In Matter of Nat'l Gypsum & Aancor Holdings

• Decision Date: 18 July 2000
• Docket Number: No. 99-10758,99-10760,99-10758
• Citation: 219 F.3d 478
• Parties: (5th Cir. 2000) In the Matter of: National Gypsum Company, and Aancor Holdings, Inc., Debtors. The New National Gypsum Company, Appellant, v. The National Gypsum Company Settlement Trust, Appellee. In the Matter of: National Gypsum Company, Debtor. National Gypsum Company, Appellant, v. NGC Settlement Trust and The Asbestos Claims Management Corporation, Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 478

219 F.3d 478 (5th Cir. 2000)

In the Matter of: National Gypsum Company, and Aancor Holdings, Inc., Debtors.

The New National Gypsum Company, Appellant, v. The National Gypsum Company Settlement Trust, Appellee.

In the Matter of: National Gypsum Company, Debtor.

National Gypsum Company, Appellant, v. NGC Settlement Trust and The Asbestos Claims Management Corporation, Appellees.

No. 99-10758, 99-10760

IN THE UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

July 18, 2000

REVISED, JULY 25, 2000

Appeals from the United States District Court for the Northern District of Texas.

Before REAVLEY, SMITH, and EMILIO M. GARZA, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

In 1993, the bankruptcy court entered an order (the "Confirmation Order") confirming the joint chapter 11 plan of reorganization (the "Plan") of Aancor Holdings, Inc. ("Aancor"), and its wholly-owned subsidiary, National Gypsum Company ("Old-NGC"), and approving certain plan documents. As a result of the bankruptcy reorganization, National Gypsum Company ("New-NGC") was created as a new Delaware corporation. Four years later, the NGC Settlement Trust (the "Trust") and its subsidiary, formerly Old-NGC and now called Asbestos Claims Management Corporation ("ACMC"), filed this declaratory judgment action in bankruptcy court, seeking a determination that, under the Plan, New-NGC was liable for any unknown asbestos disease claims (the "Unknown Claims") arising from Old-NGC's torts and not resolved by the Trust.

Following an adversary hearing, the bankruptcy court delivered a bench ruling in which it concluded that under the Plan, New-NGC was liable for Unknown Claims the Trust could not satisfy. New-NGC appealed to the district court, which affirmed. Concluding that the Confirmation Order and other plan documents do not transfer liability for these Unknown Claims from Old-NGC to New-NGC, we reverse and remand.

I.

In October 1990, Old-NGC and Aancor filed petitions, later consolidated, for relief under chapter 11 of the Bankruptcy Code. Old-NGC faced two key groups of creditors: Unsecured bond and trade creditors that were owed approximately $1.1 billion, and asbestos-related claimants who had an estimated $127 million due for pending claims and projected future disease claims of $695 million to $764 million.

The bankruptcy court appointed committees to represent the holders of the unsecured bond and trade claims (the "BT Committee") and the asbestos claims (the "Asbestos Committee") and a legal representative to represent holders of Unknown Claims. After selling some of its assets, Old-NGC retained two of its subsidiary businesses: the Gold Bond Building Products division ("Gold Bond"), which produces and sells gypsum and wallboard-related products, and the Austin Company ("Austin"), a design, engineering, and construction firm. Old-NGC also retained insurance coverage ("Insurance") available to pay some asbestos claims.

Old-NGC, the Asbestos Committee, and the BT Committee agreed on how Old-NGC's assets would be used to pay commercial and asbestos claims. Commercial creditors would receive Gold Bond, and asbestos claimants would receive Old-NGC and its assets, including Austin, the Insurance, certain insurance-related claims, and $10 million from New-NGC. Under a draft plan of reorganization (the "Draft Plan"), Aancor, the parent debtor, would be merged into Old-NGC, with Old-NGC as the surviving entity. Old-NGC was to be renamed Asbestos Claims Management Corporation, and two new entities were to be created, the Trust and New-NGC. The Draft Plan was approved by the necessary classes of commercial creditors and both classes of asbestos creditors.

Under the Draft Plan, New-NGC, a new Delaware corporation, would purchase from Old-NGC the operating assets and business of Gold Bond, including the name "National Gypsum Company." The commercial creditors then would look to New-NGC, while the asbestos claimants would look to the Trust.

Because under the Draft Plan the commercial creditors would own New-NGC, worth approximately $350 million, and because they had, in return, agreed to extinguish over $1 billion in claims against Old-NGC, the commercial creditors also requested a permanent injunction, in the Confirmation Order, protecting New-NGC from future and Unknown Claims, to maximize the value of New-NGC's securities in the public markets by removing any taint from the possibility of asbestos-related liability. Thus, the Draft Plan provided not only that the Trust would be established and would assume sole responsibility for all asbestos claims, including Unknown Claims, but also that the Confirmation Order would contain a "channeling order and permanent injunction" that would channel all asbestos claims to the Trust and forever would bar the assertion of any asbestos claims against New-NGC.

The Draft Plan also provided for the formation of the Trust, which would retain Austin (valued at approximately $125 million), the Insurance (worth between $300 million and $600 million, depending on how pending coverage litigation was resolved), certain other insurance-related claims, and a $10 million cash payment from New-NGC. As a result, the Draft Plan made it likely, but not a certainty, that the Trust assets would be sufficient to pay all present and future asbestos diseases claims, particularly if the settlement in the related litigation in Georgine v. Amchem Products, Inc., 83 F.3d 610 (3d Cir. 1996), were approved.

This payment-in-full was to be accomplished through a joint defense facility, the Center for Claims Resolution ("CCR"), established in 1988 by Old-NGC and nineteen other former asbestos companies. CCR set up an administrative compensation system that, in most cases, would replace judicial resolution of asbestos claims; this facility was subject to approval in the Georgine settlement.¹ Regardless of the level of funding that ultimately would be available for these claims, however, the Trust was required to give all claims, whether current or unknown, "substantially equivalent" treatment.

If the then-pending Georgine settlement were not approved, the Draft Plan included a back-up option that required the Trust to implement the "Alternate Asbestos Disease Claims Resolution Facility" (the "Alternate Facility"), which would provide for the ratable distribution of Trust assets to all projected asbestos claimants. A claimant would receive a percentage of the liquidated value of his claim, calculated by dividing the value of Trust assets by the projected amount of all future liabilities. The Alternate Facility was designed, therefore, to preserve "sufficient resources to pay future valid [asbestos claims] on a substantially equivalent basis."

The Draft Plan was submitted to the bankruptcy court for approval. The legal representative of the Unknown Claimants opposed the provision for a permanent injunction, fearing that New-NGC would not assume even non-asbestos-related claims arising post-petition and that, as a result, those obligations might have to be born by Old-NGC or the Trust.

Following hearings on asbestos issues in January 1993, the bankruptcy court decided that it lacked jurisdiction to enjoin permanently or to discharge Unknown Claims. It reasoned that persons who had not yet suffered an injury that was cognizable under applicable non-bankruptcy law did not hold "claims" within the meaning of section 101(5) of the Bankruptcy Code. The court also concluded, however, that it did have the power to enter a temporary injunction that would require Unknown Claims first to be exhausted from the Trust before the claimants asserting them could pursue remedies against any other person, including New-NGC.

Because they were uncertain how to re-draft the injunctive language, the parties in February 1993 addressed to the bankruptcy court the issue of the temporary injunction and New-NGC's potential liability for any Unknown Claims. The court, however, was unwilling to take a position on whether New-NGC would be liable in the future for the Unknown Claims, noting that this liability should be decided according to non-bankruptcy law and that New-NGC could defend any future suits by claiming that it was not a successor to the debtors' liabilities.

As a consequence of the January 1993 decision and the February 1993 hearing, the Draft Plan was modified to eliminate the permanent injunction against Unknown Claims, though that injunction would be in effect against current asbestos claims. In March 1993, Old-NGC proposed the Third Technical Modifications to the Plan, which changed the Draft Plan (1) by drawing a distinction between current claims and Unknown Claims to exclude Unknown Claims from the discharge and (2) by removing the permanent injunction against Unknown Claims and replacing it with the more limited "Channeling Order and Injunction."

The BT Committee objected, arguing that this was a substantial change from the Draft Plan that would permit the Unknown Claims to be litigated against New-NGC after remedies against the Trust had been exhausted. The bankruptcy court rejected this objection, however, and approved the Third Technical Modifications, reasoning that the changes to the Draft Plan did "not adversely change the treatment under the Plan of any [creditor]."

As approved, then, the Plan provided, in pertinent part, that current asbestos claimants were permanently enjoined from ever suing any person other than the Trust, including New-NGC. Unknown Claimants were neither discharged nor permanently enjoined but were "made beneficiaries of the [Trust] and, pending exhaustion of the remedies of the [Trust] to resolve Unknown Claims, are enjoined" from pursuing litigation against any person, including New-NGC. This temporary injunction is referred to throughout the Plan, Confirmation Order, and briefs as the "Channeling Order."

The modifications to the Plan did not alter the previous Draft Plan's section that provided that...