In re Western Asbestos Co.

• Decision Date: 10 September 2009
• Docket Number: Adversary No. 07-4141.,Bankruptcy No. 02-46284.,No. C 08-4127 PJH.,No. 08-4376 PJH.,C 08-4127 PJH.,08-4376 PJH.
• Citation: 416 B.R. 670
• Parties: In re WESTERN ASBESTOS COMPANY, et al., Debtors. Hon. Charles Renfrew (Ret.), Futures Representative to the Western Asbestos Settlement Trust, and the Trust Advisory Committee to the Western Asbestos Settlement Trust, Plaintiffs/Appellees, and The Western Asbestos Settlement Trust, Plaintiff-Intervener/Appellee-Intervener v. Hartford Accident and Indemnity Company, Defendant/Appellant.
• Court: U.S. District Court — Northern District of California

416 B.R. 670

In re WESTERN ASBESTOS COMPANY, et al., Debtors Hon. Charles Renfrew (Ret.), Futures Representative to the Western Asbestos Settlement Trust, and the Trust Advisory Committee to the Western Asbestos Settlement Trust, Plaintiffs/Appellees, and The Western Asbestos Settlement Trust, Plaintiff-Intervener/Appellee-Intervener v. Hartford Accident and Indemnity Company, Defendant/Appellant.

No. C 08-4127 PJH.

No. 08-4376 PJH.

Bankruptcy No. 02-46284.

Adversary No. 07-4141.

United States District Court, N.D. California.

September 10, 2009.

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ORDER RE: CONSOLIDATED APPEALS

PHYLLIS J. HAMILTON, District Judge.

Appellant Hartford Accident and Indemnity Company ("Hartford") appeals the bankruptcy court's August 11, 2008 order in adversary case no. 07-4141 granting appellees' motion for partial summary judgment and for a permanent injunction and denying Hartford's motion for judgment on the pleadings and/or for summary judgment.¹ Hartford Appx. 20. Additionally, Hartford appeals the bankruptcy court's August 21, 2008 order in the main chapter 11 bankruptcy case, no. 02-46284, denying as moot Hartford's motion to enforce a settlement agreement and appellees' motion for clarification. Hartford Appx. 5. For the reasons that follow, the court AFFIRMS the decisions and judgments of the bankruptcy court.

BACKGROUND

On October 21, 2008, this court related the above two bankruptcy appeals because the bankruptcy court's August 11, 2008, and August 21, 2008 orders from which Hartford appealed involved the same issues and parties. The court also consolidated briefing on appeal. Subsequently, on February 5, 2009, the court permitted plaintiff-intervener, Western Asbestos Settlement Trust ("the Trust"), to retain on appeal its intervener status, granted by the bankruptcy court, and allowed it to file an opposition brief. The court also permitted Hartford to reply to the Trust's brief. Accordingly, there are a total of five briefs on appeal before this court, including Hartford's opening brief, appellees' opposition brief, Hartford's reply brief, the Trust's opposition brief, and Hartford's reply to the Trust's brief.

A. Factual and Procedural Background

This appeal stems from the bankruptcy court's orders in the main bankruptcy case, In re Western Asbestos Company, 02-46284, and in an adversary case, Hon. Charles Renfrew et al. v. Hartford Accident and Indemnity Company, 07-4141. In 2002, the debtors, MacArthur Companies and Western Asbestos, filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code for the purpose of establishing an asbestos claimants' trust, the Western Asbestos Settlement Trust ("the Trust"), funded by a settlement with insurance companies with whom the debtors had been in coverage litigation for several years.

Such a trust is recognized by Bankruptcy Code § 524(g), which establishes a procedure for dealing with personal injury claims against the debtor based on exposure to asbestos-containing products in chapter 11 reorganization cases. 140 Cong. Rec H 10,765 (October 1994). The procedure under § 524(g) involves the establishment of a trust to pay the future claims, coupled with an injunction, referred to as a "channeling injunction," which prevents future claimants from suing the debtor. Id. The section allows the bankruptcy court to enter the channeling injunction, a sweeping injunction against any entity taking legal action to collect a claim that is to be paid in whole or part by a trust created through a qualifying plan of reorganization. See 4 Collier on Bankruptcy § 524.07 (15th ed. rev'd).

In this case, the chapter 11 plan confirmation trial began on November 10, 2003, and continued for more than three weeks. The plan included provision for the appointment of a futures representative to represent the interests of holders of Trustclaims to be asserted in the future.² The plan also provided for the creation of the Trust Advisory Committee ("TAC"), which represents the interests of current holders of Trust claims. Collectively, the futures representative and the TAC are referred to as the "trust fiduciaries."

At the time of the plan confirmation hearings, Hartford was not one of the debtors' insurers that had settled with them. Instead, Hartford continued to dispute coverage of the debtors' liability, and vehemently objected to confirmation of debtors' "pre-packaged" chapter 11 plan. In spite of Hartford's objections, following the lengthy plan confirmation hearing, the bankruptcy court confirmed the debtors' plan and issued a channeling injunction. However, on December 19, 2003, prior to the final hearing before a district court judge on the channeling injunction issued by the bankruptcy court,³ Hartford and the debtors, the unofficial committee of unsecured creditors, several law firms representing asbestos claimants, and the trust fiduciaries entered into a settlement agreement. See Complaint, Doc. 1, 07-4141, Exh. 1.

That settlement agreement resolved disputes related to Hartford's obligation to provide coverage under its third-party liability insurance policies issued to the debtors, and required Hartford to pay $1.15 billion to the Trust. Id. at ¶ 3.1. On January 20, 2004, the bankruptcy court approved the settlement agreement, id. at 19, and on January 27, 2004, the court confirmed the second amended chapter 11 plan, thus creating the Trust and requiring the parties to comply with the settlement agreement.⁴ See January 27, 2004 Order at ¶ 46. The January 27, 2004 order recognized that:

[T]he Trust shall assume all of the liabilities of each of the Debtors (whether existing at the time of the Trust's creation or arising at any time thereafter) arising from or relating to all Asbestos Related Claims. The Trust shall use the assets and income of the Trust to pay holders of such Asbestos Related Claims and to perform any and all other Trust duties and obligations as set forth in the Plan and in accordance with the Trust Agreement, in such a way that all holders of similar Asbestos Related Claims are treated in a substantially equivalent manner and to comply in all respects with the requirements for a trust as provided in Bankruptcy Code section 524(g).

H 13.

One of the provisions of the settlement agreement approved by the bankruptcy court, section 14.1 entitled "Audit Rights," set forth Hartford's right to review and audit the Trust and Trust payments. That section provides in pertinent part:

Hartford shall have the right, at its own expense, upon reasonable notice, at a time and place convenient to the Trust, to review and/or audit the Trust and Trust payments. The Trust shall have no obligation to create any new documents in connection with any such review beyond those ordinarily created or maintained by the Trust, and Hartford shall not be permitted to challenge the allowance or payment of the Claims by the Trust or any administrative payments or costs of the Trust.

Unlike the settlement agreement,⁵ the Trust itself is a Nevada Trust. It contains a choice of law provision, specifying that: "This Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada without regard to Nevada conflict of laws principles." September 7, 2007 Trust Complaint in Intervention, Exh. B. at § 7.11. However, that same section provides that "the Trust is subject to the continuing jurisdiction of the Bankruptcy Court."⁶

Several years later, on March 6, 2007, Hartford contacted the Trust, stating that it was providing notice, pursuant to the Settlement Agreement, of its intent to "review and audit the Trust and Trust payments." The Trust subsequently requested assurances from Hartford regarding the protection of the privacy rights of present and future Trust claimants. It requested that Hartford execute a confidentiality agreement that provided protection for personal information regarding the Trust claimants, or alternatively, that it acknowledge that a prior stipulated protective order approved by the bankruptcy court on June 13, 2003, applied to the Trust information sought by Hartford. The Trust also sought to clarify the purpose for which Hartford wanted to review the information.

Regarding its purpose, Hartford responded that it "wish[ed] to review the facts alleged by claimants making a claim to the trust." It noted that "[i]n light of recent reports and disclosures in other contexts about alleged inconsistencies or alleged fraud in claimant exposure and/or medical information, [Hartford] wish[ed] to explore this issue ourselves." As for confidentiality, Hartford asserted that it would comply with existing confidentiality requirements in the settlement agreement and with any statutory obligations, but refused to execute a formal confidentiality agreement.

Subsequently, on July 3, 2007, Hartford filed a motion to enforce its audit rights, initiating a contested matter in the main bankruptcy case. Hartford Appx., Exh. 2. Hartford argued that it was entitled to audit and review Trust documents with no further restrictions regarding the purpose of its review, and that it was not required to agree to further confidentiality requirements beyond those contained in the settlement agreement.

Two days later, the trust fiduciaries filed a motion for clarification, seeking an order that the June 13, 2003 stipulated protective order applied to the information Hartford requested from the Trust. Hartford Appx., Exh. 1. Alternatively, the trust fiduciaries requested that the bankruptcy court issue a new protective order protecting the privacy rights of the Trust claimants. The bankruptcy court heard the motions on August 20, 2007, and following arguments, concluded on the record that the June 13, 2003 stipulated protective order was no longer in effect. It also held that procedurally, a separate adversary proceeding—as opposed to a...