Free Response to Motion - District Court of Delaware - Delaware

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 1 of 107

EXHIBIT D

{D0015842:1 }

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 2 of 107

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA IN RE: THE BABCOCK & WILCOX COMPANY DEBTOR Jointly Administered With DIAMOND POWER INTERNATIONAL, INC. BABCOCK & WILCOX CONSTRUCTION CO., INC. AMERICON, INC. 00-10993 00-10994 00-10995 CASE NUMBER: 00-10992 SECTION "B"

FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING CORE MATTERS AND PROPOSED FINDINGS OF FACT, CONCLUSIONS OF LAW AND RECOMMENDATIONS TO THE DISTRICT COURT WITH RESPECT TO NON-CORE MATTERS Outline I. II. III. IV. Introduction Background A. The Debtors B. Description of the Plan The Court has Jurisdiction to Enter Certain Insurance Related Findings The Joint Plan Meets the Requirements of §1129 A. The Plan complies with the applicable provisions of title 11, including the classification of claims under §1122 and the contents of the Plan under §1123 1. Classification and Treatment 2. Adequate Means for Implementation B. The Plan meets the requirements of §1129(a)(2), (4), and (5) C. The Plan meets the requirements of §1129(a)(7)-(10) D. The Plan satisfies the requirements of §1129(a)(11) E. Cram Down Requirements of §1129(b) have been satisfied 1. Unfair Discrimination 2. Fair and Equitable The Plan has Been Filed in Good Faith, and not by Means Forbidden by Law A. The Plan is a result of extensive negotiations and is not a collusive agreement between the Debtors, McDermott and plaintiff's lawyers B. The Insurer's Contractual Rights 1. Anti-Assignment Clauses

V.

-1-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 3 of 107

VI.

VII. VIII.

IX. X.

2. Anti-Assignment, Management of Claims, Cooperation and Consent Clauses Preemption Under Section 1123(a)(5). C. Payment of Valid Claims The Plan's Discharge and Injunctive Provisions Satisfy the Requirements of the Bankruptcy Code A. Uncontested Matters B. Contested Matters C. Section 105 Injunction 1. Identity of Interest 2. Substantial Contribution 3. Essential to Reorganization 4. Acceptance of the Plan by Impacted Class 5. Substantially Full Payment to Impacted Class 6. Full Payment of Nonsettling Claimants Executory Contracts A. Insurance Policies B. Coverage in Place Agreements Apollo Parks Issues A. Background Facts B. The Plan, as it relates to Apollo/Parks, is Proposed in Good Faith C. The Plan does not violate the Price Anderson Act D. The Court's jurisdiction to determine insurance related findings E. Proposed Findings of Fact and Conclusions of Law that ANI has Forfeited Rights under the Policies, such as the Management of Claims, No Action, and Consent to Settlement Provisions 1. Breach of Duty to Settle 2. Breach of Duty to Defend 3. Denial of Coverage F. Reasonable Settlement Other Objections A. Lack of Notice B. Objections Specific to Ace Companies Conclusion I. INTRODUCTION.

This matter came before the court as a hearing on confirmation of the third amended joint plan of reorganization as of June 25, 2003 with technical modifications as of October 1, 2004 proposed by the Debtors1, the Asbestos Claimants' Committee, the Future Claimants'

1

See title for the names of the four debtors.

-2-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 4 of 107

Representative, and McDermott Incorporated ("Plan"). Objections to the Plan were filed by various entities,2 and a hearing on confirmation of the Plan was held on September 22 through 26, 2003, October 20 through 24, 2003, December 16 through 18, 2003 and January 5 through 9, 2004. Also heard was the Plan Proponents3 motion to resolve Executory Contract Assumption Motion in conjunction with other insurance-related plan issues. The Plan Proponents assert that certain asbestos insurance settlement agreements are not executory contracts, and that the Debtors need not assume or reject them, or in the alternative, if they are determined to be executory, that the agreements can be assumed by the Debtors. The matter was heard in conjunction with other insurance-related matters at the hearing on confirmation. Since the hearings on confirmation, various settlements have been entered resolving certain objections and issues.4
2

Objections were filed by a Certain Group of Law Firms; PMAC Ltd; Pulp & Paper of America, LLC; Babcock Wilcox Espanola, S.A.; American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters ("ANI"); TIG and United States Fire Ins. Co.; Travelers Indemnity Co. and Travelers Casualty and Surety ("Travelers"); Maryland Ins. Co.; Ace Companies; Westchester Fire Ins. Co.; Certain Underwriters at Lloyds; as well as joinders in objections filed by Royal Indemnity Company, Maryland Ins. Company, and St. Paul Mercury Ins. Co. Plan Proponents are The Babcock & Wilcox Company, Diamond Power International, Inc., Americon, Inc., and Babcock & Wilcox Construction Company, Inc. (collectively ("Debtors"), McDermott Incorporated ("MI"), the Asbestos Claimants' Committee (the "ACC"), and the Future Asbestos-Related Claimants' Representative (the "FCR"). As to A/P Township matters, the Plan Proponents also include the A/P Claimants, the A/P FCR, ARCO, BWXT Services and McDermott International, Inc. ("MII"). A chart showing the corporate structure of MII, the parent of MI and related companies including the debtors appears as Exhibit 32. During the confirmation process, various settlements were concluded with CNA/Continental Insurance, p. 5417; and Affiliated/Appalachian, p. 5415. After the confirmation hearings, various settlements were approved with First State, p. 5804; AIG Member Cos., p. 5802; Associated International, p. 5803; and Northwestern, p. 5824. On September 21, 2004, a motion to approve settlement with Travelers Property Insurance Co., The Travelers Indemnity Co., The Travelers Insurance Co, The Travelers Indemnity Co.of Rhode Island and Travelers Casualty and Surety Co. was filed, p. 5911. Additionally, on September 28,
4 3

-3-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 5 of 107

This case is rapidly approaching the fifth anniversary of its filing date, February 22, 2000. The asbestos claimants, who for at least three years were strident adversaries of the debtors, are now in agreement on the joint plan before the court for confirmation. A number of the insurers, most of which are not creditors, continue to object. Other insurers have settled their differences and withdrawn, or are willing to withdraw, their objections if their pending motions for compromise are granted. 5 The Plan Proponents have been urging the court not to enter an opinion at this time, but instead to grant additional time for them to negotiate settlements with some of the remaining objecting insurers. Their plea for further delay falls on deaf ears because the court has the distinct feeling that: 1. This case has already lasted too long; 2. The professional fees and expenses have already been far too costly ­ $85,666,633 at last count, which only included charges thorough October 2003.6 Such fees and expenses will probably exceed one hundred million dollars before this case is over ­ a far too expensive cost of reorganization. 3. The parties have only reached settlements, filed a joint plan or taken affirmative and

2004, motions to approve settlements with Royal, p. 5928; Arkwright, p. 5926; and Mount McKinley Ins. Co, p. 5925 were filed. Hearings on the Traveler's, Royal, Arkwright, and Mt. McKinley settlements are scheduled for October 20, 2004. On October 1, 2004, a motion to approve a settlement with Prudential Assurance Co., Ltd. and Pearl Assurance plc. was filed, p. 5946. The Prudential/Pearl settlement was heard and approved on October 6, 2004. On October 6, 2004, a motion to settle with Riverstone and The Riverstone Insurers, p. 5956 was filed. This settlement will also be heard on October 20, 2004.
5 6

See footnotes 2, 4.

See Exhibit 2013, which also contains a future estimate of $7,085,000, but that only forecasted future invoices through March 2004.

-4-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 6 of 107

constructive action among themselves when the court has insisted upon firm deadlines. The clearest example is that Travelers and the Plan Proponents had advised the court as early as February 2004 that they had a "settlement in principle", but only filed settlement papers on September 21, 2004, because the court had set that date as a strict deadline. The time has come to move this case forward. This opinion constitutes the court's findings of fact and conclusions of law regarding core matters and proposed findings of fact and conclusions of law and recommendations to the district court regarding non-core matters arising in connection with the Plan confirmation. In the alternative, to the extent that certain insurance-related issues are determined to be non-core, they are tendered as proposed findings of fact and conclusions of law. The court recommends that the Plan be confirmed.

II.

BACKGROUND. The Babcock & Wilcox Company ("B&W") was

A. The Debtors and other parties.

initially formed in 1877, as the manufacturer and marketer of water tube stream boilers. In 1978, J. Ray McDermott & Co, Inc (now McDermott Incorporated) acquired B&W.
7

B&W and its

subsidiaries design, engineer, manufacture, and service industrial boiler systems.8 The boilers contain or are alleged to contain asbestos liners.
7

Debtors Diamond Power International Inc. and Americon, Inc. are subsidiaries of B&W. Americon is a holding company for Babcock & Wilcox Construction Company, Inc., the other debtor. Joint Pre-Trial Order, 2 - 5.
8

Joint Pretrial Order, 1-2.

-5-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 7 of 107

In the late 1970's, asbestos-related personal injury claims were asserted against B&W.9 By 1999, the number of claims filed against B&W had reached over 400,000.10 The Debtors filed for relief under Chapter 11 of the Bankruptcy Code on February 22, 2000. Following the filing, the official Asbestos Claimants' Committee was formed by the United States Trustee, and the court authorized the appointment of Eric D. Green, Esq. as the legal representative for the future asbestos-related claimants. For well over two years, the ACC and the FCR were for the most part allied but in opposition to the Debtors as to the handling of present and future asbestos claims. In February, 2001 the court granted the Debtors' request that a mediator be appointed. Mr. Francis McGovern was appointed to mediate with the Debtors, the Debtors' owners or affiliates, the ACC and the FCR regarding the general financial terms of a plan of reorganization. O n

February 22, 2001, at the court's insistence, the Debtors filed their Disclosure Statement and Plan, which set forth the Debtor's proposal for a consensual plan of reorganization. Both the ACC and FCR initially did not agree to the Debtors' Plan, and it was not set for hearing. The plan was amended at least twice, in May and July, 2002.11 In May, 2002, this court terminated the Debtors' exclusive period to file a plan of reorganization. Thereafter, in July, 2002, the ACC filed its own Disclosure Statement and Plan.12 After much negotiation, the ACC, FCR and Debtors were able to resolve many of their
9 10 11 12

Id. at 7. Id. at 9. Pl. 3148, 3316. Pl. 3320, 3321.

-6-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 8 of 107

differences and agree upon a form of plan. On December 19, 2002, the Debtors, MI, ACC and FCR filed a Substantially Complete Form of Joint Disclosure Statement. On June 25, 2003, the Plan Proponents filed the Third Amended Joint Disclosure Statement and the Third Amended Joint Plan of Reorganization. On August 28, 2003, the Plan Proponents filed the Plan Supplement. Following approval of the Disclosure Statement, on July 10, 2003, the court entered an order approving the confirmation hearing notice and solicitation package and the manner of mailing these, as well as the procedures for voting and tabulation and procedures for allowing claims for voting purposes. On August 15, 2003 Mr. Uddo was appointed the Apollo FCR, representing the interests of the Apollo/Parks ("A/P") future interest holders.13 After his appointment, further negotiations with the settling parties took place, which resulted in the filing of technical amendments to the Plan and a revised A/P Settlement Agreement.14 On November 12, 2003 and January 12, 2004, this Court approved the First and Second Sets of Technical Modifications to the Plan. Among other things, the modifications provide for: (1) the elimination of the Asbestos PD Trust and payment of Asbestos PD Claims and Indirect Asbestos PD Claims by the Reorganized Debtors based on the same payment percentage as previously contemplated to be paid on the claims by the trust; and (2) amendments to the Plan and Apollo/Parks related plan documents to reflect the agreement reached regarding the Apollo/Parks Township Claims. A Third Set of Technical Modifications to the Plan was approved on June 21, 2004, and a Fourth Set of Technical Modifications was approved on October 6, 2004.

13 14

Exhibit 3240. The term sheet for the revised settlement was filed on December 16, 2003. Exhibit

3221.

-7-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 9 of 107

B. Description of the Plan.

A brief summary of the Plan is necessary to adequately discuss

classification and other issues that arose in connection with confirmation. The Plan generally provides for eleven classes of claims, as follows: Classification Class 1 Class 2 Class 3 Class 4 Class 5 Class 6 Class 7 Class 8A Class 8B Class 8C Class 8D Class 9 Class 10 Class 11A Class 11B Class 11 C Class 11D Description Priority Non-Priority Secured Workers'Compensation Unsecured Trade General Unsecured Asbestos PI Trust Asbestos PD and Indirect Asbestos PD Apollo/Parks Township ARCO's Apollo/Parks ARCO's Environmental Remediation Governmental Unit Environmental Remediation Intercompany Claims Affiliate Intercompany Claims Equity Interests in B&W Equity Interests in Diamond Equity Interests in B&W Const. Equity Interests in Americon Voting Status Unimpaired Unimpaired Unimpaired Unimpaired Impaired Impaired Impaired Impaired Impaired Unimpaired Unimpaired Unimpaired Unimpaired Impaired Unimpaired Unimpaired Unimpaired Vote

Reject Accept Accept Accept Accept

Accept

The Plan calls for the creation of the Asbestos Personal Injury Trust. All current and future asbestos personal-injury claims will be channeled to the Asbestos PI Trust, which will process the claims and pay all allowed claims pursuant to the Asbestos PI Trust Distribution Procedures ("TDP's"). The Asbestos PI Trust will be funded primarily by the transfer of (a) all the capital stock of B&W (valued at between $400 and $500 million); (b) insurance rights valued at as much as $1.15 billion; (c) 4.75 million shares of the common stock of MII or a related share price guaranty; (d) $92 million in promissory notes from MI; and (e) certain tax benefits. In exchange, the Debtors and certain of their non-debtor affiliates will be granted the benefit of the Asbestos PI Channeling

-8-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 10 of 107

Injunction, under which they will be forever released from liability on account of Asbestos PI Trust Claims. Following mediation, the claimants in litigation with Apollo/Parks15, B& W and Arco entered into the Apollo/Parks Township Settlement Agreement ("Settlement"). The Settlement is

incorporated into the Plan, which provides for the Apollo/Parks Township Claims to be channeled to the Apollo/Parks Township Trust ("A/P Trust"), and the A/P Trust to process and pay allowed claims. The Settlement and Plan contemplates the following: (a) the claims of the Hall claimants will be allowed in the B&W bankruptcy case at $110 million; (b) Arco will make a cash payment to the Hall claimants of $27.5 million upon the receipt of releases from the Hall claimants, as well as other conditions as set forth in the Settlement; (c) B&W will make a $2.8 million cash payment to the A/P Trust; (d) B&W will assign to the A/P Trust its claims against ANI for reimbursement of prior defense costs incurred and paid by B&W arising from the Hall litigation in the amount of $1.44 million; (e) The Apollo/Parks Township Insurance Contributors and the Arco entities will make the Apollo/Parks Township Insurance Rights Assignment to the A/P Trust; (f) The A/P Trust will process and pay the Hall claimants claims, and process, adjudicate, settle or pay A/P future demands and the unliquidated A/P present claims pursuant to the Settlement , the A/P Trust Agreement and the A/P Trust Distribution Procedures; (g) a set aside of $75 million (with a cap of $100 million) will be made for A/P Future Demand Holders; (h) provision will be made for a "Standby Commitment" in favor of the A/P Future Demands holders.

Known as the Hall claimants, for the lead plaintiff in the case against B&W, B&W Nuclear Environmental Services, Inc. and Arco pending in the United States District Court for the Western District of Pennsylvania, Civil Action No. 94-0951. Exhibit 3017.

15

-9-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 11 of 107

III.

THE COURT HAS JURISDICTION TO ENTER CERTAIN INSURANCE RELATED FINDINGS.

The Plan, at §7.13.1, provides that the Court shall make several insurance-related findings of fact and/or conclusions of law in connection with, and as a condition to, confirmation of the Plan.16 Several insurers object that the court lacks jurisdiction to enter a final judgment adjudicating

These findings include the following: "(p) The terms of this Plan and the Asbestos Insurance Rights Assignment Agreement do not violate any obligation of the Debtors or any Insurance contributor under any consent-tosettlement, cooperation, management-of-claims, or no-action provision of any Subject Asbestos Insurance Policy or Subject Asbestos Insurance Settlement Agreement; (q) The terms of this Plan and the Asbestos Insurance Rights Assignment Agreement do not violate any obligation of the Debtors or any Insurance contributor under any consent-tosettlement, cooperation, management-of-claims, or no-action provision of any Subject Asbestos Insurance Policy or Subject Asbestos Insurance Settlement Agreement; (r) The Asbestos PI Insurance Rights Assignment and the Asbestos PD Insurance Rights Assignment do not materially increase any insurers risk of providing coverage for asbestosrelated liabilities under the relevant insurance policies as compared to the risk that was otherwise being borne by the insurers prior to the Effective Date; *** (v) The Asbestos Insurance Entity Injunction, the Asbestos PI Channeling Injunction, the Asbestos PD Channeling Injunction, and the Apollo/Parks Township Channeling Injunction are essential to this Plan and the Debtors' reorganization efforts; *** (z) The duties and obligations of the Asbestos Insurance Entities under the Subject Asbestos Insurance Policies and Subject Asbestos Insurance Settlement Agreements are not impaired, altered, or diminished by (1) the discharge, release, and extinguishment of all obligations and liabilities of the Asbestos Protected Parties for and in respect of all Asbestos PI Trust Claims and Asbestos PD Trust Claims; (2) the assumption of responsibility or liability for all Asbestos Insurance Rights pursuant to this Plan and the Asbestos Insurance Rights and Asbestos PD Trust Claims; or (3) the assignment of the Asbestos Insurance Rights pursuant to this Plan and the Asbestos Insurance Rights Assignment Agreement; *** (cc) The Asbestos PI Trust shall have the exclusive authority as of the Effective Date to defend

16

-10-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 12 of 107

the rights of the parties under the policies. They argue that questions regarding the coverage-inplace ("CIP") agreements and the insurance policies are already before the district court in various coverage actions, and that the insurers have requested jury trials in district court on their demands,17 and by numerous and continuing objections in this court have attempted to reserve and protect their rights to jury trials.18 The bankruptcy jurisdiction of the district court is found in 28 U.S.C. §1334(b), which gives the district courts and adjunct bankruptcy courts jurisdiction of proceedings arising under title 11, arising in a case under title 11, or related to a case under title 11. To determine whether such jurisdiction exists, "`it is necessary only to determine whether a matter is at least "related to" the bankruptcy.'"19 Where bankruptcy jurisdiction is challenged, the result will turn on how broad or narrow "related to" jurisdiction is construed. A proceeding is "related to" a bankruptcy proceeding if "`the outcome of that proceeding

all Asbestos PI Trust Claims involving Asbestos PI Insurance Rights; provided, however, that the Asbestos PI Trust may, in its sole discretion, afford any Entity, including any Asbestos Insurance Entity, the opportunity to participate in the resolution of any Asbestos PI Trust Claim; *** (ff) All of the Debtors' insurers who are affording insurance coverage that is the subject of the Asbestos PI Insurance Rights Assignment and the Asbestos PD Insurance Rights Assignment, and the Apollo/Parks Township Insurers have been given notice and an opportunity to be heard." Certain Underwriters at Lloyd's, London and Certain London Market Companies v. McDermott International, Inc., Case No. 03-2203; Certain Underwriters at Lloyd's, London and Certain London Market Companies v. The Babcock & Wilcox Co., Case No. 03-1192 (the "Declaratory Judgment Actions"). As to those insurers who filed proofs of claim, and consented to jurisdiction in the bankruptcy court, see page 11 infra. In re Walker, 51 F.3d 562, 569 (5th Cir. 1995)(quoting In re Wood, 825 F.2d 90, 93 (5th Cir. 1987).
19 18 17

-11-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 13 of 107

could conceivably have any effect on the estate being administered in bankruptcy."'20 Stated another way, "`an action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and . . . in any way impacts upon the handling and administration of the bankruptcy estate.'`21 Therefore, in order for bankruptcy jurisdiction to attach, the anticipated outcome of the action must (1) alter the rights, obligations, and choices of action of the debtor, and (2) have an effect upon the administration of the estate. Matters involving the confirmation of a plan arise under Title 11, and the court has jurisdiction to decide confirmation issues. Even if this confirmation proceeding necessarily involved a coverage issue, as asserted by insurers, suits involving insurance coverage are at least minimally related to a case under Chapter 11, because coverage will increase the estate.22 At a minimum, the confirmation findings concerning the Debtors' insurance are at least "related to" to bankruptcy proceedings, and this court has jurisdiction to hear the matter. The bankruptcy court's authority to enter final orders in matters before it is found in 28 U.S.C. §157, which permits the bankruptcy judge to hear and determine "all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11." Section 157(c)(1) permits a bankruptcy judge to hear a noncore proceeding that is related to a case under title 11, but specifies that the judge shall submit proposed findings of fact and conclusions of law to the district court, and the district judge, after de novo review and after considering the proposed findings and

20 21 22

Id. In re Bass, 171 F.3d 1016, 1022 (5th Cir. 1999). Travelers Indemnity Co. v Babcock and Wilcox, Co., Civ. Action 01-3387 (E.D. La.

2002).

-12-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 14 of 107

conclusions, shall enter any final order or judgment regarding the matter. On core matters, the bankruptcy court may enter final orders. A matter is core if it involves a right created by federal bankruptcy law, or is one which would only arise in bankruptcy.23 Matters that arise under the Bankruptcy Code are also considered core.24 A matter is non-core if it does not invoke substantive right created by federal bankruptcy law and is one that could exist outside of bankruptcy.25 The Debtors argue that the Plan does not require a determination of the scope of insurance coverage, and that coverage issues will likely be decided in another forum. They argue that the findings are necessary to ensure that confirmation itself does not act to annul the Debtors' policies. In other words, the Debtors argue that sustaining the insurers' objection would make mere compliance with the Code requirements for confirmation a violation of the insurance contracts and relieve the insurers of obligations under the policies. Other courts have noted, in a similar context, that "because of the significance insurance coverage issues often have in a bankruptcy proceeding, it is proper under certain circumstances for a bankruptcy court to adjudicate such matters."26 In Prudential, a trustee charged with the liquidation of asbestos-related claims under a confirmed plan filed an adversary proceeding seeking a declaratory judgment to determine the trustee's rights under protection and indemnity policies.

23 24

In re Wood, 825 F.2d 90 (5th Cir. 1987) Liljeberg Enters. Inc. v. Lifemark Hosps. of La., 2000 WL 63307, at 3 (E.D. La. Jan. Wood, 825 F.2d at 97. In re Prudential Lines, Inc., 170 B.R. 222, 231 (S.D.N.Y. 1994).

21, 2000).
25 26

-13-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 15 of 107

The district court held that a declaratory judgment proceeding to resolve issues concerning coverage and indemnification under insurance policies was a "core" proceeding.27 Although the

determination involved state law issues, that factor was not determinative given §157(b)(3)'s wording that "[a] determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law." Instead, because the policies were property of the debtor's estate in a Chapter 11 proceeding with over 7,000 asbestos claims potentially covered by the policies filed against the estate, the determination of policy provisions was "essential and inextricably tied to the administration of the estate."28 The court is not asked to determine a separate suit or adversary proceeding seeking a declaration that coverage is or is not available. Instead, the inquiry concerns whether the Plan is capable of confirmation, a matter at the heart of the Chapter 11 provisions of the Bankruptcy Code. In connection with the Plan, the Debtors seek a declaration that confirmation of the Plan will not impair the ability of the §524(g) trusts to access insurance rights transferred to the trusts. Section 157(b)(2)(L) specifies that core matters include "confirmation of plans." To the extent that a determination need be made of whether the Plan is capable of confirmation, or whether it is incapable of confirmation because its provisions run afoul of certain contractual rights of insurers, that determination is at the very heart of the function of the bankruptcy court, that is to determine whether the Plan is confirmable under the Bankruptcy Code. To the extent that the confirmation

27 28

Id. at 229.

Id.; see also Asbestosis Claimants v. American Steamship Owners Mutual Protection and Indem. Assoc., 197 F.3d 632, 638 (2d Cir. 1999)("resolving disputes relating to major insurance contracts are bound to have a significant impact on the administration of the estate" and are core).

-14-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 16 of 107

involves issues regarding the workings of a §524(g) injunction, that too is a core matter. Similarly, §365 expressly provides for the assumption or rejection of executory contracts, and a determination of whether an agreement is executory is a core bankruptcy function, as it arises under the Bankruptcy Code. Section 1123 governing the contents of a plan, provides that a plan must provide adequate means for its implementation, including but not limited to, curing or waiving of any defaults.29 In order to determine confirmation, a core matter, the court must necessarily make determinations of whether insurance rights may be transferred to a trust to be established under §524(g), whether the Plan meets the requirements of §524, whether the Bankruptcy Code preempts certain contract provisions and whether the Plan provides adequate means for its implementation under §1123(a)(5). Various insurers who have objected to confirmation have filed proofs of claim in this bankruptcy proceeding.30 Generally, the filing of a proof of claim constitutes consent to the jurisdiction of the Bankruptcy Court.31 Additionally, the filing of a claim invokes the core jurisdiction of the court under §157(b)(2)(B), (c). As to insurers who have filed claims in the bankruptcy proceeding, core jurisdiction exists on issues relating to the insurers claims and objections to the Plan. This is not a trial on coverage, and the court is not determining whether coverage exists
29 30

11 USC 1123(a)(5)(G).

These insurers include: Continental Company (P. 4491); TIG Insurance (P. 4499); American Home Ins. (P. 4516); Century Indemnity Ins. (P.4518); Westchester Fire Ins. Co. (P. 4519); and Ace USA Companies (P. 4520). In re Baudoin, 981 F.2d 736 (5th Cir. 1993); see Katchen v. Landy, 382 U.S. 323 (1966); Pan American World Airways, Inc. v. Evergreen Int'l Airlines, Inc., 132 B.R. 4 (SDNY 1991).
31

-15-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 17 of 107

under any particular policy. It is a trial on the confirmation of the Plan, and whether the Plan can be confirmed and the Debtors can proceed under the Plan. What the insurers argue is that the Plan may not implicate the insurers or policies of insurance, the largest single asset of the estate, without violating terms of the insurance contracts, thereby raising a coverage issue, which this court cannot finally determine. The insurers argue that confirmation of any plan funded by insurance will vitiate the policies and relieve the insurers of any obligation to make payments under the policies. The Debtors are put in a position that they cannot go forward on confirmation, as required by the Bankruptcy Code and Rules, because the act of formulating a plan involving insurance will breach obligations due under the policies. Likewise, they cannot simply wait for the coverage

determinations to be made by the district court.32 The act of going forward with confirmation of the plan cannot, of itself, be restrained by allegations that confirmation involves insurance issues, that cannot be determined in this proceeding. The court finds that it has core jurisdiction to make insurance-related findings. To the extent that the district court may determine that certain issues are non-core, then the findings are made as proposed findings of fact and conclusions of law.

IV.

THE JOINT PLAN MEETS THE REQUIREMENTS OF §1129.

The court finds that the Plan meets the requirements of confirmation under 11 U.S.C. §1129. On all core matters, the court finds that confirmation is appropriate. On non-core matters, the court

The coverage actions were filed in 2003, three years after the filing of the Debtors' Chapter 11. The Bankruptcy Code requires that a plan be filed within 120 days of the petition date in order to maintain the exclusive period. This court has not only terminated exclusivity, but ordered that confirmation proceedings be commenced in September 2004. The Debtors thus lacked the option of simply waiting for the coverage matters to be decided by the district court prior to confirmation.

32

-16-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 18 of 107

recommends that the district court enter an order confirming the plan. A. The Plan complies with the applicable provisions of title 11, including the classification of claims under §1122 and the contents of the plan under §1123. The court finds that the Plan adequately designates classes of claims and interests, and adequately specifies the classes of claims or interests that are not impaired under the Plan, and specifies the treatment of claims or interests that are impaired under the Plan. 1. Classification and Treatment. Certain law firms33 object to the classification of claims made by the Plan under §1122. They object that their clients settled asbestos-related personal injury tort or wrongful death claims and thus should not be included in Class 6, which also includes disallowed settled claims and unliquidated or contingent claims for personal injury tort and wrongful death claims. The objectors argue that the allowed, settled claims are substantially similar to other non-tort claims in Classes 4 or 5 of the Plan, which will receive payment in full, yet are classified with unliquidated claims in Class 6, which will receive only a partial payment. They make three arguments: (1) settled claims are treated differently from unliquidated claims in the same class, in violation of §§1123(a)(4) and 1129(a)(1); (2) settled claims are not "substantially similar" to other Class 6 claims, and they cannot be classified together; (3) the current Class 6 classification is meant to disenfranchise and discriminate against settled claims, and constitutes improper gerrymandering. The classification objection made by Certain Law Firms is not new. The arguments regarding separate classification and gerrymandering were raised previously as objections to the

The law firms consist of Levy, Phillips & Konigsberg, LLP; Greitzer & Locks, and The Law Offices of Peter G. Angelos, P.C., and represent approximately 1,177 claimants who settled claims for asbestos-related personal injury tort or wrongful death claims with the Debtor prior to the filing of the Debtors' Chapter 11 petition.

33

-17-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 19 of 107

Disclosure Statement, and rejected by the court.34 Instead, the court found previously, and finds now, that the claims in Class 6 are substantially similar claims. Both the settled claims and the unliquidated personal injury and wrongful death claims are unsecured claims with common priority and rights against the estate, both are based on injuries or death claims stemming from alleged asbestos exposure, both will be paid from the pool of insurance rights. The Greystone case 35 does not mandate separate classification as Certain Law Firms argue. Instead, the case prohibits separate classification of similar claims where a valid business purpose is lacking, or where the separate classification is meant to disenfranchise a dissenting class of creditors. In this case, the Plan placed unsecured trade claims in Class 4, and unsecured general claims in Class 5. Mr. David Keller, President and COO of B&W, testified at trial regarding the Plan's classification of claims, and testified as to the importance to the company of the ability to pay trade claims. He testified that the Debtors' reputation and future business success depends on the Debtors following through with representations made in this proceeding that the trade claims would be paid in full. Given the small amount of the trade claims, which are approximately $3.5 million, and the large size of the Debtors' contracts, the loss of future contracts would result in a revenue reduction greatly in excess of the amount needed to pay trade claims in full. As such, the court finds that a legitimate business justification exists for paying trade claims in full, and separate classification of Class 4 unsecured trade claims is appropriate.

34 35

See Reasons for Order dated April 4, 2003, Pl. 4101.

In re Greystone III Joint Venture, 995 F.2d 1274, 1279 (5th Cir. 1991), cert. denied, 506 U.S. 821 (1992).

-18-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 20 of 107

The court also rejects the contention that settled claims in Class 6 are treated differently than other claims in the class. The Plan provides that all unsecured claims for personal injury caused by alleged exposure to asbestos in Class 6 will be paid in accordance with the provisions of the TDP. Similar claims will receive similar treatment under the TDPs. The claims will not be paid in full; however, the unrebutted testimony at trial was that as to the Debtors and their customers and suppliers, no business reason exists to pay asbestos personal injury claims in full.36 Other objectors have argued that Class 3 claims for workers compensation, as well as Class 4 and Class 5 claims, should not be separately classified. Class 3 consists of workers compensation claims. Mr. Keller testified at trial that these unsecured claims are paid in the ordinary course through the state workers' compensation system. Additionally, business reasons exist for the Debtors to pay its injured employees, justifying separate classification of the workers compensation claims, and payment in full. The court finds that the unsecured workers compensation claims are dissimilar to trade or other unsecured claims37, and separate classification of Class 3 claims is appropriate. Class 5 consists of general unsecured claims. Mr. Keller testified that this class included a disputed unsecured claim of the IRS, disputed miscellaneous legal claims, and the disputed claims of excess insurance carriers for recoupment of amounts previously paid to B&W. The claims are all disputed by the Debtors, are speculative in nature, and the Debtors estimate that the amount needed to pay these claims will not exceed $1 million. The Class 5 claims will receive a percentage payment on the allowed claims, similar to the treatment of Classes 6 and 7. The court finds that the
36 37

Tr. David Keller, September 24, 2003. In re U. S. Truck Co., Inc., 42 B.R. 790, 794 (Bankr. E.D. Mich. 1984).

-19-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 21 of 107

separate classification of Class 5 unsecured claims is appropriate. 2. Adequate Means for Implementation. Section 1123(a)(5) requires that a plan provide adequate means for its implementation. As discussed above, the Plan provides for creation of the Asbestos PI Trust and the A/P Trust. Both trusts will be funded by, among other things, assignment of rights to the proceeds of B&W's insurance coverage. This insurance coverage is substantial, and is valued as high as $1.15 billion for the Asbestos PI Trust, and for the insurance rights assignment to the AP Trust. The Plan provides for the creation of Trust Distribution Procedures governing the payment of trust claims. The other implementation procedures described in detail in the Plan are more than adequate to satisfy the requirements of §1123(a)(5). B. The Plan meets the requirements of §§1129(a)(2), (4), and (5). No objections have been received that the Plan violates the provisions of §§1129(a)(2), (4) and (5). The court finds that the Plan Proponents have complied with the Code provisions. The Plan describes both impaired and unimpaired classes, and adequately describes their treatment. The Court , on July 10, 2003, approved the confirmation hearing notice, and provided procedures for the mailing of the solicitation packages and approval of the voting agent. Adequate notice was provided to creditors and parties in interest by the notice and procedures requirements approved by this Court. The court further finds that payments made under the Plan are reasonable, and the Plan complies with 1129(a)(4). The Plan Proponents have made disclosures required by 1129(a)(5). The Plan Proponents have identified the officers and directors who will serve the reorganized Debtors, and the appointment of the officers and directors is consistent with the interests of the creditors, equity security holders and public policy. The Plan Proponents have also identified the individuals who

-20-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 22 of 107

will serve as Trustees of the Asbestos PI Trust, as well as their affiliations. Various objectors have questioned whether the Trustees are fair and impartial, citing alleged ties of some of the proposed trustees to the asbestos plaintiffs bar. The court finds that the Trustees have been adequately disclosed, and that appointment of the Trustees is consistent with the requirements of §1129(a)(5). Insiders who will be employed or retained by the Debtors, as well as their compensation, have been disclosed, as required by §1129(a)(5)(B). Although strong objections to the Plan Proponents refusal to name at this time the trustees of the A/P Trust ­ even though they had named the trustees of the Asbestos Trust ­ were raised by certain insurers, the court does not consider that as a bar to confirmation. The court does not read §1129(a)(5) as requiring the names and identity of those individuals and finds nothing in the trust provisions of §524(g)(1)(B) that requires the information. Section 1129(a)(6) regarding regulatory commissions and rate changes is not applicable to these Debtors. C. The Plan meets the requirements of §§1129(a)(7)-(10). Subsection 1129(a)(7) requires that each holder of an impaired claim or interest either has accepted the Plan, or will receive an amount equal or greater than in a Chapter 7 liquidation. Section 1129(a)(8) provides for each class to accept the Plan or that the class not be impaired under the Plan. All impaired classes have voted on the Plan. All impaired classes, except Class 5, have voted to accept the Plan, by casting votes in favor of the Plan exceeding two-thirds of the amount of voting claims and one-half the number of voting claims in each class required for acceptance under 11 USC 1126(c). Class 11 equity shareholders have approved the Plan by vote exceeding two-thirds of the amount of shares who voted for the Plan, as required by 11 USC 1126(d). The Plan accordingly

-21-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 23 of 107

meets the requirements of §1129(a)(10), that an impaired non-insider class vote to accept the Plan. The non-accepting class, Class 5, will receive under the Plan an amount equal to or greater than what would be received in a Chapter 7 liquidation. At the confirmation hearing, the Plan Proponents presented the testimony of Pamela Zilly, an investment banker with the Blackstone Group, L.P. Her testimony was that the total assets available under the Plan for payment of claims are between $1.46 billion and $2.25 billion. After adjustment for allocations for cash or liquidation uses, between $1.2 billion and $1.97 billion in net assets is available for distribution under the Plan. In contrast, the Chapter 7 liquidation value of the Debtors assets was placed at between $584 million and $1 billion.38 A greater return to creditors under the Plan is possible because of the contributions of various McDermott entities, including the promissory note of $92 million, and 4.75 million shares of McDermott International Inc. stock. The Court finds that under the Plan, each impaired class will receive or retain a claim or interest in property of value that is not less than the amount they would have received or retained in a Chapter 7 liquidation of the Debtors. Instead, it is clear that they will receive more under the Plan than from a liquidation, so the requirements of §1129(a)(7) have been satisfied. No dispute exists that the Plan meets the requirements of §1129(a)(9). D. The Plan satisfies the requirements of §1129(a)(11). Section 1129(a)(11) requires that confirmation of a plan is not likely to be followed by the liquidation , or further financial reorganization, of the debtor, unless such is proposed in the plan. In other words, for a plan to be confirmed, it must be "feasible."39 The debtor must prove a plan's
38 39

Exhibit 17. T-H New Orleans Ltd. Partnership, 116 F.3d 790, 801 (5th Cir. 1997).

-22-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 24 of 107

feasibility by a preponderance of the evidence.40 A plan is feasible where it offers "`a reasonable probability of success,"41 and where "the debtor can realistically carry out its plan."42 In proving a reasonable probability of success, the bankruptcy court "need not require a guarantee of success. .. . , [o]nly a reasonable assurance of commercial viability is required."43 In T-H New Orleans Limited Partnership, feasibility was shown where the debtor demonstrated that it was able to service the debt with an infusion of capital, and presented evidence regarding the past and present earning power of the debtor, the ability of management and the economic picture for similar businesses in the area.
44

Projections of future revenue are appropriate "where the

projections are credible, based upon the balancing of all testimony, evidence, and documentation, even if the projections are aggressive."45 Mr. Keller testified at confirmation regarding the Debtors' business prospects. Mr. Keller testified that the Debtors have excellent prospects for exit financing with Citibank and Fleet, who have provided term sheets for exit financing. In addition, the ACC has negotiated with other banks for financing. In the post-confirmation period, the Debtors prospects for getting and performing contracts are good. He testified that in the post-petition period, the Debtors' income had

40 41 42 43 44 45

Id. Id, citing In re Landing Assoc., Ltd, 157 B.R. 791, 820 (Bankr. W.D. Tex. 1993). In re Lakeside Global II, Ltd., 116 B.R. 499, 506 (Bankr. S.D. Tex. 1989). T-H New Orleans, 116 F.3d at 801 (citations omitted). Id. Id., citing In re Lakeside Global II. Ltd., 116 B.R. 499, 508 n. 20 (Bankr. S.D. Tex.

1989).

-23-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 25 of 107

increased by 33%, and the Debtors have become financially stronger in comparison to their competitors. He also testified that the Debtors have made tentative offers of post-confirmation

employment to himself and to Richard Rimels, the current head of B&W Canada, and that he has confidence in the future management of Debtors. The Plan also makes provisions for the transition of B&W to a stand-alone company, and contemplates a transition period whereby McDermott will continue to provide critical services pursuant to a transition agreement. Mr. Keller's opinion was that the transition period was adequate, and B&W would be able to function as a stand-alone company at the end of the transition period. The court finds that B&W has sustained its burden of proving feasibility under §1129(a)(11). Additionally, the Plan satisfies the requirements of §1129(a)(12), in that it provides for all fees payable under 28 USC §1930 to be paid, and all retiree benefits to be satisfied. No objection has been received under §§1129(a)(12) and (13), and the court finds that these sections have been satisfied. E. Cram Down Requirements of §1129(b) have been satisfied.

Only Class 5, consisting of general unsecured claims, and an impaired class, has voted against the Plan. The Plan may nonetheless be confirmed if it meets the requirements of §1129(b), that is, that all requirements other than §1129(b)(8) that each impaired class has accepted the plan or is not impaired by the plan, where "the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan." 46 If these requirements are met, the Plan may be confirmed despite the rejection of an impaired class. Class 5 consists of general unsecured claims, including a disputed tax claim,

46

11 U.S.C. 1129(b)(1).

-24-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 26 of 107

insurer's disputed claims for indemnity, and certain disputed claims for damages. Each claim contained in Class 5 has been objected to, and certain of the insurer's claims have been estimated for voting purposes at $1.00 each. 1. Unfair Discrimination. Unfair discrimination has been found where similar claims are treated differently without a reasonable basis for the disparate treatment, or if a class of claims receives consideration of a value that is greater than the amount of its allowed claim.47 A plan that unfairly singles out a claim for nonuniform treatment violates §1129(b). One court, after making an exhaustive analysis of unfair discrimination, stated a four-part test to determine whether discrimination is fair: (1) whether the discrimination is supported by a reasonable basis; (2) the extent of good faith behind the proposal, (3) the degree to which the debtor can confirm a plan without such discrimination, (4) the treatment of the classes discriminated against.48 Various objections have been made that the Plan unfairly discriminates against Class 5, which will receive a pro rata distribution, and Class 4 (trade creditors), which will receive payment in full. At the confirmation hearing, testimony was heard from Mr. Keller about the importance of paying trade creditors. Not only had the representation been made to the creditors from the inception of the case that they would be paid in full, the vendors are suppliers to the business, ones with claims that are not disputed or suspect. Additionally, the failure to pay trade claims in full may

In re Kennedy, 158 B.R. 589, 599 (Bankr. D. N. J. 1993); In re Johns-Manville Corp., 68 B.R. at 636. In re Aztec Co., 107 B.R. 585, 590 (Bankr. M.D. Tenn. 1989); see In re Rochem, Ltd., 58 B.R. 641 (Bankr. D. N.J. 1985).
48

47

-25-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 27 of 107

cause the loss of future contracts, contracts in size that could easily eclipse the $3.5 million to be paid trade creditors. By contrast, Class 5 consists of disputed and unliquidated claims of various creditors, including the insurers claims to recover sums paid under excess insurance policies under an indemnity theory, which have been valued at $1.00 for voting purposes, disputed ongoing lawsuits and a contested tax claim which the Debtors believe has been paid by the McDermott consolidated tax group. These claims have all been the subject of objections, and in the business judgment of B&W, have been determined to be lacking in merit. No business justification exists to pay the highly disputed claims in full. A business justification does exist, however, to pay trade claims, i.e., the relationships are important to the continued operation of the business and its reputation.49 The court finds that a reasonable basis exists for payment in full of trade claims, that the debtors have satisfied the requirements of §1129(b), and the Plan does not unfairly discriminate. 2. Fair and Equitable. "The `fair and equitable' requirement provides for an absolute rule of priority among creditors and stockholders in reorganization plans, placing secured creditors' rights first, those of unsecured next, and subordinating the interests of stockholders."50 The Code defines treatment that is fair and equitable to various classes of claims. For unsecured creditors, such as the objecting Class 5 creditors, fair and equitable means: (B) with respect to a class of unsecured claims­ (i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed
49

In re Rochem, Ltd., 58 B.R. 641, 643 (Bankr. D. N.J. 1985)(payment of trade claims in full and only partial payment of disputed tort claims not discriminatory, as reasonable basis existed for the treatment).
50

In re Lakeside Global II. Ltd., 116 B.R. 499, 511 (Bankr. S.D. Tex. 1989).

-26-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 28 of 107

amount of such claim; or (ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.51 In other words, in order to confirm a plan over a dissenting class of unsecured creditors, the plan must pay the dissenting unsecured creditors the allowed amount of the claims or leave nothing to junior claimants or interest holders. The Plan does not provide that Class 5 allowed claims be paid in full, therefore, the inquiry becomes whether junior claimants or interest holders will receive or retain any property. Various class 5 claimants have objected that the plan is not fair and equitable because it does not propose to pay Class 5 claims in full but equity holders in class 11 B -D retain their stock holdings. These objections lack merit. The Plan provides that all of B&W's equity interests will be transferred to the Asbestos PI trust. Notably, Section 7.2.3 provides that on the Plan's effective date, BWICO will cause the Asbestos PI Trust to become the holder of record of all the outstanding shares of the Capital Stock of B&W. B&W will retain its stock in subsidiary corporations, however, the stock will really belong to the Asbestos PI Trust by way of the BWICO transfer. The value of the stock of B& W and its subsidiaries will be used to pay Class 5, 6 and 7 claims. The Court finds that the absolute priority objection is not well taken, because the retention of B&W of its subsidiary's stock is a means to facilitate the ultimate transfer of the value of the stock to the trust, for the benefit of creditors. This is not an instance where B&W's owners, or in this case, it's parent corporation, is retaining anything of value. To the contrary, they are giving up not only the stock in B&W (which includes the stock of the B&W subsidiaries), but also a $92 million note, some

51

11 U.S.C. 1129(b)(2)(B).

-27-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 29 of 107

stock of MII and/or a stock price guaranty and certain tax benefits. V. THE PLAN HAS BEEN FILED IN GOOD FAITH, AND NOT BY MEANS FORBIDDEN BY LAW.

Section 1129(a)(3) requires that a plan be proposed in good faith and not by any means forbidden by law. Various insurance companies have filed objections to the Plan, ranging from frivolous objections that the trust to resolve radiation claims "will accomplish nothing less than insurance fraud",52 and that the plan proponents have "made collusive efforts to defraud [insurers]"53 to the more palatable but serious charge that the Plan provisions are in violation of the rights of insurers under their contracts and settlements with the Debtors, that the Debtors have settled meritless claims, and that the management of the Asbestos Trust is predicated on a conflict of interests. The good faith requirement is "viewed in light of the totality of the circumstances surrounding establishment of a Chapter 11 plan, keeping in mind the purpose of the Bankruptcy Code is to give debtors a reasonable opportunity to make a fresh start."54 "Where the plan is proposed with the legitimate and honest purpose to reorganize and has a reasonable hope of success, the good faith requirement of §1129(a)(3) is satisfied."55 The debtor bears the burden of proving that the plan was filed in good faith by a preponderance of the evidence.56 The good faith requirement
52 53 54 55 56

Objection of American Nuclear Insurer, Pl. 4716. Objection of Travelers, Pl. 4722. T-H New Orleans Ltd Partnership, 116 F.3d at 802. In re Sun Country Dev., Inc., 764 F.2d 406, 408 (5th Cir. 1985). In re Briscoe Enter., Ltd., II, 994 F.2d 1160, 1165 (5th Cir. 1993).

-28-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 30 of 107

is satisfied even where "the plan may not be one which the creditors would themselves design and indeed may not be confirmable."57 The court finds that the Debtors have sustained their burden of proof that the Plan is filed in good faith, and that the Plan was proposed with a legitimate and honest purpose to reorganize and has a reasonable hope of success. Various insurers arguments to the contrary will be addressed in turn. A The Plan is a result of extensive negotiations and is not a collusive agreement between the Debtors, McDermott and plaintiff's lawyers.

Various of the Debtors' insurers have objected that the Plan is not filed in good faith because, in essence, it is merely a collusive agreement with plaintiff's attorneys designed to pay meritless claims. The Plan Proponents predictably respond that the Plan is the result of extensive arms-length negotiations and the system of paying claims is actually stricter than the system that existed prepetition. The Debtors' bankruptcy case was filed on February 22, 2000. Mr. Nesser, general counsel of B&W and MII, testified that a dual track was followed post-petition, that of settling with various constituencies, while also pursuing the "Litigation Protocol" to contest asbestos personal injury claims. Mr. Nesser testified that in the spring of 2000, the Debtors had settlement discussions with plaintiffs' lawyers. Throughout 2000, the Debtors also pursued discussions with London. In 2001, an adversary proceeding was initiated seeking a declaratory judgment regarding $600 million in assets that had been transferred from B&W to its parent corporations during a 1998 corporate

57

Id. at 1167.

-29-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 31 of 107

restructuring.58 About the same time, various insurers, including London, brought insurancecoverage litigation before the district court.59 Mr. Nesser testified that negotiations with constituencies began soon after the Debtors' filing, and continued during the course of the transfers litigation and litigation with insurers. In 2001, the Debtors asked that a mediator be appointed, in part because they felt that negotiations were not fruitful. Eventually, Professor Francis McGovern was appointed as mediator.60 In early 2002, several events occurred that helped in the Debtors' negotiation strategy. In January 2002, Judge Vance rendered a decision in favor of B&W in the London declaratory judgment action. The next month, in February 2002, this court entered a decision denying the transfer complaint.61 In May, 2002, this court also entered an order terminating the Debtors' exclusive period to file a plan of reorganization. In May, 2002, B&W filed a draft plan, but continued to negotiate with constituencies, including London. Following the termination of exclusivity, the ACC filed its own Disclosure

Statement and Plan. By August, 2002, the Debtors announced that an agreement in principle had
58 59

Adv. No. 01-1155.

"London" includes Certain Underwriters at Lloyd's, London and Certain London Market Companies. Various suits are pending before the United States District Court for the Eastern District of Louisiana by London Market Insurers and Traveler's Insurance Co. including (i) Traveler's Ins. Co. et. al. v. McDermott Inc., McDermott Int'l, Babcock & Wilcox Co., Diamond Power Int'l, Inc., Babcock & Wilcox Constr. Co., and Americon, Inc., Nos. 01-3218 c/w 01-3387, United States District Court, Eastern District of Louisiana, (ii) Certain Underwriters at Lloyd's v. McDermott Int'l, Inc., Case No. 01-0912 and (iii) Certain Underwriters at Lloyd's London, et al. v. Babcock & Wilcox Co., et al., Case No. 01-1187. See also footnote 17.
60 61

Pl. 1682. In re Babcock & Wilcox Co., 274 B.R. 230 (Bankr. E.D.La. 2002).

-30-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 32 of 107

been reached regarding the terms of the ultimate plan. Professor Green testified that concessions made by the FCR and ACC to the amount of the contribution to be made by MII to the Asbestos PI Trust enabled a resolution in principle to be achieved and an amended plan was filed by the Debtors in December 2002. Finally, in June, 2003, the Joint Plan was filed by various constituencies, including the ACC, FCR and McDermott, Inc.
62

Each of the Debtors' plans contained different

treatment of asbestosis claims, reflecting the negotiations underway at the time of filing. Various insurers object because the Joint Plan contains provisions more generous to claimants than the original plan, and argue that such indicates a lack of good faith. Rather than indicate that good faith is lacking, the case history indicates that negotiations with constituencies was protracted, extensive and hard fought. A great deal of negotiation and litigation took place before an agreement in principle could be reached with any constituency. Ultimately, the Debtors were able to craft a plan agreeable to the ACC and FCR, which represent the major creditors in the case. Rather than indicate a lack of good faith, the Debtors' actions indicate a dogged determination to settle with its major constituencies on the best terms possible, and under a plan capable of confirmation. The court finds it significant that prior plans submitted to the court never came on for confirmation. Instead, the plans were modified, amended and/or withdrawn prior to any

confirmation hearing. Bankruptcy Code §1127(a) expressly provides for modification of a plan prior to confirmation, so long as it meets the requirements of §§1122- 1123. Plans are frequently modified during the confirmation process, including situations where settlements are incorporated into the plan and objections withdrawn. While the Litigation Protocol may have originally formed

62

Pl. No. 1694, 3148, 3320.

-31-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 33 of 107

the Debtors' strategy in the initial phases of the bankruptcy proceedings, it is not binding on the Debtors for the duration of the case. Instead, the debtor is free to negotiate, and the Code promotes, settlements with creditor bodies. The modifications and amendments to the Plan, and the

abandonment by the Debtors of the Litigation Protocol, do not indicate a lack of good faith. Instead, they are the result of the usual negotiations leading to confirmation of a plan in many, if not most, Chapter 11s. In this case, these were hard-fought negotiations with the ACC and FCR, two bodies that vigorously objected to the original plan and the Litigation Protocol. Insurers also object that the Plan is not filed in good faith because they were deliberately and collusively excluded from the negotiations and formation of the Plan and other agreements. Mr. Nesser testified that negotiations were underway with London from the outset of the case, and continued even after the agreement in principle was announced with the ACC and FCR. There was much argument but no evidence to the contrary. B. The Insurer's Contractual Rights

Various insurers object that the Plan may not rewrite the contracts of insurance, without the consent of the parties. They argue that the Plan may not change provisions of the policies, including the claims management function, the anti-assignment clause, reporting requirements, the requirement to pay only meritorious claims, to pay claims only as they come due, and to assist in the defense, investigation and settlement of claims. Stated another way, they object that the Plan Proponents colluded against insurers to formulate a plan designed to force insurers to pay nonmeritorious claims, without the insurer's participation and control over defense and settlement of the claims.

-32-

Case 1:05-cv-00059-JHR

Document 53-5

Filed 06/08/2005

Page 34 of 107

1. Anti-Assignment Clauses. Insurers argue that the Plan, among other things, may not require the assignment of insurance rights because the insurance policies and/or settlement agreements with Debtors specifies that any assignment must be consented to in writing by the insurer. They also argue that insurance rights are only assignable without the insurer's consent where vested and the amount of loss has been fixed by a settlement of the claim or an adverse judgment which has been paid by the Debtors. The Plan Proponents respond (i) the Plan only assigns insurance rights, and does not implicate any anti-policy-assignment clause; (ii) all remaining insurance coverage is subject to settlement agreements that do not contain restrictions on assignment; and (iii) the assignment does not increase the insurers' risk. The Plan does not purport to assign the insurance policies. Only insurance rights, including rights, interests, claims, demands or entitlements to a policy's proceeds and the right to pursue the proceeds are transferred to the trusts. As a general rule, contracts are freely assignable. An exception exists where the parties provide an express prohibition on an assignment. A general stipulation in a policy prohibiting assignment except with the insurer's consent is valid only as to assignments that occur prior to a loss.63 The prohibition of an assignment without the consent of the insurer is not effective as to an assignment of a policy or right under a policy after the event has

Geddes & Moss Undertaking & Embalming Co. v. Metropolitan Life Ins. Co., 167 So.2d 209, 210 (La. Ct. App. 1936)(distinction is made between ass