In Re: W.R. Grace & Co v. , 729 F.3d 332 ( 2013 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______
Nos. 12-2923 and 12-3143
______
In Re: WR Grace & Co., et al., Debtors
Anderson Memorial Hospital,
Appellant
______
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1-11-cv-00199)
District Judge: Honorable Ronald L. Buckwalter
______
Argued June 17, 2013
Before: AMBRO, FISHER and JORDAN, Circuit Judges.
(Filed: September 4, 2013)
Christopher D. Loizides, Esq.
Loizides & Associates
1225 King Street
Suite 800
Wilmington, DE 19801
David L. Rosendorf, Esq.
Kozyak Tropin & Throckmorton
2525 Ponce De Leon Boulevard
9th Floor
Miami, FL 33134
Daniel A. Speights, Esq.
Speights & Runyan
200 Jackson Avenue East
P.O. Box 685
Hampton, SC 29924-0000
Counsel for Appellant, Anderson
Memorial Hospital
John Donley, Esq. (Argued)
Lisa G. Esayian, Esq.
Adam C. Paul, Esq.
Kirkland & Ellis
300 North LaSalle Street
Chicago, IL 60654
Laura D. Jones, Esq.
Kathleen P. Makowski, Esq.
James E. O'Neill, III, Esq.
Pachulski Stang Ziehl & Jones
919 North Market Street
P.O. Box 8705, 17th Floor
Wilmington, DE 19801
Christopher Landau, Esq.
2
Kirkland & Ellis
655 15th Street, N.W., Suite 1200
Washington, DC 20005
Counsel for W.R. Grace, Official
Committee of Equity Security Holders,
David T. Austern and Garlock
Sealing Technologies, LLC
Roger J. Higgins, Esq.
Suite 2800
111 East Wacker Drive
Chicago, IL 60601
Counsel for W.R. Grace, Official
Committee of Equity Security Holders,
David T. Austern, Garlock Sealing
Technologies, LLC and John M. Thomas
Andrew N. Rosenberg, Esq. (Argued)
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Counsel for David T. Austern,
Her Majesty Queen of Canada
Kevin J. Mangan, Esq.
Francis A. Monaco, Jr., Esq.
Matthew P. Ward, Esq.
Womble, Carlyle, Sandridge & Rice
222 Delaware Avenue, Suite 1501
3
Wilmington, DE 19801
Counsel for Her Majesty Queen
of Canada, Official Committee
of Equity Security Holders,
David T. Austern, CNA Financial
Corp. Loews and State of Montana
Philip Bentley, Esq.
Kramer, Levin, Naftalis & Frankel
1177 Avenue of the Americas
New York, NY 10036
Counsel for Official Committee
of Equity Security Holders,
David T. Austern and
John M. Thomas
Garland S. Cassada, Esq.
Susan M. Huber, Esq.
Richard C. Worf, Jr., Esq.
Robinson Bradshaw & Hinson
101 North Tryon Street, Suite 1900
Charlotte, NC 28246
Brett D. Fallon, Esq.
Morris James
500 Delaware Avenue ,Suite 1500
Wilmington, DE 19081
Counsel for Official Committee
Equity Security Holders,
David T. Austern and Garlock
Sealing Technologies, LLC
4
Teresa K.D. Currier, Esq.
Saul Ewing
222 Delaware Avenue
P.O. Box 1266, Suite 1200
Wilmington, DE 19899
Counsel for Official Committee
of Equity Security Holders and
David T. Austern
Roger L. Frankel, Esq.
Orrick, Herrington & Sutcliffe
1152 15th Street, N.W.
Columbia Center
Washington, DC 20005
Richard H. Wyron, Esq.
Orrick, Herrington & Sutcliffe
1152 15th Street, N.W.
Columbia Center
Washington, DC 20005
Counsel for David T. Austern
Alan B. Rich, Esq. (Argued)
Suite 4244
1201 Elm Street
Dallas, TX 75270
Counsel for Property Damage
Future Claims Representative
Elizabeth M. DeCristofaro, Esq.
5
Ford, Marrin, Esposito, Witmeyer & Gleser
88 Pine Street
23rd Floor, Wall Street Plaza
New York, NY 10005
Michael S. Giannotto, Esq.
Frederick C. Schafrick, Esq.
Goodwin Procter
901 New York Avenue, N.W.
Suite 900 East
Washington, DC 20001
Counsel for Continental Casualty Co.
Elisa Alcabes, Esq.
Mary Beth Forshaw, Esq.
Andrew T. Frankel, Esq.
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Neal J. Levitsky, Esq.
Seth A. Niederman, Esq.
Fox Rothschild
919 North Market Street
Citizens Bank Center, Suite 1300
Wilmington, DE 19801
Counsel for Travelers Casualty
& Surety Co.
Mark T. Hurford, Esq.
Campbell & Levine
6
222 Delaware Avenue, Suite 1620
Wilmington, DE 19801
Peter V. Lockwood, Esq.
Caplin & Drysdale
Suite 1100
One Thomas Circle, N.W.
Washington, DC 20005
Counsel for Official Committee of
Asbestos Personal Injury Claimants
Edward C. Toole, Jr., Esq.
Pepper Hamilton
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103
Counsel for BNSF Railway Co.
Matthew S. Owen, Esq.
Ashley C. Parrish, Esq.
Carolyn M. Sweeney, Esq.
King & Spalding
1700 Pennsylvania Avenue, N.W.
Suite 200
Washington, DC 20006
Thaddeus D. Wilson, Esq.
King & Spalding
1180 Peachtree Street
Atlanta, GA 30309
Counsel for Proposed Amicus
7
Imperial Tobacco Canada Ltd.
______
OPINION OF THE COURT
______
FISHER, Circuit Judge.
Anderson Memorial Hospital (“AMH”) first filed suit
against W.R. Grace and its affiliates (“Grace”)1 in South
Carolina state court in 1992, seeking class-wide redress for
property damage caused by asbestos-containing products that
Grace had manufactured. Before the resolution of that
litigation, Grace filed a petition for Chapter 11 protection.
The Bankruptcy Court supervised nearly a decade of related
litigation. Most property damage claims against Grace had
been settled by 2010, contingent on the approval of an 11
U.S.C. § 524(g) trust and an injunction channeling property
damage claims against Grace to that trust for payment.
AMH, however, did not settle. The Bankruptcy Court
confirmed Grace’s reorganization, including a trust and
channeling injunction, over AMH’s objections. The District
Court affirmed.
AMH appeals from the orders confirming Grace’s
Chapter 11 Plan and approving the trust and channeling
injunction. AMH argues that (A) the Plan does not meet the
1
Appellee Grace consists of sixty-two related
corporate entities. For ease of reference, the debtors are
collectively referred to hereinafter as “Grace.”
8
requirements of § 524(g), which provides a mechanism for
handling overwhelming asbestos-related liabilities in the
Chapter 11 process, (B) the Plan fails to provide equal
treatment pursuant to § 1123(a)(4), (C) Grace has not shown
that the Plan was proposed in good faith pursuant to
§ 1129(a)(3), and (D) Grace has not shown that the Plan is
feasible pursuant to § 1129(a)(11). On each of these issues,
we will affirm the judgment of the District Court.
I.
One aspect of Grace’s business is extracting natural
resources, refining them, and converting them into
manufactured materials used for building construction and
insulation. Since the 1980s, Grace has defended itself against
hundreds of asbestos-related lawsuits filed by building
owners seeking redress for the costs involved in removing
Grace products.
AMH owns a hospital complex in Anderson, South
Carolina, that used Grace products in its construction. In
1992, AMH filed a class action lawsuit against Grace seeking
compensation for asbestos-related property damage in South
Carolina state court. The South Carolina court struck out-of-
state class members from the AMH complaint—a decision
that was not immediately appealable under South Carolina
law. Anderson Memorial Hosp. v. W.R. Grace & Co., 1994
WL 1744074 (S.C. Ct. Com. Pl. Aug, 8, 1994). AMH
amended its complaint to exclude non-South Carolina
buildings and to include damage caused by all kinds of
asbestos-containing surfacing material produced by Grace.
The South Carolina Circuit Court conditionally certified this
9
class in February 2001. AMH Appendix (“AMHA”) at
700193. Grace sought Chapter 11 protection two months
later on April 2, 2001, before notice of the South Carolina
action had issued to class members.
Early in the Chapter 11 proceedings, Grace sought to
establish a bar date for property damage claims and a process
for handling related litigation. In April 2001, personal injury
(“PI”) and property damage (“PD”) committees were
appointed. The Bankruptcy Court requested proposals in
May 2001 for case management plans and the scheduling of
the asbestos-related claims.
After the March 31, 2003 deadline for filing claims
was established, more than 4,000 traditional PD claims were
filed. 2 Speights & Runyan (“S&R”), counsel for AMH, filed
three proofs of claim, including a worldwide class claim, a
statewide class claim, and an individual claim. S&R attached
2
In addition to traditional PD claims, Grace also faced
Zonolite Attic Insulation (“ZAI”) claims based on damages
from a loose-fill attic insulation manufactured by Grace that
allegedly contained asbestos. The ZAI litigation included a
“science trial” (where court-appointed counsel represented
the individual claimants, at Grace’s expense) and a
Bankruptcy Court ruling that, although ZAI did contain some
asbestos, it did not pose an unreasonable risk. After this
decision, the Bankruptcy Court approved a settlement
(negotiated in September 2008) that would allow future US
ZAI PD claims to be channeled to the Asbestos PD Trust as
part of Class 7B.
10
a list of 3,000 putative claimants (including 121 South
Carolina claimants) to its worldwide class claim. S&R also
filed an individual proof of claim for each of the potential
class members it could identify through Grace’s sales records.
Grace asserts that approximately 2,000 of the individual
claims were filed without any authority from the purported
claimant.
Grace filed a Notice of Intent to Object to the PD
claims, and some claimants then came forward to object that
AMH’s counsel had filed claims in their names without
authorization. Grace asked S&R to withdraw these claims.
The number of PD claims was ultimately reduced from more
than 4,000 to 1,670, in part because S&R withdrew 586
claims improperly filed on behalf of class claimants and
1,500 claims that lacked an evidentiary basis. S&R also
withdrew approximately 550 additional claims for various
other reasons. The parties litigated some additional claims in
which S&R’s authority was questioned; the Bankruptcy Court
disallowed those claims, a ruling that the District Court and
this Court later affirmed. In re W.R. Grace & Co., 366 B.R.
302 (Bankr. D. Del. 2007), aff’d, Mission Towers v. W.R.
Grace & Co., 2007 WL 4333817 (D. Del. Dec. 6, 2007),
aff’d, In re W.R. Grace & Co., 13 F. App’x 134 (3d Cir.
2009). In response to these objections, AMH moved for class
certification. That motion was denied on May 29, 2008, and
the District Court declined to give leave to appeal—a ruling
we declined to review on an interlocutory basis. In re W.R.
Grace & Co., 389 B.R. 373, 380 (Bankr. D. Del. 2008), leave
to appeal denied, In re W.R. Grace & Co., 2008 WL
4234339, *2 (D. Del. Sept. 4, 2008), interlocutory appeal
11
denied, In re W.R. Grace & Co., No. 08-4829 (3d Cir. Dec.
14, 2009).
Throughout the Chapter 11 process, various parties
engaged in settlement negotiations. In fall 2004, an initial
settlement effort including S&R failed. In 2006, the late
District Judge Samuel Pointer led a mediation including S&R,
but the parties did not reach a settlement.
In fall 2006, Grace began to litigate the remaining PD
claims. All but 90 of these claims had been withdrawn,
disallowed, or settled (contingent on the confirmation of a
§ 524(g) plan) by February 2009. By the time the District
Court issued its opinion in 2012, Grace had settled a total of
407 PD claims (including 119 PD claims S&R agreed to
settle) for approximately $150.8 million to be paid in full on
the Plan’s effective date, assuming a § 524(g) trust is
approved.
With the consent of the committee of asbestos PD
claimants, Plan Proponents obtained the appointment of
Judge Alexander Sanders as a representative of future PD
claimants. Plan Proponents negotiated with Judge Sanders
and came to an agreement regarding the Plan’s treatment of
traditional PD claims. Successive drafts of the Plan were
circulated to all counsel, and comments were invited. AMH
did not provide comments. AMH, for its part, asserts that the
Plan was actually the result of a deal negotiated in April 2008
by Grace, the Equity Committee, the PI Committee, the PI
future claims representative, and the PI lead negotiator—all
without PD participation.
12
The Plan was filed on February 27, 2009 and
subsequently amended several times. With respect to the
present and future traditional (non-ZAI) asbestos PD claims
making up Class 7A, it provides:
“(i) Treatment of Claims in Class 7A. Each
Holder of an Asbestos PD Claim in Class 7A
that is Allowed as of the effective date pursuant
to a PD Settlement Agreement, or other
stipulation, order, or agreement, shall be paid
the Allowed Amount of its Allowed Asbestos
PD Claim in Cash in full by the Asbestos PD
Trust as and when due, without any deduction,
proration, reduction, setoff or discount, pursuant
to the terms of the respective PD Settlement
Agreements, or other stipulation, order, or
agreement, and the terms of the Asbestos PD
Trust Agreement (which Asbestos PD Trust
shall be deemed by this Plan, the Confirmation
Order, and the Asbestos PD Trust Agreement to
have assumed the obligations of such PD
Settlement Agreements). Unresolved Asbestos
PD Claims shall be paid pursuant to the
following procedures:
(A) In connection with confirmation of the Plan,
the Court shall enter the Class 7A CMO [i.e.,
case management order]; and
(B) Allowed Unresolved Asbestos PD Claims
shall be paid in full, in Cash, by the Asbestos
13
PD Trust pursuant to the terms of the Asbestos
PD Trust Agreement.
(C) All Allowed Asbestos PD Claims in Class
7A shall be paid in full by the Asbestos PD
Trust solely from the Asbestos PD Trust Assets
that are designated for Class 7A Claims.
(D) The inclusion of Demands as Asbestos PD
Claims in Class 7A and any reference to
Demands related to Asbestos PD Claims in
Class 7A in the Plan does not constitute an
admission by the Debtors and the other Plan
Proponents that an Entity which did not have an
allowable Asbestos PD Claim in Class 7A
against the Debtors as of the effective date
could assert a valid claim against the Asbestos
PD Trust contemplated under the Plan, and all
rights and defenses to the allowance of such a
claim by the Asbestos PD Trust are expressly
reserved pursuant to the Plan.”
Joint Appendix (“JA”) at 200078-79.
Following the Plan’s effective date, the PD trust will
be funded with the amount of cash specified in the Plan to
pay allowed PD claims. Reorganized Grace will have an
ongoing obligation to fund the PD Trust for all traditional PD
claims allowed in the future.
Approximately 98.99 percent of Class 7A voted to
accept the Plan. JA at 201376. AMH challenged the
14
confirmation of the Plan. At the confirmation hearing, the
Bankruptcy Court heard evidence on, among other things, the
issue of good faith. AMH suggests that Grace essentially put
on no evidence to support the conclusion that the Plan was
filed in good faith and instead asserted that good faith could
be determined based on the documents themselves. Grace’s
assistant general counsel, Richard Finke, was eventually
called to testify, but the Bankruptcy Court concluded that if
he were allowed to give testimony on Grace’s intentions
throughout the Chapter 11 proceeding, the confirmation
hearing would have to be continued to allow for discovery on
the negotiating process. The Plan Proponents did not then
offer Finke’s testimony but instead offered the pre-negotiated
proffer that did not delve into Plan Proponents’ subjective
intent.
The Bankruptcy Court also heard evidence on the
Plan’s compliance with the statutory requirements for
channeling asbestos claims to a trust. A § 524(g) injunction
is only appropriate where the debtor is likely to be subject to
significant future demands. Plan Proponents offered the
testimony of economist Dr. Denise Martin on this issue. Dr.
Martin analyzed future events that might trigger additional
property damage demands. She testified that Grace was
likely to be subject to substantial future demands, but that the
amount and timing of those demands could not be
determined. The Bankruptcy Court credited her testimony.
Additionally, investment banker Pamela Zilly testified
as an expert on the feasibility of the Plan, concluding that the
Plan is feasible “in light of Grace’s historical performance,
reasonable projections, management initiatives, and proposed
15
exit financing.” Grace Br. at 17; see also JA at 201747.
Although Grace’s internal projections valued future PD
liabilities at $37.3 million,3 Zilly testified that Grace’s
performance and financial track record would give the
reorganized company the ability to satisfy up to $1.6 billion
in asbestos PD liabilities over 25 years if necessary.
Over AMH’s objections, the Plan was confirmed. The
District Court affirmed the Confirmation Orders on appeal.
In re Grace & Co., 475 B.R. 34 (D. Del. 2012), superseding
In re W.R. Grace & Co., 468 B.R. 81 (D. Del. 2012). In light
of our decision in Wright v. Owens Corning, 679 F.3d 101(3d Cir. 2012), AMH asked the District Court to reconsider
its opinion. The District Court declined on July 23, 2012. In
re W.R. Grace & Co., 476 B.R. 114 (D. Del. 2012). AMH’s
timely appeal of the District Court’s affirmance of the
Confirmation Orders and of its denial of its motion for relief
followed.
II.
The Bankruptcy Court had jurisdiction over this case
pursuant to 28 U.S.C. §§ 157(a) and 1334(b), and the District
Court had appellate jurisdiction over the Bankruptcy Court
decision under 28 U.S.C. §§ 158(a) and 1334(b). We have
3
Grace has established a reserve account in this
amount to cover future PD claims and any defense costs
associated with litigating those claims after the Plan’s
effective date. The record does not indicate how Grace
arrived at its $37.3 million projection.
16
jurisdiction over this appeal pursuant to 28 U.S.C. § 1291.
“We review the District Court’s conclusions of law de novo,
its factual findings for clear error, and its exercise of
discretion for abuse thereof.” In re Combustion Eng’g, Inc.,
391 F.3d 190, 214 n.19 (3d Cir. 2004).
III.
AMH appeals from the District Court’s affirmance of
the Bankruptcy Court orders confirming Grace’s Chapter 11
Plan of reorganization and approving a trust and channeling
injunction under 11 U.S.C. § 524(g). AMH argues that (A)
the Plan does not meet the requirements of § 524(g), (B) the
Plan fails to provide equal treatment, (C) Grace has failed to
demonstrate that the Plan was proposed in good faith, and (D)
Grace has not shown that the Plan is feasible. Each of these
objections fails, and we will affirm the District Court.
A.
Section 524(g) provides a mechanism that allows
companies to handle overwhelming present and future
asbestos liability through a trust created in conjunction with a
Chapter 11 bankruptcy plan. See Katherine M. Anand, Note,
Demanding Due Process: The Constitutionality of the § 524
Channeling Injunction and Trust Mechanisms That
Effectively Discharge Asbestos Claims in Chapter 11
Reorganization, 80 Notre Dame L. Rev. 1187, 1192 (2005).
AMH argues that the reorganization plan does not comply
with the statutory requirements for a § 524(g) injunction and
trust because (1) Grace did not demonstrate that it was likely
to be subject to future PD demands, (2) Grace did not
17
demonstrate that the plan’s procedures were necessary to deal
equitably with claims and future demands, and (3) the
procedures treat similar claims differently. For the reasons
discussed below, none of these arguments succeeds.
1.
An asbestos manufacturer may be entitled to use
§ 524(g)’s trust mechanism if it “is likely to be subject to
substantial future demands for payment arising out of the
same or similar conduct or events that gave rise to the claims
that are addressed by the injunction.” § 524(g)(2)(B)(ii)(I).
AMH contends that Grace faces no future property damage
demands.
“Claim,” as described elsewhere in the Bankruptcy
Code, means a “right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured.” 11 U.S.C. § 101(5).
Section 524(g)(5) defines “demand” as a “demand for
payment, present or future, that—
(A) was not a claim during the proceedings
leading to the confirmation of a plan of
reorganization;
(B) arises out of the same or similar conduct or
events that gave rise to the claims addressed by
the injunction issued under paragraph (1); and
(C) pursuant to the plan, is to be paid by a trust
described in paragraph (2)(B)(i).”
18
§ 524(g)(5) (emphasis added).
In AMH’s reading of the statute, claims and demands
are mutually exclusive because a demand “was not a claim
during the proceedings leading to the confirmation of a plan
of reorganization” and could be either dealt with in the
ordinary course of the bankruptcy or not discharged at all.
AMH contends that, although future demands are easily
cognizable in the personal injury context, PD claims cannot
result in future demands, because any buildings that contain
asbestos already contain the material.
AMH concedes that future PD demands existed under
the definition of “claim” set out in Matter of M. Frenville Co.,
744 F.2d 332 (3d Cir. 1984). There, we held that a claim
arises when the underlying state-law cause of action accrues.
Future PD claims could have existed if any potential claim
from already-installed asbestos products had not, under
various state laws, met the accrual requirements at the time
potential claimants were notified of the bankruptcy. Under
the “mutual exclusivity” theory AMH proposes, these
unaccrued actions were not “claims” and therefore could meet
the “demand” definition of “not a claim before the bankruptcy
court.” Nonetheless, AMH argues that Frenville (which was
the law of this Circuit at the time of the bar date notice and
the confirmation hearing) should not control for several
reasons.
First, AMH argues that In re Grossman’s Inc., 607
F.3d 114, 125 (3d Cir. 2010) (en banc), supersedes Frenville
on this issue by holding that “a ‘claim’ arises when an
individual is exposed pre-petition to a product or other
19
conduct giving rise to an injury, which underlies a ‘right to
payment’ under the Bankruptcy Code.” Grossman’s
4
explicitly overrules Frenville. Id. at 121.
Second, AMH sees no basis in the evidence for the
required finding that Grace is likely to be subject to
substantial future demands, particularly when, in AMH’s
view, the testimony of Dr. Martin, Grace’s sole witness for
the idea that Grace was likely to be subject to substantial
future PD demands, is best understood as using the term
“demand” in the colloquial sense, as she explicitly stated she
was not offering an opinion about the technical difference
between a claim and a demand within the meaning of
§ 524(g).5
4
AMH asked the District Court to reconsider its
affirmance of the confirmation order in light of Wright v.
Owens Corning, 679 F.3d 101, 108 (3d Cir. 2012). The
District Court declined, finding this new development in the
law insufficient to create the extraordinary circumstances
required for relief under Federal Rule of Civil Procedure
60(b). It also declined to intervene because AMH could seek
the same relief as part of this appeal. In re W.R. Grace &
Co., 476 B.R. 114, 122 (D. Del. 2012).
5
AMH also argues that the Plan, as a matter of due
process, cannot discharge the claims of property owners who
would have held claims under the Frenville standard, but not
under Grossman’s. Because Frenville then controlled, AMH
argues that Grace did not attempt to notify potential PD
claimants who at the time of the bar date notice might have
20
Each of these objections fails. First, we find no clear
error that would justify disturbing the factual conclusion that
there are property damage claimants who will seek redress in
the future. Dr. Martin testified, “The claims will be made.
Yes, it’s my opinion that there will be substantial –
substantial claims will be made.” JA at 201784-85. Expert
had impacted property but whose claims had not yet accrued
under state law. AMH contends that, if these claims are to be
discharged, the claim holders are entitled to participation in
the process, including voting on the Plan. We do not see how
this line of argument advances AMH’s contention that Grace
is not likely to face future property damage demands. Indeed,
it seems to be wholly unrelated to that argument, as the due
process implications of discharging a claim are entirely
separate from the question of whether future demands—
which, by AMH’s reading, are by definition not claims—are
likely to be brought. In any event, AMH does not contend
that its due process rights have been violated by the Plan, nor
could it, as it participated extensively throughout the
bankruptcy proceeding and had the opportunity to vote.
Therefore, as “litigants in federal court are [generally] barred
from asserting the constitutional rights of others,” In re PWS
Holding Corp., 228 F.3d 224, 248 (3d Cir. 2000) (internal
quotation marks omitted), AMH lacks standing to raise that
argument in this appeal. See id. (explaining that “limits on
third-party standing are particularly relevant to appellate
standing in bankruptcy proceedings” because “[b]ankruptcy
proceedings regularly involve numerous parties, each of
whom might find it personally expedient to assert the rights
of another party”).”
21
testimony sufficiently supported the claim that Grace will be
subject to future demands and that AMH failed to provide
evidence to the contrary, though it had the opportunity to do
so. The Bankruptcy Court credited this expert testimony,
noting the distinction between the existence of the demands
and whether they will ultimately be allowed. In re W.R.
Grace & Co., 446 B.R. 96, 144 (Bankr. D. Del. 2011).
Second, we conclude that property damage future
claims can exist as a matter of law. We reject AMH’s
assertion that Grossman’s eliminated the category of future
holders of demands, as Grossman’s concerned the definition
of claims and expressly stated that the plan at issue was not a
§ 524(g) plan. Congressional intent to allow a debtor to
“emerge free and clear of the entire universe of asbestos
liabilities,” as evidenced by the statute’s reference to present
and future demands, underscores this point. Grace Br. at 24
(citing 140 Cong. Rec. at 14461, S514462 (October 6, 1994)
(Sen. Heflin)).6
The Bankruptcy Court handled a similar statutory
construction argument in In re Flintkote Co., 486 B.R. 99,
124 (Bankr. D. Del. 2012). The Flintkote court concluded
6
We place no importance on AMH’s claims that
Grace’s counsel expressed a belief that there are no future PD
claims. See AMHA at 700559-662. In the discussion AMH
quotes, counsel appears to be referring to the merits of future
demands rather than their existence. Even if we were to
interpret the transcript as an admission, Grace’s subjective
belief should not change our statutory interpretation here.
22
that the reference to demands in § 524(g) was ambiguous and
that a literal application of the term would produce results at
odds with the legislature’s intent. Responding to the
suggestion that claim and demand are mutually exclusive, the
court stated that
“‘demand’ in § 524(g)(5) describes a ‘present or
future’ demand for payment, and given the
expansive definition of ‘claim’ in § 101(5), the
Court cannot fathom a situation where an
individual could hold a ‘present’ demand for
payment that is not technically a ‘claim’ under
§ 101(5). Thus [if demand and claim are treated
as mutually exclusive], the qualifier, ‘present or
future [demand],’ in § 524(g)(5) is superfluous,
and ‘[i]t is a well known canon of statutory
construction that courts should construe
statutory language to avoid interpretations that
would render any phrase superfluous.’”
Flintkote, 486 B.R. at 124 (citation omitted). Additionally,
Flintkote concluded that the position the creditor advanced
there (which parallels AMH’s) would produce a result that
contravened congressional intent. In the Bankruptcy Court’s
description, because asbestos-related illnesses have a long
latency period, Congress created the § 524(g) trust
mechanism in order to protect the due process rights of
people who had been exposed but not yet affected, and who
might not manifest injury until a time when all available
compensation had been paid out to people who got sick faster.
23
Section 524, therefore, improves equality of treatment among
claimants. Id. at 124-25.
The Bankruptcy Court explained that, “because
asbestos production in this country largely ceased many
decades ago,” id. at 125, it may be difficult, if not impossible,
for a debtor to demonstrate it will “likely be subject to
substantial future demands” under the creditor’s proposed
interpretation of “claim” and “demand.” That interpretation
would therefore prevent many debtors from qualifying for the
protection of § 524(g), which would “defeat[] the purpose of
the statute by removing the protections for ‘exposed yet
unimpaired’ asbestos creditors and depriving them of just
compensation for their future injuries and illnesses.” Id. at
123. Thus, the Bankruptcy Court affirmed in Flintkote its
earlier conclusion in this case that “future demand holders are
those who have been exposed to asbestos but whose disease
or other injury, sufficient to prove damages, has not yet
manifested.” In re W.R. Grace, 446 B.R. 96, 130 n.58
(Bankr. D. Del. 2011).
AMH’s argument that there is no such thing as a future
PD demand has some intuitive appeal. After all, asbestos
installation has long-since ceased, so every building that will
be damaged by asbestos already contains it. As a policy
matter, the rationale for the § 524(g) trust mechanism is less
clear here than in the personal injury context; if all property
damage has occurred and those harmed can be notified, the
ordinary claims process could arguably meet Congress’s
objectives of promoting equal treatment of claimants and
allowing manufacturers to handle asbestos liability in an
24
orderly and streamlined process.7 This supports AMH’s
statutory interpretation, which emphasizes the “not a claim”
language, giving “claim” in § 524(g) the same meaning it was
assigned in Frenville and then Grossman’s interpretations of
the word claim in § 101(5). As AMH describes property
damage, if we applied the Grossman’s test, the pre-petition
exposure clearly makes the property damage cases “claims”
that AMH’s reading of § 524(g) excludes from the “demands”
covered by the trust.
Ultimately, however, AMH’s arguments must fail.
Section 524(g) explicitly states that the asbestos trusts can
cover property damage, so an interpretation that makes such
trusts impossible cannot be consistent with congressional
intent. Furthermore, as the Bankruptcy Court demonstrated,
AMH’s “mutual exclusivity” theory would effectively read
the category of present demands out of the statute. For these
reasons, we affirm the District Court’s conclusion that
7
AMH states in its brief that only one other asbestos
trust for property damage has been created and that it was
established by the same bankruptcy judge handling this case.
See In re United States Mineral Prods. Co., 2005 WL
5887219 (Bankr. D. Del. 2005). In fact, other courts have
created property damage trusts. For example, a property
damage trust was used in the Manville case that led Congress
to draft § 524(g). See Matter of Johns-Manville Corp., 68
B.R. 618 (Bankr. S.D.N.Y. 1986). Additionally, an Eagle-
Picher Property Damage Trust compensated owners of
buildings containing asbestos. See In re Eagle-Picher Indus.,
Inc., 203 B.R. 256, 279-82 (Bankr. S.D. Ohio 1996).
25
because “[i]t still remains unknown (and may never be
ascertained) how many entities and individuals were affected
by these products, the precise quantity of asbestos-laden
products that were sold, which buildings the products were
used in and how much was used per building, or the
percentage of these entities that have successfully removed
the asbestos products from their buildings,” “there remains a
significant chance that future property damage claims will be
asserted against Grace by property damage claimants.” In re
W.R. Grace Co., 475 B.R. 34, 101 (D. Del. 2012).
2.
Next, AMH argues that a trust under § 524(g) is
unnecessary to equitably handle claims and future demands.
See § 524(g)(2)(B)(ii)(III) (“pursuit of such demands outside
the procedures prescribed by such plan [must be] likely to
threaten the plan’s purpose to deal equitably with claims and
future demands”). According to AMH, § 524(g)’s procedures
were not required because the “trust” is “simply a conduit for
the payment of funds by reorganized Grace, inserted
primarily if not exclusively to obtain the benefits of the §
524(g) injunction.” AMH Br. at 38. Under the Plan, the PD
Trust will be funded on the Plan’s effective date with
sufficient funds to pay the settled PD claims; if additional PD
claims are later allowed, Grace will further fund the Trust.
AMH contends that employing trust mechanisms under these
circumstances is merely a pretext for directing litigation back
to the Bankruptcy Court, effectively allowing Grace to forum-
shop and avoid defending its case in front of a jury.
26
Furthermore, AMH finds a “fundamental illogic” in
“extending § 524(g) to claims that are supposedly
‘unimpaired’ under the Plan” because there is no purpose to a
trust, in AMH’s view, if claims are to be paid at 100 percent
of their value. AMH Br. at 39 (citing Barliant, Karcazes &
Sherry, From Free-Fall to Free-For-All: The Rise of Pre-
Packaged Asbestos Bankruptcies, 12 Am. Bankr. Inst.
L. Rev. 441, 453 (Winter 2004)). AMH contends that Grace
provided no evidence that the pursuit of PD claims outside
the Plan procedures would threaten the Plan when Grace has
stated its intention to pay 100 percent of PD claims as they
are resolved.
AMH's argument underestimates the importance of
creating a mechanism to resolve all of Grace's present and
future asbestos liabilities. Outstanding, unresolved asbestos
liability can make it extremely difficult for certain entities to
amass operating capital, which can hinder a debtor's chances
of long-term survival and, in turn, prevent equitable
resolution of future asbestos claims. For that reason, both the
PI trust and the PD trust are necessary to protect the interests
of future asbestos claimants, as together they provide a level
of certainty calculated to position Grace to compensate future
claimants. See Combustion Eng’g, 391 F.3d at 234(explaining that § 524(g) seeks to provide “an ‘evergreen’
source of funding to pay future claims” by allowing a debtor
to emerge from Chapter 11 “cleansed of asbestos liability”).
3.
Finally, AMH argues that the trust procedures are not
fair and equitable because similar present claims and future
demands will not be paid “in substantially the same manner.”
27
§ 524(g)(2)(B)(ii)(V), (g)(4)(B)(ii). Because this argument
duplicates AMH’s broader claims of unequal treatment under
both § 524(g) and § 1123(a)(4), these arguments are
considered together in the following Part, which concludes
that the equality requirement has been satisfied. We
conclude, therefore, that the plan meets the requirements of §
524(g).
B.
“Equality of distribution among creditors is a central
policy of the Bankruptcy Code.” Begier v. IRS, 496 U.S. 53,
58 (1990). Two Code provisions relevant in this case
mandate some form of equality. Section 1123(a)(4) requires
a plan to “provide the same treatment” for each claim or
interest in a class “unless the holder of a particular claim or
interest agrees to a less favorable treatment of such particular
claim or interest.” Section 524(g)(2)(B)(ii)(V) requires the
adoption of procedures that “provide reasonable assurance
that the trust will value, and be in a financial position to pay,
present claims and future demands that involve similar claims
in substantially the same manner.” AMH argues that the Plan
should not have been confirmed because it treats AMH
substantially differently than other similarly situated creditors
by denying AMH the opportunity to litigate in its chosen state
forum, outside the jurisdiction of the Bankruptcy Court.
Considering the Plan as an “integrated whole,” the District
Court found that the Bankruptcy Court had properly
concluded that the Plan met these equality requirements. In
re W.R. Grace & Co., 475 B.R. 34, 124 (D. Del. 2012).
28
The District Court adopted the test that equal treatment
under § 1123(a)(4) requires that “all creditors in a given class
must receive equal value for their claims and must pay the
same degree of consideration for their distribution under the
trust.” W.R. Grace & Co., 475 B.R. at 140 (citing In re
Quigley Co., Inc., 377 B.R. 110, 116 (Bankr. S.D.N.Y. 2007)
(citing In re AOV Indus., Inc., 792 F.2d 1140, 1152 (D.C. Cir.
1986))). The reasoning of the Court of Appeals for the D.C.
Circuit persuades us that “[i]t is disparate treatment when
members of a common class are required to tender more
valuable consideration—be it their claim against specific
property of the debtor or some other cognizable chose in
action—in exchange for the same percentage of recovery.”8
AOV, 792 F.2d at 1152.
In Combustion Engineering, 391 F.3d at 239, we
remanded for further record development where a two-trust
structure could have potentially favored claimants to one trust
over claimants to the other. The record then before us raised
concerns about certain pre-petition settlements that led to the
creation of a $400 million trust for the payment of claims. Id.
at 240-42. Creditors who drew on the trust retained a “stub
8
That is not to say that members of a class must
receive the same amount of money for their claims. See In re
Joint E. & S. Dist. Asbestos Litig., 982 F.2d 721, 749 (2d Cir.
1992) (“Without question, the ‘same treatment’ standard of
section 1123(a)(4) does not require that all claimants within a
class receive the same amount of money.”). Rather, the
claimants in a class must simply have the same opportunity
for recovery. Id.29
claim” that allowed them to vote on the bankruptcy plan,
which included a § 524(g) injunction. Id. at 201. We
concluded that the creation of stub claims may have the result
of artificially gerrymandering classes called upon to vote on a
plan, adding claimants to the class who have already received
more than they would have under the plan and thus have little
incentive to scrutinize it before voting. Id. at 243-44.
AMH urges us to follow In re Dow Corning Corp.,
280 F.3d 648, 660 (6th Cir. 2002), for the proposition that
§ 1123(a)(4) requires equality in procedural treatment. There,
the plan put governmental subrogation claims together into a
class and would pay those claims in full in order to satisfy
§ 1129(b)(2)(B)’s “cram down” requirements. Id. at 659.
Different procedural protections applied to different
government units; the Canadian government entered into a
settlement that allowed it to gain notice before payments were
made to beneficiaries so that Canada could determine if a
subrogation claim existed. Id. at 660. The Sixth Circuit held
that this procedural guarantee, given only to Canada, meant
that the United States did not receive equal treatment. Id.
Here, the District Court found that the Plan satisfied
both prongs of the equal treatment test outlined in Quigley
and AOV. W.R. Grace & Co., 475 B.R. at 140. The District
Court concluded that AMH’s assertion that it was giving up
more than other class members by losing its forum option was
incorrect, because everyone who filed a proof of claim
submitted to the Bankruptcy Court’s jurisdiction—a necessity
in order to maintain uniformity in treatment of claims in this
highly technical area of law. Id. Even if litigating before the
Bankruptcy Court were a true disadvantage, AMH voluntarily
30
submitted to it. See Langenkamp v. Culp, 498 U.S. 42, 45
(1990) (holding that Creditors submit themselves to the
Bankruptcy Court’s jurisdiction by submitting a proof of
claim).
Here, AMH argues that the Joint Plan disadvantages it
as compared to other Class 7A creditors because it is the only
claimant that has been denied the right to pursue its case in its
chosen forum. Under the Plan, all current PD claimants must
resolve their property damage claims before the Bankruptcy
Court. Future claimants may litigate their claims before a
district court, potentially before juries.
AMH suggests that the District Court erred because
there are no similarly situated creditors left,9 because other
asbestos claimants have either reached a settlement that will
be paid on the Plan’s effective date, were subject to
alternative resolution procedures with lowered proof
thresholds, or were permitted to litigate in their chosen
forums. AMH says that it is the only claimant that “is
required to litigate its claims in order to be entitled to
payment, but is precluded from doing so in the forum it chose
9
As evidence that the CMO and Plan were not
designed to single out AMH, Grace notes that when the PD
CMO was proposed in December 2008, all 37 asbestos PD
claimants remaining at that time were subject to the
procedures. When the CMO was revised in February 2009, it
applied to 57 unresolved PD claims. Since that time,
“virtually all” PD claimants besides AMH have settled.
Grace Br. at 8.
31
nearly a decade before this bankruptcy case was
commenced.” AMH Br. at 46. Finally, AMH objects to the
District Court’s finding that it submitted to the Bankruptcy
Court’s jurisdiction because it had to file a proof of claim in
order to protect its rights and “did so against the backdrop of
repeated representations by Grace that pre-existing claims
would be permitted to return to the tort system for
resolution.”10 AMH Br. at 47.
No claims under Class 7A will be handled via
alternative dispute resolution or lower proof thresholds; if
AMH is comparing itself to the US ZAI claimants, the
distinction is immaterial because those claimants are part of
Class 7B. Regarding the other members of Class 7A, the
future PD claimants represented by Judge Sanders, any
difference between AMH and future claimants as to forum is
meant to allay Seventh Amendment concerns and is not
prejudicial.
Ultimately, the only relevant comparison here is
between AMH and other members of Class 7A, the future PD
10
AMH claims that Grace represented that AMH’s and
similar claims would be “permitted to return to the tort
system.” Grace responds that those filings merely state that
“Grace will identify pending cases that could continue to be
litigated in other courts . . . ” and “[t]hat is in no way a
‘representation’ that, after being extensively litigated in the
Bankruptcy Court, AMH’s voluntarily filed class claim could
returned to state court.” See Grace Br. at 10 n.6 (citing PPA
at 600935 ¶2, 600972, 601007).
32
claimants represented by Judge Sanders.11 The only
inequality AMH has identified is the ongoing jurisdiction of
the Bankruptcy Court over AMH’s claims, which prevents
AMH from returning to the state court system in order to try
its claims before a jury. AMH submitted to the jurisdiction of
the Bankruptcy Court; future claimants will not have
submitted, and thus will be free to file their cases in federal
district courts. See Langenkamp, 498 U.S. at 44 (“[B]y filing
a claim against a bankruptcy estate the creditor triggers the
process of allowance and disallowance of claims, thereby
11
AMH does not argue that it should not have been
placed in a class with the future claimants, with whom AMH
seems to believe it has conflicting interests. Moreover, AMH
makes much of the fact that Judge Sanders described this as a
“better deal” negotiated for the future claimants. In fact, this
statement tells us very little; the exchange did not even elicit
from Judge Sanders why he thought this was a better deal.
The record shows that Judge Sanders was stating that he had
negotiated the right for future PD claimants, who have not
submitted themselves to the jurisdiction of the Bankruptcy
Court, to seek redress in any district court with jurisdiction—
a solution he thought “better” and “more fair” than requiring
all of those future cases to be filed in the District Court of
Delaware. In the next part of the questioning, having been
asked to assume that AMH claims must remain in Bankruptcy
Court, Judge Sanders responded to a somewhat
incomprehensible non-question from AMH counsel with “My
clients got a better deal than yours.” AMHA at 700606-10.
33
subjecting himself to the bankruptcy court’s equitable
power.”) (citations and internal quotation marks omitted).
Future PD claimants cannot be bound to the
jurisdiction of the Bankruptcy Court in this way because they
have not submitted proofs of claim granting the Bankruptcy
Court jurisdiction and have not necessarily surrendered their
rights to a jury trial. AMH insinuates that it is a matter of
convenience (i.e., future claimants can choose a district court
that is closer to the property and witnesses needed), but the
most reasonable inference from their persistence on this issue
is that it believes it is likely to recover more from a South
Carolina state jury. AMH has not explained how being bound
by the decision of the Bankruptcy Court leads directly to
disadvantage in recovery, because to do so would lay bare
assumptions about the fairness and adequacy of the
Bankruptcy Court’s proceedings that it cannot support. We
conclude, therefore, that the Plan treats AMH sufficiently
equally to other members of the same class to meet the
requirements of §§ 524(g) and 1123(a)(4). Even if we were
to conclude that binding AMH to the jurisdiction of the
Bankruptcy Court represented “less favorable” treatment of
its claim, AMH “agree[d] to a less favorable treatment of
such particular claim or interest” by submitting itself to the
Bankruptcy Court’s jurisdiction via its proof of claim.
C.
Under § 1129(a)(3), courts may only confirm
reorganization plans proposed in good faith. “[T]he
important point of inquiry is the plan itself and whether such
a plan will fairly achieve a result consistent with the
34
objectives and purposes of the Bankruptcy Code.” In re Am.
Capital Equip., LLC, 688 F.3d 145, 156 (3d Cir. 2012)
(quoting In re Combustion Eng’g, 391 F.3d at 247) (internal
quotation marks omitted). Those objectives and purposes
include “preserving going concerns and maximizing property
available to satisfy creditors,” “giving debtors a fresh start in
life,” “discourag[ing] debtor misconduct,” “the expeditious
liquidation and distribution of the bankruptcy estate to its
creditors,” and “achieving fundamental fairness and justice.”
Am. Capital Equip., LLC, 688 F.3d at 156-57 (internal
citations and quotation marks omitted). Good faith presents
mixed questions of law and fact; we review legal
determinations de novo and factual determinations for clear
error. In re PWS Holding Corp., 228 F.3d 224, 242-43 (3d
Cir. 2000).
In the view of the District Court, a good faith plan “(1)
fosters a result consistent with the [Bankruptcy] Code’s
objectives; (2) has been proposed with honesty and good
intentions and with a basis for expecting that reorganization
can be effected; and (3) [exhibited] a fundamental fairness in
dealing with the creditors.” W.R. Grace & Co., 475 B.R. at
88 (citing Genesis Health Ventures, Inc., 266 B.R. 591, 609
(Bankr. D. Del. 2001)). The District Court concluded that the
first factor had been satisfied because the Plan preserved
Grace as a going concern in the face of overwhelming
asbestos liability and, given the probability of forthcoming
future claimants, gave Grace a better chance of being able to
satisfy those claims. W.R. Grace & Co., 475 B.R. at 87-88.
Second, the District Court described the requirements of
honesty, good intentions, and a reasonable expectation of
35
success as assurances that “the Bankruptcy Code’s careful
balancing of interests is not undermined by petitioners whose
aims are antithetical to the basic purposes of bankruptcy.” Id.
at 88 (quoting In re Integrated Telecom Express, Inc., 384
F.3d 108, 119 (3d Cir. 2004)). The District Court concluded
that nothing about the case suggested ulterior motives or
dishonesty, particularly in light of the arms-length
negotiations that led to the development of the Plan. W.R.
Grace & Co., 475 B.R. at 89. Third, the District Court again
addressed AMH’s equality arguments, recast as a claim of
fundamental unfairness, and concluded that the Plan was not
fundamentally unfair.
AMH asserts that the Plan fails to meet the good faith
requirement for procedural and substantive reasons. First,
AMH implies that Grace had the burden of proof in
demonstrating “good faith negotiations with AMH with
respect to the procedures imposed on the holders of
unresolved PD claims.” AMH Br. at 50. Second, AMH
asserts substantive unfairness because the Plan provides
preferential treatment to certain “favored” constituencies.
According to AMH, Judge Sanders’s testimony that he was
able to secure a “better deal” for the future PD claimants
shows that AMH is suffering from the kind of disparity that
36
raised questions meriting remand in Combustion
Engineering.12
We reject AMH’s arguments for several reasons.
First, we find no support for the idea that the District Court
clearly erred in its factual conclusion that the Plan resulted
from “years of litigation and extensive arms-length
negotiations.” W.R. Grace & Co., 475 B.R. at 89. The
settlements of virtually all of the non-AMH PD claims and
the overwhelming vote by creditors in favor of the plan
bolster this conclusion. We reject AMH’s implication that
Grace’s failure to negotiate directly with AMH undercuts the
overall Plan’s fundamental fairness, particularly when AMH
declined to provide comments on drafts of the Plan when they
were circulated during the negotiation process. See, e.g., PPA
12
Before us, AMH abandoned the argument it made to
the District Court that the Plan fails the good faith
requirement because Grace “repeatedly stymied” AMH’s
efforts to take discovery on the good faith issue. In any
event, this argument lacks merit. In In re Frascella Enter.,
Inc., 360 B.R. 435 (Bankr. E.D. Pa. 2007), the court found
that a plan was not proposed in good faith when the
proponents had repeatedly avoided making necessary
disclosures until forced to by the court. The debtor’s history
of transactions suggested that some disclosures had been
manipulated, and voting creditors did not receive information
about the plan until the day before the vote. The District
Court correctly concluded that no comparable behavior had
occurred here. In re W.R. Grace & Co., 475 B.R. 34, 89 (D.
Del. 2012).
37
at 600774-90, 601400-02, 601403-05, 601475-571.
Furthermore, as the District Court emphasized, the
Bankruptcy Court participated extensively in the settlement
process and had an opportunity to observe the parties’
conduct. W.R. Grace & Co., 475 B.R. at 90.
Second, we repeat our conclusion that AMH did not
suffer from unfair inequality and note that a creditor’s
disagreement about the handling of its claim does not
necessarily evince bad faith by the Plan’s proponents. See,
e.g., In re Barnes, 309 B.R. 888, 893 (Bankr. N.D. Tex. 2004)
(“[T]he fact that a plan proposed by a debtor is not the one
that the creditors would have proposed does not make the
plan one that has not been filed in good faith.”) (citations
omitted). On the contrary, Chapter 11 reorganizations rest on
majority rule and routinely leave a minority of creditors
dissatisfied. We note again that the Plan is designed to pay
AMH’s allowed claims in full.
Third, we reject AMH’s contention that direct
testimony from Grace’s negotiators was required to
demonstrate Grace’s honesty and good intentions in
proposing the Plan. Subjective intent, to the extent that it is
one factor in determining that a Plan is not being used for
purposes contrary to the Code’s objectives, is routinely
established by circumstantial evidence. A negative inference
should not be drawn against Grace merely because it chose to
protect the privacy of attorney-client communications. For a
variety of privilege and evidentiary reasons, divining the
subjective intent of a corporate actor through the testimony of
the negotiators and other key people will often prove
problematic and less than enlightening. In any event, it
38
would be an extraordinary circumstance where an objectively
fair plan must be set aside because of mere suspicions
concerning the subjective intent of the parties.
Furthermore, the Plan has little in common with
reorganization schemes that have been rejected for want of
good faith. In In re ACandS, Inc., 311 B.R. 36, 43 (Bankr. D.
Del. 2004), the bankruptcy court adopted the view that good
faith means the plan was “proposed with honesty, good
intentions and a basis for expecting that a reorganization can
be effected with results consistent with the objectives and
purposes of the Bankruptcy Code. . . . with the most
important feature being an inquiry into the fundamental
fairness of the plan.” There, the bankruptcy court found that
the plan had not been proposed in good faith because it had
been drafted primarily for the benefit of a pre-petition
committee and memorialized a pre-petition settlement to the
detriment of other claimants. Id.Similarly, in Combustion Engineering we concluded
that the use of stub claims potentially constituted “artificial
impairment” under § 1129(a)(10) leading to serious doubt
about whether the plan fulfilled the good faith requirement.
391 F.3d at 243. We remanded for further consideration of
the issue in light of good faith. Id. at 261. Again, in In re
Am. Capital Equip., LLC, applying the aforementioned good
faith standard, we held that the plan lacked good faith because
the proposed plan created an incentive for the debtor, a
defunct business, to sabotage its own defense; severely
limited insurers’ procedural rights; and unlike a § 524(g)
trust, created a fund in which the debtor made no contribution
– instead withdrawing money from it. 688 F.3d at 159-61.
39
In this case, Grace has demonstrated that the Plan is
fair, and AMH has provided no real argument that the Plan
was not “proposed with honesty and good intentions and with
a basis for expecting that reorganization can be effected.”
W.R. Grace & Co., 475 B.R. at 87-88. For these reasons, we
affirm the District Court’s conclusion that the Plan was
proposed in good faith.
D.
Grace had the burden of demonstrating that
“[c]onfirmation of the plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of
the debtor or any successor to the debtor under the plan,
unless such liquidation or reorganization is proposed in the
plan.” § 1129(a)(11). Success need not be guaranteed, but
must be reasonably likely. Am. Capital Equip., LLC, 688
F.3d at 156; see also Quigley, 437 B.R. at 142 (holding plan
was not feasible where funding source was “speculative at
best and visionary at worst”). We consider feasibility in the
context of ongoing litigation and will find a plan not feasible
if it “hinges on future litigation that is uncertain and
speculative, because success in such cases is only possible,
not reasonably likely.” Am. Capital Equip., 688 F.3d at 156
(finding plan not feasible where its only source of funding
was proceeds from highly speculative litigation winnings).
The District Court agreed with the Bankruptcy Court’s factual
conclusion—based on expert testimony, financial reports,
estimates of Grace’s future earning capacity, current
economic conditions, and Grace’s capital structure and
earning power—that Grace had established a reasonable
40
likelihood of the Plan’s success. W.R. Grace & Co., 475 B.R.
at 115.
AMH contends that Grace cannot meet its burden
without establishing the amount of liability the Plan will need
to satisfy in the future. According to AMH, Grace’s
feasibility expert relied only on Grace’s creation of a $37.7
million reserve for PD liabilities and performed no
independent analysis of the liabilities of the PD trust.13
Without a clear picture of the trust’s estimated liabilities,
AMH argues, Zilly’s testimony that a reorganized Grace
would be able to fund as much as $1.6 billion over 25 years
“proves nothing” because that figure has not been
substantiated and because the Plan does not allow Grace to
spread out its liabilities over 25 years, as Grace is required to
fund that PD trust every six months in the amount of
unresolved PD claims and future PD demands that were
allowed during the preceding term. Finally, AMH argues that
Grace’s feasibility analysis did not account for the possibility
that AMH class claims might be allowed. See In re Harbin,
486 F.3d 510, 517-19 (9th Cir. 2007) (finding clear error
under § 1129(a)(11) when Bankruptcy Court failed to account
13
AMH offers a one-sentence argument that we should
reject Zilly’s testimony because “expert testimony based on
assumptions that are not supported by the record should have
been excluded.” AMH Br. at 52 (citing Elcock v. Kmart
Corp., 233 F.3d 734, 756 (3d Cir. 2000)). In fact, Elcock
does not support AMH’s point because, in that case, the
expert relied on information that was proven by the record to
be false.
41
for possibility of large judgment against debtor in case on
appeal at time of confirmation in its feasibility analysis).14
None of these arguments leads us to conclude that the
District Court clearly erred in affirming the Bankruptcy
Court’s factual conclusion that the Plan would likely succeed.
As the District Court noted, Grace needed only to
demonstrate a reasonable likelihood of success, not an
absolute certainty. Grace’s evidence, including Zilly’s
testimony, remains uncontradicted. AMH has produced no
evidence supportive of its objection.15 AMH has offered no
14
Additionally, AMH contends that Plan proponents
did not “re-evaluate the adequacy of notice after the change in
law announced by Grossman’s, and now confirmed to be
retroactive in effect by Owens Corning.” AMH Br. at 56.
Because under AMH’s reading of Grossman’s, property
owners who have a Grace asbestos product in their property
but whose state law claims have not yet accrued are claim
holders whose cases cannot be channeled to the PD trust,
AMH believes that the Plan will be threatened by the need to
make non-trust payments it has not provided for. Id. As
discussed above, we have rejected this reasoning.
15
AMH points to the testimony of a KPMG accountant
hired by Grace in 1995 who estimated the size of Grace’s
asbestos PD liability. Because the report was outdated and
contemporaneously rejected by Grace, the Bankruptcy and
District Courts concluded that the report did not accurately
reflect the current information about outstanding PD liability.
AMH has offered no compelling reason why we should find
this factual conclusion to be clearly erroneous.
42
estimate of the size of its class claim, which could possibly be
allowed to proceed if we were to reverse the District Court in
a separate appeal—and that event appears sufficiently
unlikely to block the conclusion that the Plan is reasonably
likely to succeed.
We acknowledge that Grace has offered us little
insight into the methodology used to arrive at the conclusion
that $37.3 million provides an adequate reserve for the PD
liability payments. But the scale of related claims16 satisfies
us that $1.6 billion in possible funding (an amount AMH has
not refuted) has a reasonable likelihood of providing for all
claims. We therefore affirm the conclusion that the Plan is
feasible.
IV.
For the reasons discussed above, AMH has failed to
demonstrate that the Plan should not have been confirmed.
We will affirm the District Court’s holding.
16
As of June 2012, Grace had settled 407 claims for a
total of $147 million, leading to an average payout of
approximately $361,179 per claim. W.R. Grace & Co., 475
B.R. at 67. Those claims included “(1) California State
University and University of California for $1.4 million; (2)
Pacific Freeholds Ltd., Inc. for $9,043,375; (3) various
hospitals and healthcare facilities for $576,250; (4) several
private commercial building owners in the United States for
$16 million; and (5) building owners in Canada for $2.5
million.” Id. at 67 n.12.
43