In Re: W.R. Grace & Co., Bankruptcy No. 01-1139 (JKF)

• Decision Date: 31 January 2011
• Docket Number: Bankruptcy No. 01-1139 (JKF)
• Parties: IN RE:W.R. Grace & Co., et al., Debtor(s)
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

IN RE: W.R. Grace & Co., et al., Debtor(s)

Bankruptcy No. 01-1139 (JKF)

UNITED STATES BANKRUPTCY COURT FOR DISTRICT OF DELAWARE

Dated: January 31, 2011

Related to Doc.No. 24657, First Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of W.R. Grace & Co., etal., the Official Committee of Asbestos Personal Injury Claimants, the Asbestos PI Future Claimants' Representative, and the Official Committee of Equity Security Holders as Modified through March 19, 2010, through the Sixth Modification to Joint Plan, filed December 16, 2010, at Doc.No. 25931, and Amended §3.1.9, filed December 23, 2010, at Doc.No. 25956

MEMORANDUM OPINION REGARDING OBJECTIONS TO CONFIRMATION

OF FIRST AMENDED JOINT PLAN OF REORGANIZATION AND RECOMMENDED

SUPPLEMENTAL FINDINGS OF FACT AND CONCLUSIONS OF LAW¹

Introduction

Before the court is the confirmation of W.R. Grace & Co.'s (Debtors")² First Amended Joint Plan of Reorganization, docketed as Exhibit 1 to Doc.No. 24657 (filed April 22, 2010, with modifications through December 23, 2010("Joint Plan").The Joint Plan was accepted by each class of creditors except Class 9, General Unsecured Creditors.See note 8, infra.A ballot summary is docketed at Doc.No. 22020 and an amended summary at Doc.No. 22706.After trial, consideration of the objections and responses, stipulations, briefs and arguments, we find that the Joint Plan meets the requirements of 11 U.S.C. §1129(a)(1)-(13), (16), (b)(1), and (b)(2)(B).The following subsections of §1129 have no relevance to this case: (a)(14)-(15), (b)(2)(A), (b)(2)(C), (d), and (e).The Joint Plan also complies, in all respects, with §524(g).Because the parties in interest object only to certain provisions in the Joint Plan and Plan Documents³ and have raised no issues concerning whether the Joint Plan complies with the Bankruptcy Code other than as raised in their objections, we do not address each provision of §1129 or §524(g).Rather, we address only those alleged not to be satisfied by the Joint Plan and Plan Documents.For the reasons which follow, we overrule all remaining objections and recommend that the District Court confirm the Joint Plan.

The objections to confirmation are summarized on a chart located at Appendix B to Plan Proponents' Updated and Amended Chart (Revised) Summarizing Confirmation Requirements and Remaining Objections to the First Amended Joint Plan of Reorganization, Doc.No. 24549, filed on March 30, 2010.There was a deadline by which objections to the Joint Plan were required to be filed.Approximately 43 objections were filed.Many were resolved or subject to rulings before or during the confirmation hearing and several were the subject of settlement agreements after conclusion of the hearing.In addition, during the course of the confirmation hearing parties had every opportunity to be heard and to raise additional objections therein.See, e.g., Doc.No. 26018, Tr. 1/10/11(hearing on settlement with the CNA Companies).This Recommendation addresses the remaining unresolved objections.Our recommendations are based upon the evidence and testimony adduced in the Plan confirmation hearing and the Plan modifications and settlements reached thereafter.We find that the Joint Plan as modified through December 23, 2010, and inclusive of settlements through the settlement with the CNA Companies, approved by order of January 22, 2011, Doc.No. 26106, meets the standards and requirements of 11 U.S.C. §1129and§524(g).We find that the Joint Plan is proposed in good faith, is feasible, and is consistent with the best interests of creditors.

Good Faith, Disparate/Unequal Treatment of Indirect Asbestos PI Claims

Most of the objections focus on fair and equitable treatment (11 U.S.C. §1123(a)(4)), although characterized by the claimants as good faith objections, and on classification.Weaddress the good faith objections under §1123(a)(4) unless otherwise noted.The inquiry is whether the plan will "fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code."In re Combustion Engineering, Inc., 391 F.3d 190, 247(3d Cir.2004).

Various entities challenge the good faith of the Plan Proponents in proposing the Joint Plan.The Joint Plan before us is the result of years of litigation and arms' length negotiations.⁴There is no evidence that the Joint Plan was proposed in bad faith.In fact, it is incredible to conclude that the Joint Plan, which is intended, inter alia, to pay asbestos personal injury claimants and to resolve what would otherwise be crippling uncertain tort liabilities, was filed in bad faith.SeeIn re Combustion Engineering, Inc., 391 F.3d at 247, n.67.We find that the Joint Plan has been proposed in good faith and not by any means forbidden by law.

The Joint Plan was proposed after arm's length negotiations for the purpose of maximizing the value of the Debtor's estates.⁵The most significant creditor groups in thesecases are Holders of Asbestos PI Claims and Holders of Asbestos Property Damage ("PD") Claims.With respect to the Asbestos PI Claims, the Asbestos Personal Injury Futures Claim Representative ("FCR"), David Austern, made clear in his testimony that the negotiations involving the settlement that led to the Joint Plan were arm's length and made in good faith and we so find.The settlement negotiations took place between Debtors, the ACC, the FCR, and the PD Committee.In addition, there were negotiations and settlements with various insurers.Most PD claims have been resolved through settlements or allowance proceedings.Even the highly contested Zonolite Attic Insulation ("ZAI") Claims, both in the U.S. and Canada, have settled, notwithstanding prior objections.

The first objection we address is that of the Bank Lenders whose underlying complaint is that the Joint Plan does not pay them the contract default rate of interest to which they contend they are entitled.This court previously issued an opinion holding that the Bank Lenders were not entitled, as a matter of law, to default interest.In re W.R. Grace & Co., 2009 WL 1469831(Bankr.D.Del., May 19, 2009).In that ruling we left open until conclusion of the evidence at the plan confirmation hearing the question of whether the failure of Plan Proponents to provide default interest to the Bank Lenders in the Joint Plan impairs the Bank Lenders, notwithstandingthe absence of entitlement to default interest.⁶We also left open the question of whether the Joint Plan meets the fair and equitable test of §1129(b)(1) and the best interest test of §1129(a)(7), as applied to the Bank Lenders, if the default rate of interest is not paid.Having heard the evidence and considered the arguments and applicable law, we now reject the Bank Lenders' contention that they are impaired⁷ because the Joint Plan does not pay default interest.⁸At the time of the confirmation hearing, the Bank Lenders' undisputed nondefault contract rate of interest was not to be paid on the Effective Date pending resolution of their appeal withrespect to the default rate.The Plan Proponents amended §3.1.9 of the Joint Plan to provide for payment on the Effective Date of all principal and the undisputed portion of the interest in accordance with the Plan provisions, ⁹ pending resolution of the default interest dispute on appeal.SeeDoc.No. 25956.

Bank Lenders argue for default interest on the basis that Debtors must be presumed solvent because equity is retaining an interest and, when there is a solvent debtor, the default interest rate must be paid if there has been a default.We previously found no default and addressed the Bank Lenders' contention in that regard in our May, 2009, ruling.With respect to the solvency argument, in the context of a preference action, the Bankruptcy Appellate Panel("BAP") of the Ninth Circuit noted in Sierra Steel, Inc. v. Totten Tubes, Inc., 96 B.R. 275, 277(9th Cir. BAP1989), that determination of solvency is a finding of fact and, because a debtor is presumed insolvent for the 90 days prepetition, the creditor has to come forward with "substantial evidence of solvency" to overcome the presumption.In the matter before us, although not in a preference context, we agree that a determination of solvency is a question of fact.However, we have been presented with no evidence that establishes solvency or insolvency and there has been no determination of solvency or insolvency.¹⁰Litigation on that issue wasvoluntarily discontinued by the parties prior to the conclusion of the evidence in the estimation proceeding so there was never a determination of solvency made.Despite repeated threats to resurrect the litigation by different creditors at different times and despite repeated invitations by the court to put on the evidence if relying on solvency, no party in interest sought to reinstate the litigation.Accordingly, there is no basis to support a finding of Debtors' solvency or lack thereof and Bank Lenders' arguments for a presumption of solvency are not supported in the record or by operation of law, under the circumstances before us.Thus, there is no basis for payment of the default rate of interest¹¹based on solvency.

On the Effective Date the Bank Lenders will be paid the principal amount of their debt plus the amount of interest provided in the Joint Plan (6.09% from the Petition Date through December 31, 2005, and thereafter at floating prime, in each case compounded quarterly throughthe Effective Date).The parties agree that 6.09% exceeds the nondefault contract rate and that the provision regarding floating prime is the nondefault contract rate.Thus, the Bank Lenders are not impaired under any scenario as they will be paid in full.Section 1129(a)(7)(A)(ii) is met as to the Bank Lenders.11 U.S.C. §1124.Indeed, all creditors in this Class (Class 9) will be paid in full with interest on the Effective Date and are not impaired.The objection is overruled.

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