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Case 1:08-cv-00230-JHR

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

__________________________________________ ) FEDERAL-MOGUL GLOBAL INC., ) T&N LIMITED, et al., ) ) Reorganized Debtors. ) __________________________________________) ) CERTAIN UNDERWRITERS AT LLOYDS, ) LONDON, et. al., ) ) Appellants, ) ) v. ) ) FEDERAL-MOGUL GLOBAL INC., et al., ) ) Appellees. ) __________________________________________) Chapter 11 Bankruptcy Case No. 01-10578

Civil Action Nos. 08-0229 and 08-0230

Judge Joseph H. Rodriguez

BRIEF OF APPELLEE OFFICIAL COMMITTEE OF ASBESTOS CLAIMANTS

CAPLIN & DRYSDALE, CHARTERED Elihu Inselbuch 375 Park Avenue, 35th Floor New York, NY 10052-3500 (212) 319-7125 Peter Van N. Lockwood Walter B. Slocombe Kevin C. Maclay One Thomas Circle, NW Washington, DC 20005-5802 (202) 862-5000

CAMPBELL & LEVINE, LLC Marla R. Eskin Mark T. Hurford 800 N. King Street, Suite 300 Wilmington, DE 19801 (302) 426-1900

Counsel for Appellee Official Committee of Asbestos Claimants

DOC# 308015

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TABLE OF CONTENTS INTRODUCTION ................................................................................ 1 ARGUMENT ..................................................................................... 5 I. THE BANKRUPTCY COURT CORRECTLY RULED THAT THE THIRD CIRCUIT'S DECISION IN COMBUSTION ENGINEERING IS CONTROLLING AUTHORITY HERE. ............................................. 5 THE BANKRUPTCY COURT CORRECTLY RULED THAT SECTION 1123(a)(5) PREEMPTS ANY ANTI-ASSIGNMENT CLAUSES IN THE RELEVANT INSURANCE POLICIES.............................................. 11 THE BANKRUPTCY COURT CORRECTLY RULED THAT APPELLANTS' ARGUMENTS AGAINST EXPRESS PREEMPTION OF THE ANTI-ASSIGNMENT PROVISIONS IN THEIR POLICIES ARE MERITLESS. ............................................................................ 16 A. The Bankruptcy Court's preemption analysis is correct. .................. 17 1. There is no basis to ignore the express preemptive language in section 1123(a). ..................................................... 18 Moreover, the specific ways Appellants seek to limit the scope of section 1123(a) are unsupportable. ....................... 21 a. Section 1123(a)(5) is a substantive, "empowering" section of the statute, not merely "administrative," and has preemptive effect. ................................... 21 The Bankruptcy Court's analysis is fully consistent with the statutory context and, in particular, with section 524(g). ................................................. 22

II.

III.

2.

b.

B. C.

Section 1123(a) preempts provisions of private contracts. ................ 24 Preemption under section 1123(a)(5) is not limited to laws "relating to the financial condition" of a debtor............................ 28 Section 363(l) is not applicable. .............................................. 34 Section 365 is not applicable. ................................................. 36

D. E. IV.

THE APPELLANT INSURERS SEEK A WINDFALL HERE. ................. 37

CONCLUSION ................................................................................... 40

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TABLE OF AUTHORITIES CASES In re Babcock & Wilcox Co., 2004 WL 4945985 (Bankr. E.D. La. Nov. 9, 2004), vacated on other grounds, 2005 WL 4982364 (E.D. La. Dec. 28, 2005)..................passim Bldg. & Constr. Trades Council v. Associated Builders & Contractors, 507 U.S. 218 (1993)........................................................................................................................... 24 Buckley v. Am. Constitutional Law Found., Inc., 525 U.S. 182 (1999)..................................... 33 In re Buttonwood Partners, Ltd., 111 B.R. 57 (Bankr. S.D.N.Y. 1990)...................................... 40 Camp v. St. Paul Fire & Marine Ins. Co., 616 So. 2d 12 (Fla. 1993) ......................................... 39 In re Carolina Tobacco, 360 B.R. 702 (D. Or. 2007) ................................................................. 29 Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992).........................................................25, 26 Cisneros v. Alpine Ridge Group, 508 U.S. 10 (1993)............................................... 18, 19, 20, 29 Cohen v. De La Cruz, 523 U.S. 213 (1998)............................................................................... 30 In re Combustion Eng'g, Inc., 391 F.3d 190 (3d Cir. 2004).................................................passim Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833 (1986) ....................................... 33 Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001)....................................................18, 20 Engine Mfrs. Ass'n v. S. Coast Air Quality Mgmt. Dist., 541 U.S. 246 (2004) ....................19, 20 In re FCX, Inc., 853 F.2d 1149 (4th Cir. 1988) ...................................................................passim In re Farmers Mkts., Inc., 792 F.2d 1400 (9th Cir. 1986)........................................................... 18 In re Fed. Press Co., 104 B.R. 56 (Bankr. N.D. Ind. 1989)........................................................ 38 In re Federal-Mogul Global Inc., 385 B.R. 560 (Bankr. D. Del. 2008) ................................passim Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1 (2000)...................... 31 Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149 (3d Cir. 1989) ..36, 37 Holywell Corp. v. Smith, 503 U.S. 47 (1992) ............................................................................. 6 In re Indian Palms Assocs., Ltd., 61 F.3d 197 (3d. Cir. 1995) ..............................................25, 28 - ii -

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Integrated Solutions, Inc. v. Serv. Support Specialties, Inc., 124 F.3d 487 (3d Cir. 1997) ...passim In re Kaiser Aluminum Corp., 343 B.R. 88 (D. Del. 2006)..................................................passim Kawaauhau v. Geiger, 523 U.S. 57 (1998)................................................................................ 31 Medtronic, Inc. v. Lohr, 518 U.S. 470 (1986) ........................................................................... 20 Midlantic Nat'l Bank v. N.J. Dep't of Envtl. Prot., 474 U.S. 494 (1986) ................................... 31 In re Moore, 290 B.R. 851 (Bankr. N.D. Ala. 2003).................................................................. 27 Nat'l Cable & Telecomms. Ass'n v. Gulf Power Co., 534 U.S. 327 (2002)............................... 33 New York v. FERC, 535 U.S. 1 (2002)..................................................................................... 19 Norfolk & W. Ry. Co. v. Train Dispatchers Ass'n, 499 U.S. 117 (1991)................................... 26 Pac. Gas & Elec. Co. v. California, 350 F.3d 932 (9th Cir. 2003)...................................28, 29, 32 In re Pac. Gas & Elec. Co., 273 B.R. 795 (Bankr. N.D. Cal. 2002) ........................................... 32 In re Pub. Serv. Co., 108 B.R. 854 (Bankr. D.N.H. 1989) ..................................................... 6, 22 SEC v. Nat'l Sec., Inc., 393 U.S. 453 (1969) ............................................................................ 21 In re Stone & Webster, Inc., 286 B.R. 532 (Bankr. D. Del. 2002) ..................................12, 13, 29 In re Tate, 253 B.R. 653 (Bankr. W.D.N.C. 2000) .................................................................... 40 Trojan Techs., Inc. v. Pennsylvania, 916 F.2d 903 (3d Cir. 1990) ............................................. 34 United Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988)......................................................................................................................22, 23 United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989)..................................................... 30 U.S. Dep't of Treasury v. Fabe, 508 U.S. 491 (1993)...........................................................20, 21 In re Vanderveer Estates Holding, LLC, 328 B.R. 18 (Bankr. E.D.N.Y. 2005).......................... 38 Vujosevic v. Rafferty, 844 F.2d 1023 (3d Cir.1988) ................................................................. 29 In re W. Asbestos Co., 313 B.R. 456 (Bankr. N.D. Cal. 2004) ................................... 6, 25, 29, 36

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DOCKETED CASES Global Indus. Techs., Inc., Case No. 02-21626 (Bankr. W.D. Pa. Sept. 21 2007, modified Sept. 24, 2007).............................................................................................................. 11 In re Pittsburgh Corning Corp., No. 00-22876 (Bankr. W.D. Pa. Dec. 21, 2006).................passim STATUTES 11 U.S.C. 363(b)(1) ..........................................................................................................15, 22 11 U.S.C. 363(l) .........................................................................................................15, 34, 35 11 U.S.C. 364(d).................................................................................................................... 37 11 U.S.C. 365 ...................................................................................................................36, 37 11 U.S.C. 365(c)(3) ............................................................................................................... 27 11 U.S.C. 365(n)(1)(B) .......................................................................................................... 27 11 U.S.C. 502(b)(7) ............................................................................................................... 37 11 U.S.C. 506(b).................................................................................................................... 37 11 U.S.C. 510 ........................................................................................................................ 36 11 U.S.C. 524(g)..............................................................................................................passim 11 U.S.C. 541 ......................................................................................................... 9, 10, 14, 28 11 U.S.C. 541(c)(1) .........................................................................................................passim 11 U.S.C. 544 ........................................................................................................................ 37 11 U.S.C. 552(a).................................................................................................................... 37 11 U.S.C. 704 ...................................................................................................................15, 22 11 U.S.C. 728(b).................................................................................................................... 15 11 U.S.C. 1123(a)............................................................................................................passim 11 U.S.C. 1123(a)(5) .......................................................................................................passim 11 U.S.C. 1123(a)(5)(B) ..................................................................................................passim 11 U.S.C. 1123(a)(5)(C) ........................................................................................................ 22 - iv -

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11 U.S.C. 1123(a)(5)(D) ...................................................................................................12, 35 11 U.S.C. 1123(a)(5)(F)......................................................................................................... 27 11 U.S.C. 1123(a)(5)(G) ........................................................................................................ 27 11 U.S.C. 1123(a)(5)(H) .............................................................................................27, 28, 31 11 U.S.C. 1123(a)(5)(I).....................................................................................................22, 31 11 U.S.C. 1123(a)(5)(J) ......................................................................................................... 22 11 U.S.C. 1123(a)(6) ........................................................................................................27, 31 11 U.S.C. 1123(b)(2) ............................................................................................................. 35 11 U.S.C. 1123(b)(3)(B) ........................................................................................................ 13 11 U.S.C. 1129 ...................................................................................................................... 13 11 U.S.C. 1129(a)(1) ............................................................................................................. 23 11 U.S.C. 1129(a)(7) ............................................................................................................. 13 11 U.S.C. 1142 ...........................................................................................................29, 30, 32 11 U.S.C. 1142(a)............................................................................................................passim 11 U.S.C. 1322(c)(1) ............................................................................................................. 27

OTHER AUTHORITY Alan N. Resnick & Henry J. Summer, 7 Collier on Bankruptcy 1123.LH[1][a] (15th ed. 2008).................................................................................................................. 32

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This brief is filed by Appellee the Official Committee of Asbestos Claimants ("Committee") in the above-captioned matter and responds to the briefs filed by Appellant LMI1 ("LMI") and Appellant Hartford2 ("Hartford") (collectively, "Appellants"). The Committee hereby joins the briefs filed by Appellee the Reorganized Debtors and by Appellee the Legal Representative for Future Asbestos Claimants ("FCR").

INTRODUCTION At issue in this appeal is a question of vital importance to debtors overwhelmed with mass tort liabilities arising out of the manufacture and distribution of asbestos-containing products, and to all their creditors. That issue is whether such debtors whose own directlyheld assets are woefully inadequate to pay the tort claims against them can effectively utilize insurance coverage they purchased in the past for the purpose of protecting themselves and their assets from such tort claims to partially satisfy the claims of those creditors in a Chapter

1

Certain Underwriters at Lloyd's, London, and Certain London Market Companies, joint submitters of Brief of Appellants (cited as "LMI Br.").
2

Hartford Accident and Indemnity Company; First State Insurance Company; New England Insurance Company; Allianz Global Corporate & Specialty AG (as successor-bypartial merger to Allianz Verischerungs AG as to Policy No. H. 0 001 456); Allianz Global Risks U.S. Insurance Company (f/k/a Allianz Insurance Company); Allianz Underwriters Insurance Company (f/k/a Allianz Underwriters, Inc.); AIG Casualty Company; AIU Insurance Company; American Home Assurance Company; Granite State Insurance Company; Insurance Company of the State of Pennsylvania; Lexington Insurance Company; National Union Fire Insurance Company of Pittsburgh, Pa; New Hampshire Insurance Company; Columbia Casualty Company; Continental Casualty Company; The Continental Insurance Company, Both In Its Individual Capacity and As Successor To Certain Interests Of Harbor Insurance Company, joint submitters of Certain Appellants' Brief on Appeal (cited as "Hartford Br.").

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11 reorganization plan under section 524(g) of the Bankruptcy Code.3 Appellants say no. The Committee demonstrates here why the answer must be yes. The Debtor Federal-Mogul Corporation ("FMC") and various of its subsidiaries (collectively "FM") filed for bankruptcy in October 2001 because, inter alia, of the crushing weight of asbestos claims being brought against it and several of those subsidiaries. Like many other similarly situated former manufacturers and distributors of asbestos-containing products, prior to seeking bankruptcy court protection, the combination of FM's obligations to its commercial creditors, such as banks, bondholders and trade creditors, and to its asbestos personal injury tort creditors could no longer be met with the financial assets available to pay them. From the beginning of its Chapter 11 case, FM made clear its intention to propose a plan of reorganization under section 524(g) of the Bankruptcy Code a provision enacted expressly for asbestos-driven bankruptcies that would allow it to resolve not only present claims against it but also future claims (labeled "demands" in the statute) that would otherwise be non-dischargeable in bankruptcy. At a relatively early point in the case, FM, the Committee and the FCR entered into an agreement in principle concerning a plan of reorganization that would create a section 524(g) trust (i) to which all of FM's asbestos personal injury liabilities which arise out of long-past manufacture, sale, distribution, or use of asbestos-containing materials would be transferred for resolution and payment and (ii) which would be funded with (x) 50.1 percent of the stock of FMC and (y) the rights to all

3

All statutory citations herein, unless otherwise specified, are to the Bankruptcy Code, 11 U.S.C. 101 et seq.

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remaining FM insurance coverage for the transferred asbestos personal injury liabilities. This agreement came to be referred to in the case as the "Central Deal." The Central Deal was aimed at avoiding extended litigation over the magnitude of FM's asbestos liabilities while providing a fair and equitable recovery for all of FM's commercial creditors through a combination of cash payments and distributable shares of the remaining 49.9% of the FMC stock. The transfer to the trust of FM's remaining asbestos personal injury insurance was a key component of the balance agreed to in the Central Deal inasmuch as FM lacked sufficient unencumbered assets to pay cash in a lump sum amount equal to the billions of dollars of insurance coverage to the proposed trust upon emergence and then later seek reimbursement for the payments from its insurers. After several years of plan negotiations and drafting and litigation with certain other creditor constituencies and other parties in interest, a reorganization plan embodying the Central Deal was confirmed and consummated at the end of 2007 (the "Plan"). Among the objectors to confirmation of the FM Plan were the Appellants, who contended that the Plan violated their contractual rights under their insurance policies by, among other things, transferring FM's asbestos insurance coverage rights to the proposed trust over their objections. As a result of stipulations entered into between the proponents of the FM Plan and the Appellants, the issue of whether the Bankruptcy Code preempted certain provisions of the Appellants' policies purporting to prohibit "assignments" of the policies and interests therein was, by consent of all parties concerned, split off from the balance of the confirmation issues for separate resolution by the Bankruptcy Court. The Bankruptcy Court subsequently in early 2008 issued its decision, holding that under applicable Third Circuit precedent and various

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sections of the Bankruptcy Code, the Plan could properly provide for the transfer of the FM asbestos insurance rights, notwithstanding arguably inconsistent anti-assignment policy provisions, to the trust that succeeded to the insured FM asbestos personal injury liabilities. This appeal followed. Appellants' view of this case is that they, in effect, have a veto over the right of any insured but otherwise financially distressed debtor such as FM to utilize its existing insurance to satisfy insured liabilities in a section 524(g) case through transfer of the insurance pursuant to a plan of reorganization to a successor trust that assumes the debtor's insured liabilities, regardless of the impact of that veto on the debtor's ability to reorganize. In that connection, it should be noted that insurers such as Appellants have no economic incentive to grant such consent because, if they prevail on this appeal, and their contentions that subsequent coverage litigation will uphold their anti-assignment arguments (notwithstanding other provisions in their insurance policies that purport to preclude them from avoiding coverage as a result of the insolvency or bankruptcy of the insured) prove correct, they will seek a Catch-22 windfall eliminating all their coverage obligations by then arguing (1) that they don't insure the trust that has assumed the FM asbestos liabilities and (2) that, notwithstanding section 524(e) of the Bankruptcy Code (which provides that the discharge of a debtor (FM) from a liability does not free any other entity (such as an insurer) that is also liable for the same debt), FM no longer has any insured asbestos liabilities because, under section 524(g), those liabilities have all been transferred to the trust. Needless to say, were that result to occur, no debtor whose principal (or even a major) asset available to fund a section 524(g) trust is insurance would ever be able to utilize

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section 524(g) and Chapter 11 to reorganize, and liquidation of such debtors, with attendant greater losses to both their commercial and tort creditors, as well as costs to other stakeholders such as the employees of the debtor and the communities in which they operate, would be the only alternative. Not only is that result one which this Court should be reluctant to hold is mandated by the Bankruptcy Code, but as will be set out below, it is a result which is precluded by controlling authority in this Circuit, see In re Combustion Engineering, Inc., 391 F.3d 190 (3d Cir. 2004), and is inconsistent with the relevant provisions of the Bankruptcy Code. ARGUMENT I. THE BANKRUPTCY COURT CORRECTLY RULED THAT THE THIRD CIRCUIT'S DECISION IN COMBUSTION ENGINEERING IS CONTROLLING AUTHORITY HERE. The Bankruptcy Court correctly held that "[it] is established in this circuit that under 1123(a)(5) assignment of policy proceeds to a 524(g) trust is not prohibited by antiassignment provisions in insurance policies."4 In re Federal-Mogul Global Inc., 385 B.R. 560, 567 (Bankr. D. Del. 2008). In reaching this conclusion, the Bankruptcy Court applied the holding of In re Combustion Engineering, 391 F.3d 190 (3d Cir. 2004), which it recognized as controlling authority in this Circuit. In Combustion Engineering, as here, a plan of reorganization provided for the assignment of a debtor's rights to insurance proceeds from the

4

With respect to the Bankruptcy Court's discussion of whether state law would prohibit assignment, the Committee agrees with Appellants that such discussion was reserved by stipulation, and accordingly, pursuant to the stipulations, does not address that or any other state law issue. Appellants are likewise barred from raising state law issues or other issues outside of what was stipulated. For example, their attacks on the TDP, LMI Br. at 4, are both meritless, and, as the subject of a properly confirmed plan, are not subject to challenge before this Court.

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debtor's estate to a section 524(g) trust, see 391 F.3d at 206-07, 207 n.11, & 218, and in that case, as here, the assignment was upheld as authorized by the Bankruptcy Code, despite insurers' contention that provisions of the policy prevented such assignment.5 Appellants argue that the Bankruptcy Court erred because it allegedly "misconstrues CE to involve the assignment of proceeds to a trust" but "CE does not involve such an assignment," but only the transfer of proceeds to the estate.6 This description of Combustion Engineering by Appellants fundamentally mischaracterizes that decision, both as to the facts about what was at issue and as to the Third Circuit's legal analysis.

5

The Third Circuit's holding in Combustion Engineering is supported by virtually every reported decision interpreting section 1123(a)(5) of the Bankruptcy Code. See, e.g., In re Kaiser Aluminum Corp., 343 B.R. 88, 95 (D. Del. 2006) (following Combustion Eng'g, and holding that sections 541(c)(1) and 1123(a)(5)(B) of the Bankruptcy Code expressly permit the assignment of a debtor's interest in insurance policies to a trust or other entity, even if the subject insurance policies purport to prohibit assignment); In re Pittsburgh Corning Corp., No. 00-22876, Memorandum Opinion Confirming Plan, at 47, D.I. 5192 (Bankr. W.D. Pa. Dec. 21, 2006) (the "Pittsburgh Corning Op.") (attached hereto as Exhibit 1) (holding that insurance rights can be vested in a trust under section 1123(a)(5)(B), notwithstanding state law or contractual provisions to the contrary); Holywell Corp. v. Smith, 503 U.S. 47, 55 (1992) (finding that section 1123(a)(5)(B) authorizes transfer of estate property to a liquidating trust); FCX, 853 F.2d at 1155 (holding that debtor could release collateral securing claim in satisfaction of claim despite allegedly contrary bylaw provision because section 1123(a)(5) preempted any restrictions in bylaws regarding surrender); In re W. Asbestos Co., 313 B.R. 456, 462 (Bankr. N.D. Cal. 2004) (holding that insurance assets could be assigned to section 524(g) trust "pursuant to Bankruptcy Code section 1123(a)(5)(B), notwithstanding any state law or private contractual provisions to the contrary"); In re Pub. Serv. Co., 108 B.R. 854, 882 (Bankr. D.N.H. 1989) (holding that transfer of electric utility under plan was proper despite state regulations restricting transfer because section 1123(a)(5) preempted state regulations); In re Babcock & Wilcox Co., 2004 WL 4945985, at *17-18 (Bankr. E.D. La. Nov. 9, 2004) (holding that section 1123(a) "constitutes an explicit express Congressional intent to supersede state law restrictions on the transfer of estate property"), vacated on other grounds, 2005 WL 4982364 (E.D. La. Dec. 28, 2005).
6

LMI Br. at 34 (emphasis added); see also Hartford Br. at 26.

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The Combustion Engineering case involved the transfer, arising out of the plan, of insurance rights from the estate to a section 524(g) trust. The Third Circuit opinion expressly states in numerous places that the insurance proceeds at issue were not simply part of the assets of the estate, but were being assigned to a trust under the plan that was the whole point in dispute. See, e.g., 391 F.3d at 208 ("Certain insurance companies argued that Plan provisions assigning policy proceeds to the Asbestos PI Trust violated existing policies and/or settlement agreements with Combustion Engineering.") (emphasis added); id. at 206 ("The parties agreed the post-confirmation trust would be funded by contributions from Combustion Engineering [the debtor], ABB Limited, U.S. ABB, Lummus and Basic. The Bankruptcy Court found that under the Plan Combustion Engineering would contribute its rights to proceeds under certain insurance policies and settlement agreements with a face amount exceeding $320 million.") (emphasis added); id. at 216 ("The Bankruptcy Court found the assignment of insurance proceeds to the Asbestos PI Trust did not impair the rights of insurers") (emphasis added). It is incontrovertible that the Third Circuit was correct in so characterizing the plan, for the Combustion Engineering plan terms make clear that the insurance proceeds and the rights to sue insurers were being assigned from the debtor's estate to a trust. See Combustion Engineering Plan, at 7.2.1, 7.2.10 and 7.2.13 (excerpt attached hereto as Exhibit 2).7

7

LMI argues that the Kaiser and Combustion Engineering cases only addressed whether the right to insurance proceeds could be assigned, whereas the assignment in the current case is supposedly broader. LMI Br. at 35-36. LMI is incorrect, and its proposed distinction is irrelevant in any event. As in this Plan (for example, at 1.1.218, 1.1.219, 10.3 and 10.6), the (Footnote continued on next page.) -7-

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The specific issue addressed by the district court that gave rise to the appeal in Combustion Engineering was the insurers' contention, as set forth by Judge Wolin, that the assignment of the right to insurance proceeds "to the personal injury trust * * * violates antiassignment provisions in their policies and impermissibly varies their rights under their insurance policies." See In re Combustion Eng'g, Inc., Case No. 03-10495, Hr'g Tr., July 31, 2003, at 145, D.I. 1220 (Bankr. D. Del. Aug. 14, 2003) (emphasis added). A copy of the relevant portion of the July 31, 2003 transcript is attached hereto as Exhibit 4. The arguments presented to the Third Circuit in Combustion Engineering also demonstrate that the issue presented to the Third Circuit was the assignment of insurance rights to the trust and not merely their inclusion in the property of the debtor's estate. Travelers, for example, argued to the Third Circuit that "[t]he district court erred as a matter of law in concluding that rights under the policies could be assigned without the Insurers' consent." Brief of the Travelers Appellants at 25, In re Combustion Eng'g, Inc., No. 03-3414 (3d Cir. Sept. 15, 2003) (excerpt attached as Exhibit 5). The Unsecured Creditors Committee ("UCC") argued to the contrary, stating to the Third Circuit that "[t]he District Court properly held that, under the Plan, the Debtor's rights to insurance proceeds may be assigned to the Asbestos PI Trust as a matter of law, despite any clauses that may be present in the policies

(Footnote continued from previous page.) plans in Kaiser and Combustion Engineering assigned the right to sue insurers to the trusts. See, e.g., Kaiser Plan, at 1.1(145), 5.1(e)(ii) & (g), 5.2(e) (excerpt attached hereto as Exhibit 3); Combustion Engineering Plan, at 7.2.1, 7.2.10 and 7.2.13. The holdings of those cases are fully applicable here with respect to the assignability of the insurance rights, any semantic differences notwithstanding. Even if LMI were correct, however, that there was some difference between the contractual rights assigned here and in those cases, LMI still fails to show why that fact would lead to a different legal outcome here. It would not.

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restricting their assignment without Certain Insurers' consent." Brief of Appellee the Official Committee of Unsecured Creditors of Combustion Engineering, Inc. at 11, In re Combustion Eng'g, Inc., No. 03-3414 (3d Cir. Sept. 25, 2003) (the "UCC CE Br.) (emphasis added) (excerpt attached as Exhibit 6). The UCC argued not only that under section 541, insurance rights were "automatically transferred to a debtor's estate," UCC CE Br. at 13, but also that section 1123(a)(5)(B) "specifically preempts [any objection to] a transfer of rights from the Debtor's estate to the Asbestos PI Trust." Id. The Third Circuit's opinion clearly demonstrates that it recognized that the issue being decided was the transfer to the trust, not just to the estate. In contrasting the rights under policies held by the debtor with rights under policies held by the non-debtors, the Third Circuit expressly stated that it "agreed with the district court" that the anti-assignment provisions of the debtor's own policies would not prohibit assignment of the debtor's own insurance proceeds an assignment that the District Court had approved in accordance with the Plan's terms, i.e., an assignment from the estate to the trust. Combustion Eng'g, 391 F.3d at 218-19. The Third Circuit specifically addressed the assignability of insurance rights as property of the estate to other entities: having held that the debtor's insurance policies were property of the estate, despite the anti-assignment provisions in the policies, the Third Circuit went on to say more generally that "[s]ection 541 effectively preempts any contractual provision that purports to limit or restrict the rights of a debtor to transfer or assign its interests in bankruptcy." Id. at 219 n.27. In support of this conclusion, it pointed to section 1123(a)(5)(B), which authorizes the transfer of property of the estate to "one or more

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entities."8 The Third Circuit's reliance on both section 1123(a)(5) and section 541 (rather than on section 541 alone) confirms that it agreed with the District Court ruling that a debtor's right to insurance proceeds not only is part of its bankruptcy estate pursuant to section 541 but that section 1123(a)(5)(B) expressly authorizes the transfer of such right to proceeds, as property of the estate, to a section 524(g) trust.9 The Third Circuit's analysis was correctly described and applied by the Bankruptcy Court in this case. Judge Fitzgerald pointed out that in Combustion Engineering, "[t]he Court of Appeals for the Third Circuit explained that `[p]ut simply, 541 prohibits restrictions on the interests of the debtor, which includes the insurance policies held by [the debtor],' id. at 219, and, with respect to property of the estate, section 1123(a)(5)(B) expressly contemplates that the debtor's interests in the policies may be assigned to a trust or other entity. Id. at n. 27." Federal Mogul, 385 B.R. at 567.10 This Court, and several bankruptcy court decisions within the Third Circuit, have, like the Bankruptcy Court here, held that section 1123(a)(5)(B) permits the assignment, under a plan, of asbestos insurance-related rights and proceeds to a trust. See Kaiser, 343

8 9

Combustion Eng'g, 391 F.3d at 219 n.27.

Appellants' position amounts to saying that when the Third Circuit said it "agreed with" the District Court, which had upheld the assignment of the debtor's insurance rights to the section 524(g) trust, what it "really" meant was that it declined to resolve the very point in controversy that the District Court had decided which was, as the Third Circuit repeatedly stated, not simply the validity of the transfer of those rights to the estate, but the transfer to the trust under the Plan. This attempt to impose so nonsensical a reading of the Combustion Engineering decision is utterly implausible.
10

The Bankruptcy Court Judge in this case, Judge Judith Fitzgerald, was also the Bankruptcy Court Judge in Combustion Engineering, and thus was intimately familiar with the context of that case.

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B.R. at 95; Global Indus. Techs., Inc., Case No. 02-21626, Memorandum Op. at 7, D.I. 7703 (Bankr. W.D. Pa. Sept. 21 2007, modified Sept. 24, 2007) (attached hereto as Exhibit 7); Pittsburgh Corning Op., at 49. For example, the reading of Combustion Engineering in Kaiser mirrors the Bankruptcy Court's analysis here. "In Combustion Engineering, the Third Circuit discussed the same issue raised here, i.e. whether a plan of reorganization can provide for the assignment of insurance proceeds to a Section 524(g) trust, and concluded that Section 541(c)(1) and Section 1123(a)(5)(B) of the Bankruptcy Code expressly permit[] the assignment of a debtor's interest in insurance policies to a trust or other entity, even if the subject insurance policies contain a prohibition on assignment." Kaiser, 343 B.R. at 95 (emphasis added). In short, there can be no valid dispute over whether a debtor's right to insurance proceeds may be assigned to a section 524(g) trust pursuant to a plan of reorganization, because that was the issue posed to and decided by the Third Circuit in Combustion Engineering. This is the same issue on which the Bankruptcy Court here correctly followed that precedent and it is the same issue now presented to this Court. The Third Circuit's decision is controlling here as it was there. II. THE BANKRUPTCY COURT CORRECTLY RULED THAT SECTION 1123(a)(5) PREEMPTS ANY ANTI-ASSIGNMENT CLAUSES IN THE RELEVANT INSURANCE POLICIES. Even assuming this issue had not already been determined by the Third Circuit, the objections by Appellants to the Bankruptcy Court's holding on the effect of section 1123(a)(5)(B) have no merit. Pursuant to section 1123(a)(5)(B), "[n]otwithstanding any otherwise applicable nonbankruptcy law, a plan shall * * * provide adequate means for the plan's implementation, - 11 -

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such as * * * transfer of all or any part of the property of the estate to one or more entities, whether organized before or after the confirmation of such plan." 11 U.S.C. 1123(a)(5)(B). Numerous courts have found that section 1123 of the Bankruptcy Code expressly preempts nonbankruptcy rights that might otherwise interfere with the provisions of a Chapter 11 plan as described in that section. In In re FCX, Inc., 853 F.2d 1149, 1155 (4th Cir. 1988) the Fourth Circuit described section 1123(a)(5) as an "empowering statute" and held that "section 1123(a)(5)(D) then does not simply provide a means to exercise the debtor's pre-bankruptcy rights; it enlarges the scope of those rights, thus enhancing the ability of a trustee or debtor in possession to deal with property of the estate." FCX, 853 F.2d at 1155. In this connection, the FCX court adopted the formulation of Collier's authoritative bankruptcy treatise, which states that section 1123(a)(5) is "self-executing" with the result that "the plan may propose such actions [specified in section 1123(a)(5)] notwithstanding nonbankruptcy law or agreements") (quoting 5 Collier on Bankruptcy 1123.01). Id. The holding in FCX that section 1123(a)(5) "enhances the ability of ... a debtor in possession to deal with property of the estate" underscores the fundamental conclusion of Combustion Engineering, followed by the Bankruptcy Court here that once a debtor's insurance rights become property of the estate with the filing of the petition, they are not, as Appellants claim, thereafter frozen in the estate. Rather the statute means they can be "dealt with" as part of the plan, in accordance with the provisions of section 1123(a)(5).11

11

See also In re Stone & Webster, Inc., 286 B.R. 532, 543 (Bankr. D. Del. 2002) ("[Section] 1123(a) can be effected without regard to otherwise applicable nonbankruptcy law * * * ."). LMI argues that In re FCX and Stone & Webster looked to other sections of the Code to determine the scope of 1123(a)(5). LMI misstates the analysis of those cases. In (Footnote continued on next page.) - 12 -

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LMI criticizes the Bankruptcy Court here for allegedly relying on section 541 to "invalidate[] any contractual restrictions on assignment,"12 and cites the Third Circuit decision in Integrated Solutions, Inc. v. Service Support Specialties, Inc., 124 F.3d 487 (3d Cir. 1997) as having "made it absolutely clear that 541 does not eliminate any restrictions on an interest in property once it has passed to the estate."13 LMI, however, is simply misreading the Bankruptcy Court decision in this case. Judge Fitzgerald was relying, not solely on section 541, but also on section 1123(a) and other provisions,14 as made clear by the very

(Footnote continued from previous page.) Stone & Webster, 286 B.R. at 543, the court's conclusion that "provisions of a plan as articulated in 1123(a) can be effected without regard to otherwise applicable nonbankruptcy law * * *" was independent of its discussion of section 1129(a)(7). Likewise the discussion of section 1123(a)(5) in Part II of In re FCX was independent of the separate discussion of section 1129 in Part III, and the section 1123(a)(5) discussion makes no reference whatever to section 1129. See FCX, 553 F.2d at 1153-58. Hartford argues that In re FCX "accorded section 1123(a)(5) preemptive scope only with respect to laws concerning the debtor's financial condition and the restructuring of its debt obligations," Hartford Br. at 25 n.22. In fact, In re FCX in no way limited the scope of section 1123(a)(5) preemption to laws relating to financial condition, and Hartford's attempt to suggest otherwise is unsupported by the language and analysis of that case. In any event, the issue in FCX was the propriety of a plan provision allowing a member of a cooperative to offset its debt to the cooperative by surrendering unredeemed "patronage certificates" despite a contrary provision in the cooperative's bylaws; this is hardly a matter of overriding a law relating to "financial condition." Hartford also argues that the Stone & Webster court "did no statutory analysis of its own," but instead relied on In re FCX and the district court decision in Pacific Gas. But Stone & Webster's analysis, although it appropriately cited In re FCX, which is directly on point, was primarily based upon the "clear meaning" of the "notwithstanding" clause of section 1123.
12 13 14

LMI Br. at 17. LMI Br. at 18.

While the Bankruptcy Court noted section 1123(b)(3)(B), along with many other sections of the Code, it did not rely on any preemptive effect of that section to support its holding. Accordingly, LMI's statement that "there is no preemptive language in 1123(b)(3)(B) whatsoever," LMI Br. at 16, is not only incorrect (insofar as section 1123(b), (Footnote continued on next page.) - 13 -

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section of her opinion criticized by LMI: "However, both the express language of 541(c)(1) and courts construing that text have held that 541(c)(1) prohibits a contractual restriction on the rights of a debtor to transfer or assign its interests in bankruptcy and 1123(a)(5) permits the transfer of the property to a 524(g) trust."15 LMI Br. at 17-18 n.14 (emphasis added). The Bankruptcy Court's conclusion is the same as that reached by the Third Circuit in Combustion Engineering, 391 F.2d at 219 n.27 (citing both 541 and 1123(a)(5)(B)), and by this Court in Kaiser: "Section 541(c)(1) and Section 1123(a)(5)(B) of the Bankruptcy Code expressly permit[] the assignment of a debtor's interest in insurance policies to a trust or other entity, even if the subject insurance policies contain a prohibition of assignment." 343 B.R. at 95. Indeed, the Integrated Solutions case further supports the Bankruptcy Court's interpretation of the preemptive effect of section 1123(a). In Integrated Solutions, the purchaser, who had apparently acquired a chapter 7 bankruptcy estate's prejudgment tort claims pursuant to a section 363 sale, sought to prosecute those claims in contravention of applicable state law prohibiting the assignment of such claims. 124 F.3d at 493. The purchaser argued that it had properly been sold those claims notwithstanding applicable state law, which the purchaser argued was preempted by the Bankruptcy Code. Id. In support of (Footnote continued from previous page.) by its terms, is expressly "[s]ubject to subsection (a) of this section," which, of course, contains the broad "[n]otwithstanding any otherwise applicable nonbankruptcy law" preemption language at issue), it is also irrelevant.
15

Indeed, the Bankruptcy Court's conclusion was set forth even more clearly in language LMI does not cite: "Thus, the insurance policies are property of these estates by virtue of 541 and their transfer to the 524(g) trust is permitted notwithstanding anti-assignment clauses in or incorporated in the policies or applicable state law by virtue of 1123(a)(5) and 541(c)(1), as applicable." 385 B.R. at 571.

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its preemption argument, the purchaser cited to sections 704(1) and 363(b)(1) of the Bankruptcy Code. Id. Given that neither of these statutes contains any express preemption language, the Third Circuit had little problem in finding that "neither 363(b)(1) nor 704(1) expressly authorizes the trustee to sell property in violation of state law transfer restrictions." Id. More importantly, the Third Circuit contrasted those two sections with other sections of the Bankruptcy Code that do contain express preemption provisions, including section 1123(a), noting that "[t]he clear lack of Congressional intent to preempt state law restrictions on transferring property of the estate is even more telling given the explicit language that Congress uses when it intends to displace state nonbankruptcy law in other provisions of the Bankruptcy Code." Id. (citing as examples of such explicit preemption provisions sections 1123(a), 541(c)(1), 728(b) and 363(l) of the Bankruptcy Code). In Kaiser, this Court followed the Third Circuit's approach in Integrated Solutions, where it affirmed the Bankruptcy Court's ruling that section 1123(a)(5)(B) did preempt the anti-assignment provisions of asbestos insurance policies to permit the assignment of policy proceeds to a section 524(g) trust. See 343 B.R. at 95 (noting that the "Third Circuit [in Integrated Solutions] distinguished Sections 363 and 704 from Section 1123(a) of the Bankruptcy Code, which expressly provides for the preemption of nonbankruptcy law. Accordingly, the Court concludes that the Bankruptcy Court did not err in concluding that the anti-assignment clauses in the [debtor's] insurance policies are preempted by the Bankruptcy Code."). The Court should reach the same conclusion here.

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III.

THE BANKRUPTCY COURT CORRECTLY RULED THAT APPELLANTS' ARGUMENTS AGAINST EXPRESS PREEMPTION OF THE ANTI-ASSIGNMENT PROVISIONS IN THEIR POLICIES ARE MERITLESS. In an attempt to distract attention from the governing law set forth in

Combustion Engineering, to overcome the clear language and purpose of section 1123(a)(5), and to somehow address the overwhelming weight of authority squarely contrary to their position, Appellants attempt various additional arguments to support their erroneous assertion that section 1123(a)(5), despite its broad and express preemption language, does not affect the enforceability of the anti-assignment provisions in their policies.16 First, LMI contends that even though the statute expressly provides for preemption, section 1123(a)(5) should be applied only in situations in which the contemplated action is specifically authorized elsewhere in the

16

LMI's argument that "[t]he Court should not find that there is an actual conflict between the Bankruptcy Code, properly interpreted, and the applicable state law that allows LMI to enforce their Assignment Restrictions," LMI Br. at 20-21, is simply a reformulation of its argument that the Bankruptcy Code does not preempt the anti-assignment provisions of its policies. LMI takes the position that the assignment of rights under its policies to the trust would be prohibited under those policies and state law. As Appellees demonstrate throughout this brief, the Bankruptcy Code preempts such provisions to allow the assignment of the policy rights to the trust, and thus there is an indisputable actual conflict. Hartford's argument that nothing in the Bankruptcy Code "requires" the debtor to transfer property of the estate to another entity, Hartford Br. at 29, is likewise irrelevant. If the Bankruptcy Code permits such transfer under a plan notwithstanding nonbankruptcy law and contracts, then contrary law and contracts are preempted regardless of whether such transfers are "required" by the Code, nor does Hartford cite any authority to the contrary. Moreover, as shown throughout the brief, transfers of insurance rights to a section 524(g) trust are necessary and appropriate for the proper functioning of the Bankruptcy Code and section 524(g) in particular, and the language of section 1123(a)(5) is that a plan "shall * * * provide adequate means for the plan's implementation, such as * * * transfer of all or any part of the property of the estate to one or more entities, whether organized before or after the confirmation of such plan." This use of the mandatory term "shall" makes clear the provision is more than merely permissive.

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Bankruptcy Code.17 Second, relying on a textually unsupportable and unworkable reading of the statute, Appellants claim that section 1123(a)(5) preempts only state laws and regulations but not contract provisions. Third, relying on a single Ninth Circuit case that squarely conflicts with the Third Circuit's opinion in Combustion Engineering and the holdings of every other court, including this one and the Third Circuit, that has interpreted section 1123(a)(5), Appellants argue that section 1123(a)(5) should be interpreted to apply only to laws relating to the financial condition of a debtor, importing such language from a different section of the statute, section 1142(a). Finally, LMI contends that section 363(l) and/or section 365, not section 1123(a)(5), govern the transfer of the rights to proceeds. Each of these arguments is meritless. A. The Bankruptcy Court's preemption analysis is correct. LMI contends that "[t]he Bankruptcy Court erred in ruling that the plain language of 1123(a)(5) overcomes the presumption against preemption,"18 arguing in part that section 1123(a)(5) "is merely an administrative section" that simply "specifies the minimum requirements that the Plan must satisfy to be confirmed,"19 and that the Bankruptcy Court should have considered the surrounding statutory framework.20 LMI's objections are not well taken.

17 18 19 20

LMI Br. at 30, 32. LMI Br. at 23. LMI Br. at 25. LMI Br. at 27.

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1.

There is no basis to ignore the express preemptive language in section 1123(a).

Pursuant to its constitutional power to "establish * * * uniform Laws on the subject of Bankruptcies throughout the United States" [Art II, sec. 8, cl. 4], "Congress may abrogate state law entitlements in bankruptcy." In re Farmers Mkts., Inc., 792 F.2d 1400, 1403 (9th Cir. 1986). Appellants do not argue, nor could they, that Congress does not have the power to override state law and contractual restrictions that otherwise would preclude the assignment of rights under insurance contracts. On its face, the "notwithstanding" language of section 1123(a)(5) is a direct and explicit exercise of that power. The plain meaning of section 1123(a)(5)(B) is therefore that it reflects a clear congressional intent to override nonbankruptcy restrictions regarding the transfer of property of the estate to another entity as necessary for implementation of a plan. Indeed, LMI acknowledges that it is arguing against the plain language of the statute, noting the allegedly "absurd results arising from a literal reading of 1123(a)(5)."21 While Appellants recite formulas to the effect that there is a presumption against preemption, such presumptions give way when interpreting statutes such as section 1123(a) that explicitly provide for preemption. See Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 151 (2001) (noting that presumption against preemption "can be overcome where * * * Congress has made clear its desire for pre-emption"). As the Supreme Court has noted, it is well-recognized that the term "notwithstanding" as found in section 1123(a) expresses a clear statement of intent "to supersede all other laws." Cisneros v. Alpine Ridge Group, 508 U.S.

21

LMI Br. at 33.

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10, 18 (1993).22 There is therefore no basis to attempt to construe section 1123(a) to neutralize its preemptive effect.23 LMI argues that the Bankruptcy Court's citation to Cisneros is inapposite because that case addressed a "notwithstanding" clause in the context of a contract and allegedly "[t]here is no logical connection between the rules of contract interpretation and the scope of preemption of the Bankruptcy Code."24 Unfortunately for LMI, the Supreme Court in Cisneros takes a contrary view, and was in fact relying on principles of statutory construction. "As we have noted previously in construing statutes, the use of such a `notwithstanding' clause

22

Another decision of the Supreme Court also makes clear that section 1123(a)(5) must be interpreted without resort to any "presumption against preemption." In Engine Manufacturers Ass'n v. South Coast Air Quality Management District, 541 U.S. 246 (2004), the Supreme Court declined to invoke the "presumption against preemption" with respect to an "express presumption" found in section 209(a) of the Clean Air Act. Instead, the Court emphasized that the construction of the statute "must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purposes." Id. at 252 (quotation omitted). The Court then rejected the lower court's holding that section 209(a) did not preempt state restrictions on vehicle purchases although it did preempt state restrictions on vehicle sales, and the Court stated: "We decline to read into 209(a) a purchase/sale distinction that is not to be found in the text of 209(a) or the structure of the CAA." Id. at 255. Here, just as the Supreme Court declined to apply a "presumption against preemption" in interpreting an express provision in the Clean Air Act, section 1123(a) of the Bankruptcy Code must be interpreted without resort to any such "presumption against preemption."
23

Additionally, no presumption against preemption should be applied here because no state law requires the presence of anti-assignment clauses in insurance contracts, and thus the historic police powers of the states are not implicated. See New York v. FERC, 535 U.S. 1, 17-18 (2002) ("the Court `start[s] with the assumption that the historic police powers of the States were not to be superseded * * * unless that was the clear and manifest purpose of Congress.' * * * These are not such cases, however, because the question presented does not concern the validity of a conflicting state law or regulation.") (citations omitted); Babcock & Wilcox, 2004 WL 4945985, at *17 ("a presumption against preemption is not present because state police powers are not implicated.").
24

LMI Br. at 24.

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clearly signals the drafter's intention that the provisions of the `notwithstanding' section override conflicting provisions of any other section." Cisneros, 508 U.S. at 18 (emphasis added) (citing cases). Appellants' argument that the "presumption against preemption" applies to determine the scope of an express preemption clause25 does not change the primacy of the broad "notwithstanding" language itself, as recognized by one of Appellants' own cases.26 Indeed, the Supreme Court has rejected the use of such a presumption to limit the scope of clear language. In Engine Mfrs. Ass'n v. South Coast Air Quality Management District, 541 U.S. 246, 256 (2004), the Supreme Court applied the plain language of the statute as written because "[t]he language of 209(a) is categorical" and noted that "[t]he dissent objects to our interpretive method, which neither invokes the `presumption against preemption' to determine the scope of pre-emption nor delves into legislative history." See also Egelhoff, 532 U.S. at 151.27

25 26

LMI Br. at 24; Hartford Br. at 17.

See, e.g., Medtronic, Inc. v. Lohr, 518 U.S. 470, 484 (1986) (when "interpreting a statutory provision that expressly pre-empts state law," holding that the plain preemptive language means that "we need not go beyond that language to determine whether Congress intended the [provision] to pre-empt at least some state law").
27

Similarly, Appellants' invocation of the McCarran-Ferguson Act, LMI Br. at 25 n.20 and Hartford Br. at 17, is irrelevant here: the assignment provisions of the policies are not a "law enacted by any State for the purpose of regulating the business of insurance," nor do Appellants cite any case to the contrary. Indeed, LMI's cases address neither the McCarranFerguson Act nor preemption. Hartford's cases illustrate that the purpose of the McCarranFerguson Act is to protect policy holders (unlike Hartford's attempted use of it) and likewise fail to demonstrate that a state law regulating insurance is at issue here. Hartford does not, nor can it, demonstrate that the anti-assignment clauses are required under governing state law. U.S. Dep't of Treasury v. Fabe, 508 U.S. 491, 504 (1993) (refusing to equate "laws enacted (Footnote continued on next page.) - 20 -

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2.

Moreover, the specific ways Appellants seek to limit the scope of section 1123(a) are unsupportable. a. Section 1123(a)(5) is a substantive, "empowering" section of the statute, not merely "administrative," and has preemptive effect.

LMI's claim that section 1123(a)(5) is a "minor, administrative Bankruptcy Code section" that "merely satisfies the minimum requirements that a plan must satisfy to be confirmed, nothing more"28 fails to cite a single case in support of LMI's position and it ignores both the plain and preemptory language of that section and the numerous holdings that it is an "empowering" provision that adds substantive scope to the power of the bankruptcy process to deal with the debtor's property despite conflicting non-bankruptcy law. FCX, 853 F.2d at 1155. See Part II, supra. Furthermore, LMI's contention that section 1123(a) is merely administrative and does not expand preemption beyond what is specifically authorized in other sections of the Bankruptcy Code renders the "notwithstanding any otherwise applicable non-bankruptcy law" clause meaningless since the basis for any preemption would apparently have to be already provided for elsewhere in the Bankruptcy Code, making section 1123(a) superfluous. Moreover, that contention is facially inconsistent with the several subparts of section 1123(a)(5) that list, and thereby preempt, non-bankruptcy law with respect to potential

(Footnote continued from previous page.) for the purpose of regulating the business of insurance" with "the business of insurance itself") (quotations and internal punctuation omitted); SEC v. Nat'l Sec., Inc., 393 U.S. 453, 463 (1969) (finding the McCarran-Ferguson Act not applicable because, inter alia, "Arizona has not commanded something which the Federal Government seeks to prohibit. It has permitted respondents to consummate the merger; it did not order them to do so.").
28

LMI Br. at 15.

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means for implementation of a plan that are not in fact authorized anywhere else in the Bankruptcy Code. See, e.g., 11 U.S.C. 1123(a)(5)(C) (merger or consolidation of the debtor), 1123(a)(5)(I) (amendment of charter) and 1123(a)(5)(J) (issuance of securities). The many courts to consider the operation and effect of section 1123(a) have not limited its application only to situations where the contemplated action was authorized elsewhere in the Bankruptcy Code; to the contrary, the courts actually contrast the broader, substantive nature of section 1123(a) with the more limited reach of other sections in the Bankruptcy Code. See, e.g., Integrated Solutions, 124 F.3d at 493 (contrasting 363(b)(1) and 704(1) with 1123(a) and other preemptive sections); Kaiser, 343 B.R. at 95; Pittsburgh Corning Op. at 47-48; FCX, 853 F.2d at 1155 (noting 1123(a)(5) is an "empowering statute" and contrasting it with more limited provisions of sections 363(b)(1) and 704 that merely "provide a means within the context of a bankruptcy proceeding for the exercise of a debtor's pre-bankruptcy rights"); Pub. Serv. Co., 108 B.R. at 887-88. b. The Bankruptcy Court's analysis is fully consistent with the statutory context and, in particular, with section 524(g).

LMI claims that "[t]he Bankruptcy Court should have considered the surrounding statutory framework"29 in determining the preemptive scope of section 1123(a)(5), citing United Savings Ass'n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365 (1988). But that case dealt with statutory interpretation where a provision was "ambiguous" and where language elsewhere in the statute was specifically applicable to the

29

LMI Br. at 27.

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situation at issue, and did not address a preemptory provision such as section 1123(a). Id. at 371, 372-76. It thus provides no basis to disregard the plain meaning of section 1123(a)(5)(B). Moreover, the Bankruptcy Court did consider the surrounding statutory framework. The Bankruptcy Court considered the language of the Bankruptcy Code and its structure and analyzed various of its provisions, ultimately concluding that "[t]he assignment of rights in certain insurance policies to the asbestos trust, as provided in part by Section 4.3 of the Plan, is valid and enforceable under 524(g), 541(c)(1), 1123(a)(5)(B) and 1129(a)(1) of the Bankruptcy Code" and that "[t]he anti-assignment provisions in the policies and applicable state law are preempted." 385 B.R. at 566. In particular, the Bankruptcy Court noted the important role played by section 524(g) and the way in which section 1123(a)(5) supports that role by superseding limits on the assignment of insurance rights. For example, the Bankruptcy Court noted that "[s]ection 524(g) of the Bankruptcy Code creates a new form of entity: a trust to which asbestos liabilities are channeled and which addresses and pays those liabilities." See id. at 573. Contrary to Hartford's contention otherwise,30 the Bankruptcy Court correctly noted that "[a] 524(g) trust is not a state law trust and likewise is not a creation of private agreement. Rather, a 524(g) trust is one whose existence is authorized and whose contours are delineated by the Bankruptcy Code." Id. Under the Bankruptcy Code, "[s]uch a trust is the successor to the debtor's asbestos liabilities that are channeled to that trust, and those liabilities may include insured asbestos liabilities, inasmuch as 524(g) clearly contemplates the transfer of insured liabilities to the trust." Id. Moreover, "[i]nsurance policies covering
30

Hartford Br. at 32 n.24.

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asbestos liabilities are assets held by a debtor." Id. at 573-74. As insured asbestos liabilities are transferred to the trust, so should be the corresponding assets, the insurance policies that cover those liabilities. Id. at 574. In this context, it makes perfect sense to hold (as every court to consider the issue has done) that section 1123(a)(5)(B) applies to permit the transfer, pursuant to a plan of reorganization, of insurance policies or rights to proceeds thereunder from a debtor to the successor vehicle to the debtor with respect to the debtor's insured asbestos liabilities (i.e., the section 524(g) trust). Id. In fact, unless such transfer can be part of a plan, it is difficult to see how there could be a workable plan using a section 524(g) trust in any case in which there is potentially significant insurance coverage. See Part IV, infra. The Bankruptcy Court's view of the proper scope of section 1123(a)(5)(B) is thus not only consistent with section 524(g) of the Code, but is necessary to achieve the goals of that section. B. Section 1123(a) preempts provisions of private contracts. Appellants argue that because the "notwithstanding" language of section 1123(a)(5) does not specifically refer to contracts, and other provisions of the Bankruptcy Code do, therefore section 1123(a)(5) cannot preempt private contract rights.31 They cite no case, however, that supports their overly constricted interpretation of section 1123(a)(5)32 and they completely ignore that the Third Circuit and every other court

31

LMI Br. at 37-38; Hartford Br. at 19-21. Hartford also argues that "[a]bsent clear congressional intent to the contrary, courts presume that Congress does not intend to preempt private contracts and agreements," but no such principle is set forth in the cases it cites.
32

The Building & Constr. Trades Council case, cited by Hartford at Br. 19-20, does not address the application of an ex