In re Aldrich Pump LLC

• Docket Number: 20-30608
• Decision Date: 28 December 2023
• Parties: In re: Aldrich Pump LLC, Murray Boiler LLC, Debtors.
• Court: U.S. Bankruptcy Court — Western District of North Carolina

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In re: Aldrich Pump LLC, Murray Boiler LLC, Debtors.

No. 20-30608

United States Bankruptcy Court, W.D. North Carolina, Charlotte Division

December 28, 2023

ORDER DENYING MOTIONS TO DISMISS

J. CRAIG WHITLEY, UNITED STATES BANKRUPTCY JUDGE.

THIS MATTER is before this Court upon 1) the Motion to Dismiss on Behalf of Robert Semian and Other Clients of MRHFM (the "Maune Motion") and 2) the Motion of the Official Committee of Asbestos Personal Injury Claimants to Dismiss the Debtors' Chapter 11 Cases (the "ACC Motion"). Semian's Motion to Dismiss, Case No. 20-30608, Doc. 1712 (Apr. 6, 2023); The Official Committee of Asbestos Personal Injury Claimants' Motion to Dismiss, Case No. 20-30608, Doc. 1756 (May 15, 2023). Joinders to these motions have been filed by several asbestos claimants' law firms and by the decedent's estate of one claimant. See Motley Rice's Supporting Motion to Dismiss, Case No. 20-30608, Doc. 1716 (Apr. 13, 2023); Nemeroff's Joinder in Motion to Dismiss, Case No. 20-30608, Doc. 1746 (May 9, 2023); DeRobertis & Waxman's Joinder in

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Motion to Dismiss, Case No. 20-30608, Doc. 1778 (May 31, 2023); Hazelwood's Joinder in Motion to Dismiss, Case No. 20-30608, Doc. 1810 (June 15, 2023).

The Debtors, Aldrich Pump LLC ("Aldrich") and Murray Boiler LLC ("Murray") (together, the "Debtors"), and the Future Asbestos Claimants' Representative ("FCR") have objected to the Motions. Future Asbestos Claimaints' Representative's Opposition to Motion to Dismiss, Case No. 20-30608, Doc. 1779 (June 1, 2023); Aldrich Pump's Objection to Motion to Dismiss, Case No. 20-30608, Doc. 1781 (June 1, 2023); Future Asbestos Claimaints' Representative's Opposition to Motion to Dismiss, Case No. 20-30608, Doc. 1809 (June 15, 2023); Aldrich Pump's Objection to Motion to Dismiss, Case No. 20-30608, Doc. 1813 (June 15, 2023). Joinders to the Debtors/FCR objections have been filed by the Debtors' Affiliates and even certain adversary proceeding defendants. Trane Technologies Company's Joinder to the Debtor's Objection to Motion to Dismiss, Case No. 20-30608, Doc. 1784 (June 1, 2023); Trane Technologies Company's Joinder to the Debtor's Objection to Motion to Dismiss, Case No. 20-30608, Doc. 1815 (June 15, 2023); Joinder of the Fiduciary Duty Proceeding Individual Defendants to Debtors' Objection to Motion to Dismiss, Case No. 20-30608, Doc. 1817 (June 15, 2023). A hearing on the Motions was held on July 14, 2023.

INTRODUCTION

On June 18, 2020, seven weeks after having been born in a Texas law divisional merger out of the former Trane companies, Aldrich and Murray filed Chapter 11 in this judicial district. They brought with them all their predecessor companies' considerable asbestos liabilities: over 90,000 lawsuits. These liabilities, and those to come, had been allocated to the Debtors in the merger. By contrast, the Debtors possessed no employees, a limited business, and only a fraction of their predecessors' assets. These assets are insufficient to pay the asbestos claims. However,

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each Debtor holds one asset of potentially material value: a contract promise from its substantially more prosperous twin, denominated a 'Funding Agreement.'

Those twins, Trane Technologies Company LLC ("New TTC")^[1] and Trane U.S. Inc. ("New Trane")^[2] were also created in the merger. They, however, had been blessed with all of the companies' employees and almost all of the assets and operations. Under the Funding Agreements, New TTC owed Aldrich a contractual promise and New Trane owed the same to Murray: should the Debtors enter bankruptcy and confirm a Section 524(g) plan shielding New Trane and New Trane Technologies from their predecessor's asbestos claims, the twins would fund an asbestos trust to pay the allowed claims of asbestos victims.

To that end, Aldrich and Murray filed voluntary petitions on June 18, 2020. Since then, the Debtors and their backers have battled the asbestos claimants over the propriety of these cases and the effort to resolve the tort claims of admittedly solvent entities in bankruptcy.

STATEMENT OF POSITIONS

Maune/Semian. The Maune law firm represents forty-seven asbestos claimants (collectively, the "Maune Claimants"), including claimant Robert Semian (individually, "Semian"). The Maune Claimants maintain that these reorganization cases are "bad faith" filings. In their view, bankruptcy relief is reserved for companies and individuals having trouble paying their bills or imminently in danger of having trouble paying their bills. Such "financial distress" they deem to be a "categorical" and "jurisdictional" bankruptcy requirement. Semian's Motion to Dismiss, Doc. 1712, p. 10 [hereinafter: "Maune's Motion to Dismiss"]. Because Aldrich and Murray and their legal predecessors are not now-and never have been-financially distressed, the Maune Claimants say these Debtors need no resuscitation and require no fresh start. See id. at

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pp. 8-9. Nor should such companies be permitted to wield a bankruptcy court's "powerful equitable weapons" for the benefit of their non-debtor affiliates. Id. at pp. 10-11. The weapons referenced are primarily the ability to deny claimants their due process and jury trial rights in favor of a "no opt out" trust claims resolution mechanism. Finally, the Maune Claimants argue that the Fourth Circuit's seminal "bad faith" filing decision, Carolin Corp v. Miller, does not preclude dismissal of these cases,^[3] but requires it. 886 F.2d 693 (4th Cir. 1989).

ACC. The Official Committee of Asbestos Personal Injury Claimants ("ACC") reiterates the argument that the Debtors can pay their creditors in the ordinary course of business, their economic viability is not threatened by their liabilities, and therefore these cases were filed in "bad faith." ACC's Motion to Dismiss, Doc. 1756, p. 64. The ACC also maintains that affording bankruptcy relief to such solvent, non-distressed entities exceeds the enabling powers granted to Congress by the Bankruptcy Clause of the Constitution. Id. at p. 33. The ACC characterizes this as a "threshold constitutional matter." Id.

Alternatively, the ACC believes "cause" exists to dismiss these cases under 11 U.S.C. § 1112(b), for four separate reasons: a) the "Texas Two-Step" (the corporate restructuring that created these debtors and the follow-on bankruptcies that Aldrich and Murray filed) is an improper, prejudicial manipulation of the bankruptcy process designed to delay and suppress recoveries for the asbestos creditors, id. at p. 54,; b) the Debtors are using these Chapter 11 cases to benefit insiders and affiliates at the expense of the asbestos claimants, thus breaching their fiduciary duties to creditors, id. at pp. 57-58,; c) the debtors are a modern form of the "new debtor syndrome," which courts have long treated as cause for dismissal, id. p. 58; and d) "unreasonable delay" exists, as we are three years into these cases and the Debtors still have been unable to achieve their stated

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goal of fashioning a "final" and "fair" resolution of their asbestos liabilities that compensates victims in "full." See id. at pp. 63-64.

Debtors. The Debtors would have me deny these motions for laches and on estoppel grounds. Debtor's Objection, Doc. 1781, p. 24; Debtor's Objection, Doc. 1813, p. 21. They argue these motions could have been filed at the outset of these cases but instead were not. Debtor's Objection, Doc. 1813, pp. 21-22. They contend three years into these cases is simply too late to contest the propriety of the bankruptcy filings. Debtor's Objection, Doc. 1781, p. 27.

Second, Aldrich and Murray believe their cases to be entirely proper. They maintain that subject matter jurisdiction lies under 28 U.S.C. §1334, and their eligibility as chapter 11 debtors is clearly established under section 109(d) of the Bankruptcy Code. Debtor's Objection, Doc. 1781, p. 8; Debtor's Objection, Doc. 1813, pp. 15-16. And, according to the Debtors, these dismissal motions are not "jurisdictional;" nor are their cases "unconstitutional." Debtor's Objection, Doc. 1813, pp. 10-11.

The Debtors further maintain that their cases were filed in "good faith." First, they do not believe "financial distress" to be a requirement for filing Chapter 11. Debtor's Objection, Doc. 1781, p. 32; Debtor's Objection, Doc. 1813, pp. 12-13. Second, at the filing date, Aldrich and Murray faced 90,000 asbestos claims, and they anticipated that such claims would continue to be asserted against them for decades. Informational Brief of Aldrich Pump LLC and Murray Boiler LLC, Case No. 20-30608, Doc. 5, pp. 36-38 (June 18, 2020). Such a volume of claims could not be tried in the tort system. Thus, Aldrich and Murray filed Chapter 11 to access the Section 524(g) trust mechanisms of the Code to pay allowed claims more efficiently. Debtor's Objection, Doc. 1781, p. 60, see Debtor's Objection, Doc. 1813, p. 26. Paying asbestos claims under a bankruptcy trust is, to their minds, a "valid reorganizational purpose." Debtor's Objection, Doc. 1781, p. 56;

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Debtor's Objection, Doc. 181, p. 10.

Aldrich and Murray further maintain that their cases pass the Fourth Circuit's "bad faith" test in Carolin Corp. v. Miller, as recently applied in a similar case from this judicial district, In re Bestwall LLC. See Bestwall, 605 B.R. at 49; Carolin Corp, 886 F.2d 693.

The Debtors say that any "cause" or "unreasonable delay" under Section 1112 in these cases must be placed at the feet of the ACC and the asbestos claimants. Debtor's Objection, Doc. 1813, p. 27. Since filing Chapter 11, the Debtors have attempted to move with dispatch; they have reached accord with the FCR on a plan and have secured funding for the same. See Chapter 11 Plan, Case No. 20-30608, Doc. 831 (Sep. 24, 2021). Meanwhile, the ACC and the claimants' law firms are accused of attempting to derail this reorganization by refusing to engage in plan negotiations, and filing...