2012 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-25-2012

In Re: American Capital, et al

Precedential or Non-Precedential: Precedential

Docket No. 10-2239

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Recommended Citation

"In Re: American Capital, et al " (2012). 2012 Decisions. Paper 612.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

Nos. 10-2239 and 10-2240

______

In re: AMERICAN CAPITAL EQUIPMENT, LLC AND

SKINNER ENGINE COMPANIES, INC., 

Debtors – Appellants, No. 10-2239

______

In re: AMERICAN CAPITAL EQUIPMENT, LLC AND

SKINNER ENGINE COMPANIES, INC.,

Debtors

WILLARD E. BARTEL,

Appellant, No. 10-2240

______

On Appeal from the United States District Court

for the Western District of Pennsylvania

(D.C. Nos. 2-09-cv-00886 and 2-09-cv-00887)

District Judge: Honorable Gary L. Lancaster

______

Argued October 25, 2011

Before: FISHER, VANASKIE and ROTH, Circuit Judges.
2

(Filed: July 25, 2012)

Robert M. Horkovich (Argued)

Anderson, Kill & Olick

1251 Avenue of the Americas, 42-154W

New York, NY 10020

Sally E. Edison

McGuireWoods

625 Liberty Avenue

23rd Floor, Dominion Tower

Pittsburgh, PA 15222

Counsel for American Capital

Equipment, LLC, and Skinner

Engine Companies, Inc.

Robert A. Arcovio

Kyle T. McGee

Margolis Edelstein

525 William Penn Place, Suite 3300

Pittsburgh, PA 15219

Michael A. Kotula

Lawrence A. Levy

Rivkin Radler

926 Rexcorp Plaza

Uniondale, NY 11556-0111

Counsel for Allianz Global Risks

John W. Burns
3

Dickie, McCamey & Chilcote

Two PPG Place, Suite 400

Pittsburgh, PA 15222

Leslie A. Davis

Leslie A. Epley

Mark D. Plevin

Crowell & Moring

1001 Pennsylvania Avenue, N.W.

Washington, DC 20004-2505

Counsel for Century Indemnity Co.

and Pacific Employers Ins. Co.

David C. Christian

Jason J. DeJonker

Seyfarth Shaw

131 South Dearborn Street, Suite 2400

Chicago, IL 60603

Cushing O. Condon

Andrew I. Mandelbaum

Ford, Marrin, Esposito, Witmeyer & Gleser

88 Pine Street

23rd Floor, Wall Street Plaza

New York, NY 10005

David K. Rudov

Rudov & Stein

100 First Avenue

First & Market Building, Suite 500

Pittsburgh, PA 15222
4

Counsel for Continental Casualty Co.

and Continental Insurance Co.

Erik Sobkiewicz

Campbell & Levine

330 Grant Street

1700 Grant Building

Pittsburgh, PA 15219

Zakarij O. Thomas

Buchanan Ingersoll & Rooney

301 Grant Street

One Oxford Centre, 20th Floor

Pittsburgh, PA 15219

Counsel for Fairchild Corp.

Peter B. Ackerman

Crowell & Moring

1001 Pennsylvania Avenue, N.W.

Washington, DC 20004-2505

Jeff D. Kahane

Russell W. Roten

Duane Morris

865 South Figueroa Street, Suite 3100

Los Angeles, CA 90017

Jeffrey W. Spear

Joel M. Walker

Duane Morris

600 Grant Street, Suite 5010
5

Pittsburgh, PA 15219

Counsel for Great American Ins. Co.

Steven Bennett

Craig Goldblatt

Caroline Rogus

Danielle M. Spinelli (Argued)

Wilmer Cutler Pickering Hale & Dorr

1875 Pennsylvania Avenue, N.W.

Washington, DC 20006

Timothy K. Lewis

Eric T. Smith

Paul H. Titus

Robert J. Williams

Schnader Harrison Segal & Lewis

120 Fifth Avenue

2700 Fifth Avenue Place

Pittsburgh, PA 15222

James P. Ruggeri

Shipman & Goodwin

1133 Connecticut Avenue, N.W.

3rd Floor, Suite A

Washington, DC 20036

Sambhav N. Sankar

United States Department of Justice

Environment & Natural Resources Division

P.O. Box 23795

L'Enfant Plaza Station
6

Washington, DC 20026

Counsel for Hartford Accident &

Indemnity Co. and First State Ins. Co.

Greg Bernhard

Michael S. Davis

Yoav M. Griver

Zeichner, Ellman & Krause

575 Lexington Avenue

New York, NY 10022

Beverly W. Manne

Tucker Arensberg

1500 One PPG Place

Pittsburgh, PA 15222

Michael A. Shiner

Tucker Arensberg

1500 One PPG Place

Pittsburgh, PA 15222

Counsel for National Union

Fire Ins. Co. of Pittsburgh, PA

Kimberly A. Coleman

John M. Steiner

Leech, Tishman, Fuscaldo & Lampl

525 William Penn Place

30th Floor, Citizens Bank Building

Pittsburgh, PA 15219

Counsel for the Official Committee

of Unsecured Creditors
7

Elisa Alcabes

Andrew S. Amer (Argued)

Katherine A. McLendon

Simpson, Thacher & Bartlett

425 Lexington Avenue

New York, NY 10017

Joseph G. Gibbons

Amy E. Vulpio

White & Williams

Two Logan Square

12th Floor, 18th & Arch Streets

Philadelphia, PA 19103

Leonard P. Goldberger

WolfBlock

1650 Arch Street, 22nd Floor

Philadelphia, PA 19103

Mark A. Martini

Dennis J. Mulvihill

Robb, Leonard & Mulvihill

500 Grant Street

BNY Mellon Center, 23rd Floor

Pittsburgh, PA 15219

Counsel for Travelers Casualty

& Surety Co.

Robert A. Arcovio

Kyle T. McGee
8

Margolis Edelstein

525 William Penn Place, Suite 3300

Pittsburgh, PA 15219

Leslie A. Epley

Mark D. Plevin

Crowell & Moring

1001 Pennsylvania Avenue, N.W.

Washington, DC 20004-2505

Michael A. Kotula

Lawrence A. Levy

Rivkin Radler

926 Rexcorp Plaza

Uniondale, NY 11556-0111

Counsel for Firemans Fund Ins.

Co. of Ohio

Alan S. Miller

Picadio, Sneath, Miller & Norton

600 Grant Street

4710 U.S. Steel Tower

Pittsburgh, PA 15219

Robert B. Millner

SNR Denton US

233 South Wacker Drive

8000 Sears Tower

Chicago, IL 60606

Counsel for Liberty Mutual Ins. Co.
9

Douglas A. Campbell

Erik Sobkiewicz

Campbell & Levine

330 Grant Street

1700 Grant Building

Pittsburgh, PA 15219

Alan Kellman (Argued)

The Jaques Admiralty Law Firm

645 Griswold, Suite 1370

Detroit, MI 48226

Counsel for Willard E. Bartel

Craig Goldblatt

Danielle M. Spinelli (Argued)

Wilmer Cutler Pickering Hale & Dorr

1875 Pennsylvania Avenue, N.W.

Washington, DC 20006

Robert J. Williams

Schnader Harrison Segal & Lewis

120 Fifth Avenue

2700 Fifth Avenue Place

Pittsburgh, PA 15222

Counsel for Hartford Fire Ins. Co.

Robert S. Bernstein

Bernstein Law Firm

707 Grant Street

Suite 2200, Gulf Tower

Pittsburgh, PA 15219
10

Counsel for Legal Representative for

Future Asbestos Claimants

Erik Sobkiewicz

Campbell & Levine

330 Grant Street

1700 Grant Building

Pittsburgh, PA 15219

Counsel for Maritime Asbestosis

Legal Clinic

Joseph M. Fornari, Jr.

United States Department of Justice

Office of the Trustee

1001 Liberty Avenue

970 Liberty Center

Pittsburgh, PA 15222

Counsel for U.S. Trustee

Jeffrey J. Sikirica

121 Northbrook Drive

Gibsonia, PA 15044

Counsel for Interim Chapter 7

Trustee and Jeffrey J. Sikirica

Laura A. Foggan

Wiley Rein

1776 K Street, N.W.

Washington, DC 20006

Counsel for Complex Insurance

Claims Litigation Association
11

______

OPINION OF THE COURT

______

FISHER, Circuit Judge.

American Capital Equipment, Inc. and Skinner Engine 

Company (collectively, “Skinner”), the debtors in this case, 

appeal from the District Court‟s order affirming the 

Bankruptcy Court‟s order, which converted Skinner‟s Chapter 

11 bankruptcy case to a Chapter 7 on the basis that its plan is 

patently unconfirmable. Joining its appeal is Willard Bartel

(“Bartel”), representative for the estate of an asbestos 

claimant. Appellees are insurers (Travelers Casualty and 

Surety Company, Allianz Global Risks, Century Indemnity 

Co., Pacific Employers Insurance Co., Continental Casualty 

Co., Cont. Ins. Co., Fairchild Corp., Great American Ins. Co., 

Hartford Accident & Indemnity Co., First State Ins. Co., Nat‟l 

Union Fire Ins. Co. of Pittsburgh, Pa., Official Committee of 

Unsecured Creditors, Firemans Fund Ins. Co. of OH, Liberty

Mut‟l Ins. Co., Hartford Fire Ins. Co.) (collectively, 

“Insurers”), the legal representative for future asbestos 

claimants, the Maritime Asbestosis Legal Clinic, and the 

Interim Chapter 7 Trustee, Jeffrey J. Sikirica.

The issue before us is whether a bankruptcy court can 

determine at the disclosure statement stage that a Chapter 11 

plan is unconfirmable without first holding a confirmation 

hearing. We hold that a bankruptcy court has the authority to 

do so if it is obvious that the plan is patently unconfirmable, 

such that no dispute of material fact remains and defects 
12

cannot be cured by creditor voting. Additionally, we find that 

the plan in this case was patently unconfirmable, and that the 

Bankruptcy Court did not err in converting the case to 

Chapter 7. Accordingly, we will affirm.

I.

Skinner was founded in 1868 as a manufacturer of 

steam engines for merchant ships. From the 1930s through 

the 1970s, Skinner manufactured ship engines and parts 

allegedly containing asbestos. In 1998, American Capital 

Equipment, LLC acquired all of Skinner‟s common stock, 

and secured a lien on Skinner‟s assets from PNC Bank to 

finance the purchase. Based on Skinner‟s lack of cash flow to 

maintain operations or service its secured debt, Skinner and 

American Capital each filed petitions for bankruptcy relief 

under Chapter 11 in 2001.

The Asbestos Claims

At the time that Skinner and American Capital filed for 

bankruptcy, over 29,000 asbestos claims were pending 

against Skinner. Merchant mariners began bringing personal

injury claims against Skinner in the 1980s. The claims fell 

within federal admiralty jurisdiction, so they were assigned to 

a special maritime docket entitled “MARDOC.” In 1991, the 

MARDOC cases were consolidated with cases from 87 other 

judicial districts by the Judicial Panel on Multidistrict 

Litigation in the Eastern District of Pennsylvania (the “MDL 

Court”). In re Asbestos Prods. Liab. Litig. (No. VI), 771 F. 

Supp. 415, 416-17 (J.P.M.L. 1991). In May 1996, the MDL 

Court administratively dismissed the remaining MARDOC 
13

claims without prejudice, noting that the claimants had 

“provide[d] no real medical or exposure history,” and had 

been unable to do so for months. In re Asbestos Prods. Liab. 

Litig. (No. VI), No. 2 MDL 875, 1996 WL 239863, at *1-2 

(E.D. Pa. May 2, 1996). It also ordered that these 

“asymptomatic cases” could be activated if the respective 

plaintiffs began to suffer from an impairment and could show 

(1) “satisfactory evidence [of] an asbestos-related personal 

injury compensable under the law”; and (2) “probative 

evidence of exposure” to defendant‟s products. Id. at *5. In 

2002, the MDL Court ordered that administratively dismissed 

cases remain active for certain purposes (e.g., entertaining 

settlement motions and orders, motions for amendment to the 

pleadings, etc.), and in 2003, clarified that the administrative 

dismissals were “not intended to provide a basis for excluding 

the MARDOC claimants from participating in settlement 

programs or prepackaged bankruptcy programs[.]” In re Am. 

Capital Equip., 296 F. App‟x 270, 272 (3d Cir. 2008)

(quoting In re Asbestos Prods. Liab. Litig. (No. VI), Order 

Granting Relief to MARDOC Claimants with Regard to 

Combustion Eng’g, Inc., No. 2 MDL 875 (E.D. Pa. Feb.19, 

2003)).

Since the administrative dismissals, only a few dozen 

of the thousands of MARDOC asbestos claims against 

Skinner have met the criteria for reinstatement. Appellants 

do not dispute that none of those claims have resulted in a 

judgment or settlement against Skinner. See In re Am. 

Capital Equip., Inc., 405 B.R. 415, 421-22 (Bankr. W.D. Pa. 

2009).
14

Skinner’s Insurance

Skinner claims entitlement to insurance coverage 

under primary comprehensive general liability insurance 

policies, as well as various excess policies, provided by 

Insurers. The policies contain standard clauses obligating the 

insured to cooperate in the defense of claims against it and 

prohibiting it from settling claims without the Insurers‟ 

consent. For example, Travelers‟ Insurance primary policies

state:

“[Travelers] shall have the right and duty to 

defend any suit against the insured seeking 

damages on account of such bodily injury or 

property damage, even if any of the allegations 

of the suit are groundless, false or fraudulent, 

and may make such investigation and settlement 

of any claim or suit as it deems expedient . . . .”

Travelers‟ excess policies contain a similar statement.

1

 An 

additional clause in all Travelers‟ policies states that:

“The Insured shall cooperate with [Travelers] 

and, upon [Travelers‟] request, assist in making 

settlements, in the conduct of suits . . . and the 

insured shall attend hearings and trials and 

 

1

“[Travelers] shall defend any suit . . . [and] may 

make such investigation of settlement of any claim or suit as 

it deems expedient.”
15

assist in securing and giving evidence and 

obtaining the attendance of witnesses.”

Prior to the bankruptcy petition filing, Skinner‟s 

primary insurers defended the asbestos claims against 

Skinner. The parties entered into a defense cost-sharing 

agreement under which the primary insurers and Skinner each 

agreed to pay a portion of the costs.

The Chapter 11 Bankruptcy Plans

Skinner has proposed five bankruptcy plans since 

filing for bankruptcy. Only the Fifth Plan is at issue here, 

although its relationship to several other plans – particularly 

the Third Plan – has some relevance.

Appellants filed the Disclosure Statement and Joint 

Plan of Reorganization for their First Plan on June 6, 2001. 

The plan proposed a sale of Skinner‟s assets to the president 

of American Capital‟s parent corporation. The plan provided 

that asbestos claimants would be paid from any insurance 

proceeds available at the time of a final judgment. Numerous 

objections from creditors (though not from asbestos 

claimants) led Skinner to amend the plan.

Appellants filed the Second Plan on September 12, 

2001. The plan proposed a sale of Skinner‟s assets to the 

highest bidder. It also included future asbestos claimants in 

the asbestos claimants‟ class (“Asbestos Claimants”) by 

providing for a trust funded through insurance proceeds. The 

Bankruptcy Court approved the disclosure statement and 

scheduled a confirmation hearing for October 25, 2001. 
16

However, before the confirmation hearing could occur, the 

voting creditors rejected the Second Plan.

On October 29, 2002, the Bankruptcy Court approved 

a sale of Skinner‟s assets, and it sold all of its assets for 

$1,165,000, which went to PNC Bank in satisfaction of its 

secured lien. PNC Bank agreed to set aside $35,000 towards 

the costs of processing asbestos claims. Travelers agreed to 

not oppose the sale, provided that Skinner would not 

immediately seek conversion or dismissal, but give creditors 

and interested parties 180 days “to negotiate a consensual 

plan of reorganization[.]” Neither Travelers nor creditors or 

other interested parties ever proposed such a plan. In March 

2003, after the sale of Skinner‟s assets, the Committee of 

Unsecured Creditors moved to convert the case to Chapter 7. 

The motion was then continued several times so the parties 

could attempt to negotiate a workable plan with Skinner.

On February 24, 2004, Appellants filed the Third Plan, 

proposing creation of a § 524(g) asbestos trust pursuant to the 

Bankruptcy Code. The trust would be funded by the 

insurance recoveries, the $35,000 from PNC Bank, and the 

common stock of “Reorganized Skinner,” and would provide 

for all present and future Asbestos Claimants. The plan 

proposed to adopt a claims submission standard (known as 

the Johns-Manville Personal Injury Standard), which required 

each Asbestos Claimant to meet two criteria: (1) show a 

medically diagnosed asbestos-related injury, and (2) show 

exposure to Skinner‟s asbestos-containing products. The plan 

also provided for a surcharge, which would give Skinner the 

right to ten percent of cash from insurance actions and 

policies to pay creditors through a Plan Payment Fund.
17

On February 2, 2005, the Bankruptcy Court approved 

the disclosure statement and set a confirmation hearing for 

March 10, 2005. Skinner‟s creditors voted to accept the 

Third Plan.

On February 22, 2005, Travelers commenced a breach 

of contract action against Skinner (“Insurance Coverage

Action”), claiming that the Third Plan breached its right to 

settle and defend claims and seeking a declaratory judgment 

that the alleged breach relieved Travelers of its coverage 

obligations under the policies. Skinner then counterclaimed 

and filed a third-party complaint naming the other Insurers, 

and seeking a declaratory judgment in its favor. On May 2, 

2005, the Bankruptcy Court filed orders denying Insurers‟ 

motions to withdraw reference of the adversary proceeding

and other objections they had previously raised. In re Am. 

Capital Equip., 325 B.R. 372 (Bankr. W.D. Pa. 2005); In re 

Am. Capital Equip., 324 B.R. 570 (Bankr. W.D. Pa. 2005). 

The declaratory judgment action never advanced beyond the 

pleadings stage, but rather, was dismissed without prejudice 

after the Bankruptcy Court converted the case to Chapter 7. 

Order of June 3, 2009, In re Am. Capital Equip., Adv. No. 05-

2253 (Bankr. W.D. Pa. June 3, 2009).

In June 2005, Insurers filed a Motion to Dismiss

(“American Capital I”), arguing pursuant to 11 U.S.C. 

§ 1112(b) that the plan was no longer proceeding in good 

faith, and no longer served a legitimate Chapter 11 purpose. 

At the hearing on August 15, 2005, the Bankruptcy Court 

noted that Skinner did not have a going concern, and stated 

that without a going concern, it could not approve a trust 
18

pursuant to § 524(g).2Skinner moved to stay further 

proceedings in order to modify the plan, and the Bankruptcy 

Court granted the motion.

After conducting hearings, the Bankruptcy Court 

denied Insurer‟s motion to dismiss, and the District Court 

affirmed, finding that the case served a legitimate bankruptcy 

purpose in that it maximized value to creditors, and that 

Skinner was not seeking a litigation advantage through the 

bankruptcy process. In re Am. Capital Equip., LLC, No. 06-

0891 (W.D. Pa. May 11, 2007). We affirmed, and remanded 

the case to the Bankruptcy Court for further proceedings. See 

In re Am. Capital Equip., 296 F. App‟x at 270.

During the pendency of the motion to dismiss 

proceedings, Skinner filed its Fourth Plan. The plan again 

provided for a surcharge, which would give Skinner the right 

to twenty percent of cash from insurance actions and policies 

to pay creditors through the Plan Payment Fund. However, 

this time the plan did not use a § 524(g) trust, but rather 

provided that a trustee would use criteria similar to those in 

the Third Plan to allow or disallow asbestos claims. Asbestos 

Claimants who did not want to use the system could use the 

tort system, but any judgment would be subject to a 

temporary injunction until all bankruptcy-allowed claims had 

been paid. In order to cover the plan‟s administrative costs 

until the surcharge provided sufficient revenue, the plan 

would be partly funded by a loan from a law firm 

 

2 The Bankruptcy Court‟s determination in this regard 

is not now before us.
19

representing the Asbestos Claimants. The Bankruptcy Court 

rejected the injunction and questioned the surcharge, giving

Skinner further time to amend its plan.

Skinner filed a Fifth Plan, removing the temporary 

injunction against judgments for Asbestos Claimants who 

chose to pursue traditional tort remedies. It still included a 

twenty percent surcharge for Asbestos Claimants who 

decided to opt in to the plan‟s settlement process. The 

Surcharge would be used to pay creditors through the Plan 

Payment Fund, and fund the claims resolution process called 

the “Court Approved Distribution Procedures” (“CADP”). 

Specifically, the CADP provides that:

“[e]ach Asbestos Claimant shall maintain full 

and complete ownership of his or her Asbestos 

Claim, including, without limitation, the right to 

prosecute or settle any Asbestos Claim, but 

upon the Asbestos Claimant submitting his or 

her claim to the CADP, he or she shall thereby 

have agreed to pay the Surcharge Cash from 

any amounts paid on account of the Asbestos 

Claim under and through the CADP.”

Skinner acknowledged at least twice that the Plan would not 

work without the Surcharge.3

 

3 At a hearing on January 10, 2006, the Bankruptcy 

Court inquired, “[C]an you do this without doing the 20 

percent?” Skinner‟s counsel replied, “No.” Again, on May 7, 

2009, the Bankruptcy Court asked:
20

The CADP “provide[s] a basis for the Plan Trustee to 

evaluate Asbestos Claims[,]” and would implement claims 

allowance criteria similar to those in the Third and Fourth 

Plans. If Insurers disagree with the Trustee‟s determination, 

the CADP would permit them to elect a Court Determination 

by the Bankruptcy Court. Court Determinations would 

require the Bankruptcy Court to decide “solely on the basis of 

the documentation in the Asbestos Claim file when the 

Asbestos Claim was categorized, whether the Asbestos Claim 

 

THE COURT: . . . is there any way you propose 

this plan without the 20 percent surcharge?

[Skinner‟s counsel]: Your Honor, the 20 percent 

surcharge is to be used to pay all the other creditors 

and non-asbestos creditors in the case. So without the 

20 percent surcharge or some surcharge, unsecured 

creditors will receive nothing.

THE COURT: So the answer is no, you 

wouldn‟t do it without the 20 percent.

[Skinner‟s counsel]: Do it with a ten percent 

surcharge. We could do it with five.

THE COURT: No, you‟re going to need a 

surcharge of some kind.

[Skinner‟s counsel]: We need a surcharge of 

some kind so that we have a distribution to the rest of 

the creditors in the case.
21

should be categorized as a Scheduled Disease.” In making 

this determination, the Bankruptcy Court would employ

“baseball arbitration procedures,” meaning that it “may select 

either the amount proposed by the Plan Trustee or the 

counteroffer of the Asbestos Insurance Company. The 

Bankruptcy Court may not select another amount as part of 

the Court Determination.” The Bankruptcy Court‟s decision 

would be binding on the Insurers and not appealable. The 

CADP does not state whether Asbestos Claimants would be 

permitted to appeal a decision that favors Insurers.

The Present Appeal

The Bankruptcy Court held hearings on the Fifth 

Plan‟s disclosure statement. In May 2009, it issued an

opinion finding that the plan was facially unconfirmable, 

because it was not proposed in good faith and was forbidden 

by law in contravention of 11 U.S.C. § 1129(a)(3), and was 

not feasible pursuant to 11 U.S.C. § 1129(a)(11). In re Am.

Capital Equip., Inc., 405 B.R. 415, 423-24 (Bankr. W.D. Pa. 

2009). Finding that Skinner would be unable to propose a 

confirmable plan, the Bankruptcy Court converted the case to 

a Chapter 7 pursuant to 11 U.S.C. § 1112(b). Id. at 426-27.

Skinner and Bartel appealed the Bankruptcy Court 

order to the District Court, which consolidated the appeals 

and affirmed the Bankruptcy Court‟s order in Skinner Engine 

Co. v. Allianz Global Risk U.S. Ins. Co., No. 09-0886, 2010 

WL 1337222 (W.D. Pa. March 29, 2010). Skinner and Bartel 

each appealed the District Court decision, and on May 12, 

2010, we consolidated both appeals.
22

II.

The District Court had jurisdiction over this 

bankruptcy case under 28 U.S.C. §1334(a), and referred the 

cases to the Bankruptcy Court pursuant to 28 U.S.C. § 157(a). 

Pursuant to 28 U.S.C. § 158(a), the District Court had 

jurisdiction over the Bankruptcy Court‟s order converting the 

case to Chapter 7. We have jurisdiction to hear the appeal 

from the District Court under 28 U.S.C. §§ 158(d)(2004)4and 

1291. See In re Krystal Cadillac Oldsmobile GMC Truck, 

Inc., 142 F.3d 631, 635 (3d Cir. 1998). On appeal, “we „stand 

in the shoes‟ of the District Court and review the Bankruptcy 

Court‟s decision. . . . review[ing] the Bankruptcy Court‟s 

legal conclusions de novo and its factual findings for clear 

error.” In re Global Indus. Techs., Inc., 645 F.3d 201, 209 

(3d Cir. 2011) (en banc) (internal citations omitted).

 

4

Pursuant to a 2005 amendment, the statute now lists 

28 U.S.C. § 158(d) as 28 U.S.C. § 158(d)(1). However, this 

case was filed in 2001, prior to the effective date of the 2005 

amendment, so as relevant, references to the Bankruptcy 

Code throughout this opinion refer to the previous version of 

the Code. See In re Am. Capital Equip., LLC, 296 F. App‟x 

270, 276 n.5 (3d Cir. 2008) (discussing the applicability of 

the pre-2005 statute in the present set of cases pursuant to the 

Bankruptcy Abuse Prevention and Consumer Protection Act 

of 2005, Pub.L. No. 109-8, § 1501, 119 Stat. 23 (2005)); see 

also In re Krebs, 527 F.3d 82, 84 (3d Cir. 2008) (Bankruptcy 

Code‟s 2005 amendment not applicable to Chapter 11 case 

filed prior to amendment‟s effective date).
23

III.

Appellants raise three primary issues on appeal. First, 

they challenge the Bankruptcy Court‟s procedure, claiming 

that the Bankruptcy Court erred in finding the Fifth Plan to be 

unconfirmable without first holding a confirmation hearing. 

Second, they argue that the Bankruptcy Court substantively 

erred in finding that the Fifth Plan was patently, or facially, 

unconfirmable. Finally, they argue that the Bankruptcy Court 

abused its discretion in converting its case from Chapter 11 to 

Chapter 7. We will discuss each of these issues in turn.

A.

Appellants argue that the Bankruptcy Court erred in 

deeming its plan to be unconfirmable without first holding a 

confirmation hearing. We disagree.

Federal Rule of Bankruptcy Procedure 3020(b)(2)

states that “[t]he court shall rule on confirmation of the plan 

after notice and hearing[.]” Based on the plain language of 

this Rule, our Sister Circuits have held that a bankruptcy 

court “must hold an evidentiary hearing in ruling on 

confirmation.” In re Acequia, Inc., 787 F.2d 1352, 1358 (9th 

Cir. 1986); accord In re Williams, 850 F.2d 250, 253 (5th Cir. 

1988). The purpose of the hearing is for the bankruptcy court 

to “consider[] . . . objections raised by creditors, . . . [and] to 

determine whether the plan has met all of the requirements 

necessary for confirmation.” In re Williams, 850 F.2d at 253.

Although the “hearing on the disclosure statement may 

be combined with the hearing on confirmation of a plan[,]” 11 
24

U.S.C. § 1125(f)(3)(2004),5the Bankruptcy Court did not 

formally schedule the hearing as a confirmation hearing, but 

as a hearing to consider disclosure statement issues. We must 

thus consider whether the Bankruptcy Court erred in making 

a confirmability determination based on the hearing.

“Ordinarily, confirmation issues are reserved for the 

confirmation hearing, and not addressed at the disclosure 

statement stage.” In re Larsen, No. 09-02630, 2011 WL 

1671538, at *2 n.7 (Bankr. D. Idaho May 3, 2011). Courts 

have recognized that “if it appears there is a defect that makes 

a plan inherently or patently unconfirmable, the Court may 

consider and resolve that issue at the disclosure stage before 

requiring the parties to proceed with solicitation of 

acceptances and rejections and a contested confirmation 

hearing.” Id. (citations omitted); see also In re Main St. AC, 

Inc., 234 B.R. 771, 775 (Bankr. N.D. Cal. 1999) (“It is now 

well accepted that a court may disapprove of a disclosure 

statement . . . if the plan could not possibly be confirmed.”); 

accord In re Miller, No. 96-81663, 2008 WL 191256, at *3 

(Bankr. W.D. La. Jan. 22, 2008); In re El Comandante Mgmt. 

Co., 359 B.R. 410, 415 (Bankr. D.P.R. 2006); In re Mahoney 

Hawkes, LLP, 289 B.R. 285, 294 (Bankr. D. Mass. 2002); In 

re Phoenix Petroleum Co., 278 B.R. 385, 394 (Bankr. E.D. 

Pa. 2001); In re Silberkraus, 253 B.R. 890, 899 (Bankr. C.D.

 

5 This text was moved to 11 U.S.C. § 1125(f)(3)(C) 

following the 2005 amendments to the Bankruptcy Code. See 

Bankruptcy Abuse Prevention and Consumer Protection Act 

of 2005, Tit. IV, § 431, Pub. L. No. 109-8, 119 Stat. 23 

(2005).
25

Cal. 2000); In re Brass Corp., 194 B.R. 420, 422 (Bankr.

E.D. Tex. 1996); In re Felicity Assocs., Inc., 197 B.R. 12, 14 

(Bankr. D.R.I. 1996); In re Cardinal Congregate I, 121 B.R. 

760, 764 (Bankr. S.D. Ohio 1990); In re Dakota Rail, Inc., 

104 B.R. 138, 143 (Bankr. D. Minn. 1989); In re Unichem 

Corp., 72 B.R. 95, 100 (Bankr. N.D. Ill. 1987); In re Monroe 

Well Serv., Inc., 80 B.R. 324, 333 (Bankr. E.D. Pa. 1987).

The rationale is that the court‟s equitable powers under 

11 U.S.C. § 105 “surely enable it to control its own docket” 

and thus, a “[c]ourt [should] not proceed with the timeconsuming and expensive proposition of hearings on a 

disclosure statement and plan when the plan may not be 

confirmable because it does not comply with [confirmation 

requirements].” In re Kehn Ranch, Inc., 41 B.R. 832, 832-33 

(Bankr. S.D. 1984); see also In re Dakota Rail, Inc., 104 B.R. 

at 143 (“Only where the disclosure statement on its face

relates to a plan that cannot be confirmed does the court have 

an obligation not to subject the estate to the expense of 

soliciting votes and seeking confirmation of the plan; 

otherwise, confirmation issues are left for later 

consideration.”). Commentators agree that “[i]t appears to be 

within the discretion of the bankruptcy court to withhold 

approval of a disclosure statement if the accompanying plan 

is unconfirmable[.]” The Disclosure Statement Hearing, 6 

Norton Bankr. L. Prac. § 110:15 (3d ed. 2012); accord

Barbara J. Houser, et al, Disclosure Statements: Confirmation 

and Cramdown of Chapter 11 Plans, ST005 A.L.I.-A.B.A.

2177 (2011) (“[N]umerous courts have heard objections to 

the disclosure statement based upon contentions that the 

accompanying plan of reorganization is nonconfirmable -- in 
26

other words, if a plan is not confirmable on its face as a 

matter of law, then the court will withhold approval of the 

disclosure statement.”); 9C Am. Jur. 2d Bankr. § 2900 (“The 

bankruptcy court may consider objections and refuse to 

approve a disclosure statement when it is apparent that the 

accompanying plan is not confirmable.”).

We find the reasoning of these many courts to be 

persuasive, and hold that a bankruptcy court may address the 

issue of plan confirmation where it is obvious at the 

disclosure statement stage that a later confirmation hearing 

would be futile because the plan described by the disclosure 

statement is patently unconfirmable.6 A plan is patently 

unconfirmable where (1) confirmation “defects [cannot] be 

overcome by creditor voting results” and (2) those defects 

 

6 We caution, however, that bankruptcy courts must 

“[e]nsure that due process concerns are protected” by, inter 

alia, providing sufficient notice to plan proponents, and 

taking care to not prematurely convert a disclosure statement 

hearing into a confirmation hearing. In re Monroe Well Serv., 

Inc., 80 B.R. 324, 333 & n.10 (Bankr. E.D. Pa. 1987); see 

also In re Larsen, No. 09-02630, 2011 WL 1671538, at *2

(Bankr. D. Idaho May 3, 2011); In re U.S. Brass Corp., 194 

B.R. 420, 422 (Bankr. E.D. Tex. 1996). This case raises no 

such due process concerns; the Bankruptcy Court‟s hearings 

on the issues were lengthy and thorough, and its April 9, 2009 

order, which was served on plan proponents Skinner and 

Bartel, gave sufficient notice that confirmability issues would 

likely be considered at the May 7, 2009 disclosure statement 

hearing.
27

“concern matters upon which all material facts are not in 

dispute or have been fully developed at the disclosure 

statement hearing.” In re Monroe Well Serv., 80 B.R. at 333. 

If no dispute of material fact remains and if defects cannot be 

cured by creditor voting or otherwise, then there is “nothing 

in either the language or logic of the Code requiring the court 

or parties to „grind the same corn a second time,‟ and we will 

not read into the Code the requirement of redundancy.” In re 

Acequia, Inc., 787 F.2d at 1358-1359 (citation omitted) 

(noting that although confirmation requires an evidentiary 

hearing, courts need not ignore evidence already submitted). 

As we will discuss below, there was no error in the 

Bankruptcy Court‟s determination that the Fifth Plan was not 

confirmable, and that the confirmation defects cannot be 

cured and involve no material facts in dispute.

B.

Appellants argue that even if a Bankruptcy Court is 

permitted to make a confirmability determination at the 

disclosure statement stage, it erred in doing so here, because 

the plan is confirmable. We disagree.

A court shall confirm a plan only if, inter alia, it “has 

been proposed in good faith and not by any means forbidden 

by law[,]” and if it is feasible. 11 U.S.C. §§ 1129(a)(3), (11); 

In re Combustion Eng’g, Inc., 391 F.3d 190, 243 n.59 (3d Cir. 

2004) (interpreting 11 U.S.C. § 1129(a)(11)). The debtor has 

the burden of proving that a disclosure statement is adequate, 

including showing that the plan is confirmable or that defects 

might be cured or involve material facts in dispute. Accord In 

re Curtis Ctr. Ltd. P’ship, 195 B.R. 631, 638 (Bankr. E.D. Pa. 
28

1996); In re R & G Props., Inc., No. 08-10876, 2009 WL 

2043873, at *5 (Bankr. D. Vt. July 6, 2009).

The Bankruptcy and District Courts found that the 

Fifth Plan did not meet the § 1129 requirements for 

confirmation. In re Am. Capital Equip., Inc., 405 B.R. at 

423-24; Skinner Engine Co., No. 09-0886, 2010 WL 

1337222, at *2. We agree that the Fifth Plan is not 

confirmable on two separate and independently sufficient 

bases under § 1129(a): (1) it is not feasible, and (2) it has not 

been proposed in good faith.

7

 We address each basis below, 

and find that the plan is patently unconfirmable.

1. Feasibility under § 1129(a)(11)

A plan is confirmable only if it is feasible, In re 

Combustion Engineering, 391 F.3d at 243 n.59, that is, if 

“[c]onfirmation 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.” 11 U.S.C. § 1129(a)(11). Even a planned liquidation 

“must be feasible.” Accord In re Calvanese, 169 B.R. 104, 

107 (Bankr. E.D. Pa. 1994). The Bankruptcy and District 

 

7

The Bankruptcy and District Courts also found the 

plan to be unconfirmable on the basis that it is forbidden by 

law, but because a full analysis of the matter takes us into 

uncharted waters surrounding issues of state law, we decline 

to address whether such a third basis also renders the plan 

unconfirmable.
29

Courts found that the Fifth Plan was not feasible, and we 

agree.

Although § 1129(a)(11) does not require a plan‟s 

success to be guaranteed, see In re Applied Safety, Inc., 200 

B.R. 576, 584 (Bankr. E.D. Pa. 1996), the plan must 

nevertheless propose “a realistic and workable framework[.]” 

Hurricane Memphis, 405 B.R. 616, 624 (Bankr. W.D. Tenn. 

2009) (quoting In re Brice Road Devs., 392 B.R. 274, 283 

(B.A.P. 6th Cir. 2008)). In other words, the plan must be 

“reasonably likely [to] succeed[] on its own terms without a 

need for further reorganization on the debtor‟s part.” In re 

Applied Safety, 200 B.R. at 584; see also In re Quigley Co., 

Inc., 437 B.R. 102, 142 (Bankr. S.D.N.Y. 2010) (plan was not 

feasible where funding source was “speculative at best and 

visionary at worst”).

In considering feasibility, “a bankruptcy court must 

evaluate the possible impact of the debtor‟s ongoing civil 

litigation[.]” In re Harbin, 486 F.3d 510, 519 (9th Cir. 2007). 

A plan will not be feasible if its success hinges on future 

litigation that is uncertain and speculative, because success in 

such cases is only possible, not reasonably likely. Accord In 

re DCNC N.C. I, LLC, 407 B.R. 651, 667 (Bankr. E.D. Pa. 

2009); In re Thompson, No. 92-7461, 1995 WL 358135, at 

*3-4 (Bankr. E.D. Pa. 1995); In re Cherry, 84 B.R. 134, 139 

(Bankr. N.D. Ill. 1988); In re Rey, Nos. 04-B-35040, 04-B22548, 06-B-4487, 2006 WL 2457435, at *7 (Bankr. N.D. Ill. 

Aug. 21, 2006).

Critically, in this case, the Fifth Plan‟s sole source of 

funding is the Surcharge, which would be obtained from 
30

wholly speculative litigation proceeds. The Fifth Plan also 

depends on the assumption that Asbestos Claimants will 

choose to use the CADP rather than the court system, and 

even then, the Plan will succeed only if enough Asbestos 

Claimants who use the CADP win recoveries and contribute 

sufficient Surcharge funds to the Plan Payment Fund. This 

Plan is highly speculative, to say the least, not only because it 

is contingent on potential litigation winnings, but also 

because most of the claims have been administratively 

dismissed and have “thus far been . . . overwhelmingly 

unsuccessful.” In re Am. Cap. Equip., LLC, 405 B.R. at 422. 

The Fifth Plan is simply not reasonably likely to succeed and 

therefore, is not feasible. Furthermore, the feasibility issue 

cannot be cured, and no dispute of material fact remains, 

because Appellants admit that no plan will work without a 

Surcharge. Thus, the feasibility issue renders the Plan to be 

patently unconfirmable pursuant to § 1129(a)(11).

2. Good Faith under § 1129(a)(3)

A plan is confirmable only if it is proposed in good 

faith. 11 U.S.C. § 1129(a)(3). The Bankruptcy and District 

Courts found that the Fifth Plan did not meet the § 1129(a)(3) 

good faith requirement. We agree.

In analyzing whether a plan has been proposed in good 

faith under § 1129(a)(3), “the important point of inquiry is the 

plan itself and whether such a plan will fairly achieve a result 

consistent with the objectives and purposes of the Bankruptcy 

Code.” In re Combustion Eng’g, 391 F.3d at 247 (quoting In 

re PWS Holding Corp., 228 F.3d 224, 242 (3d Cir. 2000)). 

Specifically, under Chapter 11, the two “recognized” policies, 
31

or objectives, are “preserving going concerns and maximizing 

property available to satisfy creditors[.]” Bank of Am. Nat.’l 

Trust and Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 

434, 453 (1999) (citing Toibb v. Radloff, 501 U.S. 157, 163, 

(1991)). More generally, the Bankruptcy Code‟s objectives

include: “giving debtors a fresh start in life,” Walters v. U.S. 

National Bank of Johnstown, 879 F.2d 95, 98 (3d Cir. 1989), 

“discourag[ing] debtor misconduct,” id., “the expeditious 

liquidation and distribution of the bankruptcy estate to its 

creditors,” Integrated Solutions, Inc. v. Service Support 

Specialties, 124 F.3d 487, 489 (3d Cir. 1997), and achieving 

fundamental fairness and justice. In re Kaiser Aluminum 

Corp., 456 F.3d 328, 339-43 (3d Cir. 2006).

a. American Capital I

When we last reviewed Skinner‟s bankruptcy

proceedings in American Capital I, we analyzed whether the 

case was “proceeding in bad faith,” In re Am. Capital Equip., 

LLC, 296 F. App‟x at 274, or, as the District Court stated, 

whether the Third Plan “reflected a bad faith use of the 

bankruptcy process.” In re Am. Capital Equip., No. 06-0891, 

at *9. In so doing, we considered the objectives underlying 

Chapter 11, and determined based on the record before us at 

the time that Skinner‟s bankruptcy case was proceeding in 

good faith because the Third Plan‟s surcharge attempted to 

maximize the property available to satisfy creditors. In re 

Am. Capital Equip., LLC, 296 F. App‟x at 274-75. Skinner 

argues that our initial good faith determination and reasoning 

circumscribes our good faith determination here. We 

disagree.
32

A prior determination that a bankruptcy petition was 

filed or proceeded in good faith does not necessarily preclude 

a later inquiry into whether a plan under that petition is 

proposed in good faith for purposes of confirmation. The 

question of whether a Chapter 11 bankruptcy petition is filed 

in good faith is a judicial doctrine, distinct from the statutory 

good faith requirement for confirmation pursuant to 

§ 1129(a)(3). In re Combustion Eng’g, 391 F.3d at 247 n.67; 

6 Norton Bankr. L. & Prac. § 112:10 (3d ed. 2012). The 

judicial doctrine inquires into the motivation for proceeding 

in bankruptcy, see In re Integrated Telecom Express, Inc., 

384 F.3d 108, 121 (3d Cir. 2004), and “requires an 

examination of all of the facts and circumstances and depends 

upon an amalgam of factors, none of which is dispositive.” 6 

Norton Bankr. L. & Prac., supra, § 112:10. In contrast, “the 

good-faith confirmation requirement is narrower and focuses 

primarily on the plan itself,” id., and on “whether such a plan

will fairly achieve a result consistent with the objectives and 

purposes of the Bankruptcy Code.” In re Combustion Eng’g, 

391 F.3d at 247. It might be that a bankruptcy case which is 

filed and proceeds in good faith nevertheless results in a plan 

that does not fairly achieve a result consistent with the 

objectives and purposes of the Bankruptcy Code. 

Furthermore, information affecting the good faith 

determination might be added to the record throughout the 

process leading up to confirmation.

We found in American Capital I that the use of a 

surcharge maximizes property available to satisfy creditors, 

and that Skinner‟s case was therefore attempting to achieve a 

valid bankruptcy goal. However, a company may pursue a 
33

valid bankruptcy goal, yet in the end, propose a plan that is 

otherwise inconsistent with the Bankruptcy Code. Thus, the 

fact that Skinner‟s case proceeded in good faith with a valid 

bankruptcy purpose, is not sufficient to assure us at the 

confirmation stage that the plan itself otherwise comports 

with the objectives of the Bankruptcy Code.

In American Capital I, we did not deal with the same 

concerns that are now before us; we did not address 

confirmation, the Fifth Plan, or questions involving fairness, 

collusion, or conflict of interest. See generally, In re Am. 

Capital Equip., LLC, 296 F. App‟x at 273-75; see also In re 

Am. Capital Equip., LLC, No. 06-0891, at *10 (JA1380) (“the 

issue before us is not . . . confirma[tion]”); id. at *14 (“We 

understand that the Insurers viewed this [Third] Plan as an 

insurance scam. The Insurers might be right. However, these 

are all issues that will be explored in the adversary 

proceeding, and, possibly, during plan confirmation 

proceedings regarding the now viable Fifth Plan.”). Thus, our 

limited discussion in American Capital I, regarding whether 

Skinner was proceeding for purposes of achieving a valid 

bankruptcy purpose, does not now preclude us from 

considering whether the Fifth Plan will fairly achieve its 

purposes, and whether it is otherwise consistent with the

objectives and purposes of the Bankruptcy Code. We turn 

now to these questions.

b. The Fifth Plan

A plan is proposed in good faith only if it will “fairly

achieve a result consistent with the objectives and purposes of 

the Bankruptcy Code.” In re Combustion Eng’g, 391 F.3d at
34

247 (emphasis added); see also Young v. United States, 535 

U.S. 43, 50 (2002) (“[B]ankruptcy courts . . . are courts of 

equity and „appl[y] the principles and rules of equity 

jurisprudence.‟” (quoting Pepper v. Litton, 308 U.S. 295, 304 

(1939)). The Bankruptcy and District Courts found that the 

Fifth Plan was not proposed in good faith because it was 

collusive. In re Am. Capital Equip., Inc., 405 B.R. at 422-23; 

Skinner Engine Co., No. 09-0886, 2010 WL 1337222, at *1. 

We agree that collusive plans are not in good faith and do not 

meet the good faith requirement of § 1129(a)(3). See In re 

PWS Holding Corp., 228 F.3d at 242-43 (proceeding with a 

good faith analysis under § 1129(a)(3) where collusion was 

the only alleged basis for arguing that the plan was not 

proposed in good faith). However, we are not convinced the 

Fifth Plan is collusive because insurers have not pointed to 

any evidence of an agreement to defraud insurers. Cf.

Black‟s Law Dictionary (9th ed. 2009) (Collusion is “[a]n 

agreement to defraud another or to do or obtain something 

forbidden by law.”); Lincoln Printing Co. v. Middle W. Utils.

Co., 74 F.2d 779, 784 (7th Cir. 1935) (“Collusion is . . . an 

agreement between two or more persons to defraud a person 

of his rights by the forms of law, or to obtain any object 

forbidden by law[.]”) (internal quotation marks and citation 

omitted). The Bankruptcy Court, in fact, noted that 

“collusion” might not be the proper term for the Fifth Plan‟s 

good faith problem. In re Am. Capital Equip., Inc., 405 B.R. 

at 423.

Nonetheless, we agree that the Fifth Plan will not 

fairly achieve the Bankruptcy Code‟s objectives because it 

establishes an inherent conflict of interest under 
35

circumstances that are especially concerning. Cf. Coram 

Healthcare, 271 B.R. 228, 234-35 (Bankr. D. Del 2001) 

(finding § 1129(a)(3) good faith violation where debtor‟s 

CEO had an interest in one of Debtors‟ largest creditors).

First, as the Bankruptcy Court stated, the Fifth Plan 

sets up a system in which Skinner would be “financially 

incentivized to sabotage its own defense.” In re Am. Capital 

Equip., Inc., 405 B.R. at 423. Skinner is a defunct business

without so much as a single employee remaining. It has no 

assets to distribute to creditors or attorneys, and Skinner 

admits that the only way that creditors and attorneys can 

possibly be paid is if asbestos litigants win settlements against 

it (and pay the Surcharge). Although settlements will be 

controlled by a Plan Trustee with no financial interest in the 

outcome of the proceedings, it is not as if Skinner can entirely 

remove itself from the process. Rather, these settlements will 

likely require Skinner‟s involvement in both defense and 

discovery because the question of asbestos claimants‟ 

exposure to Skinner products is still at issue. Thus, the Fifth 

Plan creates an inherent conflict of interest: Skinner is 

required to cooperate in its defense, but will be incentivized 

to do otherwise.

Second, we are troubled by the fact that the CADP 

system creates this inherent conflict, while at the same time 

severely limiting or eliminating Insurers‟ ability to take 

discovery, submit evidence, contest causation, or appeal a 

decision, and all without the protective channeling injunction 

of § 524(g). Appellants argue that similar provisions 

reducing insurers‟ procedural rights have been confirmed 

under other plans, but fail to cite to any plans that 
36

simultaneously employed a similar surcharge. In fact, 

Appellants do not cite to any examples of confirmed 

bankruptcy plans that sought to pay creditors using insurance 

dollars intended to compensate Asbestos Claimants for their 

personal injuries.

Finally, we are unconvinced by Appellants‟ attempts 

to compare the Fifth Plan with a § 524(g) trust, because the 

structure and objectives of a § 524(g) trust are inconsistent 

with the trust created under the Fifth Plan. Although like a §

524(g) trust, the Fifth Plan sets up a process for Asbestos 

Claimants to settle claims out of court, the similarities end 

there. A § 524(g) trust is “funded in whole or in part by the 

securities of [one] or more debtors . . . 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 trust fund 

is then used to pay Asbestos Claimants. § 524(g)(2)(B)(i)(I), 

(IV). The trust maximizes the value of the debtor‟s estate for 

creditors by allowing a debtor to channel all asbestos claims 

into the trust, so that the debtor and its affiliates or parent 

companies are not burdened by the asbestos claims. 

§ 524(g)(1)(A), (4)(A)(ii); see also Eric D. Green, James L. 

Patton, Jr., & Edwin J. Harron, Future Claimant Trusts and 

“Channeling Injunctions” to Resolve Mass Tort 

Environmental Liability in Bankruptcy: The Met-Coil Model, 

22 Emory Bankr. Dev. J. 157, 160-64 (2005) (explaining that 

the § 524(g) channeling injunction increases investor 

confidence, and thus better enables the reorganized enterprise 

to meet creditor obligations and provide for future claimants). 

Ideally:
37

“[T]he [bankrupt] company remains viable. . . . 

[and] 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.”

In re Combustion Eng’g, 391 F.3d at 248 n.69 (quoting 140 

Cong. Rec. S4521-01, S4523 (Apr. 20, 1994) (statement of 

Senator Brown)); see also id. at 248 (The bankrupt company 

continues “to make future payments into the trust to provide

an „evergreen‟ funding source for future asbestos 

claimants.”); but cf. Sander L. Esserman & David J. Parsons, 

The Case for Broad Access to 11 U.S.C. 524(g) in Light of the 

Third Circuit’s Ongoing Business Requirement Dicta in 

Combustion Engineering, 62 N.Y.U. Ann. Surv. Am. L. 187 

(2006) (arguing that future payments are not always 

necessary and that in some cases, a present contribution of 

securities may be sufficient under § 524(g)). Essentially, the

§ 524(g) trust “recognizes the inherent equitable power of the 

bankruptcy courts to provide for equitable treatment of all of 

a debtor‟s creditors, including those having claims arising out 

of asbestos products.” 140 Cong. Rec. S4521-01, S4523 

(Apr. 20, 1994) (statement of Senator Graham); see also In 

re. Federal-Mogul Global Inc., Nos. 09-2230 & 09-2231, 

2012 WL 1511773, at *1-3, 14-16 (3d Cir. May 1, 2012).

In contrast, the CADP system does not create a trust 

funded by Skinner‟s securities to pay future Asbestos 

Claimants, but rather, it creates a Plan Payment Fund funded 

by Asbestos Claimants to pay attorneys and other creditors. 
38

There is no channeling injunction to protect the debtor or 

insurers from future claimants, and the debtor makes no 

contribution whatsoever to the trust, but rather plans to pull 

money from it. Indeed, the only alleged benefit the CADP 

provides to Asbestos Claimants appears to be the ability to 

pursue claims through the CADP rather than through the 

court system.

We recognize that at times, a bankruptcy court‟s 

equitable powers under § 105(a) might allow it to confirm an 

asbestos trust not provided for by § 524(g), but its “general 

grant of equitable power . . . must be exercised within the 

parameters of the Code itself,” In re Combustion Eng’g, 391 

F.3d at 236, and for the purpose of “achiev[ing] fairness and 

justice in the reorganization process.” Id. at 235 (internal 

quotation omitted); see also In re Kaiser Aluminum Corp., 

456 F.3d at 340 (Equity allows courts to “craft flexible 

remedies that, while not expressly authorized by the 

[Bankruptcy] Code, effect the result the Code was designed to 

obtain[.]” (quoting Official Comm. of Unsecured Creditors of 

Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery, 330 

F.3d 548, 568 (3d Cir. 2003))). However, we fail to see how 

the Bankruptcy Code‟s equitable purposes would be achieved 

by the Fifth Plan.

We do not here define the parameters of a bankruptcy 

court‟s equitable powers, nor determine that surcharges, or 

alternative forms of asbestos trusts, or other individual 

provisions of the Fifth Plan, are never permissible under § 

1129(a)(3). However, under the circumstances of this plan, 

where: (1) the debtor‟s bankruptcy is unrelated to asbestos 

litigation, (2) the debtor will not contribute to the Plan 
39

Payment Fund but merely pull from it, (3) Asbestos 

Claimants provide the sole source of funding to the Plan 

Payment Fund through the Surcharge, (4) the Plan Payment 

Fund exists solely to pay off creditors and insurers rather than 

to pay future asbestos litigants or generate profits to do so, 

and where (5) the Surcharge creates an inherent conflict of

interest while (6) the CADP process simultaneously strips 

Insurers of certain procedural and substantive rights without 

the protections of § 524(g), we find a lack of good faith as 

required for confirmation under § 1129(a)(3). The mere 

provision of an alternative settlement process cannot 

outweigh our concerns.8

 

8 Appellants respond with several non sequiturs. They 

argue that they sought Insurers‟ help to develop a consensual 

plan, but that does not mean that the plan eventually proposed 

fairly achieved the objectives and purposes of the Bankruptcy 

Code. They also argue that the surcharge is not problematic 

because it is an arms-length transaction and fully disclosed, 

but neither issue is dispositive as to whether a conflict-ofinterest or collusive type of system exists. See, e.g., Moody v. 

Sec. Pacific Bus. Credit, Inc., 971 F.2d 1056, 1065 (3d Cir. 

1992) (noting that unfair influence may exist regardless of 

whether a transaction appears to be at arms-length); In re 

ACandS, Inc., 311 B.R. 36, 39-43 (Bankr. D. Del. 2004) 

(finding a plan to be not in good faith despite the fact that 

Asbestos Claimants‟ control over the debtor was disclosed). 

Finally, Appellants argue that their plan is not in bad faith 

because it fulfills a purpose of the Bankruptcy Code (namely, 

maximizing value to creditors). (Skinner Reply Br. at 2-4; 
40

Appellants fail to meet their burden of showing that 

the plan might be confirmable after further discovery or 

creditor voting. No dispute of material fact remains that 

could affect this plan‟s good faith standing, and although 

creditor voting could potentially address certain concerns, 

such as CADP procedures, it cannot address the majority of 

the concerns and certainly cannot cure the inherent conflict of 

interest. Thus, the lack of good faith pursuant to § 1129(a)(3)

makes the Fifth Plan patently unconfirmable.

C.

Finally, Appellants claim that the Bankruptcy Court 

abused its discretion by converting the Chapter 11 case to a 

Chapter 7. We disagree. After providing “notice and a 

hearing,” a bankruptcy court “may convert a case under 

[Chapter 11] to a case under Chapter 7 of this title or may 

dismiss a case under [Chapter 11], whichever is in the best 

 

Bartel‟s Br. at 37-38; Skinner‟s Br. at 26-27.) However, the 

fact that there is at least one valid purpose to the Plan is not 

dispositive as the Plan could fulfill one specific purpose of 

the Code and yet be inconsistent with other overarching 

principles, or with the requirement that objectives and 

purposes of the Code must be fairly achieved.
41

interest of creditors and the estate, for cause.” 11 U.S.C. 

§ 1112(b) (2004).9

Section 1112(b) requires a two-step process in which 

the court first determines whether there is “cause” to convert 

or dismiss, and next chooses between conversion and 

dismissal based on “the best interest of creditors and the 

estate.” § 1112(b); In re SGL Carbon Corp., 200 F.3d 154,

159 n.8 (3d Cir. 1999). We review the decision to convert a 

case pursuant to § 1112(b) for abuse of discretion. See id. at 

159 (reviewing for abuse of discretion the decision to dismiss

a case pursuant to § 1112(b)); see also In re Albany Partners, 

Ltd., 749 F.2d 670, 674 (11th Cir. 1984) (“[T]he 

determination of cause under § 1112(b) is subject to judicial 

discretion under the circumstances of each case.” (internal 

quotation marks and citation omitted)).

As a threshold matter, the hearing on May 7, 2009 met 

§ 1112(b)‟s preliminary requirement for “notice and a 

hearing.” The April 9, 2009 Order scheduling the May 7 

hearing stated that the issue of conversion would be 

considered. Furthermore, the hearing provided parties with 

an opportunity to present their arguments regarding 

conversion. Cf. In re Blumenberg, 263 B.R. 704, 716-17 

 

9 The 2005 and 2010 amendments to the statute require 

that in given circumstances “the court shall” convert or 

dismiss a case. 11 U.S.C. § 1112 (2005) (emphasis added); 

11 U.S.C. § 1112 (2011) (emphasis added). See Bankruptcy 

Abuse Prevention and Consumer Protection Act of 2005, 

Pub.L. No. 109-8, § 1501, 119 Stat. 23, 216 (2005).
42

(Bankr. E.D.N.Y. 2001) (Even though a formal hearing was 

not held, the court found the “notice and hearing” 

requirement to be met because the debtor was provided with 

“ample opportunities through both extended oral argument 

and formal motion practice to explain why his bankruptcy 

case should not be dismissed.”).

Turning next to the two-step analysis under § 1112(b), 

we agree with the District Court that the Bankruptcy Court 

did not abuse its discretion in finding cause to convert the 

case to Chapter 7. Section 1112(b) provides a non-exhaustive 

list of grounds for finding “cause” to convert or dismiss. 11 

U.S.C. § 1112(b)(1)-(10)(2004); In re SGL Carbon Corp., 

200 F.3d at 160 (finding that the list is not exhaustive). The 

list of examples includes “inability to effectuate a plan[.]” 11 

U.S.C. § 1112(b)(2) (2004).10 A court may also find cause 

where there is not “a reasonable possibility of a successful 

reorganization within a reasonable period of time.” In re 

Brown, 951 F.2d 564, 572 (3d Cir. 1991). The amount of 

time that is considered reasonable varies. See, e.g., DCNC 

N.C. I, L.L.C. v. Wachovia Bank, Nos. 09-3775, 09-3776, 

2009 WL 3209728, at *2-3 (E.D. Pa. Oct. 5, 2009) (four 

months); In re Camden Ordnance Mfg. Co. of Ark., Inc., 245 

 

10 Although the statute no longer lists this as an 

example of “cause,” the amended statute does not apply in 

this case, and even if it did, the “„[i]nability to effectuate a 

plan‟ remains a viable basis for dismissal because the listed 

examples of cause are not exhaustive.” DCNC N.C. I, L.L.C. 

v. Wachovia Bank, Nos. 09-3775, 09-3776, 2009 WL 

3209728, at *5 (E.D. Pa. Oct. 5, 2009).
43

B.R. 794, 797 (E.D. Pa. 2000) (three months); In re 

Halvajian, 216 B.R. 502, 513 (D.N.J. 1998) (22 months), 

aff’d, 168 F.3d 478 (3d Cir. 1998).

We find that the Bankruptcy Court did not abuse its 

discretion in determining that there was cause to convert on 

the basis that Appellants have been unable to propose a 

confirmable plan, and will be unable to do so in the future. 

See In re Am. Cap. Equip., LLC, 405 B.R. at 426-27. The 

Fifth Plan is not feasible, and Appellants have been unable to 

create a plan that is not contingent on future litigation with an 

uncertain and speculative outcome. Additionally, Appellants 

concede that the plan cannot be successful without a 

Surcharge, which, in this case, creates an inherent conflict of 

interest.

Appellants argue that they did not have reasonable 

time to effectuate a plan, given delays by Insurers, and the 

“complexities of mass-tort bankruptcy cases.” However, 

Insurers were not the only cause for delay; Skinner sought to 

stay proceedings, missed filing deadlines, sought multiple 

extensions, and filed five Chapter 11 plans. Furthermore, this 

case is not truly a “mass-tort bankruptcy case” despite 

Skinner‟s attempts to frame it as such. Skinner‟s bankruptcy 

was not caused even in part by mass-tort personal injury 

claims, and Skinner seeks a settlement of the asbestos claims 

only in an attempt to access injured third parties‟ insurance 

recoveries. Regardless, Skinner does not explain why even a 

complex case should be kept alive once it is clear that any 

plan will be futile.
44

By the time this case was dismissed, Skinner had been 

given more than five years to propose a confirmable plan, and 

had been unable to do so. In re Am. Capital Equip., 405 B.R. 

at 427. A court “is not bound to clog its docket with 

visionary or impracticable schemes for resuscitation.” In re 

Brown, 951 F.2d at 572 (quoting Tenn. Publ’g Co. v. Am. 

Nat’l Bank, 299 U.S. 18, 22 (1936)). A court may permit a 

debtor to modify and resubmit its plan under § 1127(a), but is 

not necessarily required to do so, especially where 

modification would be futile. See, e.g., In re Brauer, 80 B.R. 

903, 911 (N.D. Ill. 1987) (where bankruptcy court dismissed 

Chapter 11 case “without first resorting to lesser sanctions[,]” 

such “„omissions‟ were not an abuse of discretion”). We

agree with the reasoning that where “repeatedly unsuccessful 

attempts at confirmation are likely to generate enormous 

administrative costs, often without increasing the likelihood 

of success, § 1112(b) recognizes the court‟s ability to curtail 

the process through the ultimate conversion or dismissal of 

the case[,]” and to make sure the plan “does not outlive the 

likelihood of its usefulness.” In re Rand, No. AZ-10-1160, 

No. 07-06801, 2010 WL 6259960, at *5 (9th Cir. B.A.P. Dec. 

7, 2010) (citing 3 Collier Bankr. Manual ¶ 1112.04[4][l] (3d 

ed. rev. 2010)). Under the circumstances, the Bankruptcy 

Court gave Skinner ample time to develop a plan given that 

Skinner did not demonstrate “a reasonable possibility” of 

developing a confirmable Chapter 11 plan “within a 

reasonable period of time.” In re Brown, 951 F.2d at 572.

Finally, once cause has been established, “the court 

may convert . . . or may dismiss a case under [Chapter 11], 

whichever is in the best interest of creditors and the estate[.]” 
45

11 U.S.C. § 1112(b) (2004). A bankruptcy court has “wide 

discretion” to “use its equitable powers” to “make an 

appropriate disposition of the case[.]” In re Camden 

Ordnance, 245 B.R. at 803 (citing the legislative history of 

§ 1112(b)).

Here, the Bankruptcy Court did not address the best 

interest of creditors and the estate directly, but it is clear that 

it determined that no future plan would be able to be 

effectuated under Chapter 11. The obvious result is that 

under the Bankruptcy Court‟s reasoning, neither creditors nor 

the estate could conceivably benefit if a Chapter 11 plan 

could never be effectuated. Generally, bankruptcy courts 

should explicitly address the best interest of creditors and the 

estate under § 1112(b), but we find that the Bankruptcy Court 

did not abuse its discretion under the circumstances.

Prolonging this case will only burden the estate with 

mounting attorney and administrative fees. Cf. Matter of 

Taxman Clothing Co., 49 F.3d 310, 315 (7th Cir.1995) 

(“[N]either the trustee in bankruptcy nor the trustee‟s lawyer 

has a duty to collect an asset of the debtor‟s estate if the cost 

of collection would exceed the value of the asset. His duty is 

to endeavor to maximize the value of the estate, which is to 

say the net assets. The performance of this duty will 

sometimes require him to forbear attempting to collect a 

particular asset, because the costs of collection would exceed 

the asset‟s value.” (internal quotation marks and citations 

omitted)). A Chapter 7 bankruptcy can be accomplished 

more efficiently, thus halting the mounting liabilities against 

the estate. Moreover, Skinner will not be discharged of its 

liabilities under Chapter 7, 11 U.S.C. § 727(a)(1), and 
46

Chapter 7 trustees have the ability to settle an estate‟s claims, 

including claims regarding insurance coverage. See, e.g.,

Northview Motors, Inc. v. Chrysler Motors Corp., 186 F.3d 

346, 347-48 (3d Cir. 1999) (discussing settlement of a lawsuit 

by a Chapter 7 trustee); In re Turner, 274 B.R. 675, 681-82 

(Bankr. W.D. Pa. 2002) (approving settlement agreed to when 

insurer‟s liability was unclear); Order Approving Settlement 

Agreement By and Between the Trustee and the Hartford 

Insurers, In re Peanut Corp. of Am., No. 09-bk-60452 (Bankr. 

W.D. Va. Oct. 2, 2009) (settlement for insurance coverage for 

mass-tort claims). Creditors may be unlikely to be paid under 

Chapter 7, but the status quo is no better, because Skinner 

cannot propose a confirmable plan under Chapter 11.

Furthermore, Asbestos Claimants‟ compensation in 

this case is not contingent on confirmation of a Chapter 11 

plan. Asbestos Claimants‟ recovery will be unaffected by the 

type of bankruptcy that is approved. Skinner‟s estate is 

defunct, and regardless of whether a Chapter 7 or Chapter 11 

is approved, any asbestos-related personal injury recovery to 

be had will come from Insurers, who will not be released 

from liability due to Skinner‟s bankruptcy. See 40 Pa. Cons. 

Stat. § 117; Ohio Rev. Code Ann. § 3929.05; H.K. Porter 

Co., Inc. v. Pa. Ins. Guar. Ass’n, 75 F.3d 137, 142 (3d Cir. 

1996) (“[U]nder Pennsylvania‟s „direct action‟ statute, [40 Pa. 

Cons. Stat. § 117,] tort victims may sue an insurer directly if 

the insured has gone bankrupt or become insolvent.”); Phila. 

Forrest Hills Corp. v. Bituminous Cas. Corp., 222 A.2d 493, 

494 (Pa. Super. Ct. 1966) (“40 [Pa. Cons. Stat.] § 117, 

authorizes direct actions against an insurance liability carrier 

in the event of the insolvency or bankruptcy of the insured.”); 
47

Fisher v. Lewis, 567 N.E. 2d 276, 278 (Ohio Ct. App. 1988) 

(“[A]n insurance company can be held liable under its 

contract for a judgment against its insured notwithstanding 

the discharge in bankruptcy of the insured.”). Thus, contrary 

to Appellants‟ argument, Insurers will not receive a windfall 

under Chapter 7. We find no abuse of discretion in the 

Bankruptcy Court‟s decision to convert this case to a Chapter 

7.

IV.

In sum, we find that the Bankruptcy Court did not err 

in determining based on the disclosure statement hearing that 

the Fifth Plan was patently unconfirmable under § 1129(a)(3)

because its success is entirely contingent on speculative 

future litigation, and because the Plan asks third-party 

Asbestos Claimants, who were not a cause of the bankruptcy, 

to serve as the sole funding source for attorneys and other 

creditors, under circumstances involving an inherent conflict 

of interest and inequitable procedural provisions. The Fifth 

Plan is simply not confirmable, and given the apparent futility 

in Skinner‟s pursuit of a plan under Chapter 11, as well as the 

mounting liabilities against the estate, the Bankruptcy Court 

did not abuse its discretion by converting the case to Chapter 

7.

For the foregoing reasons, we will affirm.