Matter of Johns-Manville Corp.

• Decision Date: 23 December 1986
• Docket Number: Bankruptcy No. 82 B 11656/76.
• Citation: 68 BR 618
• Parties: In the Matter of JOHNS-MANVILLE CORPORATION, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

68 B.R. 618 (1986)

In the Matter of JOHNS-MANVILLE CORPORATION, Debtor.

Bankruptcy No. 82 B 11656/76.

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

December 18, 1986.

As Amended December 19 and December 23, 1986.

COPYRIGHT MATERIAL OMITTED

Levin & Weintraub & Crames, New York City, for debtors; Michael J. Crames, and Herbert S. Edelman, and Andrew Kress, and Edmund M. Emrich, of counsel.

Davis, Polk & Wardwell, New York City, for debtors; Stephen Case, and Lowell Gordon Harriss, and Laureen Bedell, of counsel.

Milbank, Tweed, Hadley & McCloy, New York City, for Creditors Committee; John J. Jerome, and John Gellene, of counsel.

Fried, Frank, Harris, Shriver & Jacobson, New York City, for Leon Silverman, Legal Representative; Matthew Gluck, of counsel.

Caplin & Drysdale, Chartered, New York City, for Asbestos Health Committee; Elihu Inselbuch, of counsel.

Hahn & Hessen, New York City, for Equity Security Holders Committee; George Hahn, of counsel.

Kronish, Lieb, Weiner & Hellman, New York City, for Certain Holders of Common Stock; Richard Lieb, and Laurence J. Kaiser, of counsel.

Covington & Burling, Washington, D.C., for Armstrong World Industries; David H. Remes, of counsel.

Coleman & Rhine, New York City, for Armstrong World Industries, Inc.; Howard I. Rhine, of counsel.

Jane Bevans, New York City, for Protestant Episcopal Schools.

Greene, O'Reilly, Broillet, Paul, Simon, McMillan, Wheller & Rosenberg, Washington, D.C., for Lawrence Kane Objectors; Vern Countryman, and George Rosenberg, and Michael L. Goldberg, of counsel.

Nathan M. Fuchs, Virginia M. Handal, New York Regional Office United States Securities and Exchange Commission.

Weil, Gotshal & Manges, New York City, for Owens-Illinois; Ellen Werther, of counsel.

Whitman & Ransom, New York City, for U.S. Trust Company of New York; William M. Kahn, of counsel.

Wolf, Popper, Ross, Wolf & Jones, New York City, for Schools Committee; Ellen Chapnick, of counsel.

Gaston, Snow & Ely Bartlett, Boston, Mass., for University of Missouri and Hospitals; Charles F. Vihon, of counsel.

Goldstein & Manello, Boston, Mass., for State Government Creditors Committee; Robert Somma, of counsel.

Earl Parker, for Johns-Manville Corporation.

BURTON R. LIFLAND, Chief Judge.

I Introduction

Several days ago these huge, complex, unparalleled reorganization proceedings entered into a new phase, when their largely consensual plan was formally brought before this court as a candidate for confirmation.

Manville originally filed its petition for reorganization under chapter 11 in August of 1982. The troubled history of these reorganization proceedings has been discussed in some detail, most recently in Equity Security Holder's Committee v. Johns-Manville Corp., (In re Johns-Manville Corp.), 66 B.R. 517 (Bankr.S.D.N.Y. 1986), aff'd mem, (S.D.N.Y. December 9, 1986). There is little need to review the Manville saga today, except to highlight some of the most recent events in the case. On November 20, the Debtor announced preliminary voting results on its reorganization plan. According to those results, the plan was overwhelmingly accepted by Asbestos Health Claimants, Property Damage Claimants, Unsecured Creditors and Preferred Shareholders. Common Shareholders were the only class to reject the plan.

The District Court has upheld this court's recent rulings denying the appointment of official committees to represent equity interests, Carl M. Albero, Morton Macks et. al. v. Johns-Manville Corp., Official Committee of Unsecured Creditors, United States Trustee, the Official Committee of Asbestos-Related Litigants and/or Creditors and the Legal Representative for Future Claimants. (In re Johns-Manville Corp.), 68 B.R. 155, (S.D.N.Y. 1986); and its decision enjoining the calling of a meeting of the Debtor's shareholders, supra. The Debtor's settlements with its insurance carriers, then totalling more than $700 million, were approved by this court, after a hearing on their fairness, held November 19, 1986. The Debtor subsequently concluded settlements with its remaining carriers. The various chapter 11 cases filed by the Debtor and its subsidiaries were substantively consolidated after a hearing before this court on December 9, 1986.

By means of an order submitted to this court on December 12, 1986, Hahn & Hessen, Esqs. sought to withdraw the objections to confirmation previously filed on behalf of the Official Committee of Equity Security Holders (the "Equity Committee"), its individual members, and any successor committee on November 14, 1986. By endorsement the order was declined because, inter alia, it was noted to have been brought inappropriately and in an untimely manner. The withdrawal request was renewed at the confirmation hearing and was again refused. Accordingly, the filed objections shall be considered, along with the others.

The plan is the product of more than four years of effort to grapple with a social, economic and legal crisis of national importance within the statutory framework of chapter 11. Not surprisingly, this largely consensual plan is, by virtue of necessity, both creative and pragmatic in the solutions it proposes in response to the problems that afflict the Debtor, and indeed all parties in this reorganization.

One of the most innovative and unique features of the Manville Plan of Reorganization (the "Plan") is the establishment of two Trusts out of which all asbestos-related claims will be paid. An understanding of the features of these Trusts is necessary before an informed evaluation of the Plan, under the standards of § 1129 can be made.

The Asbestos Health Trust (the "Trust" or the "AH Trust") is a facility designed to resolve the claims of victims of asbestos-related diseases. It should be emphasized that this Trust draws no distinction between victims on the basis of the date of the manifestation of their disease. The Trust will initially be funded with $815 million in cash, receivables and insurance proceeds. The Trust will also receive $75 million per year from Manville for a 24 year period commencing 3 years after its inception. Ultimate funding is in excess of approximately $2.5 billion. In addition, the Trust will own or have access to up to 80% of Manville's common stock. Finally, the Trust will have the right to call on up to 20% of the profits of the corporation, beginning 4 years after its inception and continuing for as long as necessary to satisfy asbestos health claims.

Two aspects of the financial structure of the Trust should especially be noted. First, the Trust, as a fiduciary for asbestos health victims will be the single largest stockholder in the reorganized debtor. The effect of this Plan will be to give the "tort victims" the beneficial interest in the ongoing operating corporate entity. Second, the Trust is guaranteed an "evergreen" source of funding by virtue of its 20% call on profits of the operating corporation. This funding of the Trust will continue until the last asbestos victim is found and paid. Thus an effort to determine the number and amount of AH claims with exactitude is not imperative. The imperative rather, is to ensure to the greatest degree possible the continuing viability of the reorganized corporation, which will fund the Trust, whatever the number and amount of claims happen to be. To protect and preserve the Manville operating entity, to help ensure the Trust's ability to honor its commitments, and to enhance the market value of the Trust's stock, the operating entities will be protected from further asbestos-related litigation by a combination of the discharge provisions of the Code and an injunction order (the "Injunction") prohibiting all parties with asbestos-related personal injury or property damage claims from suing certain protected entities.

The Property Damage Trust (the "PD Trust") is, similarly, a facility for resolving Class 5 asbestos-related property claims. The Trust will be funded initially with $125 million and will be entitled to any insurance settlement proceeds in excess of $615 million. To this will be added the remaining assets of the AH Trust, upon its termination.

A. Objections to Confirmation

Before discussing the Debtor's Plan in the context of § 1129 requirements, the court notes that the following objections to confirmation, many of which are on common grounds, have been filed:

1) A common shareholder, John MacLean, has challenged a provision of the Plan under which attorneys representing asbestos health claimants will be paid legal fees without review of those fees by this court.

2) Several Co-Defendants (the "Armstrong Objectors") have challenged the ability of the Asbestos Health Trust (the "AH" Trust") to satisfy all liabilities assumed by the Trust and provisions of the Plan which the Armstrong Objectors claim would disable the Trust from entering an industry wide claims handling facility, commonly known as the "Wellington Plan".

3) A group of Asbestos Health Victims (the "Kane Objectors") raise the following objections to the Plan:

a) The legal validity of that part of the Plan which seeks to enjoin asbestos-related suits against the reorganized Debtor (the "Injunction");

b) The terms of the Plan which transfer property of the estate to Class 6 claimants in lieu of post-petition interest;

c) The features of the Injunction which disallow punitive damages in asbestos-related claims against the Trusts;

d) The Debtor's estimates of the number of present and future asbestos health claims and the average costs of their disposition and thereby the feasibility of the Plan;

e) The validity of the voting procedures employed with respect to AH Claimants;

f) The Debtor's good faith in proposing the Plan; and

g) The Kane Objectors also assert that the Trust provided for in the Plan essentially amounts to a fraudulent conveyance. The court specifically finds that the Kane Objectors submitted neither credible evidence nor persuasive legal...