In re Am. Capital Equip., LLC

• Decision Date: 25 July 2012
• Docket Number: Nos. 10–2239,10–2240.,s. 10–2239
• Citation: 688 F.3d 145,56 Bankr.Ct.Dec. 223
• Parties: 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.
• Court: U.S. Court of Appeals — Third Circuit

688 F.3d 145

56 Bankr.Ct.Dec. 223

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.

Nos. 10–2239, 10–2240.

United States Court of Appeals,Third Circuit.

Argued Oct. 25, 2011.

Filed: July 25, 2012.

Robert M. Horkovich (Argued), Anderson, Kill & Olick, New York, NY, Sally E. Edison, McGuireWoods, Pittsburgh, PA, for American Capital Equipment, LLC, and Skinner Engine Companies, Inc.

Robert A. Arcovio, Kyle T. McGee, Margolis Edelstein, Pittsburgh, PA, Michael A. Kotula, Lawrence A. Levy, Rivkin Radler, Uniondale, NY, for Allianz Global Risks.

John W. Burns, Dickie, McCamey & Chilcote, Pittsburgh, PA, Leslie A. Davis, Leslie A. Epley, Mark D. Plevin, Crowell & Moring, Washington, DC, for Century Indemnity Co. and Pacific Employers Ins. Co.

David C. Christian, Jason J. DeJonker, Seyfarth Shaw, Chicago, IL, Cushing O. Condon, Andrew I. Mandelbaum, Ford, Marrin, Esposito, Witmeyer & Gleser, New York, NY, David K. Rudov, Rudov & Stein, Pittsburgh, PA, for Continental Casualty Co. and Continental Insurance Co.

Erik Sobkiewicz, Campbell & Levine, Zakarij O. Thomas, Buchanan Ingersoll & Rooney, Pittsburgh, PA, for Fairchild Corp.

Peter B. Ackerman, Crowell & Moring, Washington, DC, Jeff D. Kahane, Russell W. Roten, Duane Morris, Los Angeles, CA, Jeffrey W. Spear, Joel M. Walker, Duane Morris, Pittsburgh, PA, for Great American Ins. Co.

Steven Bennett, Craig Goldblatt, Caroline Rogus, Danielle M. Spinelli (Argued), Wilmer Cutler Pickering Hale & Dorr, James P. Ruggeri, Shipman & Goodwin, Sambhav N. Sankar, United States Department of Justice, Environment & Natural Resources Division, Washington, DC, Timothy K. Lewis, Eric T. Smith, Paul H. Titus, Robert J. Williams, Schnader Harrison Segal & Lewis, Pittsburgh, PA, for Hartford Accident & Indemnity Co. and First State Ins. Co.

Greg Bernhard, Michael S. Davis, Yoav M. Griver, Zeichner, Ellman & Krause, New York, NY, Beverly W. Manne, Michael A. Shiner, Tucker Arensberg, Pittsburgh, PA, for National Union Fire Ins. Co. of Pittsburgh, PA.

Kimberly A. Coleman, John M. Steiner, Leech, Tishman, Fuscaldo & Lampl, Pittsburgh, PA, for the Official Committee of Unsecured Creditors.

Elisa Alcabes, Andrew S. Amer (Argued), Katherine A. McLendon, Simpson, Thacher & Bartlett, New York, NY, Joseph G. Gibbons, Amy E. Vulpio, White & Williams, Leonard P. Goldberger, WolfBlock, Mark A. Martini, Dennis J. Mulvihill, Robb, Leonard & Mulvihill, Philadelphia, PA, for Travelers Casualty & Surety Co.

Robert A. Arcovio, Kyle T. McGee, Margolis Edelstein, Pittsburgh, PA, Leslie A. Epley, Mark D. Plevin, Crowell & Moring, Washington, DC, Michael A. Kotula, Lawrence A. Levy, Rivkin Radler, Uniondale, NY, for Firemans Fund Ins. Co. of Ohio.

Alan S. Miller, Picadio, Sneath, Miller & Norton, Pittsburgh, PA, Robert B. Millner, SNR Denton US, Chicago, IL, for Liberty Mutual Ins. Co.

Douglas A. Campbell, Erik Sobkiewicz, Campbell & Levine, Pittsburgh, PA, Alan Kellman (Argued), The Jaques Admiralty Law Firm, Detroit, MI, for Willard E. Bartel.

Craig Goldblatt, Danielle M. Spinelli (Argued), Wilmer Cutler Pickering Hale & Dorr, Washington, DC, Robert J. Williams, Schnader Harrison Segal & Lewis, Pittsburgh, PA, for Hartford Fire Ins. Co.

Robert S. Bernstein, Bernstein Law Firm, Pittsburgh, PA, for Legal Representative for Future Asbestos Claimants.

Erik Sobkiewicz, Campbell & Levine, Pittsburgh, PA, for Maritime Asbestosis Legal Clinic.

Joseph M. Fornari, Jr., United States Department of Justice, Pittsburgh, PA, for U.S. Trustee.

Jeffrey J. Sikirica, Gibsonia, PA, for Interim Chapter 7 Trustee and Jeffrey J. Sikirica.

Laura A. Foggan, Wiley Rein, Washington, DC, for Complex Insurance Claims Litigation Association.

Before: FISHER, VANASKIE and ROTH, Circuit Judges.

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 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 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 Fed.Appx. 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).

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 conductof suits ... and the insured shall attend hearings and trials and 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...