In re A.P.I., Inc.
| Decision Date | 15 October 2005 |
| Docket Number | No. 05-30073.,05-30073. |
| Parties | In re A.P.I. INC., Debtor. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
James L. Baillie, Fredrikson & Byron PA, Minneapolis, MN, for Debtor.
ORDER ON DEBTOR'S MOTION FOR SUMMARY JUDGMENT IN PROCEEDINGS ON CONFIRMATION OF DEBTOR'S PLAN, RE: ISSUES RELATING TO PLAN'S EFFECT ON INSURERS' RIGHTS, INSURERS' STANDING, AND EXONERATION OF THIRD PARTIES
This Chapter 11 case came on before the Court for hearing on various issues raised in the proceedings on confirmation of the Debtor's plan of reorganization.1 Appearances were James L. Baillie on behalf of the Debtor; Michael L. Meyer on behalf of the Asbestos Claimants' Committee; Russell W. Roten on behalf of Great American Insurance Company ("GAIC"); David C. Christian, II on behalf of Continental Casualty Company and Transportation Insurance Company (collectively, "CNA"); Clark T. Whitmore on behalf of U.S. Fire Insurance Company; Michael F. Brown on behalf of One Beacon American Insurance Company; Craig M. Roen, special insurance litigation counsel for the Debtor; Gerald F. Ellersdorfer on behalf of Fireman's Fund Insurance Company; and Alan D. Pedlar on behalf of Thomas H. Carey, the "Legal Representative" under the Debtor's proposed plan. The following order memorializes the Court's rulings on the three major groups of contested issues presented via the motion.2
To put the present matters into context, it is necessary to review relevant aspects of the Debtor's history before its Chapter 11 filing.3 With various events that have occurred during the prosecution of this case, they are summarized as follows.
The Debtor has been in the business of installing insulation in commercial and industrial facilities for over 80 years. Until 1973, it used insulation materials containing asbestos. Beginning in the 1980s, the Debtor was sued by individuals who claimed that they had been injured by exposure to the asbestos in these materials. Several thousand such lawsuits have been prosecuted against the Debtor; about 700 of them were pending when the Debtor filed for reorganization under Chapter 11.
Over the decades of its operation, the Debtor had maintained various policies of liability insurance through a number of different insurers. For about twenty years, the insurers afforded the Debtor defense and indemnification in the asbestos-related lawsuits, without controversy over the Debtor's entitlement to that.4 Several years ago, the insurers advised the Debtor that the amounts they had disbursed in indemnification had reached the limits of coverage under the policies. The insurers then declined to defend and indemnify the Debtor on any further asbestos-related claims.5
The Debtor disputed the insurers' right to terminate defense and indemnification. This led to litigation venued in the Minnesota State District Court for the Second Judicial District, Ramsey County. In that action, various parties including the Debtor sought declaratory judgment as to the existence, amount, and scope of insurance coverage still available to the Debtor under the various policies.6 This complex lawsuit went forward over several years; retired members of the Minnesota state judiciary served as mediator and special master on discovery issues. It was scheduled for trial to commence in November, 2005.
During the same time, the Debtor and API Group, Inc., its parent, approached their major institutional creditors, the Debtor's trade suppliers, and the attorneys who represented the holders of asbestos-related claims against the Debtor. Those parties began negotiating the terms of a plan of reorganization that could be presented for confirmation, were the Debtor to file for relief under Chapter 11. The Debtor's parent and affiliated companies participated in the negotiations. The Debtor's goal was to draft a "pre-packaged" plan, using the special remedies that 11 U.S.C. § 524(g) grants to debtors that are subject to multiple claims arising out of exposure to asbestos. The intention was to present this plan to the bankruptcy court for confirmation soon after a bankruptcy filing, based on a pre-petition solicitation of acceptances.
The negotiations went on over several years. A committee of holders of currently-pending asbestos-related personal injury claims was formed pre-petition; it hired counsel and participated in the negotiations. The negotiating parties chose persons who would serve under the plan as a representative of persons who would assert asbestos-related personal injury claims against the Debtor in the future, as the trustee of a post-confirmation trust, and as a "Trust Advisor" to the trustee.
The Debtor did not solicit any of its insurers to participate in the pre-petition negotiations. None of the insurers did participate. The Debtor states that it and the other participants intended to formulate a plan that would leave all issues over the existence of insurance coverage for resolution in the coverage action in the Ramsey County District Court.
The Debtor filed its petition under Chapter 11 on January 6, 2005. On the next day, it filed a plan of reorganization.
The Debtor characterizes the plan as having two structural components. The first is a threshold of funding supplied by itself and its parent company. Those monies are to be administered through a trust for the benefit of holders of asbestos-related personal injury claims. The second is an administrative process for the proof, evaluation, rating, and payment of such claims through the trust. This process would not involve litigation as its primary mechanism for the great majority of such claims. The trust's corpus, and the individual realization by some holders of asbestos-related personal injury claims, may be augmented by monies payable by the insurers, if the Debtor prevails in the coverage action in any way. The Debtor maintains that the plan may be considered for confirmation regardless of the availability of insurance coverage. It also insists that the plan explicitly preserves all of the insurers' rights to defend the coverage action, and their rights to defend any asbestos-related personal injury claim on its merits if it were tendered to the insurers after a determination that the Debtor had insurance coverage for it.
On January 21, 2005, CNA, a party to the coverage action, removed that lawsuit to the United States District Court for this District, under color of 28 U.S.C. § 1452(a). The Debtor moved for an order of abstention and remand. By an order entered on March 23, 2005, the District Court (Magnuson, J.) granted the Debtor's motion.7 The coverage action is now back in active litigation in the Ramsey County District Court.
Early in the Chapter 11 case, the parties aligned into two different camps. In the one lay the Debtor, its major lenders, the Asbestos Claimants' Committee that was appointed to represent the interests of holders of pending asbestos-related personal injury claims, and the "Legal Representative" of parties presently unknown who could assert such claims against the Debtor in the future. In the other lay the insurance companies that opposed the Debtor in the coverage action. The insurers quickly took positions against the Debtor's proposal to expedite the process of confirmation of its pre-packaged plan. All counsel generally concurred that the Debtor's proposals and plan raised several issues that might be resolved without evidentiary development, purely on application of law. The thought was that resolution of those issues might simplify further proceedings in the case. Thus, the initial and amended case procedures orders provided for a "Legal Issues Hearing" early in the case, at which such matters would be submitted for decision.8
The issues treated in this order, and numerous others, were submitted for decision at that hearing.9 The form of submission was proper, and all of the issues are amenable to disposition as matters of law.10
The Debtor's plan11 is a complicated document. It contains 14 pages of definitions and an additional 28 pages of substantive content. It also incorporates by reference various separate "Revised Plan Documents," including a set of "Trust Distribution Procedures." Plan § 3.5.
In general, however, the plan provides that priority claims, both classified and unclassified, would be paid in full on its effective date, as would general unsecured claims. The Debtor also would "continue to be bound by its guarantees" of certain debts of its parent company, those debts being secured by liens against the Debtor's assets.
The Debtor's liability to the holders of asbestos-related personal injury claims is the focus of the plan. The details relating to those claimants that are relevant to the issues at bar are as follows.
The Debtor proposes to establish a trust for the benefit of members of this class of creditors, Plan § 6.1, and (along with its parent company) to provide initial and subsequent funding to the trust from business revenues and corporate assets, Plan §§ 5.1-5.2.12 Under § 3.5 of the plan, all liability for asbestos-related personal injury claims would "be ... automatically ... assumed by and channeled to the [t]rust." The trust, then, would undertake the "liquidation, resolution, payment, and satisfaction" of all future asbestos-related personal injury claims in accordance with the terms of the Trust Distribution Procedures. Plan § 6.1.13
The asbestos-related claims that were pending and in suit as of the Debtor's bankruptcy filing would be paid by the trust, in stated amounts, pursuant to a separate settlement agreement between their holders and the Debtor. Plan § 3.5; TDP §§ 2.1 and 4.1. The amounts payable by the trust on asbestos-related claims made in the future would be "estimated" according to a grid, after the trustee...
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