In re Combustion Engr., Inc., 120204 FED3, 03-3392

• Party Name: In Re: COMBUSTION ENGINEERING, INC.
• Case Date: December 02, 2004
• Court: United States Courts of Appeals, U.S. Court of Appeals — Third Circuit

In Re: COMBUSTION ENGINEERING, INC.

First State Insurance Company; Hartford Accident and Indemnity Company, Appellants at No.03-3392

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 at No. 03-3415

Certain Underwriters at Lloyd's, London; Certain London Market Companies, Appellants at No. 03-3425

Allstate Insurance Company, as successor-in-interest to Northbrook Excess & Surplus Insurance Company, formerly Northbrook Insurance Company, Appellant at No. 03-3436

Allianz Insurance Company, Appellant at No. 03-3445

Everest Reinsurance Co., f/k/a Prudential Reinsurance Co., Appellant at No. 03-3446

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 at No. 03-3450

OneBeacon America Insurance Company, f/k/a Commercial Union Insurance Company, Appellant at No. 03-3451

North River Insurance Company; TIG Insurance Company, solely as successor by merger to International Insurance Company, Appellants at No. 03-3452

Certain Underwriters at Lloyd's, London; Certain London Market Companies, Appellants at No. 03-3468

Everest Reinsurance Co., f/k/a Prudential Reinsurance Co., Appellant at No. 03-3492

Continental Casualty Company; Transportation Insurance Company, Appellants at No. 03-3558

Nos. 03-3392, 03-3415, 03-3425, 03-3436, 03-3445, 03-3446, 03-3450, 03-3451, 03-3452, 03-3468, 03-3492, 03-3558

United States Court of Appeals, Third Circuit December 2, 2004 Argued June 3, 2004

PRECEDENTIAL

On Appeal from the United States District Court for the District of Delaware, D.C. Civil Action No. 03-cv-00751, D.C. Civil Action No. 03-cv-00753, D.C. Civil Action No. 03-cv-00745, D.C. Civil Action No. 03-cv-00752, Bankruptcy Court No. 03-10495, Bankruptcy Court No. 03-10495, D.C. Civil Action No. 03-cv-00744, D.C. Civil Action No. 03-cv-00743, D.C. Civil Action No. 03-cv-00742, Bankruptcy Court No. 03-10495, D.C. Civil Action No. 03-cv-00748, D.C. Civil Action No. 03-cv-00754, (Honorable Alfred M. Wolin^[*])

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

SETH P. WAXMAN, ESQUIRE (ARGUED), MICHELLE K. McMAHON, ESQUIRE, Attorneys for Appellants, First State Insurance Company; Hartford Accident and Indemnity Company.

GREGORY M. HARVEY, ESQUIRE (ARGUED), ELIZABETH WALL MAGNER, ESQUIRE, Attorneys for Appellants, Certain Cancer Claimants

JOSEPH L. RUBY, ESQUIRE (ARGUED), Attorney for Appellants, Certain Underwriters at Lloyd's, London; Certain London Market Companies.

JAMES S. YODER, ESQUIRE, Attorney for Appellants, Allstate Insurance Company; Allianz Insurance Company

ELIT R. FELIX, II, ESQUIRE, Attorney for Appellant, Allianz Insurance Company

JOSEPH L. SCHWARTZ, ESQUIRE, NEIL B. GLASSMAN, ESQUIRE, Attorneys for Appellant, Everest Reinsurance Co., f/k/a Prudential Reinsurance Co.

MARK D. PLEVIN, ESQUIRE (ARGUED), BRIAN L. KASPRZAK, ESQUIRE, Attorneys 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, ESQUIRE, MERRIL J. HIRSH, ESQUIRE, THOMAS T. LOCKE, ESQUIRE ERIK M. PRITCHARD, ESQUIRE, MOHSIN N. KHAMBATI, ESQUIRE STEPHANIE A. PETERSMARCK, ESQUIRE, Attorneys for Appellants, Continental Casualty Company; Transportation Insurance Company

LAURA A. FOGGAN, ESQUIRE, Attorney for Amicus Curiae-Appellant, Complex Insurance Claims Litigation Association

LAURA D. JONES, ESQUIRE, Attorney for Appellee, Combustion Engineering, Inc.

DAVID M. BERNICK, ESQUIRE (ARGUED), JOHN DONLEY, ESQUIRE, THEODORE L. FREEDMAN, ESQUIRE, CHRISTOPHER LANDAU, ESQUIRE ERIC B. WOLFF, ESQUIRE, Attorneys for Appellee, Asea Brown Boveri, Inc.

ELIHU INSELBUCH, ESQUIRE (ARGUED), JOSEPH D. FRANK, ESQUIRE, MICHAEL R. LASTOWSKI, ESQUIRE, Attorneys for Appellee, The Official Committee of Unsecured Creditors of Combustion Engineering, Inc.

ROGER L. FRANKEL, ESQUIRE (ARGUED), JOHN C. PHILLIPS, JR., ESQUIRE, Attorneys for Appellee, David T. Austern, Future Claimants' Representative

TABLE OF CONTENTS

OPINION OF THE COURT ........................	13
I. Overview .................................	14
A. Combustion Engineering's Asbestos-Induced Bankruptcy..............	15
B. Issues Presented on Appeal ................	18
II. Background ...............................	20
A. Combustion Engineering..................	20
B. The Master Settlement Agreement ..........	24
C. The Pre-Pack Plan .......................	27
D. Plan Voting and Approval ................	32
E. The Bankruptcy Court Proceedings .........	33
F. District Court Proceedings and Plan Confirmation ...................	41
G. The Consolidated Appeals ................	46
III. Standing ..................................	48
A. Background ............................	48
B. Objecting Insurers and London Market Insurers ..................	52
C. Indemnified Insurers .....................	63
D. Certain Cancer Claimants .................	72
IV. "Related to" Jurisdiction .....................	73
A. Overview ..............................	76
B. Jurisdiction Over Independent Claims Against Non-Debtors ....................	82
1. Corporate Affiliation ..................	82
2. Financial Contributions ................	83
3. Related Liability .....................	88
4. Shared Insurance .....................	93
V. Section 105(a) Equitable Injunction ............	97
A. The Requirements of Section 524(g)(4)(A) ...	97
B. Section 105(a) .........................	101
VI. Two-Trust Structure........................	108
A. Discriminatory Treatment of Claims .......	110
B. Creation of the "Stub Claims" ............	119
VII. Going Concern Requirement:
Section 524(g)(2)(b)(i)(II) ...................	134
VIII. Conclusion ...............................	136

OPINION SCIRICA, Chief Judge. 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 (1997) (affirming denial of class certification of nationwide settlement class of asbestos claimants); Ortiz v. Fibreboard Corp., 527 U.S. 815 (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; Ortiz, 527 U.S. at 822. 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 well as those of two U.S. ABB affiliates, ABB Lummus Global, Inc. and Basic, Inc., through a pre-packaged Chapter 11 bankruptcy reorganization.⁴ To this end, Combustion Engineering contributed half of its assets to a pre-petition trust (the "CE Settlement Trust") to pay asbestos claimants with pending lawsuits for part, but not the entire amount, of their claims. The remaining, unpaid portion of these claims, known as "stub claims," provided pre-petition trust participants with creditor status under the Bankruptcy Code. Combustion Engineering then filed a pre- packaged bankruptcy Plan of Reorganization under Chapter 11. The centerpiece of the Plan is an injunction in favor of Combustion Engineering that channels all of its asbestos claims to a post-confirmation trust (the "Asbestos PI Trust") created under § 524(g) of the...