In re Raytech Corp.

• Decision Date: 11 February 1998
• Docket Number: Bankruptcy No. 89-00293,Adversary No. 96-5181.
• Citation: 217 BR 679
• Parties: In re RAYTECH CORPORATION, Debtor. RAYTECH CORPORATION, Plaintiff, Official Committee of Equity Security Holders, Plaintiff-Intervenor, v. OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF RAYTECH CORPORATION; Robert Carter, as Guardian Ad Litem for Future Claimants; and John Doe, Defendants, United States of America; and Connecticut Department of Environmental Protection, Defendant-Intervenors.
• Court: U.S. Bankruptcy Court — District of Connecticut

217 B.R. 679 (1998)

In re RAYTECH CORPORATION, Debtor RAYTECH CORPORATION, Plaintiff Official Committee of Equity Security Holders, Plaintiff-Intervenor, v. OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF RAYTECH CORPORATION; Robert Carter, as Guardian Ad Litem for Future Claimants; and John Doe, Defendants United States of America; and Connecticut Department of Environmental Protection, Defendant-Intervenors.

Bankruptcy No. 89-00293, Adversary No. 96-5181.

United States Bankruptcy Court, D. Connecticut.

February 11, 1998.

COPYRIGHT MATERIAL OMITTED

Brian Cogan, Daniel H. Golden, Stroock & Stroock & Lavan, L.L.P., New York City, for Plaintiff/Respondent.

Elizabeth Austin, Pullman & Comley, L.L.C., Bridgeport, CT, for Plaintiff/Respondent.

Richard D. Zeisler, Zeisler & Zeisler, Bridgeport, CT, Murray Drabkin, Hopkins & Sutter, Washington, DC, for Official Committee of Equity Security Holders.

Elihu Inselbuch, Graeme W. Bush, Caplin & Drysdale, Chartered, New York City, Robert S. Evans, New Haven, CT, for Official Committee of Unsecured Creditors.

Carl T. Gulliver, Coan, Lewendon, Royston, Deming & Gulliver, New Haven, CT, for Robert F. Carter, Guardian Ad Litem for Future Claimants.

Deirdre A. Martini, Asst. U.S. Atty., Bridgeport, CT, Henry S. Friedman, U.S. Dept. of Justice, Environmental Enforcement Section, Washington, DC, for United States.

Krista E. Trousdale, Asst. Atty. General, Hartford, CT, for Connecticut Department of Environmental Protection.

Carol A. Felicetta, New Haven, CT, U.S. Trustee.

MEMORANDUM AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT

ALAN H.W. SHIFF, Chief Judge.

This adversary proceeding was commenced by the debtor, Raytech Corporation ("Raytech") and the Official Committee of Equity Security Holders ("Equity Committee")¹ to obtain a declaratory judgment, pursuant to 28 U.S.C. § 2201(a), that Raytech's liability as the successor corporation of Raymark Industries, Inc. ("Raymark Industries"), as determined by Schmoll v. ACandS, Inc., 703 F.Supp. 868 (D.Or.1988), aff'd, 977 F.2d 499 (9th Cir.1992) and Raytech Corp. v. White, No. B-89-623 (D.Conn. Aug. 28, 1991), aff'd, 54 F.3d 187 (3rd Cir.1995), cert. denied, 516 U.S. 914, 116 S.Ct. 302, 133 L.Ed.2d 207 (1995),² is limited. The Official Committee of Unsecured Creditors ("Creditors' Committee"), Robert F. Carter as Guardian Ad Litem for Future Claimants ("Guardian"), the United States, and the State of Connecticut (collectively "movants") have filed the instant motions for summary judgment. The movants contend that there are no genuine issues of material fact; Schmoll and White imposed unlimited successor liability; and as a matter of law, Raytech and the Equity Committee are collaterally estopped from relitigating the same issue. For the reasons that follow, the motions for summary judgment are granted.

BACKGROUND

Raymark Industries manufactured and marketed energy absorption and transmission products, including asbestos and products containing asbestos. As Schmoll noted, "since the early 1970's, Raymark Industries has been named in an ever-increasing number of asbestos related personal injury lawsuits." Schmoll, supra, 703 F.Supp. at 869 (footnote omitted). By June 26, 1988, the number had grown to more than 68,000 cases. Id.³

Raytech was created in an elaborate restructuring scheme which was described in detail in Schmoll. Id. at 870-71. The Schmoll analysis is attached as an Appendix to this decision for case of reference. Essentially, Raymark Industries owned assets including the Wet Clutch and Brake Division (the "WC & B Division") and Raybestos Industrie-Produkte G.m.b.H. ("RIPG"). In 1982, Raymark Industries created Raymark Corporation as a holding company for Raymark Industries. In June 1986, Raymark Corporation created Raytech as a wholly-owned subsidiary. Raytech in turn created Raysub. In October 1986, Raymark Corporation merged into Raysub with Raymark Corporation surviving as a wholly-owned subsidiary of Raytech. Thus, Raymark Corporation which had been the parent of Raytech became its wholly-owned subsidiary, i.e., the merger resulted in Raytech becoming the owner of 100% of the stock of Raymark Corporation, which owned 100% of Raytech Industries, including the WC & B Division and RIPG.

In 1987, Raytech purchased the WC & B Division and RIPG from Raymark Industries. Those assets were not linked to any asbestos producing products or any asbestos-related litigation. Here it is noted that Raytech purchased assets from a company Raymark Industries which was owned by a company it owned Raymark Corporation. In 1988, Raytech sold Raymark Corporation, including Raymark Industries (which still owned the assets which were implicated in asbestos-related litigation) to Asbestos Litigation Management ("ALM").⁴ Schmoll concluded:

As a result of this involved corporate restructuring, Raytech now owns the WC & B Division and RIPG, the two historically lucrative businesses of Raymark Industries, without the drain of asbestos-related litigation. By selling the stock of Raymark Corporation, Raytech was able to dispose of a subsidiary whose asbestos-related expenses had decreased its earnings by $8.6 million during the first quarter of 1988.

Id. at 872.

In 1988, Raymond Schmoll commenced a products liability action against Raymark Industries and Raytech in the District of Oregon, seeking damages allegedly caused by his inhalation of asbestos dust from products manufactured or sold by, inter alia, Raymark Industries and Raytech. Schmoll, supra, 703 F.Supp. at 869. The parties agreed to submit the issue of Raytech's derivative liability to the court. After defining the issue "whether Raytech is liable as a successor for Raymark Industries' production, sale and distribution of products containing asbestos," the court found that "Raytech is a successor in liability to Raymark Industries. . . . Therefore, Raytech is responsible for Raymark Industries' strict liability torts." Id. at 869, 875. That holding was affirmed by the Ninth Circuit. See Schmoll v. ACandS, Inc., supra, 977 F.2d 499.

On March 10, 1989, during the pendency of Schmoll, Raytech filed a chapter 11 bankruptcy petition in this court. On May 11, 1989, the Creditors' Committee, consisting primarily of asbestos claimants' attorneys, was appointed. See § 1102(a)(1). The Equity Committee was appointed on July 11, 1995. See § 1102(a)(2). By orders of the District Court for the District of Connecticut on September 4, 1990 and this court on October 21, 1994, the Guardian was appointed to "take any and all actions appropriate for the protection and the advancement of the interests of future claimants . . . ".

On June 16, 1989, Raytech commenced Raytech v. White, AP# X-XX-XXXXX. Count I sought a declaratory judgment that Raytech was not liable for asbestos-related personal injury claims asserted against Raymark Industries and/or Raymark Corporation on any theory, including successor liability.⁵ Upon Raytech's motion, the reference to the adversary proceeding was withdrawn to the district court on November 2, 1989. See 28 U.S.C. § 157(d). On August 28, 1991, that court ruled that Raytech was collaterally estopped from relitigating the successor liability issue because it had been decided by Schmoll, and dismissed Count I sua sponte. See White, supra, Civ. No. B-89-623.⁶ Raytech's motion for reconsideration was denied on February 20, 1992.

In February 1992, the adversary proceeding was transferred to the Eastern District of Pennsylvania. See 28 U.S.C. § 1412. In October 1993, the Creditors' Committee moved to certify the dismissal order for immediate appeal to the Third Circuit Court of Appeals. See Rule 54(b) F.R.Civ.P. Raytech objected, arguing that since there had not yet been a ruling on the remaining counts, a final judgment had not entered. The court granted the motion, concluding that "when the Creditors' Committee prevailed on Count I, it effectively prevailed on all counts." Raytech v. White, No. 92-1451, 1994 WL 45724, at *4 (E.D.Pa. Feb. 8, 1994). The court further noted that even if Raytech were to prevail on the remaining counts, the rights of the parties would remain unchanged. Id.

On May 10, 1995, the Third Circuit affirmed the order dismissing Count I, concluding that the application of collateral estoppel was appropriate. See White, supra, 54 F.3d 187. The court rejected the argument that since Raytech was current with its payments on the unsecured notes, see Appendix, and had paid $63 million of $85.1 million, there were "facts `essential to a judgment' that would render collateral estoppel inapplicable in a subsequent action raising the same issues." Id. at 193, 195 (citation omitted). The court similarly rejected the argument that those facts made it unfair to apply collateral estoppel. Id. at 196. Raytech's petition for a writ of certiorari to the United States Supreme Court was denied on October 10, 1995. See Raytech Corp. v. White, supra, 516 U.S. 914, 116 S.Ct. 302, 133 L.Ed.2d 207.

On July 30, 1996⁷, Raytech, the Creditors' Committee with the Guardian, and the Equity

Committee submitted amended disclosure statements and plans of reorganization. Each plan provides for the establishment of some form of a successor trust to be funded with shares of stock in the reorganized debtor for the benefit of asbestos-related personal injury, wrongful death, and governmental environmental successor claims.⁸ However, each plan proposes a different treatment for equity holders. Under Raytech's plan, current equity holders would retain approximately 49% of the common stock in the reorganized debtor. The Equity Committee's plan provides that current equity holders would retain their interest in the reorganized debtor. The Creditors' Committee's plan would terminate all current equity interests. That plan, of course, presumed that Raytech's successor liability was unlimited.

On November 5, 1996, Raytech commenced this adversary proceeding, seeking a...