Motor Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.)
| Decision Date | 03 April 2012 |
| Docket Number | Nos. 10–56543,10–56622.,s. 10–56543 |
| Citation | 12 Cal. Daily Op. Serv. 3749,2012 Daily Journal D.A.R. 4299,677 F.3d 869 |
| Parties | In the Matter of THORPE INSULATION COMPANY, Debtor,Motor Vehicle Casualty Company; Central National Insurance Company of Omaha; Century Indemnity Company, successor to Cigna Specialty Insurance Company, FKA California Union Insurance Company, Appellants, v. Thorpe Insulation Company; Pacific Insulation Company, Appellees,National Fire Insurance Company of Hartford, as successor by merger to Transcontinental Insurance Company; Continental Insurance Company, as successor in interest to certain policies issued by Harbor Insurance Company; Official Committee of Unsecured Creditors, of Thorpe Insulation Company and Pacific Insulation Company; Charles B. Renfrew, Real Parties in Interest.In the Matter of Thorpe Insulation Company, Debtor,National Fire Insurance Company of Hartford, as successor by merger to Transcontinental Insurance Company; Continental Insurance Company, as successor in interest to certain policies issued by Harbor Insurance Company, Appellants, v. Thorpe Insulation Company; Pacific Insulation Company, Appellees,Central National Insurance Company of Omaha; Motor Vehicle Casualty Company; Century Indemnity Company, successor to Cigna Specialty Insurance Company, FKA California Union Insurance Company; Official Committee of Unsecured Creditors, of Thorpe Insulation Company and Pacific Insulation Company; Charles B. Renfrew, Administrative Law Judge, Real Parties in Interest. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
David C. Christian, II (argued), Seyfarth Shaw LLP, Chicago, IL; James M. Harris, Seyfarth Shaw LLP, Los Angeles, CA; Todd C. Jacobs, Grippo & Elden LLC, Chicago, IL, for appellants Continental Insurance Company and National Fire Insurance Company of Hartford.
Tancred V. Schiavoni (argued), Gary Svirsky, O'Melveny & Myers LLP, New York, NY; Richard B. Goetz, Jaclyn Blankenship, O'Melveny & Myers LLP, Los Angeles, CA; Jonathan Hacker, O'Melveny & Myers LLP, Washington, D.C.; Alan S. Berman, the Berman Law Group, Woodland Hills, CA, for appellants Motor Vehicle Casualty Company, Central National Insurance Company of Omaha, and Century Indemnity Company, successor to Cigna Specialty Insurance Company f/k/a California Union Insurance Company.
Thomas E. Patterson (argued), Kenneth N. Klee, Daniel J. Bussel, and David M. Guess, Klee, Tuchin, Bogdanoff & Stern LLP, Los Angeles, CA; Jeremy V. Richards and Scotta E. McFarland, Pachulski, Stang, Diehl & Jones LLP, Los Angeles, CA, for appellee Thorpe Insulation Company.John A. Lapinski and Leslie R. Horowitz, Clark & Trevithick, P.L.C., Los Angeles, CA, for appellee Pacific Insulation Company.Peter Van N. Lockwood (argued), Caplin & Drysdale, Chartered, Washington, D.C.; Peter J. Benvenutti, Jones Day, San Francisco, CA, for appellee Counsel for the Official Committee of Unsecured Creditors of Thorpe Insulation Company and Pacific Insulation Company.Gary Fergus, Fergus, A Law Office, San Francisco, CA, for appellee Charles B. Renfrew, the Futures Representative.Appeal from the United States District Court for the Central District of California, Dale S. Fischer, District Judge, Presiding. D.C. No. 2:10–cv–01493–DSF.Before: MARY M. SCHROEDER and RONALD M. GOULD, Circuit Judges, and RICHARD SEEBORG, District Judge.*
The opinion in the above-captioned matter filed on January 24, 2012, and found at 2012 WL 178998, 55 Bankr.Ct. Dec. 278, is amended as follows:
At slip opinion page 671, line 29, delete the following two sentences:
Judge Gould has voted to deny the Petition for Rehearing En Banc, and Judges Schroeder and Seeborg have so recommended. The full court has been advised of the Petition for Rehearing En Banc and no judge has requested a vote on whether to rehear the matter en banc. Fed. R.App. P. 35. The Petition for Rehearing En Banc is denied.
No future petitions for rehearing or rehearing en banc will be entertained.
IT IS SO ORDERED.
The district court affirmed a bankruptcy court's confirmation of a Chapter 11 plan of reorganization under 11 U.S.C. § 524(g), a special provision for the reorganization of companies facing substantial asbestos-related liability. Appellants are several insurance companies that did not reach settlements with Thorpe Insulation Company (Thorpe) and Pacific Insulation Company (Pacific), together the Debtors in bankruptcy court, and who were denied standing to challenge the reorganization plan. The district court held that the reorganization plan was insurance neutral, and so Appellants did not have standing to object to the plan; and it also held that the plan preempted Appellants' state law contract rights. We affirm the district court's conclusion that the plan preempted Appellants' state law contract rights. We disagree with the position of Debtors that the appeal is equitably moot, and, reaching the merits, we reverse the district court's conclusion that Appellants lacked standing. We remand to the district court with instructions that it return the case to the bankruptcy court to give Appellants the opportunity to present their proof and argument.
Thorpe is a California company that distributed, installed, and repaired asbestos insulation products between 1948 and 1972. This led to substantial asbestos-related litigation. In the past thirty years, Thorpe has faced about 12,000 claims and lawsuits for personal injury or wrongful death based on asbestos exposure. Robert and Linda Fults owned Thorpe until 2008, when they transferred their shares to their sons Eric and David Fults. In 2000, Thorpe incorporated Pacific as a wholly-owned subsidiary and conveyed to it the assets associated with its materials division. Robert and Linda Fults were the sole shareholders of Pacific. Pacific, a profitable business, has been named in asbestos-related lawsuits as a successor-in-interest to Thorpe. In 2004, Thorpe sold its remaining assets to Farwest Insulation Contracting (“Farwest”), owned by Eric and David Fults, in a private foreclosure sale. Farwest is also a party to many asbestos-related lawsuits and insurance coverage litigation.
Thorpe purchased insurance policies with many companies that covered “products claims” (or “products/completed operations,” for injuries caused by asbestos exposure after a product is relinquished or an operation completed), which are subject to aggregate limits, and “operations claims” (or “nonproducts,” for injuries caused by asbestos exposure before a product is relinquished or an operation completed), which are not subject to aggregate limits. Since 1978, Thorpe's many insurers have handled the defense and settlement of asbestos suits. Thorpe's insurers paid more than $180 million defending and indemnifying Thorpe until, in their view, the policies' aggregate limits were exhausted.1
Debtors Thorpe and Pacific filed for protection under Chapter 11 of the Bankruptcy Code on October 15, 2007 and October 31, 2007, respectively. Thorpe estimated that, at the time of the bankruptcy filing, 2,000 asbestos cases were pending against it, and Thorpe anticipated that many more suits would be filed in the future.
Thorpe applied to employ the law firms of Snyder Miller & Orton LLP and Morgan Lewis & Bockius LLP as special insurance counsel. Appellants objected that the firms had conflicts of interest because they represented asbestos claimants against Thorpe, but the bankruptcy court approved the employment of the law firms, taking the view that Appellants lacked standing to object. The issue was appealed, the district court remanded for fact-finding, and the bankruptcy court again approved the firms' retention without input from Appellants.
In May 2008, Thorpe, Pacific, the appointed Official Committees of Unsecured Creditors, and the appointed legal representative for holders of future asbestos-related claims (“Appellees”) filed a § 524(g) joint plan of reorganization. The current and Fifth Amended Plan of reorganization was filed in December 2009. It is that plan, approved by the bankruptcy court and the district court, that is the subject of this appeal.
Section 524(g) allows a bankruptcy court to issue sweeping channeling injunctions in Chapter 11 cases involving asbestos claims. § 524(g); 4 Collier on Bankruptcy ¶ 524.07. The statute was enacted to adopt the approach taken in the Johns–Manville bankruptcy case, wherein a trust (the “ Manville Trust”) was established together with a series of injunctions to channel asbestos-related claims to the trust. See Kane v. Johns–Manville Corp., 843 F.2d 636 (2d Cir.1988). Because of the often lengthy latency period of asbestos-related injuries, the § 524(g) injunction aims to “control the future litigation of all asbestos-related claims against the parties it protects” by preventing “any entity from taking legal action to collect a claim or demand that is to be paid in whole or in part by a trust created through a qualifying plan of reorganization.” Collier on Bank.¶ 524.07. The injunction may bar actions against the debtor itself as well as claims against the debtor directed at third parties who are directly or indirectly liable—such as where a third party has insured the debtor. Id.; § 524(g)(4)(A)(ii). The bankruptcy court may establish such an injunction if it determines that (1) “the debtor is likely to be subject to substantial future demands for payment arising out of” asbestos-related claims; (2) “the actual amounts, numbers, and timing of such future demands cannot be determined”; and (3) “pursuit of such demands outside the [trust] is likely to threaten the [reorganization] plan's purpose to deal equitably with claims and future demands.” § 524(g)(2)(B)(ii).
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