In re Eastman Kodak Co.
| Decision Date | 04 December 2020 |
| Docket Number | Case No. 12-10202 (MEW) |
| Parties | IN RE EASTMAN KODAK COMPANY, Debtor. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
CLYDE & CO US LLP, Chicago, IL, 60603 and New York, NY 10174, Attorneys for Certain Underwriters at Lloyd's, London By: Clinton E. Cameron, Esq., Meghan Dalton, Esq., Christopher Carlsen, Esq.
HODGSON RUSS LLP, Buffalo, NY 14202 and New York, NY 10158, Attorneys to Certain Tort Claimants and their Law Firm, Lipsitz & Ponterio, LLC By: Garry Graber, Esq., James Zawodzinski, Esq.
DUGGAN PAWLOWSKI & COOKE LLP, Buffalo, New York 14203, Attorneys to Wayne and Jill Meissner and their Law Firm, Lipsitz & Ponterio, LLC By: James J. Duggan, Esq.
DECISION (I) GRANTING MOTION TO REOPEN THE CHAPTER 11 CASE OF EASTMAN KODAK COMPANY, (II) DENYING MOTION TO ENJOIN CERTAIN STATE COURT PROCEEDINGS AGAINST RIDGE CONSTRUCTION CORPORATION, AND (III) DIRECTING THAT THE CASE BE RE-CLOSED
Certain Underwriters at Lloyd's, London ("Lloyd's ") have filed motions dated August 24, 2020 (ECF No. 6731 and 6732) seeking to reopen the chapter 11 case of Eastman Kodak Company ("Kodak ") and to enjoin the continuation of New York State Court lawsuits against a company named Ridge Construction Corporation ("Ridge ").1 Ridge was a subsidiary of Kodak until September 30, 1971, when Ridge was dissolved.2 Lloyd's contends: (a) that the dissolution of Ridge actually was a de facto merger; (b) that Ridge thereby became a part of Kodak; and (c) that the prosecution of the state court lawsuits against Ridge therefore violates the discharge of Kodak and the injunctions set forth in the Order confirming Kodak's First Amended Joint Chapter 11 Plan of Reorganization (ECF No. 4966). Plaintiffs in the pending state court lawsuits (the "Tort Claimants ") and their counsel have opposed the requested relief, and the Court heard oral argument at a hearing on November 4, 2020. Following the hearing the parties made supplemental submissions on issues the Court raised.
The Tort Claimants allege that they were exposed to asbestos originating from a Ridge construction site. The Tort Claimants' lawsuits against Ridge were the subject of a prior motion filed by Kodak in 2019 to enforce the discharge and injunction provisions of Kodak's confirmed plan of reorganization, though the relief that Kodak sought was far different from the relief now sought by Lloyd's. In 2019, Kodak argued that two other insurers (not including Lloyd's) had pointed to contracts that Kodak had entered into in 1998 and 2005 and had argued that Kodak was obligated under those contracts to defend the actions against Ridge and to indemnify the insurers against any liability. Kodak sought a ruling that Kodak had been discharged from any such obligations to the insurers. See ECF Nos. 6708, 6713. It appears that Kodak arranged counsel and bore the expenses of Ridge's defense in the state court lawsuits until this Court confirmed that Kodak's liability to its insurers had been discharged upon the confirmation of Kodak's plan of reorganization. See Order at ECF No. 6726. It also appears that one or more of the insurers then took up the defense on behalf of Ridge, though that is not entirely clear.
In connection with the prior motion neither Kodak nor Kodak's insurers argued that Ridge had merged into Kodak, or that Ridge had been absolved of liability by the Kodak bankruptcy filing or by the confirmation of the Kodak plan of reorganization. Kodak instead asserted that Ridge had been dissolved and that as a dissolved company Ridge was still capable of being sued, particularly to the extent that plaintiffs in such suits might seek recoveries from Ridge's insurers. See Reorganized Debtors' Reply, dated Sept. 3, 2019 at 3-4 (ECF No. 6721); Hartley v. Esposito (In re Hartley) , 479 B.R. 635, 640 (S.D.N.Y. 2012). It also appears that no "discharge" defense was asserted on behalf of Ridge in the state court.
At least one of the cases (the one filed by Wayne and Jill Meissner) has proceeded to judgment, and a judgment has been entered in favor of the Meissners in the amount of $6,492,007.29. See Decl. of Garry M. Graber, Ex. B (ECF No. 6745-2). The insurers who were involved in the prior Kodak motion apparently are no longer involved. However, Lloyd's issued "excess" liability policies for the period May 1, 1969 through May 1, 1972 under which Ridge was named as one of the insureds, and the Tort Claimants apparently are now seeking recovery of the Meissner judgment under those policies. Lloyd's disclaimed coverage when it first learned of the Meissner litigation , and it appears that Lloyd's did not get involved in the state court litigations until after efforts began to collect the Meissner judgment from Lloyd's.
As noted above, Lloyd's has now asked me to reopen the Kodak bankruptcy case and to hold that Ridge's 1971 dissolution should instead be treated as a de facto merger of Ridge into Kodak. Lloyd's further argues that as the result of this de facto merger Ridge became part of Kodak and no longer could be sued separately, and that the liabilities of the "merged" company were discharged when Kodak's bankruptcy plan was confirmed.
I have serious doubts as to whether it is proper for Lloyd's (on behalf of Ridge) to seek relief in this Court at this late date. Ridge and its other insurers sought no such relief, and Lloyd's has done so only after the state court entered judgment, after trial, in the Meissner case. The delay in seeking relief raises questions of laches. See, e.g., In re Pagan , 59 B.R. 394, 397 (D.P.R. 1986) (). In addition, Ridge itself was not a named debtor in the Kodak bankruptcy proceedings, and no prior order has ever been entered that either provided Ridge with a discharge of its liabilities or that recharacterized Ridge's dissolution as something different from what it purported to be. In that context, the entry of judgment against Ridge in the Meissner case (after a failure by Ridge to assert a discharge defense or otherwise to assert that its dissolution was really a merger) likely should be res judicata on the issue of whether Ridge remained a separate company after 1971 and remained subject to the Meissners' litigation claims.
There is also the question (ironically) of whether the Lloyd's motion is itself barred by the discharge injunction. Lloyd's argues that Ridge's dissolution should now be recharacterized as a merger, with the result that Kodak should now be deemed to have been liable for Ridge's debts. The purpose of that request is to try to bring Ridge's liabilities under the protection of Kodak's discharge. But Kodak never actually assumed Ridge's liabilities and no court ever held that Kodak was liable for Ridge's debts. The first step in the Lloyd's request – namely, the request for a determination that Kodak was liable for Ridge's debts on a de facto merger theory – is a litigation claim that never was pursued or ruled upon in the past. The assertion of litigation claims alleging liability of Kodak based on pre-petition events was barred, and enjoined, by the discharge of Kodak and by the injunctions that are set forth in the order that confirmed Kodak's plan of reorganization.
However, these particular obstacles have not been argued in opposition to the Lloyd's motions. In any event it is not necessary to rely upon them. I will grant the motion to reopen the case for the purpose of considering the relief that Lloyd's seeks, but at the same time I will deny Lloyd's request for such relief. For a number of separate reasons, I hold that Ridge's obligations were not discharged and that de facto merger theories cannot be invoked to achieve the result that Lloyd's seeks.
First, it is admitted that there was no actual merger between Ridge and Kodak, and that instead there was a dissolution of Ridge. The parties agree that a dissolved company may still be sued, subject of course to any discharge under state law dissolution proceedings or through the dissolved company's own bankruptcy case. As a practical matter, however, a dissolved company normally has no assets left with which to satisfy a judgment. De facto merger theories were developed by courts to protect creditors of dissolved companies from being deprived of their remedies in situations where a parent has assumed all of a dissolved company's assets and has also assumed the operating liabilities associated with the dissolved company's business, so that the transaction substantively (if not in form) is equivalent to a merger. See, e.g., Marenyi v. Packard Press Corp. , 90-CV-4439, 1994 WL 16000129, at *10 (S.D.N.Y. June 9, 1994), report and recommendation adopted, 90 CIV. 4439 (CSH), 1994 WL 533275 (S.D.N.Y. Sept. 30, 1994) () (internal citations and quotation marks omitted). In such cases, acquiring companies have been held liable to the dissolved companies' creditors just as though an actual merger had occurred, on the theory that it is equitable "to ensure that a source remains to pay for the victim's injuries." In re N. Y. City Asbestos Litig. , 15 A.D.3d 254, 258, 789 N.Y.S.2d 484 (N.Y. App. Div. 1st Dep't 2005) (internal citations and quotation marks omitted).
In this case, however, Lloyd's does not seek to recharacterize the dissolution of Ridge for the purpose of protecting Ridge's creditors and for the purpose of providing them with an additional remedy. Instead, Lloyd's wishes to use equitable de facto merger theories to cut off the claims that Ridge's creditors have asserted against Ridge itself, and to do so even though there are assets (insurance policies) that are available to cover...
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