Opinion ID: 1039768
Heading Depth: 2
Heading Rank: 3

Heading: “Fair and Equitable” to Future Claimants

Text: Montana’s and the Crown’s final contention is that the Joint Plan violates the “fair and equitable” provision of § 524(g). That provision requires that, before confirming a plan involving a § 524(g) trust, a court must determine that the proposed channeling injunction is “fair and equitable with respect to the persons that might subsequently assert … demands” against the trust “in light of the benefits provided … to such trust on behalf of [the] debtor.” 11 U.S.C. § 524(g)(4)(B)(ii).26 In other words, the provision requires a 26 Although it uses similar language, the § 524(g) “fair and equitable” provision is separate from the “fair and 41 reviewing court to consider whether, given the funds available in a trust, it is “fair and equitable” to channel future demands to that trust. Although no court of appeals has yet interpreted what “fair and equitable” means in that context, other courts seem to agree that one way to evaluate the equities is to consider the amount being contributed to the trust in comparison to the liability exposure of the protected parties. See, e.g., In re Plant Insulation Co., 485 B.R. 203, 227 (N.D. Cal. 2012) (“[T]he analysis appropriately focuses on the relationship between the contributions of protected entities to the Trust, and the benefits received by the same under the terms of the channeling injunction.”); In re Congoleum Corp., 362 B.R. 167, 180 (Bankr. D.N.J. 2007) (“A review of the case law suggests that finding that an injunction is fair and equitable is closely tied to the value being contributed to the plan.”). Given the substantial benefit provided by the channeling injunction, courts have held that the protected parties’ contribution to the trust must be sufficient to justify that extraordinary form of relief. See In re Quigley Co., 437 B.R. at 133; In re Plant Insulation Co., 485 B.R. at 227 (considering whether the protected parties provided the trust equitable” provision of 11 U.S.C. § 1129(b), which provides that the court can confirm a plan over the objection of an impaired and dissenting class of creditors if it is “fair and equitable … with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” 11 U.S.C. § 1129(b)(1). Because Montana and the Crown are in classes that overwhelmingly accepted Grace’s Joint Plan, they do not challenge plan confirmation under § 1129(b), and it is not at issue in this appeal. 42 “with sufficient benefits to justify the injunctive relief provided to them, from the perspective of future asbestos injury claimants”). Under that standard, channeling injunctions have generally been considered “fair and equitable” to future claimants when the trust contribution that will be available to those claimants bears some relationship to the estimated value to the debtor of enjoining their claims. In re Quigley Co., 437 B.R. at 140 (denying plan confirmation because future demand holders would receive only about $147 million, whereas the value to the debtor of enjoining their claims was $613 million); see also In re G-I Holdings Inc., 420 B.R. 216, 276 (D.N.J. 2009) (concluding that the “substantial contributions provided” to the trust made it fair to future claimants). Montana and the Crown do not suggest that the amount being contributed to the personal injury and property damage trusts is out of sensible proportion to the liability exposure of the protected parties.27 Rather, they contend that 27 Because Montana and the Crown do not take issue with the size of the trust contribution, we need not determine in this case when an imbalance between the liability exposure and the amount being contributed to a trust prevents an injunction from being “fair and equitable” under § 524(g). We note, however, that the trust contribution does not have to be equal to the projected liability in order for the injunction to be fair to future claimants. Although the statutory language at issue focuses on the funds available to pay future claims, § 524(g) does not require that those claims be paid in full. Rather, it requires that future claims be paid “in substantially the same manner” as present claims. 11 U.S.C. § 524(g)(2)(B)(ii)(V). In many cases, the trust may be funded 43 the TDPs are “unfair and inequitable” because they “lack certainty regarding the amount of distributions and the procedure for distributions” (Montana Opening Br. at 56), and because the Trust Advisory Committee includes “attorneys for underlying asbestos claimholders,” which they say is unfair to indirect claimants (id. at 57). We are unconvinced that those allegations are even relevant to the question of whether the channeling injunction is fair and equitable under § 524(g). As Grace points out, § 524(g)(4)(B)(ii) “is not a catch-all provision” for objecting to plan provisions (Grace Br. at 78); rather, it specifically addresses whether it is fair to enjoin future claims against the debtor in light of the amount being contributed to the trust. But even if Montana’s and the Crown’s allegations of in an amount that, as here, only allows present and future claimants to recover a portion of the value of their claims. See Federal-Mogul, 684 F.3d at 360 n.12 (“[F]ew trusts pay the full value of submitted claims; current payment percentages range widely, but the median is 25%, with most trusts paying between ten and forty-six percent of a claim’s liquidated value.”). But that alone does not mean that the injunction is unfair or inequitable, since, without such a limitation, the debtor may be forced to liquidate and be unable to pay future claims at all. For that reason, courts look for a relationship between the protected parties’ contribution to the trust and the benefit they are receiving from the injunction, and do not require the trust contribution to be equal to the estimated value of future claims. We leave for another day the question of how to determine whether the benefit of an injunction outweighs the value committed to the trust to a degree that channeling future claims would be unfair to future claimants. 44 unfairness were relevant to the statutory inquiry, they are baseless. Although they complain that the TDPs do not precisely determine the amount of future recoveries, that uncertainty is unavoidable, as it is impossible to calculate precisely how many future demands will be brought or how much those claimants will be entitled to recover. One cannot even have a § 524(g) trust unless “the actual amounts, numbers, and timing of such future demands cannot be determined.” 11 U.S.C. § 524(g)(2)(B)(ii)(II). As for their complaint regarding the Trust Advisory Committee members, that committee exercises only limited control over trust distributions, and Montana and the Crown have pointed to no evidence suggesting that the committee has or will engage in improper conduct. There therefore was no error in the District Court’s determination that the channeling injunction is fair and equitable to future claimants under § 524(g).