In re Quigley Co.

• Decision Date: 24 October 2013
• Docket Number: Case No. 04–15739 (SMB)
• Citation: 500 B.R. 347
• Parties: In re: Quigley Company, Inc., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

500 B.R. 347

In re: Quigley Company, Inc., Debtors.

Case No. 04–15739 (SMB)

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

Filed October 24, 2013

Schulte Roth & Zabel LLP, Attorneys for Debtor, 919 Third Avenue, New York, NY 10022, Michael L. Cook, Esq., Lawrence V. Gelber, Esq., Of Counsel.

Caplin & Drysdale, Chartered Attorneys for the Official Committee of Unsecured Creditors, One Thomas Circle, NW, Suite 1100, Washington, DC 20005, Elihu Inselbuch, Esq., Ronald E. Reinsel, Esq., Rita C. Tobin, Esq., Of Counsel.

Togut, Segal & Segal, LLP, Attorneys for the Legal Representative for Future Asbestos Personal Injury Claimants of Quigley Company, Inc., One Penn, Plaza New York, NY 10110, Scott E. Ratner, Esq., Of Counsel.

Office of the United States Trustee, 201 Varick Street, Room 1006, New York, New York 10004, Greg M. Zipes, Esq., Andrew Velez–Rivera, Esq., Of Counsel.

Chapter 11

MEMORANDUM DECISION AND ORDER REGARDING UNITED STATES TRUSTEE'S OBJECTIONS TO FEE APPLICATIONS

STUART M. BERNSTEIN, United States Bankruptcy Judge:

The principal question presented by the final fee applications in this case is whether counsel are entitled to compensation for the work they did in proposing or supporting a plan that failed, inter alia, for lack of good faith. The United States Trustee (“UST”) filed objections on this and several other grounds to the final fee applications submitted by Schulte Roth & Zabel LLP (“Schulte”), attorneys for the debtor Quigley Company, Inc. (“Quigley”), Caplin & Drysdale, Charted (“Caplin”), attorneys for the Official Committee of Unsecured Creditors (the “Committee”) and Togut, Segal & Segal LLP (the “Togut Firm”), attorneys for Albert Togut in his capacity as Legal Representative for Future Asbestos Personal Injury Claimants (the “Legal Representative”). For the reasons that follow, the UST's principal objection is overruled, and the final fee applications submitted by Schulte and the Togut Firm are allowed. The UST's objection to the final fee application of Caplin is sustained in part, its fee request will be reduced by $20,600.00, and allowed in the reduced amount provided that Caplin supplies the Certification required by the Court's Amended Guidelines for Fees and Disbursements for Professionals in Southern District of New York, (“ Amended Guidelines”), at ¶ B(1) ¹ that covers all fees and disbursements sought in the final fee application.

BACKGROUND

A. Introduction

The background facts are set forth at length in the Court's Post–Trial Findings of Fact and Conclusions of Law, dated Sept. 8, 2010, denying confirmation of Quigley's Fourth Amended and Restated Plan of Reorganization (the “Fourth Plan”). SeeIn re Quigley Co., 437 B.R. 102 (Bankr.S.D.N.Y.2010) (the “Confirmation Decision ”). The Court assumes familiarity with the Confirmation Decision, and limits the background discussion to the facts relevant to the current disputes.

Quigley had been engaged in the business of manufacturing refractory products that used asbestos. Pfizer, Inc. (“Pfizer”) acquired Quigley in 1968, and remains Quigley's sole shareholder. As a result of the acquisition, Quigley fell under the protection of most of Pfizer's liability insurance and both shared a substantial amount of insurance payable on a first come, first pay basis. In September 1992, Quigley sold substantially all of its operating assets, and did not operate any business between the date of the sale and just before it filed its chapter 11 petition on September 3, 2004 (the “Petition Date”).

Over the years, hundreds of thousands of asbestos-related personal injury claims were asserted against Quigley and Pfizer. Most if not all of the claims asserted against Pfizer were based on exposure to Quigley's products, and covered by the shared insurance. Quigley and Pfizer were represented by the same counsel who resolved many of the claims through a settlement that covered the claims against both. Historically, Quigley paid 77% of the settlement, and Pfizer paid 23%.

As the tide of continuing litigation depleted the insurance used to pay claims, Pfizer developed its global strategy described in the Confirmation Decision. The object of the global strategy was for Quigley to file chapter 11 and confirm a plan under 11 U.S.C. § 524(g) that would release Pfizer and its affiliates from present and future liability for products manufactured by Quigley. To accomplish this, Pfizer first resurrected the non-operating Quigley, hired independent management and transferred Pfizer's claims handling business to Quigley. Next, Pfizer entered into settlements (the “Pfizer Settlement Agreements”) with approximately 175,000 asbestos claimants (the “Settling PI Claimants”) for an aggregate amount of roughly $450 million. Half of the settlement was payable no later than December 1, 2005, and the remaining 50% was payable only after Quigley's confirmation order became final.

Although Pfizer had historically settled its liability and Quigley's liability at the same time, the Pfizer Settlement Agreements only covered Pfizer. Nevertheless, the Settling PI Claimants agreed, in substance, that if the assets in the Asbestos PI Trust (the “Trust”) created under the plan were insufficient to pay 100% of the value under the Trust Distribution Procedures (“TDP”) schedule, the Settling PI Claimants would only receive 10% of the payment otherwise due from the Trust. Since the Trust assets would unquestionably be insufficient, the Settling PI Claimants effectively agreed to take a 90% haircut and retain a “stub” claim against Quigley.

Meanwhile, Quigley's financial situation worsened as a result of mounting litigation and diminishing insurance to meet it. The Quigley board (two of the three members were independent of Pfizer) met several times during the summer of 2004 to review Quigley's options. They considered several alternatives including continuing to operate until the insurance ran out, immediately liquidating under chapter 7, and filing a chapter 11 case with the financial support of Pfizer. The Quigley board opted for the last alternative. Quigley filed the chapter 11 petition on the Petition Date and immediately and successfully moved for an injunction that stayed all litigation against Quigley and Pfizer that would have eroded the remaining pool of shared insurance. The injunction was subsequently modified in scope but in its various forms managed to preserve the remaining insurance for use in connection with a plan.

B. The Plans

Quigley filed its initial plan and disclosure statement on March 4, 2005 (ECF Doc. ## 288, 289), the day exclusivity expired. The draft plan was incomplete. It omitted the total amount of Pfizer's contribution as well as many schedules, documents and agreements that had yet to be prepared but eventually would be included as part of the plan. As evidenced by the placeholder exhibit dividers in the first plan, these included the Schedule of Shared Asbestos–Related Insurance Policies, the Schedule of Asbestos–Related Insurance Settlement Agreements, the AIG Assignment Agreement, the Amended Bylaws of Reorganized Quigley, the Amended Certificate of Incorporation of Reorganized Quigley, the Asbestos–Related PI Claims Services Agreement, the Pfizer Insurance Relinquishment Agreement and the Product Transfer and Services Agreement. Quigley subsequently filed its first amended plan and disclosure statement on August 15, 2005 (ECF Doc. ## 419, 420), a second amended plan and disclosure statement on September 23, 2005 (ECF Doc. ## 471, 472) and a third amended plan and disclosure statement on October 6, 2005. (ECF Doc. ## 504, 505.) Each of the amended plans and disclosure statements were accompanied by exhibits reflecting the continued negotiation and preparation of critical plan documents, including the Asbestos PI Trust Distribution Procedures (ECF Doc. ## 423, 507), the Asbestos PI Trust Agreement (ECF Doc. ## 473, 506) and updated financial information and projections. (ECF Doc. ## 475, 508, 509, 510.)

By order dated January 23, 2006, the Court approved Quigley's disclosure statement. (ECF Doc. # 593.) The order provided that each asbestos personal injury claim would be estimated at $1.00 for voting purposes, but all objections to the manner of tabulating the votes were preserved. The votes were solicited on the third amended plan, and based on the $1.00 estimation, the plan was accepted by 85% in number and amount of the class of asbestos personal injury plaintiffs. The vote met the confirmation requirement that at least 75% of those voting cast a vote in favor of the plan. See11 U.S.C. § 524(g)(2)(B)(ii)(IV)(bb).

The Ad Hoc Committee of Tort Victims (“AHC”) challenged the proposed methodology for estimating and tabulating the votes. The Court sustained the objection, concluding that the votes of Settling PI Claimants should be valued at 10% of the TDP scheduled value to reflect the 90% subordination incorporated into the Pfizer Settlement Agreements. In re Quigley Co., 346 B.R. 647, 657–58 (Bankr.S.D.N.Y.2006). Once the votes were re-valued, they were insufficient to accept the plan. Id. at 658–59. The Settling Claimants subsequently agreed to waive the 90% subordination, Pfizer agreed to increase its contribution following negotiations to reflectthe increased amount the Trust now had to pay and Quigley filed the Fourth Plan and accompanying Fifth Amended Disclosure Statement on May 18, 2007. (ECF Doc. ## 1097, 1098.) Quigley thereafter filed modified versions of the Fourth Plan and Fifth Amended Disclosure Statement together with additional exhibits. (ECF Doc. ## 1124, 1125, 1174, 1175, 1178, 1179, 1180, 1181, 1182, 1257, 1258, 1379, 1380.)

The AHC and the UST objected to Quigley's motion to approve the Fifth Amended Disclosure Statement. Many of the objections dealt with the adequacy of disclosure and were either resolved or overruled at the disclosure statement hearing. In re Quigley Co., 377 B.R. 110, 115 (Bankr.S.D.N.Y.2007) ...