurement” refers to “[t]he act of getting or obtaining something or of bringing something about.” Black’s Law Dictionary 1327 (9th ed. 2009);
accord In re V & M Mgmt., Inc.,
Accordingly, I conclude that the accepting votes cast on behalf of the Settling Claimants were procured in bad faith and will be designated. Without these votes, the Fourth Plan cannot be confirmed under any circumstances.
Conversely, Pfizer’s cross-motion to designate the votes of the Non-Settling Claimants represented by the three members of the AHC lacks merit. Pfizer points to two pieces of evidence which, it contends, prove their improper voting motives. First, the AHC’s counsel stated, among other things, “there wasn’t enough money offered in settlement by Pfizer for my clients to be willing to accept it.” {Pfizer Designation Response at 44.) Counsel’s statement does not imply an ulterior motive; it explains why the AHC’s clients refused to settle voluntarily with Pfizer outside of bankruptcy. It also explains why they voted against an involuntary settlement that Pfizer tried to foist on them through the Fourth Plan. The Non-Settling Claimants are being asked to surrender their derivative claims against Pfizer, claims they can pursue if the Fourth Plan is not confirmed. They are not inclined to give up what they view as a valuable right for what they view as a paltry contribution. It was Pfizer that interjected its derivative liability into the case when it embarked on its global strategy, and cannot complain if the Non-Settling Claimants vote to reject it because the price they are being asked to pay for their distribution is too high.
Second, Pfizer argues that Perry Weitz, Esq. of Weitz & Luxenberg, a member of the AHC, rejected the plan in order to extract a larger settlement from Pfizer.
(See Pfizer Designation Response
at 44-45.) Although his statements come closer to proving an ulterior motive, there is no basis to impute his statements or intent to
Accordingly, Pfizer’s cross motion to designate the votes of the Settling Claimants that are represented by the AHC member firms is denied.
B. Fair and Equitable
1. Introduction
Section 524(g) requires that a channeling injunction under the plan be “fair and equitable with respect to the persons that might subsequently assert ... demands, in light of the benefits provided, or to be provided, to such trust on behalf of such debtor or debtors or such third party.” 11 U.S.C. § 524(g)(4)(B)(ii). Both the statute and legislative history are silent regarding what is “fair and equitable.” Nevertheless, the phrase implies, at least where the trust does not propose to pay 100%, that there must be a relationship between the benefits received and the contributions made by the third-party that receives the benefit of the injunction.
42
As the leading bankruptcy treatise explained, “the court should afford [third parties] the protection of the injunction only if they contribute to the trust
in amounts that are consistent
with their likely liability ... outside of bankruptcy.” 4 Colliee on
2. Pfizer’s Likely Liability Outside of Bankruptcy
The determination of Pfizer’s likely liability begins with consideration of Quig-ley’s likely liability. Rabinovitz projected that, over the next forty-two years, more than 261,000 asbestos-related claims will be asserted against the Trust. This reflects the universe of future demands. Ra-binovitz estimated that these claims will total $4,449 billion, or $2,667 billion in present value, under the FCR’s assumed qualification rates. (P3075 at 2.)
Between 1985 and the 2004 Petition Date, Pfizer paid over $1.2 billion in insurance proceeds to settle asbestos claims against itself and Quigley. Overall, 23% of these settlement costs were allocated to Pfizer and 77% were allocated to Quigley. (A4015 at 2; Tr. 295:19-298:22 (Berland).) Assuming the same overall allocation going forward, it would cost Pfizer approximately $613 million to settle the $2,667 billion in future claims — channeled to the Trust under the Fourth Plan — outside of bankruptcy. In other words, $613 million represents the measure of Pfizer’s derivative liability to the Futures based on Quigley-related asbestos products.
At trial, Berland, former in-house counsel at Pfizer, insisted that Pfizer never paid anything to settle a Quigley derivative claim, implying that Pfizer’s derivative liability to the Futures should be estimated at zero. (Tr. 231:3-8.) His trial testimony, however, directly contradicted his deposition testimony that the majority of the asbestos cases that Pfizer settled were based on exposure to Quigley products. (Tr. 293:15-294:2.) Nor could he satisfactorily explain why, during the twenty year span of 1985 through the 2004 Petition date, Pfizer would have paid over $311 million, (see A4015 at 2), to settle the admittedly miniscule number of Kilnoise cases. 43
Other testimony and documentary evidence also contradicted Berland’s trial testimony. John Cooney, whose firm is a member of the AHC, testified that his firm settled eighty-six cases with Pfizer and Quigley between 2001 and the 2004 Petition Date. (Tr. 2436:5-7.) Except for three cases involving Kilnoise, the liabilities his firm settled were based on the Quigley products Insulag or Panelag. (Tr. 2437:10-15; see, e.g., Tr. 2440:2-2442:17.) Cooney’s firm settled with and released Quigley and Pfizer at the same time, (Tr. 2438:3-5), and, on each occasion, Pfizer and Quigley sent separate settlement checks, allocating 30% of the settlement to Pfizer and 70% to Quigley. (Tr. 2450:3-19.)
Accordingly, the Court concludes that the 23% historical allocation, or $613 million in present value, reflects a reasonable estimate of the probable costs that Pfizer would incur to settle its derivative liability to the Futures outside of bankruptcy and will avoid if a channeling injunction issues. 44
The value of Pfizer’s contribution was the subject of substantial evidence at the confirmation trial. Each side offered expert testimony regarding the present value of the various components, which include cash, the Pfizer Annuity, other insurance, Quigley stock and Pfizer’s forgiveness of its secured debt. Although the numbers changed between the time each expert issued his report and the time he testified, the following represents a summary of their positions:
Item Pfizer Contribution Present Value (in millions of $) according to Karl Snow, Pfizer’s Expert Present Value (in millions of $) according to Israel Shaked, AHC’s Expert
$50 million payment from Pfizer to Trust 50 50
$45.1 million 41-year Pfizer annuity 13 14.7
Quigley’s relinquishment of its rights to the AIG Annuity(79) (256.4-321.5)
$405 million 40-year Pfizer annuity 161 174.5
Insurance Settlement Proceeds Trust 42 0-9.6
Insurance Relinquishment Agreement 111-149 0-34.5
Reorganized Quigley common stock 6.5 3.8
Forgiveness of secured claim 30 0
Total Present Value of Pfizer Contribution 334.5-372.5 (78.5)-30.7
a. Cash (Items 1 and 2)
The experts agreed that the value of the cash payment on the Effective Date would be $50 million. (Item 1.) They disagreed slightly regarding the present value of the forty-one year annuity, (Item 2), but the difference is immaterial, and I will use an approximate intermediate value of $14 million.
b. The AIG Annuity (Item 3)
There were material disagreements regarding the present value of the AIG Annuity, which is to be swapped for the Pfizer Annuity (Item 4). Because of the swap, it is necessary to compute Quigley’s interest in the AIG Annuity to arrive at a net value that Pfizer will be contributing through the Pfizer Annuity.
The AIG Annuity is a ten year, $405 million annuity that AIG began paying in September 2004. It consists of three bundles (see A4546 at 68 (Expert Report of Professor Israel Shaked, dated April 15, 2009 (“Shaked Report”))):
Nominal Item Component Value ($)
1 Amount available solely to Pfizer 81,149,371
2 Amount available solely to Quigley 40,620,245
3 Amount available to both Pfizer and Quigley 283,977,240
Total_405,746,856
The approximate $81 million available solely to Pfizer consists of products liability and asbestos insurance coverage insurance and a Pfizer receivable. The experts agree that Quigley has no rights in these amounts.
The approximate $40.6 million available solely to Quigley reflects an outstanding receivable. The experts disagreed over its present value. Karl Snow, Pfizer’s expert, thought it was worth $43 million, reflecting that AIG had already funded almost one-half of the AIG Annuity, and the funds had
The difference relates to the discount rates used by the experts. Shaked used the yield-to-maturity on a Pfizer debt of similar time of maturity, and derived a discount rate of 3.61%. (Shaked Report at 10.) Snow criticized Shaked, stating that it was inappropriate to use the Pfizer debt as a baseline because the rate should reflect the risk associated with the ability to pay the obligation. The obligor is AIG; the appropriate rate is the one associated with AIG debt. Furthermore, it was inappropriate to use corporate bond rates to determine the present value of an annuity. Snow could not locate the information regarding the rate on the appropriate AIG debt, and substituted the spot rates associated with U.S. Treasury STRIPS. (Updated Snow Report at 12-14.) Acknowledging that such rates are lower than the corporate bond and annuity rates, (see id. at 13), Snow’s analysis generated a “conservatively high estimate” of the present value of Quigley’s claim. (Id. at 14.)
If Shaked’s estimate was too low, Snow’s was admittedly too high. The present value falls somewhere between. Accordingly, I will select the midpoint, and find that the present value of the Quigley-only portion of the AIG Annuity is $41 million.
The balance of roughly $284 million reflects amounts available to Pfizer and Quigley on a “first-billed-first-paid” basis. (Updated Snow Report at 11.) The parties have identified two issues: the present value and the allocation as between Pfizer and Quigley.
i. Present Value
Shaked ascribed a present value of $274,987,649, (Shaked Report at 65), that I will round up to $275 million. Snow appraised the present value at $282,454,051 (Updated Snow Report at 33), which he rounded to $282 million. (See id. at 15.) Snow again criticized Shaked’s use of Pfizer’s corporate bond rate with a different time profile, opting to use U.S. Treasury STRIPS to calculate the discount rate. (Updated Snow Report at 15.) For the reasons discussed with the Quigley-only portion, I will select the intermediate amount, and find that the present value of the shared portion of the AIG Annuity is $278.5 million.
ii. Allocation
The bigger dispute concerned the appropriate allocation of the shared portion of the AIG Annuity. Shaked concluded, in the main, that Pfizer was not entitled to an allocation of any portion of the shared annuity, and Quigley was entitled to 100% of the allocation, based upon AHC’s counsel’s interpretation of
In re Congoleum Corp.,
I reject both experts’ allocation testimony. First, the allocation dispute does not require or benefit from expertise in valuation. Rather, Shaked made an assumption of law and Snow made one of fact, and both assumptions were wrong.
Shaked’s allocation testimony relied on the decision in
In re Congoleum Corp.,
I take a different approach to the “fair and equitable” determination, and reach a different conclusion. As discussed, the third-party must contribute amounts consistent with its likely liability, at least where the plan will pay less than 100% of the scheduled amount of the asbestos claims. If I count the claims against Pfizer on the liability side of the equation, I must count the amount of the insurance Pfizer is contributing on the contribution side. In this manner, Pfizer will be using the same insurance to discharge the same liabilities under the Fourth Plan that it would outside of bankruptcy. Furthermore, unlike ABI, Pfizer has substantial claims to bill against all of the shared insurance, to wit $209 million in First Payments. If the Fourth Plan is confirmed, Pfizer will have no insurance to look to for indemnification. 46
Snow’s allocation testimony, on the other hand, erroneously assumed that Pfizer could immediately bill the First and Second Payments aggregating $418 million to the shared insurance. However, if the Fourth Plan is not confirmed, Pfizer will never have to make the Second Payment. Furthermore, since the Settling Claimants released Pfizer as a condition to receiving the First Payment, Pfizer will not face any further liability to them even if the Fourth Plan is not confirmed. Consequently, Pfizer’s immediately billable claims will not exhaust the shared portion of the AIG Annuity (or reach the other shared insurance discussed below). After deducting the $36 million and $209 million, respec
The present value of Quigley’s interest in the AIG Annuity can now be computed. It consists of three parts: the Quigley-only portion ($41 million), the portion of the shared insurance that Quigley could immediately bill ($36 million), and its allocable share of the future billings ($25.8 million). These components total $102.8 million,
c.The Pfizer Annuity (Item 4)
The Pfizer Annuity in the nominal amount of $405 million is payable in forty annual installments. Snow opined that the present value of the Pfizer Annuity on the Effective Date will be $161,484,381, {Updated Snow Report at 34), which he rounded to $161 million. (Id. at 21.) Shaked initially valued the Pfizer Annuity at $154.9 million, (Shaked Report at 12), but when he testified at trial in December 2009, nearly eight months after the date of his report, he valued the Pfizer Annuity at $174.5 million. (Tr. 2582:15-17.) He did not explain the reason for the increased value, but since the higher number is adverse to AHC’s position in the case, I will use Shaked’s more recent estimate. Accordingly, I conclude that the net value of the contribution of the Pfizer Annuity is $71.7 million ($174.5 million minus $102.8 million). This sum represents the ultimate benefit to the Trust and the detriment to Pfizer of swapping the AIG Annuity for the Pfizer Annuity.
d.The Other Insurance
i. The Insurance Settlement Proceeds Trust (Item 5)
The Insurance Settlement Proceeds Trust was projected to include $41,650,114 as of November 1, 2009, exclusive of the AIG Annuity payments. (See Updated Liquidation Analysis at 2.) Using the same historic allocation formula, I attribute 23% of that amount, or roughly $9.6 million, to Pfizer as its contribution.
ii. The Insurance Relinquishment Agreement (Item 6)
The Insurance Relinquishment Agreement disposes of Pfizer’s and Quigley’s respective rights in certain shared asbestos insurance policies and insurance settlement agreements. (Fifth Disclosure Statement at 66; Updated Snow Report at 23.) The Fourth Plan valued these rights in the amount of $182,866,205, as of March 2008. (Fifth Disclosure Statement at 155 (Ex. H).) Both experts relied on this valuation in rendering their opinions. (Shaked Report at 6-7; see Updated Snow Report at 23.) According to the revised Liquidation Analysis prepared by Quigley on or about September 11, 2009, the value was reduced to $149,199,507, (Updated Liquidation Analysis at 2; see Updated Snow Report at 23), which is rounded to $149.2 million. The updated figure presumably reflects an additional eighteen months of collections deposited in the Insurance Settlement Proceeds Trust and a corresponding decrease in insurance availability.
Snow relied on the revised number in his updated report. (Updated Snow Report at 23.) Shaked did not revise his report, but apparently used the revised figure during his testimony. (See Tr. 2583:22-2584:4.) Pfizer’s allocated share of that value is $34.3 million, reflecting the value of its contribution under the Insurance Relinquishment Agreement.
e.Quigley Stock (Item 7)
Shaked ascribed a value of $6.6 million to Reorganized Quigley as of the Effective
f. The Pfizer Lien (Item 8)
Shaked initially credited Pfizer’s forgiveness of a $30 million secured claim as a contribution to the Trust. (Shaked Report at 15.) At trial, he appeared to change his testimony, because he deemed the forgiveness to be a contribution to Quigley rather than the Trust. (Tr. 2578:15-20.) Snow agreed with Shaked’s original conclusion, and also valued this aspect of the Pfizer contribution at $30 million. (Updated Snow Report at 26.) Prior to trial, Pfizer’s counsel stated that Pfizer agreed to relinquish its entire secured claim of roughly $76 million, but Quigley did not modify the Fourth Plan, and Snow continued to use the $30 million figure as the measure of this component of its contribution. (Tr. 1766:1-4.)
Pfizer’s waiver of its secured claim confers a corresponding benefit on the Trust. Under the prepetition Credit and Security Agreement, Quigley granted Pfizer a security interest, inter alia, in its right to payment under the asbestos liability insurance policies. (J446 at 4-5, § 6(a).) As of the Petition Date, Pfizer held a secured claim of roughly $46 million. (J233 at 2, ¶ 2.) In contemplation of the bankruptcy filing, Quigley and Pfizer executed an Amendment No. 3 to the Credit and Security Agreement that provided financing and allowed Quigley to use Pfizer’s cash collateral. (See id. at 28-86 (Ex. A).) The Amendment granted Pfizer a priming lien in the same assets. (See id. at 31-33, § 4(a).) The Court approved the proposed financing and use of cash collateral. 48
Accordingly, Pfizer holds a security interest in the insurance rights and receivables that Quigley will be contributing to the Trust. Since Quigley’s share of the insurance exceeds Pfizer’s secured claim, Pfizer is fully secured. But for its waiver, Pfizer could pursue its lien against the assets that Quigley is contributing to the Trust, and reduce the amounts available to the Trust to pay claims. Despite counsel’s representations, Snow continued to value it at $30 million — the amount of the waiver continued in the Fourth Plan. Accordingly, the Court finds that the value of the lien waiver is $30 million.
4. Recapitulation and Conclusion
Based on the forgoing, the present value of Pfizer’s contribution to the Trust under the Fourth Plan is $216.2 million, broken down as follows:
Present Value (in millions Item Pfizer Contribution of $)
1 $50 million payment from Pfizer to Trust 50.0
2 $45.1 million 41-year Pfizer annuity 14.0
4 $405 million 40-year Pfizer annuity 174.5
5 Insurance Settlement Proceeds Trust 9.6
6 Insurance Relinquishment Agreement 34.3
7 Reorganized Quigley common stock 6.6
8 Forgiveness of secured claim 30.0
Total Present Value to Trust of Pfizer Contribution 216.2
This contribution is substantially less than the benefit that Pfizer will realize from the channeling injunction. Furthermore, Pfizer’s contribution is overstated. The “fair and equitable” test focuses on the Futures, and the $613 million benefit that Pfizer will receive through the channeling injunction is based on Pfizer’s estimated liability to the Futures. But Pfizer’s contribution is being offered to pay both existing claimants as well as Futures.
The projected future demands represent approximately 68% of the projected claims against the Trust, or roughly twice the amount of the current claims. Accordingly, only about $147 million of Pfizer’s total contribution will reach the Futures. This represents less than 25% of the benefit that Pfizer will receive, and is not “fair and equitable.”
C. Reorganized Quigley’s Viability
Quigley’s post-confirmation business implicates at least three separate provisions of the Bankruptcy Code — the “funding” requirement under § 524(g)(2)(B)(i)(II), the feasibility requirement under § 1129(a)(ll) and the discharge provisions under § 1141(d)(3). The parties have focused on the first two and ignored the third. In any event, the Fourth Plan is not a liquidating plan, and Quigley would be entitled to a discharge under § 1141(d) if it is confirmed. Accordingly, I turn to the two provisions in dispute.
1. The Funding Requirement
Section 524(g)(2)(B)(i)(II) requires the trust to “be funded in whole or in part by the securities of 1 or more debtors involved in such plan and by the obligation of such debtor or debtors to make future payments, including dividends.” 11 U.S.C. § 524(g) (2) (B) (i) (II) (the “Funding Requirement”). In
dicta,
the
Combustion Engineering
Court stated the provision implied “that the reorganized debtor must be a going concern, such that it is able to make future payments into the trust to provide an ‘evergreen’ funding source for future asbestos claimants.”
49
In re Combustion Eng’g,
The two requirements can be conflated. The term “security” includes both debt and equity, 11 U.S.C. § 101(49), and a debtor could satisfy the funding requirement by delivering a debt instrument obligating it to make future payments to the trust. Similarly, even profitable corporations are not ordinarily “obligated” to pay dividends, but the transfer of the debtor’s equity to the trust would allow the trust to declare dividends and use the dividends to fund the trust. The statute nevertheless implies an ability to make payments into the future—an “evergreen” source of funding—and this is what the Third Circuit in
Combustion Engineering
undoubtedly meant when it referred to an “ongoing business” requirement. Cf.
In re Johns-Manville Corp.,
The more difficult questions surround the provision’s silence regarding the amount and duration of the funding obligation. The trust need only be “funded in part” by the obligation of the debtor. Does this imply that the debtor can simply agree to make relatively small payments? Furthermore, asbestos trusts can last for forty years. 50 Must the debtor incur an obligation coextensive with the duration of the trust and then demonstrate its (or another’s) ability to meet that obligation? A debtor would be hard-pressed to produce credible forty-year income projections. Moreover, a broad interpretation that imposes an ongoing business requirement could transform the funding requirement into a feasibility test, duplicating the requirement imposed under 11 U.S.C. § 1129(a)(ll).
Here, the Court reads § 524(g)(2)(B)(i)(II) narrowly, and concludes that the Fourth Plan satisfies the funding requirements. Pfizer will transfer its equity in Quigley to the Trust. The evidence showed that Reorganized Quigley will operate profitably during the five year life of the Pfizer Claims Services Agreement, and generate excess income which, at the Trustees’ option, can be used to fund the Trust “in part.” Instead, the problem that Quigley faces involves feasibility—what is likely to happen after the expiration of the Pfizer Claims Services Agreement with Pfizer. It is to this topic I now turn.
Section 1129(a)(ll) of the Bankruptcy Code requires the plan proponent to prove that “confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.” The plan must be workable and stand a reasonable likelihood of success.
Kane v. Johns-Manville Corp.,
Although Quigley will remain viable and profitable for the five years that it operates under the Pfizer Claims Services Agreement, Quigley’s prospects after five years are less certain. 51 According to Thomas W. Britven, a Quigley expert called to opine on its post-confirmation viability, Quigley must attract new customers to remain viable after the five-year Pfizer Claims Services Agreement terminates. (Tr. 1733:21-1734:6.) Quigley’s president Kim Jenkins agreed, (Tr. 1578:19-25), as did Quigley director Charles Raeburn. (Tr. 2288:10-19.)
Although Quigley witnesses testified at trial about Quigley’s business plan and its ability to attract new business, its business plan was speculative at best and visionary at worst. With one exception, and despite marketing efforts, Quigley has failed to attract any new business since the Petition Date. 52 {See Fifth Disclosure Statement at 6.) Jenkins attributed this lack of success to the uncertainty surrounding the bankruptcy and the concerns of prospective clients that their information will remain confidential, especially from the plaintiffs’ bar. (Tr. 1470:6-23, 1574:25-1576:19 (Jenkins).)
The removal of the perceived obstacle of bankruptcy does not automatically translate into better business prospects because the problem may not be Quigley’s bankruptcy. There was no credible evidence of a viable market that will absorb Quigley’s proposed claims handling services; in fact, there is evidence to the contrary.
53
Aside
Furthermore, the trial evidence indicated that the asbestos claims handling business may have peaked, and be winding down. By 2001, many of the “front-line” asbestos defendants, the major producers of asbestos products, had filed for bankruptcy. (Tr. 219:17-20 (Berland).) Their claims work is presumably dealt with in accordance with previously confirmed plans. In addition, Rabinovitz projected that the future claims against the Trust would decline precipitously after the first few years following confirmation. (Fifth Disclosure Statement, Ex. I at 3-4.) While numerous unresolved claims may still exist against other debtors, potential debtors and non-debtors, the evidence does not support an inference that the flow of unresolved claims will continue unabated into the future and provide substantially more work for the existing vendors or new entrants into the field.
Finally, I give no weight to Britven’s conclusions regarding the availability of third-party claims handling work after confirmation. First, his conclusions were based primarily on what Jenkins told him. Second, his conclusions were also based on his examination of the business model and structure of six privately-held companies of which little or no public information was available.
In conclusion, Quigley failed to prove that its plan is feasible, or more generally, that it satisfied 11 U.S.C. § 1129(a)(ll). Once the Pfizer Claims Services Agreement expires, Quigley will not have sufficient business to continue operating, and in all likelihood, will need to seek further bankruptcy relief.
D. Best Interest of Creditors
Section 1129(a)(7) of the Bankruptcy Code provides, in relevant part, that the Court “shall confirm a plan only if’ each creditor in an impaired class “(i)
In the usual case, this requires a comparison between the distributions under the plan and in a hypothetical chapter case. The comparison is not always straightforward. At times, a Code provision that affects the amount available for distribution applies under one chapter but not the other. For example, the trustee of an insolvent chapter 7 partnership may sue the general partners to recover any deficiencies. See 11 U.S.C. § 723(a). The trustee in a chapter 11 partnership case does not have this right. The “best interest of creditors” test in a partnership chapter 11 case must estimate the probable collection from the general partners because these additional assets would be available to pay creditors in a hypothetical chapter 7 case. See 7 CollieR on Bankruptcy ¶ 1129.02[7][c][iv], at 1129-38.
At other times, a Code provision may affect the amount of a creditor’s claim under one chapter but not the other, altering the distribution to the remaining creditors. With certain exceptions, 11 U.S.C. § 1111(b)(1) gives a secured creditor in chapter 11 an unsecured deficiency claim whether or not the creditor has recourse under non-bankruptcy law. Chapter 7 does not provide a non-recourse creditor with recourse, i.e., the creditor does not get the unsecured deficiency claim. The absence of a deficiency claim in chapter 7 can dramatically affect the distribution to the other unsecured creditors in chapter 7 and must be factored into the “best interest” test.
Different priority rules can have a similar effect. Penalty claims are statutorily subordinated to unsecured claims in chapter 7,
see
11 U.S.C. § 726(a)(4), but there is no comparable subordination of penalty claims under chapter 11.
Cf. United States v. Reorganized C F & I Fabricators of Utah, Inc.,
In each of these examples, the comparison is between the distributions under the plan and the distributions to the dissenting creditor from the
estate
in a hypothetical chapter 7 case. So limited, the same comparison in this case does not present any difficulty. As a result of the Pfizer contribution to the Trust, the amount available for distribution to the Class 4 claimants under the Fourth Plan is certainly greater than the amount available to the same creditors
from a hypothetical Quigley chapter 7 estate.
However, the “best interest” test is not limited to comparing distributions, i.e., the amounts that creditors will receive. The express language of § 1129(a)(7) also requires me to consider
Here, the Fourth Plan releases Pfizer from derivative liability; Pfizer would not receive a release in a hypothetical chapter 7 case. This does not matter to any Settling Claimants that did not accept the Fourth Plan. They already released their rights against Pfizer other than those granted under the Pfizer Settlement Agreements. However, the confirmation of the Fourth Plan and discharge of Pfizer will affect the dissenting Non-Settling Claimants because they would “retain” their right to sue Pfizer if Quigley were liquidated under chapter 7. As the parties recognize, the critical question is whether I should consider the value of these derivative claims in deciding whether the Fourth Plan is in the “best interest” of the dissenting Non-Settling Claimants.
I conclude that I must.
See Mercury Capital Corp. v. Milford Conn. Assocs., L.P.,
In a Chapter 7 liquidation proceeding, creditors retain their rights to pursue non-debtors for full payment, because there is no reorganization to protect by providing non-debtor releases. Thus, giving at least liquidation value to each creditor requires protection of the Chapter 7 right to pursue non-debtor actions. The lopsided view of creditor equality, which sanctions confiscation of these non-debtor rights in Chapter 11 through non-debtor releases, ignores the creditors’ Chapter 7 right to seek full satisfaction from non-debtors in gauging satisfaction of the best interests test— comparing a creditor’s Chapter 11 distribution with a hypothetical Chapter 7 distribution, from the debtor only. Yet, the best interests equation also properly mandates consideration of creditors’ comparative recoveries on non-debtor claims, to the extent the plan is treating those non-debtor claims by release.
Ralph Brubaker, Bankruptcy Injunctions and Complex Litigation: A Critical Reappraisal of Non-Debtor Releases in Chapter 11 Reorganizations, 1997 U. III. L.Rev. 959, 992 (1997) (footnotes omitted); accord Joshua M. Silverstein, Hiding in Plain View: A Neglected Supreme Court Decision Resolves the Debate Over Nom-Debtor Releases in Chapter 11 Reorganizations, 23 Emory Bankr. Dev. J. 13, 76-77 (2006) (“In a chapter 7 proceeding, a creditor may recover any deficiency from a solvent co-obligor if the liquidation distribution does not completely satisfy the creditor’s claim. Therefore, since the dissenting creditor would receive payment in full on its claim in a chapter 7 bankruptcy from either the debtor, the co-obligor, or a combination of the two, the dissenting creditor must receive full payment under the debt- or’s chapter 11 plan of reorganization if the codebtor receives a release. Otherwise, the plan violates the best-interests test.”) (footnotes omitted).
Here, the derivative claims against Pfizer that the Non-Settling Claimants would retain in a hypothetical Quigley chapter 7 case satisfy the definition of “property,” they have “value,” and although they are unliquidated and disputed, they are neither speculative nor incapable of estimation. Furthermore, they presently exist and would exist at the time of any date selected for valuation in a
Once the derivative claims against Pfizer are factored into the equation, the Fourth Plan fails the “best interest” test. Under the Fourth Plan, the dissenting Non-Settling Claimants will receive an estimated 7.5% distribution on their allowed claims. Even if they would receive nothing in a hypothetical Quigley chapter 7 bankruptcy, they would retain their rights to pursue their derivative claims against Pfizer, which I estimate to be worth 23% of that same claim based upon what Pfizer historically paid to settle derivative claims.
The case law that has considered this issue is sparse, and the few contrary authorities are distinguishable. Some cite or analogize to the “best interest” test under chapter 13,
see
11 U.S.C. § 1325(a)(4),
57
to suggest that the bankruptcy court should not consider rights against third parties that may be affected by the plan.
See, e.g., In re Dow Corning Corp.,
The chapter 13 provision, which is quoted in the margin, is different from the § 1129(a)(7) in one important respect. It is limited to a comparison of distributions, and as the
Dow Coming
court also observed, does not include the “retention” language in § 1129(a)(7).
Dow Corning Corp.,
E. Unequal Treatment
Section 1123(a)(4) requires that a plan “provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest.” 11 U.S.C. § 1123(a)(4). Equality of treatment involves two facets: (1) all class members must receive equal value, and (2) each class member must pay the same consideration in exchange for its distribution.
In re Quigley Co. Inc.,
The Court previously dealt with both issues. When Quigley sought approval of its Fifth Amended Disclosure Statement, the AHC countered that the proposed plan violated the principle of equality of treat
The Court rejected both arguments. The Court ruled that all claimants were receiving the same treatment under the plan through the Trust; the Pfizer payments were being made outside of the plan. Id. at 116-17. Furthermore, the Settling Claimants might be providing greater consideration than the Non-Settling Claimants through the release of their direct claims against Pfizer, claims that the Non-Settling Claimants would retain under any confirmed plan. Id. at 118. Finally, the Settling Claimants were assuming a risk that the Non-Settling Claimants had avoided. The releases granted under the Pfizer Settlement Agreements became effective no later than the delivery of the First Payment and did not depend on the confirmation of a plan or receipt of the Second Payment. Id. The Court concluded that it “cannot determine as a matter of law that the non-settling PI Claimants are receiving unequal treatment in violation of 11 U.S.C. § 1123(a)(4).” Id. at 119 (emphasis added).
The AHC has renewed its unequal treatment argument post-trial. First, it contends that I mistakenly ignored Pfizer’s third-party payments. (Pfizer Brief at 57-61.) In Quigley II, I interpreted the phrase “the plan shall ... provide the same treatment” literally. I looked only to the treatment under the Fourth Plan, and consequently, did not consider payments outside under this provision of the Code. That determination is law of the case that I decline to reconsider. 58 Whatever other provisions of the Code they implicate, the Pfizer payments do not constitute “treatment” under the Fourth Plan within the meaning of § 1123(a)(4). 59
The evidence at trial indicated that the Pfizer direct claims had little if any value — the vast majority of the asbestos claims are based on the exposure to Quig-ley products. Furthermore, the derivative claims have substantial value. Hence, the Non-Settling Claimants as a group are being compelled to give up their valuable derivative claims' — which the Settling Claimants have already surrendered — to get the same 7.5% distribution.
This conclusion is simply the flipside of the earlier conclusion that the Fourth Plan violates the “best interest” test. The latter measured the “retention” value of the derivative claims in a hypothetical Quigley chapter 7. The “equal treatment” standard measures the value of the same derivative claim as the price of participation in the distribution from the Trust. Just as the retention of the derivative claim in a Quig-ley chapter 7 results in the violation of the “best interest” test, the compelled surrender of the derivative claim in a Quigley chapter 11 results in “unequal treatment” under 11 U.S.C. § 1123(a)(4).
F. Remaining Motions
1. Shaked’s Testimony and Report
The Shaked Report, dated Apr. 15, 2009, addressed three principal areas: the value of Pfizer’s contribution under the Fourth Plan, the amount of Pfizer’s potential claim relief, and Quigley’s liquidation value. Quigley’s expert, Thomas Britven, also submitted an expert report on April 15, 2009, and in response, Shaked submitted a rebuttal report on May 7, 2009 (the “Rebuttal Report”).
Quigley subsequently filed updated financial statements on September 3, 2009, (J47a), and an updated liquidation analysis on September 11, 2009 (J47b). By this time, discovery had closed. According to Quigley, the parties reopened discovery, and the AHC deposed three witnesses (Berland, Jenkins and Douglas Charbo-
Shaked did not file an updated report. During the trial, he nevertheless gave expert testimony, over Quigley’s objection, which incorporated and relied on the updated financial information. During his testimony, he used illustrative slides that also incorporated the new financial information. One day after Shaked completed his testimony, the AHC moved into evidence Shaked’s slides, the Shaked Report and the Rebuttal Report. (Tr. 2831:12-16.) Quigley again objected. The Court admitted the evidence subject to Quigley’s post-trial briefing of the objection, (Tr. at 2549:22-2550:2, 2554:8-10; 2833:13-20), and Quigley followed up "with a post-trial motion to exclude specific portions of Shaked’s testimony, slides and reports. See Motion of Quigley Company, Inc. for Order Under Fed. R. Bankr.P. 7026(e)(1) and (2), 7087(c)(1), 9011(c), and FRE 802 Partially Excluding Testimony, Illustrative Exhibits, and Expert Report of Doctor Israel Shaked, dated Jan. 5, 2010 (“Exclusion Motion ”). (ECF Doc # 2024.)
Quigley’s objection centered on two arguments. First, the portions of Shaked’s testimony and slides that focused on the updated financial information 60 were inadmissible under Rules 7026(e)(1) and (2), 7037(c)(1) and 9014(c) of the Federal Rules of Bankruptcy Procedure because the AHC had failed to supplement Shaked’s reports to reflect his new testimony. Quigley identified several objectionable portions of his testimony, (see Exclusion Motion at ¶¶ 8-9), which fell into three general categories: (1) Reorganized Quig-ley would not be viable, notwithstanding the Pfizer Claims Services Agreement; (2) Reorganized Quigley would not be able to attract new business; and (3) as of the Effective Date, the value of Reorganized Quigley’s stock would be $3.8 million rather than his previous estimate of approximately $6.6 million.
Second, the portions of the Shaked Report that contained his liquidation analysis, (Shaked Report at 19-20, 100), were inadmissible hearsay under Rule 802 Federal Rule of Evidence; Shaked had failed to testify regarding his liquidation analysis at the trial. Furthermore, because the AHC sought to introduce it a day after Shaked left the stand, Quigley argued that it was unfairly denied the chance to cross-examine him as to its contents.
a. New Information
Bankruptcy Rule 7026 makes Rule 26 of the Federal Rules of Civil Procedure applicable in adversary proceedings, and Bankruptcy Rule 9014(c) makes Bankruptcy Rule 7026 applicable in contested matters. Rule 26(e)(1)(A) of the Federal Rules of Civil Procedure requires a party to supplement a disclosure “in a timely manner if the party learns that in some material respect the [report] is incomplete or incorrect, and if the additional or corrective
Rule 26(e)(1)(A), the general provision governing supplementation, does not apply. The updated financial information was prepared by Charboneau and known to Quigley. See 6 JAMES Wm. MOORE, MoORe’s FEDERAL PRACTICE § 26.131[1], at 26-580 (3rd ed. 2010). Nevertheless, the AHC should have supplemented Shaked’s reports under Rule 26(e)(2) to include the updated financial information he relied on in forming the opinions to which he testified at trial. 61 The updated financial information changed the information in Shaked’s reports, and altered his expert opinion. Furthermore, although discovery had closed before the updated financial information was issued, the parties reopened discovery by mutual consent to permit inquiry into the new information.
It does not follow, however, that the testimony and related evidence should be excluded under Rule 37. When considering whether to exclude the evidence under Rule 37, the Court must weigh four factors: “(1) the party’s explanation for the failure to comply ..., (2) the importance of the testimony of the precluded witness, (3) the prejudice suffered by the opposing party ...; and (4) the possibility of a continuance.”
Softel, Inc. v. Dragon Medical and Scientific Communications, Inc.,
Here, the AHC did not provide a satisfactory explanation for Shaked’s failure to update his reports. The updated financial information was issued in September 2009, and Shaked testified in December. Moreover, Britven was able to supplement his report. This factor favors exclusion. On the other hand, neither side suggested the need for a continuance. In any event, the admission of Shaked’s testimony did not prejudice Quigley, and was harmless, for the simple reason that Shaked’s objectionable testimony was not accorded any weight by the Court. Although the Court concluded that Reorganized Quigley would not be viable after the termination of the Pfizer Claims Services Agreement, the conclusion was not based on Shaked’s testimony. Rather, the Court relied on Brit-ven’s acknowledgment that Quigley could not survive without additional business and rejected Quigley’s evidence, primarily Jenkins prediction, that Quigley would attract new business once the specter of bankruptcy was removed. Shaked was not an expert in the claims handling business, and the Court stated at trial that his testimony regarding Quigley’s inability to
b. Shaked’s Liquidation Analysis
I reach a different conclusion with regard to Shaked’s liquidation analysis. Although included in his initial report, he did not testify about it, and the AHC deprived Quigley of the opportunity to cross-examine Shaked on this point. As a rule, expert reports are hearsay.
Ake v. General Motors Corp.,
Furthermore,
NAACP v. A.A. Arms, Inc.,
No. 99-CV-3999(JBW),
Here, the motion is not one in limine that asks the Court to speculate on the contents of the Shaked Report or its redundancy. The portion of the report that Quigley seeks to exclude is not redundant because Shaked never testified about his liquidation analysis. Although the report might have proved helpful to the Court had he done so, it is unfair to credit Shaked’s liquidation analysis under the circumstances. 62 Accordingly, this part of Quigley’s Exclusion Motion is granted.
2. The Sealing Motion
During the confirmation hearing, the Pfizer Settlement Agreements were received in evidence. Many contained the type of personal identifying information about the claimants that would be subject to redaction under Federal Bankruptcy Rule 9037 if filed with the Court. The Court directed the redaction of that information. Other information allowed the reader to ascertain how much a Settling Law Firm received in settlement for each claimant with a specific impairment. For example, one could tell by examining the Pfizer Settlement Agreements that Settling Law Firm A settled its mesothelioma
Baron & Budd, P.C., a Settling Law Firm, filed the Sealing Motion at the conclusion of the trial, and other Settling Law Firms joined in or filed their own motions. They contend that the Pfizer Settlement Agreements, as well as certain testimony derived from the information in those agreements, contain “confidential settlement information reflecting the settlement practices of Counsel for Tort Claimants and Pfizer, such as the settlement amounts for individual claimants.” (Sealing Motion ¶ 4.) They maintain that the information is proprietary, (Id.), and “[t]he release of the terms of the Settlement Agreements to the public potentially could prejudice Counsel for Tort Claimants’ ongoing litigation and settlement discussions with other defendants.” (Id. ¶ 7.) In addition, two firms argue that the settlement information is inadmissible under Rule 408 of the Federal Rules of Evidence. 63 (Motion to Exclude Settlement Information of Maritime Claimants Settlement Agreements, dated Dec. 21, 2009 (ECF Doc. #1991); Objection to Presentation of Settlement Information by Clients of the Law Offices of Peter T Nicholl, filed Dec. 23, 2009 (ECF Doc. # 1996).) The United States Trustee and the AHC oppose the motions. 64
Section 107(a) of the Bankruptcy Code provides that all papers “filed in a case under this title ... are public records and open to examination” by the public. 11 U.S.C. § 107(a). “This policy of open inspection, codified generally in § 107(a) of the Bankruptcy Code, evidences congress’s strong desire to preserve the public’s right of access to judicial records in bankruptcy proceedings.”
Video Software Dealers Ass’n v. Orion Pictures Corp. (In re Orion Pictures Corp.),
The sealing movants contend, in substance, that they will be placed at a competitive disadvantage if future tort defendants discover how much they accepted from Pfizer to settle a particular impairment. They apparently fear that a future tort defendant will not offer $200,000 to settle a mesothelioma case if it knows that the Settling Law firm settled the same claim for $100,000 under the Pfizer Settlement Agreement. In other words, the Settling Law Firm will lose leverage in future cases.
A similar argument was raised in
Geltzer v. Andersen Worldwide, S.C.,
No. 05 Civ. 3339(GEL),
The decision focused mainly on the Court’s independent duty to judge the reasonableness of the settlement, but Judge Lynch also rejected the argument that the amount of the settlement was commercial information “in any normal sense of the words,” id., or that the defendants “bargaining position” was commercial information that had to be protected:
The only reason given by the Trustee for confidentiality is that “public disclosure of the Settlement Amount would enable other claimants against Andersen to determine how much Andersen is currently willing, and able, to pay in respect of the Trustee’s claim, thereby potentially undercutting Andersen’s negotiating leverage with such claimants.” (Eise-man Deck ¶ 19.) This is a wan excuse for impinging on the public’s right of access to judicial documents. There is no discernable public interest, or interest of the bankruptcy estates, in preserving Andersen’s “leverage” as against other parties who have sued it. Nor has the movant indicated any authority to support its implicit proposition that protecting the bargaining position of the defendant in other, unrelated cases, is even a proper consideration of a court being asked to approve a settlement in a given case.
Id.
at *4;
accord In re Northwest Airlines Corp.,
Finally, I agree with the United States Trustee that any objection based on Federal Rule 408 has been waived. The joint pre-trial order was filed before the trial, and alerted all parties in interest that the Pfizer Settlement Agreements would be part of the trial record. All parties in interest were afforded ample opportunity to move in limine to exclude the settlements under Rule 408, or attend the trial and object when the agreements were offered into evidence. The two Settling Law Firms that are relying on Rule 408 failed to do either.
Accordingly, the Sealing Motion is denied.
3. The Street Employment Motion a. Background
The final issue to be addressed is the so-called Street Employment Motion. (See Motion Of Quigley Company, Inc. for Order under 11 U.S.C. §§ 105(a) and 363(b) Approving Supplement to Paul A. Street Employment Agreement, dated May 7, 2007 (J324).) The motion was subsequently withdrawn, and the procedural posture of the issues raise by the Street Employment Motion is unusual. Some background is helpful.
Quigley originally hired Street as its president and chairman of the board in May 2003, and entered into a written agreement with Street in May 2004. 65 (.Street Employment Agreement, Ex. B.) The agreement ran for one year, (Id. § 3), and Street received an annual salary of $900,000. (Id. § 4.1.) Street agreed to “perform such duties as may be assigned to him from time to time by the Board of Directors of the Corporation [and to] devote such amount of his business time and efforts sufficient to perform his duties hereunder.” (Id. at § 2.) He was not required to devote 100% of his time to Quig-ley. Street was a principal of Impala Partners LLC, and Quigley consented “to his performing services for Impala on matters unrelated to the affairs of [Quigley].” (Id. § 2.)
The Quigley Board considered the employment agreement at its July 6, 2004 meeting. The meeting minutes reflect that the agreement was reviewed by Quig-ley’s counsel and also addressed by Michael Cook, Esq., Quigley’s retained bankruptcy counsel. (J225 at 2.) In addition, the minutes also reflect a discussion that Street had the right to participate in unrelated Impala Partners matters provided that they did not interfere or conflict with his duties as Quigley’s president and chairman.
(Id.
at 1.) The Board approved the
The Board subsequently approved two post-petition supplements to Street’s employment agreement at its April, 2005 and May, 2006 Board meetings. Each supplement extended the term of Street’s employment for one year. Street abstained from both votes. (See J229 (April 18, 2005 Board meeting minutes), at 3; J231 (May 10, 2006 Board meeting minutes), at 3). Quigley sought Court approval of the supplements, which the Court granted. No party, including the United States Trustee, objected to either the 2005 or 2006 supplements.
At its April 17, 2007 Board meeting, the Board considered an additional one year extension of Street’s employment. Street had agreed to accept a 50% reduction in his salary, and “Raeburn suggested a renewal of Mr. Street’s Employment Agreement on the same terms of the agreement currently in place between the Company and Mr. Street, subject to Mr. Street’s voluntary reduction in compensation.” (See J232 (April 17, 2007 Board meeting minutes) at 1.) “Following a full and thorough discussion, upon motion made and seconded, with Mr. Street abstaining,” the Board passed a resolution approving the extension (the “2007 Supplement”). (Id. 2.) Except for the amount of compensation, the material provisions of the earlier agreements remained unchanged. (See Street Employment Motion, Ex. A.)
Quigley filed the Street Employment Motion, seeking approval of the 2007 Supplement, in May 2007. By then, the AHC and United States Trustee had sought a variety of relief, including the appointment of a chapter 11 trustee and the conversion or dismissal of the case, and each objected for the first time to Street’s continued employment. (See Objection of the United States Trustee to the Motion of the Debtor Under 11 U.S.C. §§ 105(a) and 363(b) Approving Supplement to Paul A. Street Employment Agreement, dated Sept. 24, 2007 (ECF Doc. # 1221); The Ad-Hoc Committee of Tort Victims Objection to Quigley Company, Inc.’s Motion for Order Extending Employment Agreement of Paul A. Street, dated Sept. 20, 2007 (ECF Doc. # 1223).) The various pending motions also triggered a new wave of discovery and discovery disputes.
In response, Quigley moved to dismiss the Street Employment Motion. (See Motion Of Quigley Company, Inc. for Order Under Federal Bankruptcy Rule 704.1 to Dismiss Motion to Approve Supplement to Paul A. Street Employment Agreement, dated Nov. 1, 2007 (ECF Doc. #1254).) Quigley argued that the issues raised by the pending United States Trustee and AHC motions, as well as the Street Employment Motion, overlapped with the confirmation issues and should be addressed as part of the contested confirmation hearing. Furthermore, the Street Employment Motion would be mooted by the appointment of a chapter 11 trustee. (Id. ¶¶ 16-19.)
The United States Trustee opposed Quigley’s dismissal motion.
(See Response of the United States Trustee to the Motion of the Debtor Under Bankruptcy Rule 7041 to Dismiss Motion to Approve Supplement to Paul A. Street Employment Agreement,
dated Dec. 3, 2007 (ECF Doc. # 1283).) She expressed a concern that permitting Quigley to withdraw the motion would have the same effect as granting it; Street would continue to be employed by Quigley and receive compensation at the annual rate of $450,000.
(Id.
1.) Instead, the Court should expedite the hearing on the Street Employment Motion, or alternatively, prohibit Street from receiving any compensation until the motion was considered.
(Id.
1-2.) In other words, she had
The Court conducted a hearing on December 6, 2007. The United States Trustee repeated her concern that Street continued to receive compensation in the face of unresolved objections, and wanted assurance that any excessive compensation would be subject to disgorgement. (Transcript of Hearing, Held Dec. 6, 2007, at 5 (ECF Doc. # 1301).) The Court observed that an excessive compensation claim belonged to the estate and could still be pursued. (Id. 6.) The Court questioned whether Street understood the risk of disgorgement, and Quigley’s counsel responded that he did. (Id.) Satisfied with the preservation of the disgorgement claim, the United States Trustee withdrew her objection. (Id.) The Court subsequently signed an order dismissing the Street Employment Motion “without prejudice to any claims relating to Street’s employment.” (Order Granting Motion of Quigley Company, Inc. Under Fed. R. Bankr.P. 70kl to Dismiss Prior Motion for Order Approving Supplement to Paul A. Street Employment Agreement, dated Dec. 12, 2007 (ECF Doc. # 1301).)
The United States Trustee’s post-confirmation hearing submission continues to press certain arguments relating to Street’s employment and compensation. 66 (See Proposed United States Trustee Findings of Fact and Conclusions of Law Supporting: (A) Denial of Confirmation on the Grounds that the Debtor’s Fourth Amended and Restated Reorganization Plan Does Not Meet the Requirements of 11 U.S.C. § 1129(a)(8) and (11); and (B) Denial of the Debtor’s Motion Dated May 7, 2007 to Approve the Supplement to the Paul A. Street Employment Agreement Under 11 U.S.C. § 363(b), dated Jan. 27, 2010 (“UST Brief”).) The United States Trustee still maintains that the Street Employment Motion did not satisfy the “business judgment” test, but her principal concern focuses on the effectiveness of Street’s performance during the period covered by the 2007 Supplement, implying that he did not earn his pay. Thus, while the United States Trustee states that Quigley “offered no evidence of industry standards, and whether, for example, executives at other claims-handling units are able to work part-time,” (UST Brief ¶ 124), she maintains that “Street had no clear idea of the terms of Pfizer’s offer following the Tabulation Ruling,” 67 but if he did, “it is patently clear that the terms agreed to by the Debtor were grossly inadequate.” (Id. ¶ 125.) Finally, she also states that Quigley never sought an “adjournment of confirmation or otherwise” after Street resigned for the reason that it had lost “Street’s ‘unique familiarity’ with Quigley’s business or the ‘issues facing Quigley in its efforts to reorganize.’ ” (Id. ¶ 126.)
b. The “Business Judgment” Rule
The United States Trustee and Quigley agree that the issues relating to Street’s employment are governed, in the first instance, by the “business judgment” rule. “The business judgment rule ‘is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company.’ ”
Integrated Resources,
c. Mootness
Although the parties agree on the legal standard, it is not clear how it should be applied. The Street Employment Motion, as such, is moot. Quigley moved to dismiss the motion, and the United States Trustee eventually withdrew her objection. As noted, she did not object to Street’s continued service as Quigley’s president and chairman provided that he would be subject to disgorgement. As a result, Street continued to serve as Quigley’s president and chairman for ten additional months pursuant to a contract under which Quigley agreed to pay him $450,000 on an annual basis. Under the circumstances, the United States Trustee cannot challenge Quigley’s decision to extend Street’s employment.
Furthermore, the United States Trustee does not argue that Street should be denied all compensation in the absence of an order approving his extended employment.
68
Hence, the denial of the Street Employment Motion at this point does not resolve the fundamental question of whether Street was overpaid. On the other hand, the denial of the Street Employment Motion may raise a host of issues regarding Street’s authority during the period covered by the 2007 Supplement when
d. Standing
More importantly, while the order granting Quigley’s dismissal motion reserved everyone’s rights, it does not follow that the United States Trustee has any rights to assert. If the decision to continue Street’s employment at an annual salary of $450,000 (as opposed to firing him or paying him less) was an inappropriate exercise of business judgment, it might give rise to a breach of fiduciary duty claim against Quigley’s directors. Alternatively, if the decision to extend Street’s employment at $450,000 was an appropriate exercise of business judgment, but Street failed to perform adequately, it might give rise to breach of contract or excessive compensation claims that would subject Street to damages or disgorgement. In either case, the claims belong to Quigley although shareholders and creditors may have standing to assert them derivatively. While section 307 of the Bankruptcy Code grants the United States Trastee the right to appear and be heard on any issue (other than filing a plan under § 1121(c)), it does not authorize the United States Trustee to assert control over causes of action belonging to the Quigley estate.
Cf. In re Smart World Techs., LLC,
e. The Merits
Assuming that the Street Employment Motion is still ripe and the United States Trustee has standing to seek disgorgement on some theory, she has failed to sustain her burden of proof.
i. The Decision to Extend Street’s Employment
The decision to extend Street’s employment at half his current salary is entitled to the presumption that it was an appropriate exercise of business judgment. The decision served a legitimate business purpose; Quigley needed a president and chairman. The directors that approved the continuation of his employment were disinterested, and there was no evidence of their bad faith, self-interest, or gross negligence.
Moreover, the record amply supports Quigley’s decision to continue Street’s employment for another year. Street had already served as Quigley’s president and chairman for the preceding four years. The proposed extension, like the prior ones, was limited to one year, and paid Street 50% of his salary he received during the preceding four years. Hence, the 2007 Supplement did not commit Quigley to a long-term, expensive obligation, and actually represented a savings over past years. The directors had fully vetted the agreement at their July 2004 meeting, had received the advice of counsel, and were satisfied that Street’s continued pursuit of unrelated Impala business would not interfere with the performance of his duties with Quigley.
Street had shepherded Quigley through nearly three years under chapter 11. The Court had denied confirmation, and the Tabulation Ruling forced Quigley to develop a new plan. The record reflects that Quigley generated new versions of the disclosure statement on May 18, 2007(J23), June 7, 2007(J25), November 5, 2007(J38), and Street signed each new draft. The case was obviously at an active and critical stage, there was no evidence of dissatisfaction with Street’s services, and there was no reason to change horses mid-stream.
The United States Trustee contends that Quigley nevertheless failed to sustain
The issue was whether the proposed obligations were permissible under 11 U.S.C. § 503(e)(3) which precludes,
inter alia,
a debtor from paying money or incurring administrative obligations to insiders outside of the ordinary course of business that are “not justified by the facts or circumstances of the case.” The Court stated that in determining whether a proposed incentive plan is supported by “sound business judgment,” it must consider the structure of the proposal and the process through which it was developed.
Id.
at 576. The relevant factors, repeated by the United States Trustee in her post-trial brief,
(see UST Brief
¶ 122), include whether the plan bears a reasonable relationship to the results to be obtained, whether the cost of the plan is reasonable in light of the debtor’s assets, liabilities and earning potential, whether the plan applies to all employees, or alternatively, discriminates unfairly, whether the plan is consistent with industry standards, and whether the corporation exercised due diligence in determining the need for the plan, analyzing which key employees should be incentivized, what is available and what is generally applicable in the particular industry, and finally, whether the debtor received advice from independent counsel in performing due diligence and in creating and authorizing the incentive compensation.
Dana,
Dana is distinguishable, and does not govern the Street Employment Motion. The Dana court was interpreting a provision — § 503(c)(3) — enacted in 2005. Quig-ley’s case was filed prior to the enactment of BAPCPA, and § 503(c)(3) does not apply. Even if it did, the factors listed by the Dana court do not. The 2007 Supplement was not an incentive plan. It applied to one person; it ran for one year; it was limited to base salary. Dana does not require a corporation to proffer evidence of “industry standards, and whether, for example, executives at other claims-handling units are able to work part time” before extending the employment of the corporation’s current president for one year at 50% of his salary. 69 Finally, Street had been providing his services “part time” without complaint, so there was no need to canvass the industry to determine if comparable officers of comparable companies could or could not do their jobs on a part-time basis.
ii. Street’s Compensation During the Extended Period
As noted, the United States Trustee’s principal contention is that Street failed to perform competently after his contract was extended, and his compensation should be denied or limited. Following the Tabulation Ruling, Pfizer waived the 90% Subordination. The effect of the waiver was to dilute the recovery to the asbestos claimants and the Futures. The question was how much more Pfizer would
Quigley initially agreed with Pfizer that Pfizer should contribute $18 million in cash on the effective date. Street’s deposition testimony and trial testimony showed that he did not participate in the determination that $18 million was sufficient and did not make any inquiry before signing a draft disclosure statement that said it was. (Tr. 1001:16-20; 1002:4-15.) As a result of subsequent negotiations spearheaded by the FOR, Pfizer eventually agreed to increase its contribution by an additional $95 million. (Tr. 2164:13-2169:8 (Togut).)
Accepting the United States Trustee’s contention that Street failed to familiarize himself with the negotiations with Pfizer and agreed to a grossly inadequate contribution, she has not explained how this should affect Street’s compensation. Except for the Pfizer negotiations, the United States Trustee does not contend that Street failed to comply with the terms of his agreement. More importantly, the United States Trustee does not contend and has certainly not proved that Street’s actions or inactions injured Quigley or any other party in the case. Finally, the United States Trustee failed to supply any evidence of compensation paid to similarly-situated executives to support her excessive compensation claim.
The United States Trustee’s last point— that Quigley never sought an adjournment of the confirmation hearing after Street departed and Quigley lost his experience— is frivolous. Kim Jenkins succeeded Street. She had run the CHU for years, and participated extensively in the bankruptcy. In fact, she signed the Fourth Plan and Disclosure Statement, both dated March 28, 2008, in her capacity of Senior Vice President. 70 (See J42 at 120; J43 at 61.) Quigley obviously planned for Street’s succession, and that hardly provides a reason to conclude that he did not earn his pay, or that the decision to hire him in the first place was wrong.
Accordingly, the Court overrules the United States Trustee’s objections to the Street Employment Motion.
CONCLUSION
To recapitulate, Quigley’s motion to confirm the Fourth Plan is denied, Quigley’s motion to strike portions of Shaked’s testimony, related exhibits and report is granted in part and denied in part, the Sealing Motion is denied and the United States Trustee’s objection to the Street Employment Motion is overruled. The foregoing constitutes the Court’s findings of fact and conclusions of law. Counsel are directed to schedule a conference to address the dismissal or other disposition of this case. Settle order on notice.
Notes
. The following conventions are used in citing to the trial record. The compiled transcript is
. Quigley stopped manufacturing asbestos-containing products in 1973 or early 1974. (Tr. 1407:2-9 (Kilian).)
. The Wellington Agreement is described in
Continental Cas. Co. v. Pfizer, Inc. (In re Quigley Co.),
. Daniel Rourke, the AHC's valuation expert, estimated that the Non-Settling Claimants' claims are worth $1,525 billion. (Tr. 2330:14-20, 2332:9-24 (Rourke); A4547 at 39 ("Rourke Report").) Rourke used the firm-by-firm historic settlement mean, by disease, for some firms — Peter G. Angelos, Cooney & Conway, and Weitz & Luxenberg — and the mean, by disease, across all non-settling firms for the rest. (Tr. 2332:9-24 (Rourke); Rourke Report at 37.) Rourke did not, however, apply a qualification rate to the outstanding claims, an unreasonable assumption that renders his figure inaccurate.
. As a precondition to the First Payments, the Pfizer Settlement Agreements required Settling Claimants to relinquish all asbestos personal injury claims against Pfizer. (See P3003 § 4.1(f).)
. This exception was based on the requirement that at least 75% of asbestos personal injury creditors who vote must accept the plan. See 11 U.S.C. § 524(g)(2)(B)(ii)(IV)(bb). It appeared in sixty-seven of the executed Pfizer Settlement Agreements (representing 176,551 claims and $414,476,234 in settlement payments). (J467-J479, J481-J532, J534, J536 (§ 4.3)). Thirty-nine of these included a qualification: “In that event, all parties shall be returned to their respective positions as existed prior to the execution of this Settlement Agreement.’’ (J467, J468, J471, J474, J476, J478, J479, J482-84, J486-88, J491-94, J496, J501, J504-08, J511, J512, J515-18, J521-25, J527, J529-31 (§ 4.3).)
. Any delay in the First Payment beyond December 31, 2005 under the prepetition settlements was presumably due to the qualification process, i.e., the submission of evidence to and review of that evidence by Pfizer.
. This clause appeared in twenty-seven of the Pfizer Settlement Agreements, representing 145,268 claims and $407,826,741 in settle
. Many Settling Law Firms did not agree to this provision as initially drafted, (Rozen, Tr. 2050:2-20), and the language was modified in forty of the Pfizer Settlement Agreements: "Consistent with its determination that this agreement is in its best interest of the covered plaintiffs, plaintiffs' counsel will not take action to undermine Pfizer and Quigley's efforts to timely and successfully prosecute Quigley’s chapter 11 case.” (See J467, J468, J471, J474, J476, J478-80, J482-84, J486-88, J491-94, J496, J501, J504-08, J511, J512, J515-18, J521-25, J527, J529-31 § 3.3(c) (replacing Section 3.3(d) of the Form PSA).) Three other Pfizer Settlement Agreements contained variations on the original language of the provision. (See J469, J502, J519 § 3.3(c).) The parties deleted the provision entirely from twenty-six of the Pfizer Settlement Agreements.
. This provision appeared in twenty-four of the executed Pfizer Settlement Agreements, representing 121,316 claims and $308,981,150 in settlement payments. Forty-two of the executed Pfizer Settlement Agreements, representing 56,352 claims and $115,343,084 in settlement payments, limit this provision (i) through December 1, 2005, or (ii) if Pfizer makes the 50% payment pursuant to Section 4.2(b) then through the pen-dency of the bankruptcy. (J467-69, J471, J474, J476, J478, J479, J482-84, J486-88, J491-94, J496, J501, J502, J504-08, J511, J512, J515-19, J521-25, J527, J529-31.)
.This provision appeared in twenty-seven executed Pfizer Settlement Agreements (representing 131,430 claims and $327,239,157 in settlement payments.) (J470, J472, J473, J475, J477, J481, J485, J536, J489, J490, J495, J497-500, J503, J509, J510, J513, J514, J520, J526, J528, J532, J533-35 § 6.1 (Settlement Agreements).) Thirty-nine of the executed Pfizer Settlement Agreements (representing 43,394 claims and $54,555,500 in settlement payments) had a slightly varied provision, which required each Settling Plaintiff to support the imposition and continuation of the automatic stay for the benefit of Quigley and the Pfizer Protected Parties through December 1, 2005 (or the pendency of the bankruptcy if the fifty percent (50%) payment of the Settlement Amount is made pursuant to Section 4.2(b)). (J467, J468, J471, J474, J476, J478, J479, J482-84, J486-88, J491-94, J496, J501, J504-08, J511, J512, J515-18, J521-25, J527, J529-31 § 6. 1.)
. The 90% Subordination provision appeared in sixty-eight of the executed Pfizer Settlement Agreements (representing 177,431 claims and $434,276,234 in settlement payments.) (See J467-532, J534, J536.) Only those Pfizer Settlement Agreements executed in 2008 after Pfizer waived the 90% Subordination Provision did not contain the 90% Subordination Provision. (J533, J535.)
. Quigley simultaneously sought a preliminary injunction with respect to all claims against Pfizer in order to protect Quigley's and Pfizer's shared insurance. The Bankruptcy Court granted the preliminary injunction, and the District Court affirmed.
Quigley Company, Inc. v. A.C. Coleman, et al. (In re Quigley Company, Inc.),
.Motion of Quigley Company, Inc. For an Order: (I) Approving Quigley's Disclosure Statement; (II) Approving Solicitation Procedures, Forms of Ballots, and Manner of Notice; (III) Estimating Each Asbestos PI Claim at $1.00 Solely for Voting Purposes and (IV) Fixing Date, Time and Place for Confirming Hearing and Deadline for Filing Objections Thereto, dated Aug. 17, 2005. (ECF Doc. #421.)
. This example is illustrative only. The AHC actually advocated the use of historical settlement values rather than the TDP values, but the Court rejected the argument.
. (Liquidation Analysis at 2.)
. Id.
. Id.
. Tr. 226:5-227:4 (Berland). This estimate is highly speculative. The Fifth Disclosure Statement states that "[rjecovery under policies issued by insolvent insurers is subject to the uncertainties that result from each of insolvent insurers’ respective liquidation proceedings or foreign scheme of arrangement, and therefore it is not possible to predict any additional amounts that may ultimately be recovered.” (Fifth Disclosure Statement at 23.)
. Quigley is also making a contribution entitled "Excess Cash.” The parties did not analyze the value of the contribution.
. The Fourth Plan defines “Asbestos Protected Party” as any Quigley Person, Reorganized Quigley, and any Pfizer Protected Party and any other Entity that is directly or indirectly liable for Quigley's conduct under 11 U.S.C. § 524(g)(4)(A). See (Fourth Plan at 6); 11 U.S.C. § 524(g)(4)(A). "Pfizer Protected Party” means "(a) Pfizer; (b) Pfizer’s Affiliates (other than Quigley) ...; and (c) Mineral Technologies Inc.” (Fourth Plan at 15.)
. This expectation seems realistic. Quigley has already processed and paid over 155,000 of the approximate 175,000 claims settled through the Pfizer Settlement Agreements. (Tr. 1468:24-1469:3 (Jenkins).) If the Plan is confirmed, Pfizer will receive a release of any derivative liability for the claims against Quig-ley, and those claims will be channeled to the Trust. Hence, there will be few if any Pfizer claims left to process.
. Notice of Presentment By Quigley Company, Inc. Of Order: (I) Approving Quigley's Disclosure Statement; (II) Approving First Amended Ballot Solicitation and Tabulation Procedures, Forms of Ballots and Manner of Notice; (III) Estimating Each Asbestos PI Claim Solely for Voting Purposes Using Amounts Set Forth in the Asbestos PI Trust Distribution Procedures; and (TV) Fixing Date, Time and Place for Confirmation Hearing and Deadline for Filing Objections Thereto, dated Nov. 7, 2007 (ECF Doc. # 1261). The proposed individual and master ballots were attached to the Proposed Order as Exhibits D and E, respectively.
. The Court approved the Master Ballots because Quigley only maintained address information for and communicated through counsel, nor could it obtain the information "within any reasonable time frame or in any cost effective manner." (J62 at 16.)
. The Tabulation Agent invalidated 7,665 of these ballots. (BMC Declaration, Ex. C-2.)
. The AHC and the United States Trustee raised many of the same objections. For sake of brevity, this opinion refers to the objections by the AHC but is intended to include the objections by both parties.
. In its response, Pfizer cross-moved to designate the votes of the AHC law firms' claimants because their votes were not based on plan treatment but on the desire to extract hold-up value from Pfizer. (Pfizer’s Response to Motion of the Ad Hoc Committee of Tort Victims to Designate Votes Pursuant to 11 U.S.C. § 1126(e) and Pfizer’s Cross-Motion to Designate Votes of Claimants Represented by the Ad Hoc Committee of Tort Victims, dated May 29, 2009 (ECF Doc. #1814) ("Pfizer Designation Response ").) Quigley joined in Pfizer’s response. (Response of Quigley Company, Inc. to Motion of Ad Hoc Committee of Tort Lawyers [sic] for Designation of Votes Under 11 U.S.C. § 1126(e), with Joinder in Cross-Motion of Pfizer Inc. to Designate Votes Under 11 U.S.C. § 1126(e) of Claimants Represented by Ad Hoc Committee of Tort Lawyers [sic], dated May 29, 2009 (ECF Doc. # 1815) ("Quigley Designation Response ”).)
. Motion of Baron & Budd, P.C. Pursuant to Section 107 of the Bankruptcy Code and Federal Rule of Bankmptcy Procedure 9018 to Seal Certain Settlement Agreements, dated December 21, 2010 ("Sealing Motion "). (ECF Doc. # 1992).
. The Settling Law Firms that joined the Sealing Motion include, Stutzman Bromberg, the David Law Firm, Motley Rice, Thornton Naumes, Provost Umphrey, Foster & Sear, Lipsitz & Ponterio, and Goldberg, Persky & White. Early, Ludwick, Sweeney & Strauss also joined but after the filing deadline.
.Motion of Quigley Company, Inc. for Order under Fed. R. Bankr.P. 7026(e)(1) and (2), 7037(c)(1), 9014(c), and FRE 802 Partially Excluding Testimony, Illustrative Exhibits, and Expert Report of Doctor Israel Shaked, dated Jan. 5, 2010 (ECF Doc. #2004). The AHC responded. (Objection of the Ad Hoc Committee of Tort Victims to Motion of Quigley Company, Inc., for Order under Fed. R. Bankr.P. 7026(e)(1) and (2), 7037(c)(1), 9014(c), and FRE 802 Partially Excluding Testimony, Illustrative Exhibits, and Expert Report of Doctor Israel Shaked, dated Jan. 21, 2010 (ECF Doc. # 2025).)
. As some of cited cases suggest, vote manipulation and gerrymandering are often viewed as improper forms of artificial impairment as well as bad faith. Section 1129(a)(10) requires the Debtor to show that "at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider.” A claim is not impaired if the plan “leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest” or if the plan cures or compensates for past default. 11 U.S.C. § 1124. The purpose of § 1129(a)(10) is to "provide some indicia of support by affected creditors and prevent confirmation where such support is lacking.”
Combustion Eng’g,
There is a split among the authorities as to whether the creation of an artificially impaired accepting class violates § 1129(a)(10) or, instead, is a species of lack of good faith under § 1129(a)(3).
Compare In re L & J Anaheim Assocs.,
The Second Circuit has not ruled on the issue. Because the Court concludes that the voting manipulation in this case constituted bad faith under § 1129(a)(3), it does not address whether the same conduct is also prohibited under § 1129(a)(10).
. In any event, Quigley acquiesced in if not actively embraced Pfizer's actions in connection with the prosecution of its chapter 11 case, and Pfizer’s bad faith may be attributed to Quigley as well.
. The directors' testimony implies that Pfizer, not Quigley, determined the timing of the commencement of the chapter 11 case. By August 31, 2004, Pfizer had settled approximately 175,000 claims, or roughly 83% of the 212,000 claims pending against Quigley as of the Petition Date. The case was commenced three days later. Given the Settling Claimants’ financial stake in confirmation of any plan, Pfizer had good reason to believe that it had enough votes by late August or early September to be confident that a Quigley plan would be accepted by 75% of the Asbestos PI Claimants in Class 4 as required under § 524(g).
.Pfizer and Quigley contend that the 90% Subordination is irrelevant, and I should not consider it, because it is not part of the Fourth Plan.
See In re Nielsen,
. According to the voting results of the Fourth Plan, Claimants with asbestosis/pleural disease cast 222,503 votes out of a total vote of 261,790. (BMC Declaration, Ex. B.) This represents 85% of all of the votes cast.
. The TDP under the Fourth Plan reordered the levels, scheduling Level I at $2,000.00 and Level II at $5,000. (Fourth Plan, Ex. B at 18-19.) The de minimis distribution threshold was dropped from the TDP attached to the Fourth Plan.
.See Motion of the Ad Hoc Committee of Tort Victims to Designate Votes Pursuant to 11 U.S.C. § 1126(e), dated May 1, 2009 (ECF Doc. # 1800).
. See Pfizer Designation Response.
. See Quigley Designation Response.
. AHC argues and Pfizer appears to acknowledge that it is improper for the debtor's insider to purchase claims in order to vote for acceptance of the plan. (See Post-Trial Brief of the Ad Hoc Committee of Tort Victims in Opposition to the Quigley Company, Inc. Fourth Amended and Restated Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as Modified as of March 28.2008), dated Jan. 27, 2010, at 24 ("AHC Brief”) ("Courts have also found bad faith where insiders pay claimants in order to secure the votes necessary for approval of a debtor’s plan).”); Pfizer Reply, at 12 (distinguishing the AHC’s authorities on the basis that "Pfizer did not purchase or vote any other creditors' claims, and consequently, these cases have no relevance here”).
Pfizer could not have purchased the Settling Claimants' claims as many if not all jurisdictions prohibit the assignment of personal injury claims.
See
6A C.J.S.
Assignments
§ 54 (2010) ("Although in at least one state all causes of action, including personal injury actions, are assignable in the absence of a statutory bar, in most jurisdictions, an unliquidated cause of action to recover for personal injuries may not be assigned, unless the assignment of such a cause of action is authorized by statute.”) (citations omitted); 6 Am. Jur. 2D
Assignments
§ 55 ("A right of action for a tort that causes a strictly personal injury, and that does not survive the death of the person injured, is not assignable.”) (citations omitted). Moreover, its insider votes would not have counted under 11 U.S.C. § 1129(a)(10). See
In re Applegate Prop., Ltd.,
. The Settling Claimants, or at least those that received the First Payment, have already waived all direct and derivative claims against the Pfizer Protected Parties without regard to confirmation.
. The AHC contends that the Court should also consider Pfizer's ability to pay more, citing
In re Congoleum Corp.,
Pfizer, for its part, analogizes the fair and equitable requirement to a consensual settlement in this case because it "is the result of intensive negotiations between Pfizer, Quigley and [Togut],”
Pfizer Brief
at 14, and contends that the Court should apply the same standard that governs the approval of settlements. In the Second Circuit, the court must determine that a settlement does not fall "below the lowest point in the range of reasonableness.”
Cosoff v. Rodman (In re W.T. Grant Co.),
. At the onset of the case, Quigley sought a preliminary injunction to prevent plaintiffs from suing Pfizer and dissipating the remaining shared insurance. It represented that virtually all of the claims against Pfizer were based on Quigley products, (Reply In Support Of Quigley Company, Inc. Motion For Order Under 11 U.S.C. §§ 105(A) And 362(A) And Fed. R. Bankr.P. 7065 Confirming Application Of Automatic Stay And Granting Preliminary Injunction, dated Nov. 27, 2004, at 11 (Adv. Proc. No. 04-4262, ECF Doc. # 48)), and only “some miniscule portion ... may be based on exposure to Pfizer products.’’ (Id. at 12.)
. Berland testified that some portion of the 23% consisted of non-asbestos liability. (Tr.
. Berland testified that Pfizer has between $125 million and $130 million in non-asbestos liability claims that are ready to be billed against available joint insurance. (Tr. 2708:7-14.) He implied that this amount should be deducted from available joint insurance before allocating the balance. I reject the implication. Berland did not provide any detail, and the experts may have already taken these claims into account in computing Pfizer's contribution to the Trust. Of the $81 million in Pfizer-only coverage under the AIG Annuity that all sides agree is not being contributed to the Trust, $75 million relates to Pfizer-only products liability coverage. (P3000 at 3.) In addition, Pfizer's expert, Dr. Snow, never suggested that Pfizer could immediately bill an additional $125 million to
. Shaked also applied his Congoleum theory inconsistently. Like Pfizer, Quigley should not receive any allocation of the shared insurance because the Fourth Plan will also free Quigley from all present and future asbestos liabilities.
. At trial, Shaked lowered his estimate to $3.8 million for the Reorganized Quigley stock. (See Tr. 2620:8-14.) In the absence of a supplemental report and an adequate explanation for the change, I do not credit the testimony.
. Pinal Order: (I) Authorizing Postpetition Financing; (II) Granting Security Interests and Superpriority Administrative Expense Status; (III) Authorizing Quigley Company, Inc. to Enter into Financing Agreements; (TV) Further Authorizing the Use Of Cash Collateral; (V) Granting Replacement Liens and Rights to Adequate Protection; and (VI) Modifying the Automatic Stay, dated Sept. 27, 2004. (ECF Doc. # 69).
. See 140 Cong. Rec. S4521-01, S4523 (Apr. 20, 1994) (statement of Senator Heflin) (''[W]hen an asbestos-producing company goes into bankruptcy and is faced with present and future asbestos-related claims, the bankruptcy court can set up a trust to pay the victims. The underlying company funds the trust with securities and the company remains viable. Thus, the company continues to generate assets to pay claims today and into the future. In essence, the reorganized company becomes the goose that lays the golden egg by remaining a viable operation and maximizing the trust's assets to pay claims.”) (footnote 69 in original).
. Here, the Fourth Plan states that the Trust will terminate ninety days after either (1) the Trustees decide to terminate the Trust because they deem it unlikely that any new asbestos claims will be filed and the Trust has paid all outstanding claims; (2) the Trustees create an agreement with third parties adequate to discharge all expected remaining obligations and expenses and the Court approves; (3) or, if any rule against perpetuities applies to the Trust, twenty-one years less ninety-one days after the death of the last survivor of all currently living descendants of the late Joseph P. Kennedy, Sr. of Massachusetts, father of the late President John F. Kennedy. (Fourth Plan at 21.) Rabinovitz predicted that new claims would continue to be filed until 2052. (Fifth Disclosure Statement, Ex. I at 3-4.)
. During the same period, Quigley will be processing claims for the Trust. No evidence suggested that this presented the opportunity for a viable standalone business.
. The one exception was American Optical. Quigley processed 4600 claims for American Optical between December 2004 and the middle of 2005, and was paid by Pfizer. (Tr. 1469:8-21.)
.Jenkins originally testified that post-confirmation, Quigley intends to process only asbestos claims. (Tr. 1574:22-24.) She subsequently testified that Quigley would seek non-asbestos work as well. (Tr. 2271:1-4.) My analysis and conclusions do not change because there is no evidence of a viable market in handling non-asbestos claims.
. Scott Ratner, Esq., one of Togut’s lawyers, expressed similar concerns. In a March 29, 2007 email to Pfizer attorney Deborah Greenspan, Esq., he questioned why the Trust did not outsource the claims processing function to a third-party processor rather than retain Quigley. He believed that it would be objectively cheaper from the Trust's perspective and would remove substantial uncertainties regarding possible operating losses at the Quigley level that the Trust will have to subsidize as the owner of Reorganized Quigley. (A4047a.) He suggested the only reason for the proposed claims handling business was that "Reorganized Quigley must have some business when it emerges from Chapter 11 so as to enable Pfizer to benefit from [a] channeling injunction issued pursuant to section 524(g).” (Id.)
. He retreated from this position at trial, testifying that the market had changed during the ensuing three years. He nevertheless conceded that the prospects for new business were still "uncertain,” and he "couldn’t be sure.” (Tr. 980:22-981:5.) His opinion changed because single-company asbestos trusts that had initially sought to branch out and do third-party claims work were considering outsourcing their own work rather than trying to find new work. (Tr. 981:6-982:1.) The withdrawal from the claims handling business and the decision to outsource also implies that the market has dried up and the cost of doing one’s own claims handling is uneconomical.
. On remand, the bankruptcy court ruled that the plan was not feasible and did not address the "best interest” question.
See In re Milford Conn. Assocs., L.P.,
No. 04-30511(ASD),
. Section 1325(a)(4) states in relevant part that “the court shall confirm a plan if ... the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date.”
. According to the AHC, "[ajfter years of telling this Court that the settlement payments would be paid only from Pfizer assets, Pfizer now asserts that virtually all of the shared insurance should be considered Pfizer's contribution because Pfizer could, but did not, reimburse itself from the insurance assets for the settlement payments.” (Pfizer Brief at 60.) Both statements are correct, but not inconsistent. Pfizer did not and will not seek reimbursement from the shared insurance for the settlement payments, notwithstanding Pfizer's ownership of the policies and right to payment under them. Nevertheless, it is entitled to credit for its insurance contribution under the "fair and equitable” test for the reasons stated in the preceding text.
. The AHC’s contrary authorities are distinguishable. In
Allegheny Int’l,
In re CGE Shattuck, LLC,
The Pfizer Settlement Agreements are not de facto plans but private settlements between Pfizer and groups of asbestos claimants. If Pfizer had not made the Second Payment dependent on the confirmation of a Quigley plan, and even if the Settling Claimants had released Quigley, the Pfizer Settlement Agreements would nevertheless have caused the same "unequal treatment" of which the AHC complains; the Settling Claimants are receiving more from Pfizer than the Non-Settling Claimants are receiving under the Fourth Plan. But creditors frequently enter into settlements with co-obligors, and, in the end, may receive more than similarly situated creditors under a plan. Absent bad faith, vote manipulation, or similar wrongful conduct, these settlements do not violate the confirmation requirements.
. Tr. 2543:18-20, 2544:10-2545:14, 2553:14-18, 21-2554:2, 2554:14-2555:4, 2555:13-2556:23, 2557:10-13, 2562:25-2564:5, 2565:12-2567:10, 2569:4-11, 2569:20-2570:7, 2620:8-2621:4, 2642:16-2643:13; Shaked Slides at 6-8, 10-14A, 16, 26.
. The AHC’s reliance on
Highland Capital Management, L.P. v. Schneider,
. Even if the liquidation analysis were not excluded, it would not be entitled to weight. Shaked ascribed a liquidation value of roughly $4.2 million to the claims that the Non-Settling Claimants and Futures would retain against Pfizer. In other words, he assumed that Pfizer is 100% liable for Quigley’s products. As discussed in the preceding text, the Court valued Pfizer’s liability at 23% of the historic settlement value of the asbestos claims.
. Rule 408 (Compromise and Offers of Compromise) provides:
(a) Prohibited uses. — Evidence of the following is not admissible on behalf of any party, when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction:
(1) furnishing or offering or promising to furnish — or accepting or offering or promising to accept — a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or statements made in compromise negotiations regarding the claim, except when offered in a criminal case and the negotiations related to a claim by a public office or agency in the exercise of regulatory, investigative, or enforcement authority.
(b) Permitted uses. — This rule does not require exclusion if the evidence is offered for purposes not prohibited by subdivision (a). Examples of permissible purposes include proving a witness’s bias or prejudice; negating a contention of undue delay; and proving an effort to obstruct a criminal investigation or prosecution.
. See Objection of the United States Trustee to Motions to Seal Certain Settlement Agreements, dated Jan. 13, 2010 (ECF Doc. # 2014); Omnibus Objection of the Ad Hoc Committee of Tort Victims to (I) Motion to Exclude Settlement Information of Maritime Claimants Settlement Agreements, (II) Motion of Baron & Budd, P.C. Pursuant to Section 107 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 9018 to Seal Certain Settlement Agreements, and (III) Objection to Presentation of Settlement Information By the Clients of the Law Offices of Peter T. Nicholl, dated Jan. 13, 2010 (ECF Doc. # 2015.)
. The original agreement was between Quig-ley and Impala Partners LLC, Street’s company. (J220, Ex. A.) Subsequent agreements were directly between Quigley and Street.
. The AHC’s post-trial submissions do not address the Street Employment Motion, and I deem its objection abandoned.
. The “Tabulation Ruling” refers to the Court's decision reducing the effect of the vote of the Settling Claimants by virtue of the 90% Subordination.
. I do not mean to suggest that an order was necessary. The Street Employment Motion sought Court authorization to continue to employ Street at half of his salary for another year. His employment had been extended for one year on the same terms in 2005 and 2006. His continued employment under the same terms for less money for another year was an ordinary course transaction and did not require a motion under § 363.
E.g., In re Crystal Apparel, Inc.,
. The argument implies that Quigley was simply a claims handling unit. It ignores the fact that it was also a chapter 11 debtor that had to deal with a variety of constituencies while attempting to confirm a plan over the increasing opposition of the United States Trustee, the AHC and the insurers.
. Street’s resignation became effective two days later.