In re Quigley Co., Inc.

• Decision Date: 23 October 2007
• Docket Number: No. 04-15739(SMB).,04-15739(SMB).
• Citation: 377 B.R. 110
• Parties: In re QUIGLEY COMPANY, INC., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

377 B.R. 110

In re QUIGLEY COMPANY, INC., Debtors.

No. 04-15739(SMB).

United States Bankruptcy Court, S.D. New York.

October 23, 2007.

COPYRIGHT MATERIAL OMITTED

Schulte Roth & Zabel LLP, Michael L. Cook, Esq., Lawrence V. Gelber, Esq., of counsel, New York, NY, for the Debtor.

Cadwalader, Wickersham & Taft LLP, Bruce R. Zirinsky, Esq., John H. Bae, Esq., of counsel, New York, NY, for Pfizer Inc.

Brown Rudnick Berlack Israels LLP, Gregory T. Arnold, Esq., Edward S. Weisfelner, Esq., of counsel, New York, NY, for The Ad-Hoc Committee of Tort Victims.

Caplin & Drysdale, Ronald E. Reisnsel, Esq., of counsel, Washington, DC., for the Official Committee of Unsecured Creditors.

Office of the U.S. Trustee, Greg M. Zipes, Esq., of counsel, New York, NY.

MEMORANDUM DECISION CONCERNING CLASSIFICATION AND TREATMENT OF ASBESTOS PERSONAL INJURY CLAIMS

STUART M. EPSTEIN, Chief Judge.

The debtor, Quigley Company Inc. ("Quigley"), has filed a plan that includes a single class of claimants holding personal injury claims that arose from exposure to asbestos (the "PI Claimants"). A majority of the PI Claimants entered into prepetition settlements (the "Settling PI Claimants") with Quigley's non-debtor former parent, Pfizer, Inc. ("Pfizer"). Pfizer has already paid 50% of the settlements, and its obligation to pay the remaining 50% is contingent, inter alia, on the confirmation of Quigley's plan.

Quigley has sought approval of its disclosure statement, and its application raises two interrelated and narrow questions: must Quigley separately classify the Settling PI Claimants and the non-settling PI Claimants, and do the two groups receive unequal treatment under the proposed plan? For the reasons that follow, the Court concludes that although the settlements with Pfizer implicate several confirmation issues, the classification scheme and treatment of the members of the class satisfy the relevant provisions of the Code.

BACKGROUND

A. Introduction

The facts underlying the instant dispute are detailed in In re Quigley Co., Inc., 346 B.R. 647 (Bankr.S.D.N.Y.2006), familiarity with which is assumed. The factual discussion in this opinion is limited to what is necessary to explain the Court's decision.

Quigley had been engaged in the business of developing, producing and marketing a broad range of refractories and related products. Some of these products contained asbestos. (Fifth Amended and Restated Disclosure Statement with Respect to Quigley Company, Inc. Fourth Amended and Restated Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated July 11, 2007 ("DS"), at 21-22 (see ECF Doc. #1174).) In 1968, Pfizer & Co., Inc., Pfizer's predecessor, acquired Quigley, and in 1992, Pfizer sold substantially all of Quigley's assets to Minteq International, Inc. Under the sale terms, Quigley and Pfizer retained all liability stemming from Quigley's distribution and use of asbestos-containing products. (Id.) Since the sale, Quigley's only function has been to manage the hundreds of thousands of asbestos personal injury claims asserted against it. (DS, at 22-23.) Quigley estimates that as of the petition date, 212,000 asbestos personal injury claims were pending or would be asserted against it. (DS, at 9.)

B. The Prepetition Settlements

Many of Quigley's asbestos creditors had also asserted claims against Pfizer based upon Quigley's asbestos-containing products (the "Pfizer Derivative Claims"). (DS, at 36.) In addition, Pfizer had manufactured asbestos-containing products, for which it bore potential asbestos-related liability unrelated to Quigley (the "Pfizer Direct Claims"). (See id.) As of the petition date, approximately 109,200 claimants had asserted claims naming both Quigley and Pfizer, it is impossible to discern the basis of liability from the pleadings. (See DS, at 24.)

Prior to the commencement of Quigley's bankruptcy, and in contemplation of the bankruptcy, Pfizer engaged in extensive efforts to settle its direct and derivative liability to the PI Claimants. (DS, at 36.) The negotiations culminated in settlement agreements (the "Pfizer Settlement Agreement") between Pfizer and more than 80%, or approximately 172,095, of the PI Claimants.¹ (DS, at 36-37.) Pfizer agreed to pay the aggregate approximate amount of $430 million, to be divided among the Settling PI Claimants, based on disease category and exposure. (See DS, at 36-37.) Pfizer paid 50% of the settlement by December 1, 2005. (DS, at 41.) The balance of the Settlement Amount is payable, inter alia, when and if the plan is confirmed and the Consensual Plan Effective Date occurs. (Pfizer Settlement Agreement, at § 4.2(c).)

In exchange, the Settling PI Claimants agreed to deliver a release (the "Release") of their direct and derivative claims against Pfizer and the Pfizer Protected Parties (as defined in the Pfizer Settlement Agreement), while retaining their claims against Quigley. (Pfizer Settlement Agreement, Ex. B (Form of Plaintiff Release).) According to the current disclosure statement, each Settling PI Claimant's Release became effective upon the 50% payment. (DS, at 41.) Although Quigley was not released, the Pfizer Settlement Agreement included a provision that was tantamount to a 90% release. The Settling PI Claimants agreed that if the assets in the Trust established under the plan to pay PI Claimants and future demands, proved insufficient to satisfy 100% of the value attributed to the present and estimated future claims, "each Settling Plaintiff [would] reduce its distribution on its claim against Quigley to ten percent (10%) of the Payment Percentage of the allowed amount of such claim under the Trust Distribution Procedures." (Pfizer Settlement Agreement, at § 2.4(b).) It is undisputed that the Trust assets will not be sufficient to pay 100%, and the 90% reduction would kick in.

The plan was a central feature of the prepetition settlement negotiations. The current version of the plan (the "Plan") contemplates that the aforementioned Trust will be funded with approximately $645 million contributed by Pfizer and Quigley. The Trust will administer and pay the present and future asbestos claims under the Plan's Trust Distribution Procedures (the "TDP"). (DS, at 6-7.) The amount of payment will depend on the severity of the claimant's impairment, ranging from a scheduled value of $200,000 for mesothelioma down to a $2,000 for certain asbestosis/pleural disease. (DS, at 8.) All current and future asbestos personal injury claims asserted against Quigley, and all "Pfizer Derivative Claims," will be channeled into the Trust, and the PI Claimants will be barred from pursuing the channeled claims against reorganized Quigley, Pfizer and certain Pfizer affiliates. (Id.)

C Quigley's Bankruptcy

Quigley filed its chapter 11 petition on September 3, 2004, and filed its initial plan and disclosure statement on March 4, 2005. All of Quigley's proposed plans, including the current Plan, placed the PI Claimants in the same class, regardless of whether they had settled with Pfizer. On January 23, 2006, Bankruptcy Judge Beatty signed an order approving Quigley's fourth amended disclosure statement and establishing voting procedures. Each PI Claimant was directed to designate on the ballot whether he based the claim on mesothelioma, lung cancer, or another asbestos related disease. (Order: (I) Approving Quigley's Disclosure Statement; (II) Approving Solicitation Procedures, Forms of Ballots, and Manner of Notice; and (III) Fixing Date, Time and Place for Confirmation Hearing and Deadline for Filing Objections Thereto (the "DS Order"), at ¶ 4.) (ECF Doc. # 593.) Judge Beatty's order also required the claimant to indicate whether he was a Settling PI Claimant. (Id., at ¶ 5.)

The Court's order did not decide how the claims would be valued for voting purposes, a topic of hot dispute. Quigley (and Pfizer) maintained that each claim should be estimated for voting purposes at $1.00. A dissident group, spearheaded by the unofficial Ad Hoc Committee of Tort Victims (the "Ad Hoc Committee"), argued that the claims should be valued for voting purposes in amounts consistent with their historic settlement value. In addition, the Ad Hoc Committee argued that the claims held by the Settling PI Claimants, diluted by 90% by virtue of the Pfizer Settlement Agreement, should also be reduced by 90% for voting purposes. While this issue was still pending, Quigley solicited the votes of the PI Claimants, and 85% of the voting creditors accepted the plan. A breakdown of the votes showed that 93% of the Settling PI Claimants accepted the plan, while over half of the non-settling PI Claimants rejected it. Quigley, 346 B.R. at 658-59.

After the vote was completed, the Court addressed the valuation dispute. The Court questioned the $1.00 per vote methodology, but ultimately concluded that it was immaterial to the outcome. Id. at 655-56. Instead, the critical issue was whether the dollar amount of the votes cast by the Settling PI Claimants should be reduced by 90% to reflect the 90% reduction agreed to in the Pfizer Settlement Agreement. See id. at 656. The Court concluded that they should be, id. at 657-58, and after the vote was recalculated to reflect the reduction, the plan failed to garner the requisite majority needed to confirm. Id. at 659.

Following an unsuccessful motion for reargument, Quigley and Pfizer returned to the drawing board. On May 18, 2007, Quigley filed its Fifth Amended Disclosure Statement with Respect to Quigley Company, Inc., Fourth Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (ECF Doc. # 1097) and the Quigley Company, Inc., Fourth Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (ECF Doc. # 1098). Quigley simultaneously moved for an order approving, among other things, the adequacy of its disclosure statement and its proposed solicitation procedures.² While the object of the new Plan did not...