In re Flintkote Co.

• Decision Date: 21 December 2012
• Docket Number: No. 04–11300 (JKF).,04–11300 (JKF).
• Citation: 486 B.R. 99
• Parties: In re The FLINTKOTE COMPANY and Flintkote Mines Limited, Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

486 B.R. 99

In re The FLINTKOTE COMPANY and Flintkote Mines Limited, Debtors.

No. 04–11300 (JKF).

United States Bankruptcy Court,

D. Delaware.

Dec. 21, 2012.

Curtis A. Hehn, James E. O'Neill, Kathleen P. Makowski, Laura Davis Jones, Sandra G.M. Selzer, Scotta Edelen McFarland, Pachulski Stang Ziehl & Jones LLP, Wilmington, DE, Mark T. Hurford, Campbell & Levine, LLC, Wilmington, DE, William F. Taylor, Jr., McCarter & English LLP, Wilmington, DE, for Debtors.

Jeffrey S. Stein, The Garden City Group, Inc., Lake Success, NY, Karen Beth Shaer, The Garden City Group, Inc., Melville, NY, for The Garden City Group, Inc.

Kathleen Campbell Davis, Campbell & Levine LLC, Wilmington, DE, for Campbell & Levine, LLC.

MEMORANDUM OPINION OVERRULING OBJECTIONS TO THE AMENDED JOINT PLAN OF REORGANIZATION, CONFIRMING PLAN AND RECOMMENDING THE AFFIRMATION OF CONFIRMATION AND OF THE § 524(g)

INJUNCTION¹

JUDITH K. FITZGERALD, Bankruptcy Judge.

Introduction

Before the Court is the confirmation of The Flintkote Company (“Flintkote”) and Flintkote Mines Limited's (“Mines,” and collectively with Flintkote, the “Debtors”) Amended Joint Plan of Reorganization (as modified November 16, 2011), docketed at Doc. No. 6336 ² (the “Plan”).³ The Plan ⁴ is supported by the Official Committee of Asbestos Personal Injury Claimants (“ACC”) and the Future Claimants' Representative (“FCR,” and together with the ACC and the Debtors, the “Plan Proponents”). Confirmation hearings were held on October 25 and 26, 2010, and continued on September 12, 13, and 19, 2011.⁵ Post-trial briefing was completed on January 20, 2012. The Court heard closing arguments on March 28, 2012, after which it accepted supplemental briefing on the issue of whether Flintkote may formally abandon its alter ego claim in the Plan. The supplemental briefing was completed on May 15, 2012, making this matter ripe for disposition. The only unresolved objections to Plan confirmation are lodged by Imperial Tobacco Canada Limited (“ITCAN”).⁶ We address in this Memorandum Opinion only the provisions of the Bankruptcy Code alleged not to be satisfied by the Plan.⁷ Findings regarding uncontested matters will be set forth separately. For the reasons that follow, we find that the Plan complies with § 1129⁸ and § 524(g) in all respects and recommend that the District Court affirm confirmation of the Plan and the § 524(g) injunction.

Background

From 1917 until 1987, Flintkote was primarily in the business of manufacturing, processing, and distributing building materials.⁹ Between the 1930s and the 1980s, a wide variety of those materials contained asbestos. Flintkote was acquired by Genstar Corporation (“Genstar”) in 1979. In 1986, Genstar was acquired by ITCAN. Flintkote remained an indirect, wholly-owned subsidiary of ITCAN until 2003, when ITCAN transferred Flintkote's stock to a charitable trust.¹⁰

Mines was founded in 1945 as a Canadian subsidiary of Flintkote. Mines operated an asbestos mining facility as Flintkote's subsidiary until 1971, when it was sold. From its founding until 1980, when it ceased major operations, Mines engaged in mining and brokering raw asbestos.¹¹

Asbestos-related lawsuits were filed against Flintkote beginning in the early 1970s ¹² and increased in number over the following decades. The lawsuits caused Flintkote to incur costs in excess of $500 million in settling or defending asbestos-related claims in the years leading up to the petition date. Beginning in 2001, the costs of defending or settling asbestos-related liability claims exceeded Flintkote's recovery from its insurers, which caused Flintkote to file for protection under Chapter 11 on May 1, 2004. Flintkote's filing caused certain asbestos claimants to seek recovery from Mines and the insurance Mines shared with Flintkote. Flintkote defended Mines against such claims before Flintkote's bankruptcy filing, but could not continue to do so post-petition, which forced Mines to file for Chapter 11 protection itself. Mines filed its bankruptcy petition on August 25, 2004. As of the petition dates, approximately 157,000 asbestos personal injury claims were pending against Flintkote and approximately 2,800 were pending against Mines.¹³

The Plan

The key component of the Plan is the creation of a § 524(g) trust, which will assume all liability for current and future asbestos personal injury claims against both Flintkote and Mines. Plan § 4.4. The majority of the Debtors' assets will be transferred to the trust, including (1) all of the stock of reorganized Flintkote; (2) all cash held by the Debtors as of the effective date, less approximately $49 million in reserve cash and real estate holdings; (3) the Trust Causes of Action and all proceeds thereof; (4) all funds on deposit in the Qualified Settlement Fund; ¹⁴ (5) $20 million in insurance proceeds from settlements conditioned upon entry of a final, nonappealable order confirming a § 524(g) plan; (6) the Litigation Note obligating Reorganized Flintkote to remit 98% of the net recovery on account of Third Party Causes of Action Recoveries to the Trust; (7) all Asbestos Insurance Actions and related recoveries; and (8) all of the Debtors' rights with respect to Asbestos Insurance Policies. See Plan §§ 1.1.117; 4.5.

The Trust will use these assets to pay holders of Asbestos Personal Injury Claims in accordance with the “Asbestos Personal Injury Trust Agreement” (the “Trust Agreement”) and the “Asbestos Personal Injury Trust Distribution Procedures” (the “TDP”). The Trust Agreement and TDP provide for the valuation and payment of asbestos personal injury claims. Plan § 4.1.2.

The Trust will serve as a liquidating trust for Mines, which is not seeking a discharge under § 1141 or protection under § 524(g). Id. As noted above, Mines ceased major operations in 1980 and, as of Flintkote's petition date in 2004, had ceased all operations.¹⁵ A single trust for both Flintkote and Mines is appropriate and cost-efficient because there is overlapping asbestos liability between the two companies, a parent-subsidiary relationship, and shared insurance assets available to pay the liabilities. No one has objected to the one-trust structure.

Holders of secured, administrative, and priority claims will be paid in full under the Plan.¹⁶ Holders of allowed unsecured claims other than Asbestos Personal Injury Claims (Classes 5 (Flintkote) and 6 (Mines)) will each receive either: (a) a total cash payout of 35% of the Allowed Amount of such claim; or (b) a cash payout of 5% of the Allowed Amount of such claim followed by subsequent distributions, if any, at the time and at the same percentage amount (less the 5% already paid) as to Class 5, as paid by the Trust to Claims in Class 7 (Flintkote Asbestos Personal Injury Claims) and as to Class 6, as paid by the Trust to Claims in Class 8 (Mines Asbestos Personal Injury Claims), respectively. See Plan §§ 1.1.35, 3.2.5, 3.2.6. Note, however, that there are no allowed claims in Class 6.

The Plan is designed to be “insurance neutral,” and provides that all Asbestos Insurance Actions and related claims and causes of action are preserved for the benefit of the Trust. See Plan § 11.7. Nothing in the Plan limits in any way the ability of any Asbestos Insurance Company to assert any available coverage defenses.¹⁷ The insurance neutrality provisions were negotiated between the ACC, FCR, and representatives of several of the Asbestos Insurance Companies. No insurer objects to the Plan.

The Vote

The Debtors solicited votes on the Original Amended Plan from the holders of Claims and Equity Interests in Classes 5 (Unsecured Claims Against Flintkote), 6 (Unsecured Claims Against Mines), 7 (Flintkote Asbestos Personal Injury Claims), and 8 (Mines Asbestos Personal Injury Claims), (together, the “Voting Classes”).¹⁸ On January 7, 2009, the Garden City Group, Inc. ¹⁹ (“GCG”) filed the Declaration of Jeffrey S. Stein of the Garden City Group, Inc. Certifying the Methodology for the Tabulation of Votes and Results of Voting With Respect to the Debtors' Amended Plan of Reorganization (the “First Voting Declaration”), at Doc. No. 3958. As described in the First Voting Declaration, three classes of claimants voted on the Original Amended Plan: Class 5 (Unsecured Claims against Flintkote), Class 7 (Flintkote Asbestos Personal Injury Claims), and Class 8 (Mines Asbestos Personal Injury Claims).²⁰ All classes voted to accept the Original Amended Plan by the required statutory majority; however, less than the required super-majority (pursuant to § 524(g)) of Class 7 Flintkote Asbestos Personal Injury Claimants and Class 8 Mines Asbestos Personal Injury Claimants voted to confirm the Original Amended Plan. See the First Voting Declaration, at 12.

Because the first plan could not encompass a § 524(g) injunction, the Plan Proponents made certain changes to the Original Amended Plan and the TDP in an attempt to acquire the necessary super-majority of votes from Class 7. The Plan Proponents filed new versions of the Plan on June 22, 2009, and July 20, 2009, along with the Supplemental Disclosure Document Regarding Amended Joint Plan of Reorganization (“Supplemental Disclosure Document”), at Doc. No. 4327, as further modified on July 20, 2009, at Doc. No. 4392. This Court approved the Supplemental Disclosure Document and on July 31, 2009, ordered the Plan Proponents to re-solicit votes from Classes 7 and 8.²¹ On October 5, 2009, GCG filed the Declaration of Jeffrey S. Stein of The Garden City Group, Inc. Certifying the Methodology for the Tabulation of Votes and Results of Voting with Respect to the Debtors' Amended Plan of Reorganization (as Modified)(the “Modified Voting Declaration”), Doc. No. 4572. As reported in the Modified Voting Declaration, Class 7 accepted the Plan by the required super-majority. No other class required a super-majority vote.

Flintkote's Post–Confirmation Operations

Flintkote intends to pursue what it alleges are five separate...