In re Combustion Engineering, Inc.

Decision Date02 December 2004
Docket NumberNo. 03-3558.,No. 03-3415.,No. 03-3445.,No. 03-3450.,No. 03-3436.,No. 03-3425.,No. 03-3392.,No. 03-3446.,03-3392.,03-3415.,03-3425.,03-3436.,03-3445.,03-3446.,03-3450.,03-3558.
Citation391 F.3d 190
PartiesIn re: COMBUSTION ENGINEERING, INC. First State Insurance Company; Hartford Accident and Indemnity Company, Appellants Certain Cancer Claimants, being those individuals identified on a Rule 2019 Disclosure filed in the Bankruptcy Court for the District of Delaware and creditors of Combustion Engineering, Inc., Appellants Certain Underwriters at Lloyd's, London; Certain London Market Companies, Appellants Allstate Insurance Company, as successor-in-interest to Northbrook Excess & Surplus Insurance Company, formerly Northbrook Insurance Company, Appellant Allianz Insurance Company, Appellant Everest Reinsurance Co., f/k/a Prudential Reinsurance Co., Appellant Century Indemnity Company (as successor to CCI Insurance Company, successor to Insurance Company of North America); Pacific Employers Insurance Company; Central National Insurance Company of Omaha (solely with respect to policies issued through its managing general agent, Cravens, Dargan & Company, Pacific Coast), Appellants Onebeacon America Insurance Company, f/k/a Commercial Union Insurance Company, Appellant North River Insurance Company; TIG Insurance Company, solely as successor by merger to International Insurance Company, Appellants Certain Underwriters at Lloyd's, London; Certain London Market Companies, Appellants Everest Reinsurance Co., f/k/a Prudential Reinsurance Co., Appellant Continental Casualty Company; Transportation Insurance Company, Appellants.
CourtU.S. Court of Appeals — Third Circuit

Seth P. Waxman, (Argued), Craig Goldblatt, Wilmer, Cutler, Pickering, Hale & Dorr, Washington, Michelle K. McMahon, Connolly Bove Lodge & Hutz LLP, Wilmington, for Appellants, First State Insurance Company; Hartford Accident and Indemnity Company.

Gregory M. Harvey, (Argued), Montgomery, McCracken, Walker & Rhoads, LLP, Philadelphia, Elizabeth Wall Magner, New Orleans, for Appellants, Certain Cancer Claimants.

Joseph L. Ruby, (Argued), Baach Robinson & Lewis PLLC, Washington, for Appellants, Certain Underwriters at Lloyd's, London; Certain London Market Companies.

James S. Yoder, Wilmington, for Appellants, Allstate Insurance Company; Allianz Insurance Company.

Elit R. Felix, II, Margolis Edelstein, Philadelphia, for Appellant, Allianz Insurance Company.

Joseph L. Schwartz, Riker, Danzig, Scherer, Hyland & Perretti LLP, Morristown, Neil B. Glassman, The Bayard Firm, Wilmington, for Appellant, Everest Reinsurance Co., f/k/a Prudential Reinsurance Co.

Mark D. Plevin, (Argued), Crowell & Moring LLP, Washington, Brian L. Kasprzak, Marks, O'Neill, O'Brien & Courtney, P.C., Wilmington, for Appellants, Century

Indemnity Company; Pacific Employers Insurance Company; Central National Insurance Company of Omaha; OneBeacon America Insurance Company f/k/a Commercial Union Insurance Company; The North River Insurance Company; TIG Insurance Company.

Kevin Gross, Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington, Merril J. Hirsh, Thomas T. Locke, Erik M. Pritchard, Ross, Dixon & Bell, L.L.P., Washington, Mohsin N. Khambati, Stephanie A. Petersmarck, McDermott Will & Emery, Chicago, for Appellants, Continental Casualty Company; Transportation Insurance Company.

Laura A. Foggan, Wiley Rein & Fielding LLP, Washington, for Amicus Curiae-Appellant, Complex Insurance Claims Litigation Association.

Laura D. Jones, Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C., Wilmington, for Appellee, Combustion Engineering, Inc.

David M. Bernick, (Argued), John Donley, Kirkland & Ellis LLP, Chicago, Theodore L. Freedman, Kirkland & Ellis LLP, New York, Christopher Landau, Eric B. Wolff, Kirkland & Ellis LLP, Washington, for Appellee, Asea Brown Boveri, Inc.

Elihu Inselbuch, (Argued), Caplin & Drysdale, New York, Joseph D. Frank, Neal Gerber & Eisenberg, Chicago, Michael R. Lastowski, Duane Morris LLP, Wilmington, for Appellee, The Official Committee of Unsecured Creditors of Combustion Engineering, Inc.

Roger L. Frankel, (Argued), Swidler Berlin Shereff Friedman, LLP, Washington, John C. Phillips, Jr., Phillips, Goldman & Spence, P.A., Wilmington, for Appellee, David T. Austern, Future Claimants' Representative.

Before SCIRICA, Chief Judge, AMBRO and FUENTES, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Chief Judge.

                TABLE OF CONTENTS
                OPINION OF THE COURT ...................................................... 199
                   I. Overview ............................................................ 200
                      A. Combustion Engineering's Asbestos-Induced Bankruptcy ............. 201
                      B. Issues Presented on Appeal ....................................... 202
                  II. Background .......................................................... 203
                      A. Combustion Engineering ........................................... 203
                      B. The Master Settlement Agreement .................................. 204
                      C. The Pre-Pack Plan ................................................ 205
                      D. Plan Voting and Approval ......................................... 207
                      E. The Bankruptcy Court Proceedings ................................. 208
                      F. District Court Proceedings and Plan Confirmation ................. 211
                      G. The Consolidated Appeals ......................................... 213
                 III. Standing ............................................................ 214
                      A. Background ....................................................... 214
                      B. Objecting Insurers and London Market Insurers .................... 215
                      C. Indemnified Insurers ............................................. 220
                      D. Certain Cancer Claimants ......................................... 223
                  IV. "Related to" Jurisdiction ........................................... 224
                      A. Overview ......................................................... 225
                      B. Jurisdiction Over Independent Claims Against Non-Debtors ......... 227
                
                         1. Corporate Affiliation ......................................... 227
                         2. Financial Contributions ....................................... 228
                         3. Related Liability ............................................. 230
                         4. Shared Insurance .............................................. 232
                   V. Section 105(a) Equitable Injunction ................................. 233
                      A. The Requirements of Section 524(g)(4)(A) ......................... 234
                      B. Section 105(a) ................................................... 235
                  VI. Two-Trust Structure ................................................. 238
                      A. Discriminatory Treatment of Claims ............................... 239
                      B. Creation of the "Stub Claims" .................................... 242
                 VII. Going Concern Requirement: Section 524(g)(2)(b)(i)(II) .............. 248
                VIII. Conclusion .......................................................... 248
                

This case involves twelve1 consolidated appeals from the District Court's order approving Combustion Engineering's bankruptcy Plan of Reorganization under 11 U.S.C. § 1101 et seq.2 We will vacate and remand.

I. Overview

For decades, the state and federal judicial systems have struggled with an avalanche of asbestos lawsuits. For reasons well known to observers, a just and efficient resolution of these claims has often eluded our standard legal process — where an injured person with a legitimate claim (where liability and injury can be proven) obtains appropriate compensation without undue cost and undue delay. See Fed.R.Civ.P. 1 (goal "to secure the just, speedy and inexpensive determination of every action"). The difficulties with asbestos litigation have been well documented by RAND and others.3

Efforts to resolve the asbestos problem through global settlement class actions under Fed.R.Civ.P. 23(b)(3) and 23(b)(1)(B) have so far been unsuccessful. See Amchem Prods. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) (affirming denial of class certification of nationwide settlement class of asbestos claimants); Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999) (reversing grant of class certification in limited fund class action under Fed.R.Civ.P. 23(b)(1)(B)). More than once, the Supreme Court has called on Congress to enact legislation creating a "national asbestos dispute-resolution scheme," but Congress has yet to act. Amchem, 521 U.S. at 598, 117 S.Ct. 2231; Ortiz, 527 U.S. at 822, 119 S.Ct. 2295.

For some time now, mounting asbestos liabilities have pushed otherwise viable companies into bankruptcy. The current appeal represents a major effort to extricate a debtor and two non-debtor affiliates from asbestos liability through a prepackaged Chapter 11 bankruptcy reorganization that includes 11 U.S.C. §§ 524(g) and 105(a) "channeling injunctions" and a post-confirmation trust fund for asbestos claimants. The Plan has been presented as a pre-packaged Chapter 11 reorganization plan, but it more closely resembles, in form and in substance, a liquidation of the debtor with a post-confirmation trust funded in part by non-debtors. Although pre-packaged bankruptcy may yet provide debtors and claimants with a vehicle for the general resolution of asbestos liability, we find the Combustion Engineering Plan defective for the reasons set forth.

A. Combustion Engineering's Asbestos-Induced Bankruptcy

Combustion Engineering defended asbestos-related litigation for nearly four decades until mounting personal injury liabilities eventually brought the company to the brink of insolvency. In the fall of 2002, Combustion Engineering and its parent company, Asea Brown Boveri, Inc. ("U.S.ABB"), attempted to resolve Combustion Engineering's asbestos problems, as...

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