In re Celotex Corp.

• Decision Date: 29 May 2007
• Docket Number: No. 05-12941.,05-12941.
• Citation: 487 F.3d 1320
• Parties: In re: CELOTEX CORPORATION, Carey Canada Inc., Debtors. Asbestos Settlement Trust, Plaintiff-Appellant, v. City of New York, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

487 F.3d 1320

In re: CELOTEX CORPORATION, Carey Canada Inc., Debtors Asbestos Settlement Trust, Plaintiff-Appellant, v. City of New York, Defendant-Appellee.

No. 05-12941.

United States Court of Appeals, Eleventh Circuit.

May 29, 2007.

Jeffrey W. Warren, Bush, Ross, Gardner, Warren & Rudy, P.A., Tampa, FL, for Appellant.

Alan H. Kleinman, New York City Law Dept., New York City, for Appellee.

John W. Kozyak, Kozyak, Tropin & Throckmorton, P.A., Coral Gables, FL, Elihu Inselbuch, Caplin & Drysdale, Chartered, New York City, Marilyn A. Kueper, Ill. Atty. Gen. Office, Springfield, IL, Albert G. Lauber, Caplin & Drysdale, Chartered, Washington, DC, for Amici Curiae.

Appeal from the United States District Court for the Middle District of Florida.

Before BIRCH, CARNES and BRUNETTI,^* Circuit Judges.

BRUNETTI, Circuit Judge:

The Asbestos Settlement Trust was uniquely created to resolve and liquidate thousands of personal injury and property damage claims against The Celotex Corporation and Carey Canada. This appeal involves one subset of those claims: asbestos property damage claims by the City of New York that the claims administrator allowed but the trustees refused to pay. The City of New York and the trustees dispute the scope of the trustees' power to overrule the administrator's determinations, whether the administrator's decisions or the trustees' decisions are entitled to deference, and ultimately whether the City of New York's claims must be paid. The bankruptcy court granted summary judgment in favor of the City of New York, and the district court affirmed. We affirm in part and reverse and remand in part.

I

The Celotex Corporation ("Celotex") was a major manufacturer and nationwide distributor of building materials containing asbestos. Carey Canada Inc. ("Carey Canada"), a wholly-owned subsidiary of Celotex, mined and distributed asbestos fiber until it ceased operations in 1986. In October 1990, Celotex and Carey Canada (collectively "Debtors") filed petitions for Chapter 11 bankruptcy protection after being named as defendants in thousands of asbestos personal injury ("PI") lawsuits filed by individuals and hundreds of asbestos property damage ("PD") lawsuits filed by property owners injured by the presence of asbestos-containing materials in their buildings. In re Celotex Corp., 204 B.R. 586, 589, 604-05 (Bankr.M.D.Fla. 1996) (findings of fact and conclusions of law supporting confirmation of the plan of reorganization). The City of New York was one of those PD plaintiffs.

Producing an acceptable and workable Chapter 11 reorganization plan ultimately required multiple proposals by interested parties, modifications, and extensive armslength negotiations, settlements and compromises over the course of six years. Id. at 597 ¶ 68, 601-02 ¶¶ 118, 120. A major point of contention involved how to ensure that PI and PD claimants would be paid in substantially equivalent proportions despite inherent class differences. The number of PD claims was fixed (approximately 4,800 claims from 125 claimants), but the number of PI claimants (over 500,000 at last count) continues to expand as new individuals manifest asbestos-related injuries.

The reorganization plan initially proposed by the Debtors in March 1996 contemplated a segregated and fixed fund for PD claims, with PI claims being paid out of the remaining assets. The Debtors' proposal was supported by the Asbestos Property Damage Claimants Committee; however, other interested groups challenged the segregated fund as allegedly too large and therefore unfair to PI claimants, whose fractional recovery against the remaining assets might prove proportionately smaller than that of PD claimants. After lengthy and unsuccessful negotiations, the Debtors' proposed plan was withdrawn. The Bankruptcy Court denied confirmation, terminated the exclusive period under 11 U.S.C. § 1121(b), and opened the doors to interested parties to file proposed plans by July 1996. Id. at 591 ¶¶ 13-15.

Competing reorganization plans were filed by parties on both sides of the segregated fund dispute, with the Debtors shifting alliances. The Debtors, in cooperation with those who had opposed the Debtors' initial proposal (collectively, the "Plan Proponents"), proposed one plan. The Asbestos Property Damage Claimants Committee proposed another. Id. at 591 ¶¶ 16-19.

This time the competing factions successfully negotiated their differences. By agreement, the Committee's proposed plan was withdrawn and the Plan Proponents' plan was modified and re-filed October 7, 1996. Id. at 592 ¶ 21. After subsequent modifications and a hearing on confirmation, the Modified Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code for The Celotex Corporation and Carey Canada Inc. (the "Plan") was confirmed by bankruptcy court in a written decision issued December 6, 1996. Id. at 616. Among many other things, the bankruptcy court found: "The settlements and compromises contained in the Plan are fair, reasonable, equitable and in the best interest of the Debtors' creditors and their Estates." Id. at 602 ¶ 120.

A principal feature of the Plan is the creation of the Asbestos Settlement Trust (the "Trust"), which was established in accordance with section 524(g) of the Bankruptcy Code, a provision specifically applicable to Chapter 11 reorganizations involving asbestos tort liabilities. 11 U.S.C. § 524(g)(2)(B)(I). The Trust is also intended to be a qualified settlement fund under section 468B of the Internal Revenue Code, 26 U.S.C. § 468B. See Plan arts. 5.1, 7.3; Trust art. 2.2. It was executed under and is governed by Florida law. Trust art. 9.11.

The purposes of the Trust are essentially to receive and manage the Trust assets (over $1.2 billion), to assume the Debtors' current and future liabilities from asbestos PI and PD claims (estimated at over $13 billion), and "to address, liquidate, resolve, and disallow or allow and pay Asbestos Claims." In re Celotex, 204 B.R. at 602 ¶ 121; see also 11 U.S.C. § 524(g)(2)(B)(I); Plan art. 5.1; Trust art. 2.2. In contrast to the original proposal of segregated funds, the Trust adopts more of a hybrid approach by segregating the processing but not the payment of PI and PD claims. To ensure substantially equal treatment among both classes, all allowed claims are to be paid out of the Trust as a unified fund, with the distribution of payments administered by a panel of Trustees. See Plan arts. 4.8(a)(8), 5.1; Trust arts. 2.2, 3.3, 3.4. The claims are processed in the first place, however, under separate procedures administered by different entities. PI claims are administered by the Trustees under the Asbestos Personal Injury Claims Resolution Procedures ("APICRP"). Trust arts. 3.1(c)(viii), 3.3(b)(iii). PD claims are administered by the Property Damage Claims Administrator (the "Administrator") under the Asbestos Property Damage Claims Resolution Procedures ("APDCRP"). Plan art. 4.8(a)(8); Trust arts. 1.2, 3.3(c). As the Administrator is but one person, he is charged with the establishment and supervision of a claims facility (the "PD Facility") to conduct the day-to-day processing and disposition of PD claims under the APDCRP. APDCRP § IV(A)(35). The APICRP and the APDCRP, collectively known as the Asbestos Claims Resolution Procedures ("CRP"), are annexed to and incorporated by reference within the Trust Agreement (collectively, the "Trust Documents"), and along with the Trust Agreement are in turn incorporated within the Plan (collectively, the "Plan Documents").¹ Plan arts. 1.26, 1.106, 1.143, 1.146; Trust art. 1.2. In the event of inconsistencies, the Plan controls. See Trust art. 9.13.

The APDCRP set forth, among other things, the legal prerequisites for allowing or disallowing PD claims, the standard of proof, the documentation requirements for each category of PD claims, and the procedures for processing, investigating and officially resolving PD claims, including procedures for reconsideration and binding arbitration in the event the claimant is unsatisfied by the PD Facility's determination. APDCRP § IV(B)-(E). Although generally "taking into account basic principles and laws of the tort system," the APDCRP relax the usual standards of proof by requiring only "Reasonable Evidence" or "evidence sufficient to present a jury issue under the tort system of one of the Applicable Jurisdictions." APDCRP §§ III, IV(A)(37), (B)(1). A major tradeoff is that allowed claims are not paid in full. Because the Trust's current and future liabilities for asbestos claims greatly exceed the Trust assets, the Plan directs the Trustees to pay all allowed PI and PD claims according to a "Payment Percentage," which the Trustees may adjust from time to time to ensure substantially equal treatment of all present and future claims. See Plan art. 5.1. Historically, allowed claims have been paid at approximately 11.3 to 12 percent of the allowed amount.

In the event of disputes under the Plan, the bankruptcy court retains jurisdiction for the purposes of, among other things, assuring performance of obligations under the Trust and enforcing and interpreting the terms and conditions of the Plan Documents. See Plan art. 13.3(c)-(e); see also In re Celotex, 204 B.R. at 630-32 ¶¶ 68-70.

II

The City of New York is one of 125 PD claimants but the only claimant in this appeal. In 1999, NYC filed approximately 769 PD claims relating to asbestos in its public buildings. The PD Facility initially allowed 439 and disallowed 330 of NYC's claims. Of those initially disallowed, 52 claims were subsequently allowed by independent arbitrators under the APDCRP provisions for binding dispute resolution. Thus, of NYC's 769 original claims, a total of 491 were allowed and 278 were disallowed under the APDCRP.

When submitted by the Administrator to the Trust for payment, however, the Trustees agreed to pay only a small fraction of NYC's 491 allowed claims. The...