Opinion ID: 21492
Heading Depth: 2
Heading Rank: 1

Heading: Plan was approved by the necessary classes of

Text: In October 1990, Old-NGC and Aancor commercial creditors and both classes of asfiled petitions, later consolidated, for relief un- bestos creditors. der chapter 11 of the Bankruptcy Code. Old- NGC faced two key groups of creditors: Un- Under the Draft Plan, New-NGC, a new secured bond and trade creditors that were Delaware corporation, would purchase from owed approximately $1.1 billion, and asbestos- Old-NGC the operating assets and business of related claimants who had an estimated $127 Gold Bond, including the name “National million due for pending claims and projected Gypsum Company.” The commercial credifuture disease claims of $695 million to $764 tors then would look to New-NGC, while the million. asbestos claimants would look to the Trust. The bankruptcy court appointed commit- Because under the Draft Plan the commertees to represent the holders of the unsecured cial creditors would own New-NGC, worth bond and trade claims (the “BT Committee”) approximately $350 million, and because they and the asbestos claims (the “Asbestos Com- had, in return, agreed to extinguish over mittee”) and a legal representative to represent $1 billion in claims against Old-NGC, the holders of Unknown Claims. After selling commercial creditors also requested a permasome of its assets, Old-NGC retained two of nent injunction, in the Confirmation Order, its subsidiary businesses: the Gold Bond Build- protecting New-NGC from future and Uning Products division (“Gold Bond”), which known Claims, to maximize the value of Newproduces and sells gypsum and wallboard- NGC’s securities in the public markets by related products, and the Austin Company removing any taint from the possibility of 3 asbestos-related liability. Thus, the Draft Plan the Trust was required to give all claims, provided not only that the Trust would be whether current or unknown, “substantially established and would assume sole responsibil- equivalent” treatment. ity for all asbestos claims, including Unknown Claims, but also that the Confirmation Order If the then-pending Georgine settlement would contain a “channeling order and perma- were not approved, the Draft Plan included a nent injunction” that would channel all asbes- back-up option that required the Trust to tos claims to the Trust and forever would bar implement the “Alternate Asbestos Disease the assertion of any asbestos claims against Claims Resolution Facility” (the “Alternate New-NGC. Facility”), which would provide for the ratable distribution of Trust assets to all projected The Draft Plan also provided for the forma- asbestos claimants. A claimant would receive tion of the Trust, which would retain Austin a percentage of the liquidated value of his (valued at approximately $125 million), the claim, calculated by dividing the value of Trust Insurance (worth between $300 million and assets by the projected amount of all future $600 million, depending on how pending cov- liabilities. The Alternate Facility was designed, erage litigation was resolved), certain other therefore, to preserve “sufficient resources to insurance-related claims, and a $10 million pay future valid [asbestos claims] on a subcash payment from New-NGC. As a result, stantially equivalent basis.” the Draft Plan made it likely, but not a cer- tainty, that the Trust assets would be sufficient The Draft Plan was submitted to the bankto pay all present and future asbestos diseases ruptcy court for approval. The legal represenclaims, particularly if the settlement in the re- tative of the Unknown Claimants opposed the lated litigation in Georgine v. Amchem Prod- provision for a permanent injunction, fearing ucts, Inc., 83 F.3d 610 (3d Cir. 1996), were that New-NGC would not assume even nonapproved. asbestos-related claims arising post-petition and that, as a result, those obligations might This payment-in-full was to be accom- have to be born by Old-NGC or the Trust. plished through a joint defense facility, the Center for Claims Resolution (“CCR”), estab- Following hearings on asbestos issues in lished in 1988 by Old-NGC and nineteen other January 1993, the bankruptcy court decided former asbestos companies. CCR set up an that it lacked jurisdiction to enjoin permanently administrative compensation system that, in or to discharge Unknown Claims. It reasoned most cases, would replace judicial resolution that persons who had not yet suffered an injury of asbestos claims; this facility was subject to that was cognizable under applicable nonapproval in the Georgine settlement.1 Regard- bankruptcy law did not hold “claims” within less of the level of funding that ultimately the meaning of section 101(5) of the Bankwould be available for these claims, however, ruptcy Code. The court also concluded, however, that it did have the power to enter a tem- porary injunction that would require Unknown 1 See Amchem Products, Inc. v. Windsor, 521 Claims first to be exhausted from the Trust be- U.S. 591, 599-605 (1997) (describing the CCR’s fore the claimants asserting them could pursue system for settling and compensating asbestos- remedies against any other person, including related claims). 4 New-NGC. As approved, then, the Plan provided, in pertinent part, that current asbestos claimants Because they were uncertain how to re- were permanently enjoined from ever suing draft the injunctive language, the parties in any person other than the Trust, including February 1993 addressed to the bankruptcy New-NGC. Unknown Claimants were neither court the issue of the temporary injunction and discharged nor permanently enjoined but were New-NGC’s potential liability for any Un- “made beneficiaries of the [Trust] and, pending known Claims. The court, however, was un- exhaustion of the remedies of the [Trust] to rewilling to take a position on whether New- solve Unknown Claims, are enjoined” from NGC would be liable in the future for the pursuing litigation against any person, includUnknown Claims, noting that this liability ing New-NGC. This temporary injunction is should be decided according to non-bank- referred to throughout the Plan, Confirmation ruptcy law and that New-NGC could defend Order, and briefs as the “Channeling Order.” any future suits by claiming that it was not a successor to the debtors’ liabilities. The modifications to the Plan did not alter the previous Draft Plan’s section that provided As a consequence of the January 1993 that New-NGC would not assume asbestos liadecision and the February 1993 hearing, the bilities of Old-NGC: “Upon consummation of Draft Plan was modified to eliminate the per- the Merger and this Plan, New-NGC shall permanent injunction against Unknown Claims, form all of the obligations of the Debtors unthough that injunction would be in effect der this Plan (except for the obligations reagainst current asbestos claims. In March garding the Asbestos Claims which shall be the 1993, Old-NGC proposed the Third Technical sole responsibility of the [Trust]).” “Asbestos Modifications to the Plan, which changed the Claims” were defined to include both current Draft Plan (1) by drawing a distinction be- and Unknown Claims. Likewise, the Confirtween current claims and Unknown Claims to mation Order included a detailed description of exclude Unknown Claims from the discharge the Channeling Order and reiterated that and (2) by removing the permanent injunction “New-NGC shall not be subject to the comagainst Unknown Claims and replacing it with mencement or continuation of litigation by any the more limited “Channeling Order and Injunc- person on or on account of Unknown Asbestion.” tos Disease Claims pending exhaustion of the remedy or remedies provided by the [Trust].” The BT Committee objected, arguing that this was a substantial change from the Draft Finally, the assets of Old-NGC were transPlan that would permit the Unknown Claims ferred to New-NGC pursuant to an asset purto be litigated against New-NGC after reme- chase agreement (the “APA”). The APA was dies against the Trust had been exhausted. expressly approved by the bankruptcy court’s The bankruptcy court rejected this objection, Confirmation Order and provided that Newhowever, and approved the Third Technical NGC would not assume any asbestos-related Modifications, reasoning that the changes to liabilities, including Unknown Claims. In July the Draft Plan did “not adversely change the 1993, the Plan was substantially consummated, treatment under the Plan of any [creditor].” and New-NGC issued to commercial creditors its securities, which subsequently were traded 5 in the public markets. mation Order, the Plan and the [APA] arguably support the Appellant’s arguments that In May 1996, the Third Circuit set aside the New NGC emerged from the bankruptcy proGeorgine settlement, and the Supreme Court ceedings without any liability for unknown asaffirmed that decision in Amchem, 521 U.S. bestos claims.” Nevertheless, the district court at 629. This led directly to the filing of the concluded that those provisions should be read present lawsuit SSthe Trust alleged that be- in the context of the entire Plan, and it agreed cause it could no longer participate in the CCR that implicit in the Confirmation Order was the facility, its assets would be insufficient to pay idea “that if the Trust had insufficient assets to full tort values to all asbestos disease claim- satisfy the unknown claims, those claimants ants. The Trust, as a result, looked for alter- could look to New NGC.” nate funding for asbestos claimants and sought a determination that “the Plan Documents indi- II. cate New NGC has liability for the asbestos New-NGC asserts that the Trust is not the liabilities of Old NGC.” Specifically, the Trust real party in interest and, in a related argucontended that the bankruptcy court’s 1993 ment, that the Trust does not have standing to denial of the permanent injunction, the entry of seek the determination that New-NGC is liable the Channeling Order, and the findings made in for Unknown Claims. First, New-NGC argues support of those decisions indicated that New- that the real parties in interest are any potential NGC was liable for the Unknown Claims. Unknown Claimants who first exhaust Trust remedies without having their claims resolved, The bankruptcy court agreed with the then obtain a judicial termination of the ChanTrust, stating that “the plan as confirmed by neling Order as to their claims, and finally order of this court implicitly imposes or main- bring their claims against New-NGC in nontains liability on New-NGC for asbestos dis- bankruptcy courts based on applicable state ease non-Bankruptcy Code claims not dis- law. New-NGC points out that no such claimcharged by the confirmation order and not sat- ants yet exist. isfied by the Trust.” The court explained why this result was only “implicit”: New-NGC asserts that the Trust has no substantive rights of its own against New- By implicitly addressing this asbestos NGC, because the Plan and Confirmation Orliability, rather [than] explicitly doing so, der contemplate that the Trust retain liability and by deferring the matter as provided for all asbestos claims until its assets are exin the plan, the court enabled New NGC hausted. Thus, New-NGC ressons that beto emerge in the marketplace post-con- cause the Trust has no rights under substantive firmation as an effective entity, poised, law against New-NGC, New-NGC cannot be under the right market conditions to the real party in interest.2 prosper, and thereby benefit all the con- stituencies. 2 See Farrell Constr. Co. v. Jefferson Parish, In affirming the bankruptcy court, the dis- La., 896 F.2d 136, 140 (5th Cir. 1990) (“[A] party trict court acknowledged that “[w]hen viewed not possessing a right under substantive law is not in isolation, certain provisions of the Confir- the real party in interest with respect to that right (continued...) 6 The Trust properly points out, however, that because the interpretation of a court order that the real party in interest is “not necessarily is purely a question of law, our review must be the person who will ultimately benefit from the de novo.3 recovery.” See Farrell, 896 F.2d at 140. Be- cause the Plan charges the Trust with the on- The Trust responds by arguing that a going duty of distributing the assets of the es- court’s interpretation of its own order should tate to the asbestos creditors, the substantive be entitled to deference if it is not plainly right the Trust seeks to be enforced is the right contradicted by the Plan documents.4 The to have the bankruptcy court interpret and Trust notes that the bankruptcy court presided construe the Confirmation Order, Plan, and at the confirmation hearings, considered the plan documents regarding matters as to which relevant factual and legal arguments, made there is a substantial and immediate contro- extensive findings and conclusions in connecversy. tion with confirmation, and so developed a comprehensive understanding of the Plan. Without the bankruptcy court’s interpreta- Thus, the Trust urges that a deferential stantion of the meaning of the Plan, the Trust will dard is “eminently proper.” be faced with a fiduciary dilemma, in that it will be uncertain how to treat its beneficiaries, The proper reconciliation of these two posithe Unknown Claimants. This dilemma exists tions is that we should review de novo the because the trustees cannot know whether purely legal issuesSSe.g., the effect of the these future claimants ultimately will have a documents on New-NGC’s liability for Unremedy against New-NGC, and, as a result, known ClaimsSSbut should defer to the bankthe trustees cannot know, with any certainty, ruptcy court’s reasonable resolution of any whether the Trust must reduce the current ambiguities in those documents. Because pro-rata distribution under the Alternate Facil- New-NGC is correct that the bankruptcy ity. court’s ultimate determination of the meaning of the Plan and Confirmation Order is a legal Therefore, the Trust properly has brought one, however, the documents must truly be the current declaratory judgment action seek- ambiguous, even in light of other documents in ing a determination of whether, under the Con- the record, before we will defer. firmation Order and Plan, it can count on New-NGC to pay any of the Unknown Claims. B. Accordingly, the Trust is a real party in inter- New-NGC argues that the district court est and has standing.