In re Global Indus. Technologies Inc.

• Citation: 54 Bankr.Ct.Dec. 178,645 F.3d 201
• Decision Date: 04 May 2011
• Docket Number: No. 08–3650.,08–3650.
• Parties: In re GLOBAL INDUSTRIAL TECHNOLOGIES, INC., et al., Debtors.Hartford Accident and Indemnity Company; First State Insurance Company; Twin City Fire Insurance Company; Century Indemnity Company, as successor to Cigna Specialty Company, formerly known as California Union Insurance Company; Westchester Fire Insurance Company, for itself and for International Insurance Company (now known as TIG Insurance Company) (by operation of novation all rights and obligations under the policies have been transferred from International Insurance Co. to Westchester Fire Insurance Co.); National Union Fire Insurance Company of Pittsburgh, PA; Insurance Company of the State of Pennsylvania; Lexington Insurance Company; American Home Assurance Company, and any other entities related to American International Group, Inc. that engaged in business transactions with the Reorganizing Debtors, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

645 F.3d 201

54 Bankr.Ct.Dec. 178

In re GLOBAL INDUSTRIAL TECHNOLOGIES, INC., et al., Debtors.Hartford Accident and Indemnity Company; First State Insurance Company; Twin City Fire Insurance Company; Century Indemnity Company, as successor to Cigna Specialty Company, formerly known as California Union Insurance Company; Westchester Fire Insurance Company, for itself and for International Insurance Company (now known as TIG Insurance Company) (by operation of novation all rights and obligations under the policies have been transferred from International Insurance Co. to Westchester Fire Insurance Co.); National Union Fire Insurance Company of Pittsburgh, PA; Insurance Company of the State of Pennsylvania; Lexington Insurance Company; American Home Assurance Company, and any other entities related to American International Group, Inc. that engaged in business transactions with the Reorganizing Debtors, Appellants.

No. 08–3650.

United States Court of Appeals, Third Circuit.

Argued May 21, 2009.Reargued En Banc Oct. 13, 2010.Filed: May 4, 2011.

Craig Goldblatt [Argued], Danielle M. Spinelli, Seth P. Waxman, Wilmer Cutler Pickering Hale & Dorr, Washington, DC, for Appellants, Hartford Accident & Indemnity Company, First State Ins. Co., and Twin City Fire Ins.John D. Demmy, Stevens & Lee, Wilmington, DE, for Appellants, Century Indemnity Co. and Westchester Fire Ins.Michael S. Davis, Zeichner, Ellman & Krause LLP, New York, NY, Beverly Weiss Manne, Tucker Arensberg, PC, Pittsburgh, PA, for Appellants, Nat'l Union Fire Ins. Co. of Pittsburgh, PA, Insurance Company of Pennsylvania, Lexington Insurance Company and American Home Assurance Company.Douglas A. Campbell, David B. Salzman, Campbell & Levine, Pittsburgh, PA, Elihu Inselbuch, Caplin & Drysdale, New York, NY, Peter V. Lockwood [Argued], Kevin C. MacLay, Caplin & Drysdale, Washington, DC, for Appellee, Official Committee of Asbestos Creditors.Robert G. Sable, Sally E. Edison, Nicholas E. Meriwether, McGuire Woods LLP, James J. Restivo [Argued], Paul M. Singer, David Ziegler, Reed Smith, Pittsburgh, PA, for Appellee, Global Industrial Technologies Inc.Gary Philip Nelson, Sherrard, German & Kelly, P.C., Pittsburgh, PA, for Philip A. Pahigian, Legal Representative of Future Silica Claimants against Global Industrial Technologies, Inc., et alia.Before: FUENTES, JORDAN and NYGAARD, Circuit Judges.Before: McKEE, Chief Judge, SCIRICA, AMBRO, FUENTES, SMITH, FISHER, CHAGARES, JORDAN, VANASKIE, and NYGAARD, Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

Hartford Accident and Indemnity Company, First State Insurance Company, and Twin City Fire Insurance Company (collectively, “Hartford” ¹); Century Indemnity Company and Westchester Fire Insurance Company (collectively, “Century” ²); and National Union Fire Insurance Company of Pittsburgh, PA, Insurance Company of the State of Pennsylvania, Lexington Insurance Company, American Home Insurance Company, and other entities related to American International Group, Inc. (collectively, “AIG”) appeal from an order entered by the United States District Court for the Western District of Pennsylvania denying Hartford and Century standing to challenge the confirmation of a plan of reorganization filed by Global Industrial Technologies, Inc. (“GIT”) and affirming the plan's confirmation.³ Among other things, the District Court, following the reasoning of the Bankruptcy Court, determined that Hartford and Century lacked standing to participate in bankruptcy proceedings concerning GIT's Chapter 11 reorganization. Because we conclude that Hartford and Century meet the standing requirements to be heard in those proceedings and that further factual development may aid in the resolution of other issues raised on appeal, we will vacate the District Court's order and have the case remanded to the Bankruptcy Court. The decision we announce is no more far-reaching than this: when a federal court gives its approval to a plan that allows a party to put its hands into other people's pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed. In short, they at least have bankruptcy standing.⁴

I. Background

This case arises from Chapter 11 petitions filed in 2002 by GIT and certain of its subsidiaries. GIT was formed in 1995 as a publicly traded holding company for several businesses, including manufacturers and sellers of refractory products.⁵ In 1998, as part of its strategy to grow and develop its refractory business, GIT acquired A.P. Green Industries, Inc. (“APG”),⁶ a long-time manufacturer and seller of refractory products.

Before the mid–1970s, some of the products that APG manufactured had asbestos as an ingredient. Although APG had stopped including asbestos in its products by 1976, its prior asbestos use triggered an avalanche of personal injury lawsuits. Beginning in the 1980s and continuing through early 2002, APG spent approximately $448 million in resolving over 200,000 asbestos-related claims. In addition to those claims, APG had, as of February 2002, approximately 235,000 additional asbestos-related claims still pending against it. From the portion of those pending claims that had been liquidated, APG had unpaid obligations totaling $491 million.

During that same period, APG also faced silica-related personal injury claims, though on a vastly smaller scale. From 1977 to 2002, APG dealt with 23 silica-related lawsuits. Travelers Indemnity Company spent approximately $312,000 settling or litigating those suits on APG's behalf, with APG contributing $50,000 towards settlement of one of the suits. As of February 2002, APG had one silica-related suit, a class action consisting of 169 claims, pending against it in Texas state court.

In February of 2002, GIT, APG, and certain related entities (collectively, the “debtors”) sought protection under Chapter 11 of the Bankruptcy Code because of adverse business conditions and the staggering number of asbestos-related claims pending against them. The debtors did not identify silica-related liability as a motivation for seeking bankruptcy relief.

For their plan of reorganization (the “Plan”) to relieve them of asbestos-related liability, the debtors needed to obtain approval of the Plan by 75% of the then-current asbestos claimants.⁷ While the record is less than clear, it seems that, to solicit the required votes, the debtors necessarily reached out to those asbestos claimants' attorneys, many of whom also represented persons with silica-related claims against other companies. ⁸ The availability of hundreds of millions of dollars of insurance coverage was evidently assumed and ultimately featured prominently in the debtors' proposed Plan. The Plan called for entry of a channeling injunction (the “Asbestos Injunction”) pursuant to which asbestos-related claims that had or could be brought against the debtors would instead be channeled to a trust specifically created to assess and resolve claims (the “APG Asbestos Trust”). ⁹ The Plan also called for entry of an injunction (the “Silica Injunction”) channeling silica-related claims to a silica trust (the “APG Silica Trust”; together with the APG Asbestos Trust, the “Trusts”).¹⁰ Insurance was to fund both Trusts, either in the form of cash from APG's settlement of disputes involving certain insurance policies or, with respect to the APG Silica Trust, in the form of insurance coverage under certain policies to be assigned to the APG Silica Trust by APG.¹¹ Hartford and Century were among the insurers whose policies were to be assigned to the APG Silica Trust.¹²

Regarding the rights of Hartford, Century, and the other insurers whose policies were to be assigned to the APG Silica Trust, the Plan provided that nothing therein or in Plan-related documents or in the Bankruptcy Court's confirmation order would preclude those insurers from asserting any rights or defenses under the policies, except those related to “anti-assignment provisions.” Hartford's and Century's coverage obligations to the APG Silica Trust would still be contingent on the APG Silica Trust incurring liability and any claims for reimbursement overcoming Hartford's and Century's coverage defenses.

For the Plan to be approved as designed ( i.e., with the inclusion of the Silica Injunction), the debtors needed to show that the Plan's resolution of silica-related claims is necessary or appropriate under 11 U.S.C. § 105(a), which, under our precedent, requires showing with specificity that the Silica Injunction is both necessary to the reorganization and fair.¹³ See Gillman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203, 214 (3d Cir.2000) (holding that a third-party injunction would only be proper under § 105(a) if the proponents of the injunction demonstrated with specificity that such an injunction was both necessary to the reorganization and fair). In practical terms, this meant showing that the silica-related liability was sufficiently onerous to jeopardize the debtors' reorganization if not resolved via the Silica Injunction and APG Silica Trust. See id. at 215 (noting that the debtors had failed to show the necessity of the injunction where they had not demonstrated that the success of the reorganization hinged in any way on the issuance of the injunction).

With that as background, the debtors obtained a list of silica claimants from another company's bankruptcy and then solicited confirmation votes from those claimants' counsel. An explosion of silica claims ensued. Ultimately, 5,125 votes for the debtors' Plan were cast on behalf of persons alleging that APG was responsible for their claimed silica-related injuries. The majority of those votes were submitted by a handful of law firms, with five law firms accounting for 4,039 votes. Each of the law firms that submitted votes on behalf of silica claimants also submitted votes on behalf of asbestos claimants. The requisite...