STARK, U.S. District Judge:
This bankruptcy appeal involves objections to the Confirmation Order and Opinion entered in In re The Flintkote Company (Bankr.Case No. 04-11300-JKF), as well as a request for affirmance of a bankruptcy Plan.
On October 25-26, 2010 and September 12, 13, and 19, 2011, the Bankruptcy Court
ITCAN's appeal is addressed not only to the Confirmation Order and Confirmation Opinion, but also to "all orders and rulings adverse to ITCAN that were incorporated into, merged into, and/or relied upon in rendering the Confirmation Order and Confirmation Opinion." (D.I. 1 at 2; see also D.I. 2 Ex. A)
Alter Ego Claim
The Bankruptcy Court denied ITCAN's motion for leave to file an out-of-time proof of claim relating to potential alter ego liability (the "Alter Ego Claim"). ITCAN sought review of that order in an appeal to this Court. (See Civ. No. 11-00063-LPS D.I. 1) This Court held that the prior order was not a final order pursuant to 28 U.S.C. § 158(a)(1) and that ITCAN failed to meet the standards for interlocutory review set out in § 158(a)(3). On May 21, 2012, this Court dismissed the appeal for lack of jurisdiction. (Id. D.I. 24) After ITCAN appealed this ruling to the Third Circuit (see id. D.I. 26), the parties on January 30, 2013 jointly requested that the appeal be dismissed without prejudice (see id. D.I. 29). By that point, this Court had obtained jurisdiction to review the Alter Ego Claim in the context of its review of the Confirmation Order.
Section 107 Claim
In its second ruling — embodied in (a) the Memorandum Opinion and (b) the related Order Sustaining Debtors' Objection to Claim No. 2262 Filed By Imperial Tobacco Canada Limited and Overruling ITCAN's Objection to Plan Confirmation (Bankr.Case No. 04-11300 (Bankr.D.Del. Oct. 3, 2011) [collectively Bankr.D.I. No. 6227]) — the Bankruptcy Court disallowed ITCAN's proof of claim for expenses incurred investigating the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq. claim.
Appeal of Plan Confirmation
ITCAN, the lone remaining objector to the Plan, now seeks this Court's review of
All aspects of ITCAN's appeal are fully briefed.
Appeals from the Bankruptcy Court to this Court are governed by 28 U.S.C. § 158. Pursuant to § 158(a), district courts have mandatory jurisdiction to hear appeals "from final judgments, orders, and decrees" and discretionary jurisdiction over appeals "from other interlocutory orders and decrees." 28 U.S.C. § 158(a)(1) and (3). "An order confirming a Chapter 11 plan is considered a final, appealable order." In re Kaiser Aluminum Corp., 343 B.R. 88, 93 (D.Del.2006) (citing Eastern Minerals & Chems., Co. v. Mahan, 225 F.3d 330, 336 n. 11 (3d Cir. 2000)).
In conducting its review of the issues on appeal, this Court reviews the Bankruptcy Court's findings of fact for clear error and exercises plenary review over questions of law. See Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir.1999). "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948). The Court must "break down mixed questions of law and fact, applying the appropriate standard to each component." Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir.1992).
The parties agree that review by this Court is warranted, as the Confirmation Order is a final order that resolves all disputed issues between the Plan Proponents and ITCAN. (See Civ. No. 11-01299-LPS D.I. 15) It is likewise evident that the Court now has jurisdiction over ITCAN's appeals relating to the Alter Ego Claim and the § 107 Claim. (See id.) The parties disagree over whether ITCAN has standing and over the proper resolution of the issues presented on appeal.
The Bankruptcy Court found that ITCAN lacks standing, for reasons summarized by the Plan Proponents:
(D.I. 28 at 21)
ITCAN argues that the Bankruptcy Court erred because (i) ITCAN is a creditor,
The Plan Proponents respond that ITCAN's asserted injuries are wholly speculative and incapable of redress. (D.I. 28 at 3-4) Further, according to the Plan Proponents, even if ITCAN met the minimum constitutional requirements for standing, ITCAN fails to satisfy the additional prudential and appellate standing requirements "because it is not directly affected by the confirmation order and seeks merely to assert the rights of third parties." (Id. at 25) The Plan Proponents cite In re W.R. Grace & Co., 532 Fed.Appx. 264, 268 (3d Cir.2013), for the proposition that a putative creditor has no standing to object to a § 524(g) reorganization plan based on speculative requests for claims of contribution and indemnity. (See D.I. 35)
ITCAN has the burden to show that it has constitutional, prudential, and appellate standing. To have constitutional standing, ITCAN must demonstrate (1) a concrete and particularized injury, (2) a causal connection between the injury and the conduct complained of, and (3) redressability. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).
The Court agrees with the Bankruptcy Court that ITCAN lacks even constitutional standing (so it need not address whether ITCAN also lacks prudential and/or appellate standing). The future Alter Ego Claim, based on a theory of indemnity or contribution, is speculative, not "actual and imminent."
Claims and Demands
ITCAN contends that the Bankruptcy Court erred in confirming the Plan pursuant to §§ 524(g) and 1129 of the Bankruptcy Code based on an erroneous determination that the reorganized Flintkote would be subject to "substantial future demands," a requirement of § 524(g)(2)(B)(ii)(I). (D.I. 2 Ex. A; Tr. at 6) ITCAN asserts the Bankruptcy Court erred in its legal interpretation of the phrase "substantial future demands" and further erred by finding, as a factual matter, that Flintkote faces such "substantial future demands." (See, e.g., D.I. 16 at 23-43; D.I. 31 at 3-11) As the Plan Proponents summarize:
(D.I. 28 at 19-20)
The Court agrees with the Bankruptcy Court that exposed-but-asymptomatic individuals have potential "future demands." (Mem. Op. at 122-23, 124-25, & n. 66; see also D.I. 16 at 34) Congress did not make the terms "claim" and "demand" mutually exclusive, as ITCAN suggests. (See Mem. Op. at 127) ITCAN points to § 524(g)(5), which states in relevant part that "the term `demand' means a demand for payment, present or future, that ... was not a claim
(D.I. 28 at 27) Furthermore, ITCAN's interpretation "does not provide protection for those people who are exposed [to asbestos] but asymptomatic" (Tr. at 69), undermining a key aim of § 524(g). See Grossman's, 607 F.3d at 126 n. 12; Combustion Eng'g, 391 F.3d at 234 n. 45. "Under ITCAN's construction, asbestos victims who have been exposed but are currently asymptomatic would be excluded from a key statutory protection. Section 524(g)(4)(B)(ii) provides for the appointment of `a legal representative for the purpose of protecting the rights of persons that might subsequently assert demands.' Under ITCAN's theory, the only asbestos victims who would be covered by this provision are those who are not yet exposed. Anyone who has been exposed would be left out in the cold." (D.I. 28 at 28)
Finally, subsequent to oral argument, the Third Circuit issued two opinions that, at minimum, strongly support the Plan Proponents' position. See In re W.R. Grace & Co., 729 F.3d 311 (3d Cir.2013) ("Canada/Montana"); In re W.R. Grace & Co., 729 F.3d 332 (3d Cir.2013) ("AMH"). In these cases, the Third Circuit rejected the argument (made here by ITCAN) that the terms "claims and demands are mutually exclusive." AMH, 729 F.3d at 321; see also D.I. 37 at 1. Even ITCAN concedes that in these cases "the Third Circuit suggests that claims and demands are not mutually exclusive." (D.I. 38 at 2)
In sum, the Court agrees with the Bankruptcy Court's interpretation of "substantial future demands." Moreover, the Bankruptcy Court's finding that Flintkote is likely to face "substantial future demands" from exposed-but-asymptomatic individuals is not clearly erroneous. (See id.)
ITCAN also contends the Bankruptcy Court erred in determining that, following the Third Circuit's en banc opinion in Grossman's, 607 F.3d 114, and the Third Circuit's subsequent decision in Wright v. Owens Corning, 679 F.3d 101 (3d Cir.2012), the Plan Proponents provided adequate notice to, and solicited votes from, all creditors and parties in interest, as required by, inter alia, §§ 342(a), 1125, 1126, and 1129(a)(2) of the Bankruptcy Code, as well as the Due Process Clause of the U.S. Constitution. (D.I. 2 Ex. A) According to ITCAN, the Plan is not confirmable because, under Grossman's, the Debtors did not provide adequate or additional notice to individuals who hold "claims" and were entitled to participate in the bankruptcy proceedings. Nor did the Debtors solicit votes from all claimants, as required by the Due Process Clause. (See D.I. 16 at 35; Tr. at 6)
The Court agrees with the Plan Proponents that notice was handled appropriately. The Bankruptcy Court approved Flintkote's notice and solicitation procedures pre-Grossman's, and ITCAN apparently concedes that nothing about Flintkote's notice or solicitation procedures was inadequate before Grossman's was decided. (See, e.g., Tr. at 80)
Fundamentally, as the Plan Proponents argue, and as the Third Circuit recognized in Grossman's and Wright, "§ 524(g) was Congress's answer to the Due Process concerns raised by other bankruptcy plans in asbestos cases." (D.I. 28 at 24) Additionally, here, the Plan provides for a future claimants' representative who fully protects the interests of unknown asbestos claimants and eliminates any bar date for asbestos personal injury victims — protections that were not present in the approved plan in Wright.
ITCAN next argues that Flintkote does not have a viable, going concern business around which to reorganize, as is required by 11 U.S.C. §§ 524(g), 1129(a)(11), and 1141(d)(3), and therefore does not qualify for the protections afforded by a § 524(g) channeling injunction. (D.I.16, 31) Going forward, Flintkote plans to "pursue what it alleges are five separate business lines upon emerging from bankruptcy: (1) purchasing and leasing real estate; (2) consulting and executive management services; (3) claims processing; (4) trust services; and (5) pursuit of the Dividend Recovery Litigation [against ITCAN]." (Mem. Op. at 109) (internal footnote omitted) In ITCAN's view, the Plan Proponents have "failed to prove that Flintkote would be a profitable business capable of funding the trust after confirmation." (Tr. at 6)
Section 524(g) imposes two funding requirements on the debtor. First, the resulting § 524(g) trust must "own, or ... be entitled to own ... a majority of the voting shares" of the debtor. 11 U.S.C. § 524(g)(2)(B)(i)(III). Second, the debtor must fund the trust with its "securities" and accept an "obligation" to "make future payments, including dividends" to the trust. Id. § 524(g)(2)(B)(i)(II).
ITCAN claims that § 524(g) requires Flintkote to continue operating a business that existed before it filed its bankruptcy petition; it further contends that Flintkote's ongoing business operations are also inadequate. (D.I. 28 at 20) The Plan Proponents respond that even assuming that Flintkote must be a "going concern," as the Third Circuit suggested in dicta in Combustion Engineering, Flintkote meets that standard. (See generally D.I. 28 at 43; Tr. at 95-96) The Court agrees with the Plan Proponents.
As the Bankruptcy Court correctly held, "[n]othing in § 524(g), § 1129, § 1141, or Combustion Engineering requires a debtor to continue to engage in a pre-petition (and possibly unsuccessful) business to the exclusion of any other." (Mem. Op. at 131) The reason for requiring a debtor to engage in a business is to provide an evergreen source of funds for the trust. (See id. at 129-30, 132-33) Neither the law (including Combustion Eng'g, 391 F.3d at 248, stating that the "`implication of [§ 524(g)(2)(B)(i)(II)] is that the reorganized debtor must be a going concern, such that it is able to make future payments into the trust to provide an `evergreen' funding source for future asbestos claimants") nor logic dictates that the evergreen source of funds must be a business the debtor engaged in prior to filing for bankruptcy.
Section 524(g) does not impose on debtors a requirement to demonstrate a particular rate of return on capital investment, or comply with generally accepted accounting principles, or adopt an independent audit plan. (Tr. at 92) ITCAN's criticism of Flintkote for not meeting these non-requirements is unavailing. The Bankruptcy Court found that Flintkote had satisfied § 524(g)'s funding requirement and the standard confirmation and discharge requirements under the Bankruptcy Code. (See, e.g., Mem. Op. at 106, 146) These findings are not clearly erroneous and are adequate to support the § 524(g) channeling injunction.
Although the Bankruptcy Court did not expressly conclude that Flintkote's projections show it will earn a profit, the evidence it reviewed — including documentary exhibits, affidavits, various settlements, and projected net recovery — support such a finding. (See Mem. Op. at 108-09, 144-45; Tr. at 94-96) The trust will receive a 100% interest in the reorganized Flintkote. As the Bankruptcy Court found, "Flintkote's total real estate holdings will provide a stable source of income." (Mem. Op. at 147; see also Tr. at 33, 88, 90-96, 108-09)
ITCAN argues that the Court's ruling will mean that businesses as paltry as a "lemonade stand" will have to be considered adequate to support a § 524(g) channeling injunction. (Tr. at 95-96) The Court need not decide if this is the case. It is sufficient for today's decision to observe that § 524(g) plans have been confirmed with less ongoing business than that in which Flintkote intends to engage. See, e.g., Combustion Eng'g, 391 F.3d at 248 (approving § 524(g) injunction for debtor with business comprising a single piece of real estate); In re ACandS, Inc., No. 02-12687 (Bankr.D.Del. May 8, 2008) (D.I.3310) (granting § 524(g) injunction where post-confirmation business consisted solely of ownership and lease of single piece of real estate to be contributed to debtor on effective date of Plan). It is also doubtful whether a plan predicated merely on a "lemonade stand" would garner the voting support of 94-99% of asbestos claimants, as Flintkote's Plan here has done.
Having considered the principal issues raised by ITCAN in its appeal, the Court concludes that the Bankruptcy Court did not clearly err with respect to its findings of fact and did not err in its legal determinations. It is evident that the Bankruptcy Court thoroughly and carefully reviewed the record, evaluating it in relation to the positions of the parties and the appropriate
Request for Confirmation
The Plan Proponents ask the Court to affirm the Confirmation Order. That Order concluded that the Plan fully satisfies Chapter 11's requirements, including those necessary to support a trust and injunction under § 524(g). ITCAN is the lone remaining Plan objector, objecting to affirmance on grounds already rejected above, and further contending that the Bankruptcy Court erred in determining that the Amended Joint Plan complies with §§ 1129(a)(1), 1129(a)(7), 1129(a)(11), and 1141(d). In particular, ITCAN asserts the Bankruptcy Court erred in:
(D.I. 2 Ex. A at 2)
In its lengthy and thorough opinion, the Bankruptcy Court explained how the Plan complies with Bankruptcy Code §§ 1129, 1141, and 524(g). Having considered the Bankruptcy Court's analysis, the relevant objections, briefing, and oral argument, the Court finds that ITCAN's objections lack merit and must be denied. The Court adopts the Findings of Fact and Conclusions of Law regarding Confirmation, and, having done so, the Plan will be confirmed in its entirety. This affirmance of the Confirmation Order includes the § 524(g) injunction.
Accordingly, and for the foregoing reasons, the Bankruptcy Court's decisions will be affirmed and its findings and conclusions adopted. ITCAN's objections to the Confirmation Order and accompanying Opinion will be overruled.
An appropriate Order, substantially in the form proposed by the Plan Proponents, follows.
ORDER AFFIRMING CONFORMATION OF AMENDED JOINT PLAN OF REORGANIZATION IN RESPECT OF THE FLINTKOTE COMPANY AND FLINTKOTE MINES LIMITED (AS MODIFIED NOVEMBER 16, 2011), ISSUING CHANNELING INJUNCTION UNDER 11 U.S.C. § 524(g), ISSUING THE MINES LIQUIDATING INJUNCTION UNDER 11 U.S.C. § 105(a), AND ADOPTING FINDINGS OF FACT, CONCLUSIONS OF LAW AND THE MEMORANDUM OPINION OVERRULING OBJECTIONS TO THE AMENDED JOINT PLAN OF REORGANIZATION
At Wilmington this
For the reasons set forth in the Memorandum Opinion issued this same date,
THIS ORDER IS HEREBY DECLARED TO BE IN RECORDABLE FORM AND SHALL BE ACCEPTED BY ANY RECORDING OFFICER FOR FILING AND RECORDING PURPOSES WITHOUT FURTHER OR ADDITIONAL ORDERS, CERTIFICATIONS OR OTHER SUPPORTING DOCUMENTS.