Free Appellee's Brief - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELA WARE

)

FEDERAL-MOGUL GLOBAL INC., T &N LIMITED, et ai.,
Reorganized Debtors.

) Chapter 11
)

) Bankrptcy Case No. 01-10578 ) )
) ) Civil Action Nos. 08-0229 and 08-0230 )

CERTAIN UNERWRITERS AT LLOYDS, LONDON, et. ai.,
Appellants,
v.

)
) Judge Joseph H. Rodriguez ) ) )

FEDERAL-MOGUL GLOBAL INC., et ai.,
Appellees.

) ) )
)

BRIEF OF APPELLEE REORGANIZED DEBTORS
SIDLEY AUSTIN LLP James F. Conlan Jeffrey C. Steen Kevin T. Lantry Kenneth P. Kansa Wiliam A. Evanoff One South Dearborn Street Chicago, IL 60603
Telephone: (312) 853-7000

P ACHUSKI STANG ZIEHL & JONES LLP Laura Davis Jones (Bar No. 2436)
James E. O'Neil (Bar No. 4042)

Scotta E. McFarland (No. 4184)
919 North Market Street, 17th Floor

P.O. Box 8705
Wilmington, Delaware 19899-8705

Telephone: (302) 652-4100
Facsimile: (302) 652-4400

Counsel for Appellee Reorganized Debtors

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TABLE OF CONTENTS
Pal!e

Preliminary Statement....................................................................................................... .............. 1
Overview..... .................................................. .................................................................... .............. 2

Factual Background and Summary of the Plan Confirmation Process........................................... 4

LMI's Argument Regarding the Plan's Compliance with Section 524(g) of the Bankrptcy Code is Barred as a Matter of Law................................................................ 11 Conclusion.................................................................................................................................... 15

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TABLE OF AUTHORITIES
Page(s)
STATUTES

11 U.S .C. § 524(g) ................................................................................................................. passim

11 U.S.C. § 524(g)(2)(B)(i)(II) ................................................................................6, 10, 11, 13, 14
11 U.S.c. § 524(g)(2)(B)(i)(III).................................................................................................... ...6
11 U.S .C. § 541 (c )(1).. ...................................... ........................................................................... ..11

11 U.S .C. § 1123( a)(5)(B) .......................................................................................... ................. ..11

11 U.S.C. § 1129( a)( 1).................................................................................................................. .11

CASES

Fleck v. KDI Sylvan Pools, Inc., 981 F.2d 107 (3d Cir. 1992)......................................... ...... ............................................... .14, 15

In re Continental Airlines, Inc. (Air Line Pilots Ass'n, Intl v. Continental Airlines, Inc.),
145 B .R. 404 (D. DeL. 1992)................................................................................................... .12

In re Continental Airlines, Inc. æastern Pilots Merger Commttee v. Continental Airlines, Inc.), 279 F.3d 226 (3d Cir. 2002).................................................................................................... .12

Stoll v. Gottlieb, 305 U.S. 165 (1938)................................................................................................................ .12

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Preliminary Statement
1 in the
Appellee Federal-Mogul Corporation ("PM") and the other reorganized debtors

captioned chapter 11 cases (collectively, as reorganized, the "Reorganized Debtors"),
respectfully submit this brief in support of affirmance of the Bankrptcy Court's judgment that
the assignment of certain insurance rights to a Section 524(g) trust pursuant to the Debtors'

confirmed plan of reorganization was valid and authorized under the United States Bankrptcy
Code, 11 US.c. §§ 101-1532 (the "Bankrptcy Code"), notwithstanding any purported anti-

assignment restrictions in the relevant insurance policies or otherwise applicable State law to the

The US. Debtors (collectively, the "US. Debtors") are Carer Automotive Company, Inc.,

Federal-Mogul Corporation, Federal-Mogul Dutch Holdings Inc., Federal-Mogul FX, Inc., Federal-Mogul Global Inc., Federal-Mogul Global Properties, Inc., Federal-Mogul Ignition Company, Federal-Mogul Machine Tool, Inc., Federal-Mogul Mystic, Inc., Federal-Mogul Piston Rings, Inc., Federal-Mogul Powertain, Inc., Federal-Mogul Products, Inc., Federal-Mogul Puerto Rico, Inc., Federal-Mogul UK. Holdings, Inc., Federal-Mogul Venture Corporation, Federal-Mogul World Wide, Inc., Felt Products Manufacturing Co., PM International LLC, Ferodo America, Inc., Gasket Holdings Inc., J.W,J. Holdings, Inc., McCord Sealing, Inc., and T&N Industries Inc. The United Kingdom Entities to which the Plan applies (collectively, the "UK. Debtors") are AE Piston Products Limited, Aeroplane & Motor Aluminium Castings Limited, Ashburton Road Services Limited, Brake Linings Limited, Duron Limited, Edmunds, Walker & Co. Limited, Federal-Mogul Aftermarket UK Limited, Federal-Mogul Bradford Limited, Federal-Mogul Bridgwater Limited, FederalMogul Camshaft Castings Limited, Federal-Mogul Camshafts Limited, Federal-Mogul Engineering
Limited, Federal-Mogul Eurofriction Limited, Federal-Mogul Friction Products Limted, Federal-Mogul

Global Growth Limited, Federal-Mogul Ignition (UK.) Limited, Federal-Mogul Powertain Systems International Limited, Federal-Mogul Sealing Systems (Cardiff Limited, Federal-Mogul Sealing Systems (Rochdale) Limited, Federal-Mogul Sealing Systems (Slough) Limited, Federal-Mogul Sealing Systems Limited, Federal-Mogul Shoreham Limited, Federal Mogul Sintered Products Limited, Federal-Mogul Systems Protection Group Limited, Federal-Mogul Technology Limited, Federal Mogul UK. Limited, Ferodo Caernaron Limited, Ferodo Limited, Fleetside Investments Limited, F-M UK Holding Limited, Friction Materials Limited, Greet Limited, Halls Gaskets Limited, Hepworth & Grandage Limited, J.W.
Roberts Limited, Lanoth Limited, Newalls Insulation Company Limited, T AF International Limited, T &N Holdings Limited, T &N International Limited, T &N Investments Limited, T &N Limited, T &N

Materials Research Limited, T &N Piston Products Group Limited, T &N Properties Limited, T &N Shelf
Eighteen Limited, T &N Shelf Nineteen Limited, T &N Shelf One Limited, T &N Shelf Seven Limited,

T &N Shelf Three Limited, T &N Shelf Twenty Limited, T &N Shelf Twenty-One Limited, T &N Shelf Twenty-Six Limited, TBA Belting Limited, TBA Industrial Products Limited, Telford Technology Supplies Limited, The Washington Chemical Company Limited, Turer & Newall Limited, Turner worthy Limited. Unlike all the other UK. Debtors, T&N Brothers Asbestos Company Limited, and Well Investments Limited is a Scottish rather than English company and commenced administration in

Scotland in April 2002. Certain additional UK. Affliates of the US. Debtors and UK. Debtors
commenced chapter 11 cases but were not subjects of the Plan.

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contrary. The Reorganized Debtors join in the substance of the legal arguments set forth in the
appellee briefs of the Asbestos Claimants Committee (the "ACC") and the Future Claimants

Representative (the "FCR") that have been or wil be filed with this Court. However, in order to
clarfy the record, the Reorganized Debtors hereby submit this brief primarily to apprise the
Court of the preclusive effects of the confirmation of the Debtors' plan and, in light of those

effects and the consensual dual order procedure agreed to below by all paries to these appeals, to
make clear that the detour of the appellants Certain Underwriters at Lloyd's, London, and

Certain London Market Companies (collectively, "LMI") into the plan's compliance with

Section 524(g) of the Bankrptcy Code is barred as a matter of law and consequently should be
disregarded by this Court.

Overview
At the outset, it is important to recognize that, after over six years in bankrptcy, the
Reorganized Debtors consensually emerged from chapter 11, with the support of their Plan

Proponents2 and other constituents, on December 27, 2007. In the wake of months of contested
confirmation hearings and extraordinary negotiations and legal proceedings, on November 8,

2007, the Bankrptcy Court entered the Order Confirmng Fourth Amended Joint Plan of
Reorganization for Debtors and Debtors-in-Possession (as Modified) (D.I. 136743, the

"Confirmation Order") and the corresponding Findings of Fact and Conclusions of Law
Regarding Confirmation of Fourth Amended Plan of Reorganization for Debtors and Debtors-in-

Possession (as Modified) (D.I. 13672, the "Findings and Conclusions") on a wholly consensual

basis. This Court affirmed the Confirmation Order and adopted the Findings and Conclusions on
2 The Plan Proponents are the Debtors, the Unsecured Creditors Commttee (the "UCC"), the

Asbestos Claimants Commttee, the Future Claimants Representative, the Administrative Agent and the Equity Committee. Other capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Fourth Amended Plan (as defined below). 3 "D.I." refers to index numbers on the docket of the Bankrptcy Court, unless otherwise stated.

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November 13, 2007 (D.I. 13698, the "Affirmance Order"). No pary appealed, nor sought to
rehear, reconsider, vacate or stay, the Bankrptcy Court's Confirmation Order, its Findings and
Conclusions or this Court's Affirmance Order.

Accordingly, it is undisputed that the Confirmation Order is a final and non-appealable

order, and the terms of that order and the Debtors' confirmed Fourth Amended Joint Plan of Reorganization (as Modified) (D.I. 13674, Exhibit A thereto, the "Fourth Amended Plan" or the
"Plan") are binding upon the Debtors, their creditors, their interest holders and all other parties in

interest, including each of the appellants in the subject appeals. Once the Confirmation Order
became final and non-appealable, the Plan became effective, and the Debtors successfully

emerged from bankrptcy, on December 27,2007. The Plan was then substantially
consummated, and substantially all of the transactions and distributions contemplated by the Plan
have been implemented in reliance upon the finality of the Confirmation Order. As more fully described in the appellee brief of the FCR, in order to facilitate the

Debtors' emergence from chapter 11 prior to the scheduled expiration of the Debtors' exit

financing commtment on December 31, 2007, in October of 2007, the appellees, the other Plan
Proponents, the appellants and certain other non-appealing insurers consensually agreed to a

process - which was approved by the Bankrptcy Court - pursuant to which the adjudication of
the limited federal asbestos insurance assignment and preemption question presented in these
appeals would be separate and independent from, and mutually independent of, the confirmation

of the Debtors' Plan. Through two sets of stipulations approved by the Bankrptcy Court, the
appealing insurers expressly agreed that the Debtors' Plan could be confirmed and go effective

regardless of whether, when or how the separate federal asbestos insurance assignment and
preemption issue might ultimately be resolved.

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In light of these developments, the Reorganized Debtors consequently wish to make clear that the limited federal question presented in, and the ultimate outcome of, these appeals shall
have no effect on the terms and provisions of the final and non-appealable Confirmation Order,

the Affirmance Order, the Findings and Conclusions and the Confirmed Plan. Those important
matters have been fully and finally adjudicated, are binding upon all parties in interest, and may
not be altered, reopened, collaterally attacked, challenged or otherwise reviewed in these appeals.

Any insinuation to the contrary by any of the appellants is baseless, violates the terms of the

stipulations executed by each of the appellants, and should be summarly rejected.

Factual Backl!round and Summary of the Plan Confirmation Process
In order to clarfy the record, the Reorganized Debtors hereby provide the Court with a
short summary of the Plan confirmation process and the pertinent provisions of the Confirmation

Order and the Findings and Conclusions which consensually bifurcated the Bankrptcy Court's
determnation below of the limited federal asbestos insurance assignment and preemption issue
presented in these appeals. A more detailed exposition of the consensual bifurcated order

procedure before the Bankrptcy Court is set forth in the FCR's appellee brief, which the

Reorganized Debtors join. Therefore, the background summary below primarly addresses the
Plan confirmation process, which lays the foundation to refute certain of the arguments of
appellant LMI.

PM and its affiliates collectively comprise one of the world's largest manufacturers of
automotive and other vehicle pars. See Disclosure Statement Describing Third Amended Joint

Plan of Reorganization, dated June 4,2004, at 18 (D.I. 5122, the "Disci St."). On October 1,
2001, PM and 156 of its affiliates commenced chapter 11 cases before the Bankrptcy Court,
while 133 of the Debtors (each of which is incorporated under the laws of England and Wales)

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simultaneously commenced administration proceedings in the United Kingdom.4 ¡d. at 1. The
initial years of the cases involved intense litigation and negotiation among the key parties in
interest. ¡d. at 65-84.

However, in the wake of a pivotal deal among the Debtors, the ACC and the UCC, on
June 4, 2004, the Debtors, together with representatives of the vast majority of their economic

stakeholders, filed the Third Amended Joint Plan of Reorganization. (D.I. 5121, the "Third

Amended Plan"). The Third Amended Plan was based primarly on an agreement, which, at its
core, provided that 49.9% of the common stock of Reorganized Federal-Mogul would be
distributed to the company's prepetition noteholders, and 50.1 % of the stock would be placed in

a Trust established pursuant to Section 524(g) of the Bankrptcy Code for the benefit of holders of asbestos-related personal injury claims and demands. See Disci. St. at 80 (D.I. 5122). The
Third Amended Plan also provided that holders of asbestos-related personal injury claims and
demands would exclusively channel all of their claims and demands to the Trust and would, in

return, receive the economic benefits of certain of the assets contributed to the Trust, including

the Debtors' asbestos insurance policies and related asbestos insurance rights and recoveries. /d.
Certain of the insurers objected to the Third Amended Plan on the grounds, among others, that the transfer of asbestos insurance-related assets to the Trust would violate certain

purported anti-assignment provisions in the Debtors' insurance policies and otherwise applicable
State law. See,~, Certain Insurers' Preliminary Objections to Third Amended Joint Plan of

Reorganization, dated September 27,2004 (D.I. 5843). Thus, as a result of the insurers'
objections to the confirmation of the Debtors' plan, since at least the fall of 2004, the federal

4 An additional Debtor, T &N Investments Limited, was incorporated under the laws of Scotland

and commenced administration proceedings before the Court of Session in Edinburgh, Scotland in April 2002.
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asbestos insurance assignment and preemption issue that is the subject of these appeals has been

joined in these cases, and a live controversy has arsen.
The Debtors, the ACC and the FCR subsequently entered into an agreement with certain insurers (including those appealing insurers that submitted the Certain Appellants' Brief on

Appeal fied in these appeals at Docket No. 13 (the "Certain Appellants")), in which the Debtors,
the ACC and the FCR agreed to modify the Third Amended Plan by, for example, adding certain

so-called insurance neutrality provisions with regard to the stipulating insurers, in exchange for
such insurers' agreement to limit their plan confirmation objections and related confirmation

discovery.5 This agreement was embodied in a Stipulation and Agreed Order (the "Certain
Insurers' Insurance Stipulation"), dated June 30, 2006 (D.I. 10113), which was approved by the

Bankrptcy Court on September 19, 2006.6
Consistent with the terms of the Certain Insurers' Insurance Stipulation, on or about June
5,2007, the Plan Proponents filed the Fourth Amended Plan, which incorporated (among other

things) the modifications to which the Debtors, the ACC and the FCR had agreed in the Certain

Insurers' Insurance Stipulation. (D.I. 12620-22). The Plan continued to contemplate that certain
asbestos insurance-related proceeds, assets and other rights would be contributed to the Trust on the Effective Date of the Plan, and that the Debtors, the Reorganized Debtors, their respective

5 Pursuant to the Certain Insurers' Insurance Stipulation (as defined below), certain insurers

(including the Certain Appellants) agreed to limit their objections to the Plan to the following two narow and discrete legal issues: "i. Whether, under the Bankrptcy Code as a matter of law, the Assignment is valid and enforceable against the Insurers notwithstanding antiassignment provisions in or incorporated in the Policies and applicable state law; and ii. Whether the Plan complies with Bankrptcy Code Sections 524(g)(2)(B)(i)(II) and (III)." Certain Insurers' Insurance Stipulation, § 3.a. (D.I. 10113) 6 See Order (1) Approving Stipulation Regarding Plan Modifications and Potential Confirmation

Objections and Plan-Related Discovery By Certain Insurance Companies, (II) Staying Discovery Requests By Certain Insurance Companies, and (III) Granting Related Relief (D.I. 10606).
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assets and certain other protected parties would be entitled to a channeling injunction under
Section 524(g) of the Bankrptcy Code. Plan, §§ 1.1.218,4.3,9.3 (D.I. 12620).7

After the filing of the Fourth Amended Plan, the Plan Proponents entered into an

agreement with the LMI group of insurers. Similar to the Certain Insurers' Insurance
Stipulation, the Plan Proponents agreed to add (among other things) certain insurance neutrality

language to the Plan with respect to LMI in exchange for LMI's agreement to limit its objections

to confirmation of the Plan. This agreement was reflected in a stipulation dated July 10, 2007
(D.I. 13062, the "LMI Insurance Stipulation"), pursuant to which the Plan Proponents and LMI
agreed that:

litigate in connection with confirmation of the Plan is whether, under the Bankrptcy Code as a matter of law, the assignment of any Asbestos Insurance Policies or other rights and obligations with respect to, arsing under, or related to Asbestos Insurance Policies subscribed by London Market Insurers, is valid and enforceable against London Market Insurers notwithstanding (i) anti-assignment provisions in or incorporated in the Asbestos Insurance Policies subscribed by London Market Insurers and (ii) applicable state law.
the only issue London Market Insurers wil

,.

LMI Insurance Stipulation, l) 2 (D.I. 13062).

Both the Certain Appellants and LMI (as well as other insurers) continued to prosecute

objections to the Fourth Amended Plan based on the federal asbestos insurance assignment and
preemption issue. See,~, Briefs appended under Tabs 9a and 9b to the Joint Submission of

Plan Objectors' Post-Trial Briefs in Opposition to Confirmation of

Fourth Amended Joint Plan

of

Reorganization and the prior submissions referred to therein. (D.I. 13182). The Plan

Proponents also fied merits briefs in support of the Plan's compliance with (among other

provisions) Section 524(g) of the Bankrptcy Code and the Plan's proposed assignment of
certain asbestos insurance rights to the Trust, notwithstanding any putative anti-assignment

7 The final form of the Plan was filed with the Bankrptcy Court together with the Confirmation
Order upon its entry. See D.I. 13674, Exhibit A thereto.
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provisions in the subject insurance policies or otherwise applicable State law to the contrary.

(D.I. 582593566, 13249). Accordingly, the federal asbestos insurance assignment and

preemption issue underlying these appeals was fully joined, briefed and argued as par of the

contested proceedings before the Bankrptcy Court respecting the confirmation of the Fourth
Amended Plan, and there continued to be a live controversy among the parties on this issue.

After at least eight days of hearngs before the Bankrptcy Court, on June 18-21, July 910 and October 1-2, 2007, by the time the Plan confirmation hearngs came to a close in early
October 2007, the credit markets had deteriorated from the market conditions in place when the

Debtors obtained their approximately $3.5 bilion exit financing commtment in February of
2007. It was therefore in the best interests of the Debtors, their creditors, their interest holders
and other parties in interest for the Debtors to achieve a final and non-appealable Confirmation

Order and emerge from bankrptcy by the scheduled expiration of their exit financing
commtment on December 31, 2007. It was in this context that, following the conclusion of the

October 2, 2007 confirmation hearing, the Debtors, the other Plan Proponents and the objecting insurers extensively negotiated the bifurcation of the resolution of the federal asbestos insurance
assignment and preemption issue from the Confirmation Order to facilitate the Debtors'

emergence from chapter 11 on a consensual basis prior to December 31,2007. Importantly,
under the terms of the Plan, a ruling on such issue was not an express condition precedent to

either the confirmation or effectiveness of the Plan, and thus could be determned separately
without impacting the Debtors' ability to cause the Plan to become effective. See Plan, §§ 7.1,
7.2. (D.I. 13674, Exhibit A thereto).

As a result of the paries' negotiations, a group of insurers (including each of the Certain
Appellants) and LMI signed two separate but similar stipulations with the Plan Proponents that,

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among other things, established the consensual bifurcated procedure by which the Debtors' Plan could be confirmed and go effective regardless of whether, when or how the separate federal

asbestos insurance assignment and preemption issue might ultimately be resolved. See
Stipulation and Order Regarding Remaining London Market Objections to the Plan (D.I. 13670,

the "LMI Preemption Stipulation"); Stipulation to Preserve Appeals on the Asbestos Insurance
Assignment and Preemption Issue (D.I. 13671, the "Certain Insurer Preemption Stipulation").

Both stipulations were approved by the Bankrptcy Court on November 8,2007, and the
stipulations are therefore binding on all parties to these appeals. Id.

Consistent with these signed preemption stipulations approved by the Bankrptcy Court
(and the related pleadings of the paries), both the Confirmation Order and the Findings and
Conclusions contained explicit language reflecting the bifurcation of the Plan confirmation

process from a ruling on the assignment and preemption issue. Specifically, Section IV.F.2 of
the Confirmation Order provided that "(t)he terms and conditions of this Confirmation Order are
separate and independent from, and are mutually independent of, the terms and conditions of the

Preemption Order." See also Confrmation Order, § VII.AA (D.I. 13674) ("(T)his Confirmation
Order does not constitute or contain a ruling on the Plan Assignment Objections or the

Assignment and Preemption Issue.... Without limiting the foregoing..., the Bankrptcy Court
hereby determnes that ... this Confirmation Order is not approving the assignment of Insurance

Rights... set forth in the Plan or determining the Preemption Issues... (, and) the Preemption Order has been, or wil be, entered separately from this Confirmation Order.."). Similarly,
Section II.K. of the Findings and Conclusions provided that "(t)hese Findings of Fact and
Conclusions of Law are separate and independent from, and are mutually independent of, the

terms and conditions of the Preemption Order." (D.I. 13672).

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Furthermore, the Confirmation Order and the Findings and Conclusions determned that,
in all relevant respects, the Plan satisfied Section 524(g). The Confirmation Order, of course,

confirmed the Plan - see Confirmation Order, Section I.A. (D.I. 13674) ("The Plan... and each
of its provisions... are CONFIRMED in each and every respect... .") - and the Plan contained a
critical channeling injunction protecting the Debtors, the Reorganized Debtors and their assets
from asbestos liabilities pursuant to Section 524(g) of the Bankrptcy Code. See,~, Plan §

9.3. (D.I. 13674, Exhibit A thereto). The Findings and Conclusions contained additional
detailed factual findings and legal conclusions regarding the Plan's compliance with 524(g) of
the Bankrptcy Code. See,~, Findings and Conclusions, § I.F. ("The Plan comports with the

Bankrptcy Code's requirements for issuance of an injunction to enjoin entities from taking legal
action to recover, directly or indirectly, payment in respect of Asbestos Personal Injury Claims

against the Reorganized Debtors or their property."); § I.F.1.c. ("The Trust is to be funded by the

Trust Assets, which include... the Reorganized Federal-Mogul Class B Common Stock, which
constitutes securities of one of the Debtors involved in the Plan.... Under the Certificate of
Incorporation for Reorganized Federal-Mogul, the holders of the Reorganized Federal-Mogul Class B Common Stock have the right to receive a proportionate share of the distributions made

to holders of common stock in Reorganized Federal-MoguL... Accordingly, the Plan satisfies

section 524(g)(2)(B)(i)(II) of the Bankrptcy Code."); § II.E. ("As set forth in Section I.F. above,
the Plan complies in all respects with the applicable requirements of section 524(g) of the

Bankrptcy Code.") (D.I. 13672).
The Confirmation Order and the Findings and Conclusions were approved by the

Bankrptcy Court on a wholly consensual basis on November 8,2007 (D.I. 13674 and 13762, respectively). By the time the Bankrptcy Court entered the Confirmation Order and the

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Findings and Conclusions, all remaining objections to the confirmation of the Plan, including

those with respect to Section 524(g) of the Bankrptcy Code, had been voluntarly withdrawn.
This Court affirmed the Confirmation Order and adopted the Findings and Conclusions on

November 13, 2007. (D.I. 13698).
Consistent with the process consensually agreed to by all paries to the subject appeals,

the Bankrptcy Court issued its order and corresponding memorandum opinion on March 19,
2008, holding that "the assignment of rights in certain insurance policies to the asbestos trust, as

provided in par by Section 4.3 of the (Fourth Amended Plan), is valid and enforceable pursuant

to §§ 524(g), 541(c)(I), 1123(a)(5)(B) and §1129(a)(I) of the Bankrptcy Code notwithstanding
anti-assignment provisions in or incorporated in the policies and applicable state law." (D.I.

14237, the "Preemption Order"). The present appeals followed.

LMl's Arl!ument Rel!ardinl! the Plan's Compliance with
Section 524(l!) of the Bankruptcy Code is Barred as a Matter of Law

In an attempt to distract this Court from the narow legal issue presented in these appeals,
LMI devotes a significant portion of its brief to an irrelevant and untimely argument about the
Plan's compliance with Section 524(g)(2)(B)(i)(ii)8 of the Bankrptcy Code that is bared as a

matter of law.9 In light of the consensual nature and circumstances surrounding the
implementation of the bifurcated order procedure below, it is abundantly clear that the Plan's
8 Section 524(g)(2)(B)(i)(II) provides, in relevant par, that "(t)he requirements of this

subparagraph are that the (channeling) injunction is to be implemented in connection with a trust that, pursuant to the plan of reorganization... is to be funded in whole or in par by the securities of 1 or more debtors involved in such plan and by the obligations of such debtor or debtors to make future payments, including dividends...." 9 LMI also asserts in its brief that the Trust Distribution Procedures ("TDP") expressly approved

by the Bankrptcy Court as part of the Plan confirmation process (see, ~, Plan, Ar. IV and Exh. 1.1.217 (D.I. 13674, Exhibit A thereto, and D.I. 12621); Confirmation Order, §§ I.A., iV.E., and VII (D.I. 13674); Findings and Conclusions, § I.F.2. (D.I. 13672)) are somehow flawed. As with LMI's baseless contention regarding the Plan's compliance with Section 524(g), LMI's belated TDP arguments are bared as a matter of law and were waived by LMI below.
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compliance with Section 524(g) has been irrevocably established and cannot be revisited by this
Court.

First and foremost, the Plan's compliance with Section 524(g) has been fully and finally

adjudicated in these cases as par of the Plan confirmation process which LMI (and the other
appealing insurers) expressly stipulated was wholly separate and independent from the contested

matter resulting in the Preemption Order. Thus, it is manifest that the Bankrptcy Court's
determnation in the Confirmation Order and the Findings and Conclusions, as affirmed by this
Court, that the Plan complied in all respects with Section 524(g) of the Bankrptcy Code is res

judicata and binding upon LMI and the other paries to these appeals. See,~, Stoll v. Gottlieb,
305 US. 165, 170-72 (1938) (holding that a final, non-appealable bankrptcy confirmation order
was entitled to res judicata effect and could not be collaterally attacked in a separate
proceeding); In re Continental Airlines, Inc. æastern Pilots Merger Commttee v. Continental

Airlines, Inc.), 279 F.3d 226,233 (3d Cir. 2002) (appellant pilots union was precluded as a

matter of law from collaterally attacking a final, non-appealable bankrptcy confirmation order
and was bound by the terms of that order); In re Continental Airlines, Inc. (Air Line Pilots Ass'n,

Intl v. Continental Airlines, Inc.), 145 B.R. 404, 409-12 (D. DeL. 1992) (applying doctrine of res

judicata to bar appellant pilots union from seeking to relitigate a final, non-appealable order of

the Bankrptcy Court). Any suggestion by LMI that the Plan's compliance with Section 524(g)
can somehow be reexamined or collaterally attacked at this late date is baseless.

Indeed, the centerpiece of the confirmed Plan was a channeling injunction issued in

accordance with Section 524(g) of the Bankrptcy Code in order to shield the Reorganized

Debtors, varous other protected paries and their respective assets from any asbestos personal
injury liabilities. The Plan's compliance with the requirements of Section 524(g) was absolutely

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critical to the Debtors' abilty to successfully reorganize and was hotly contested and fully

litigated during the Plan confirmation process. The Bankrptcy Court ruled on those matters
only after all parties in interest (including LMI and the other appealing insurers) had the benefit

of extensive discovery, exhaustive briefing and a lengthy evidentiary trial and oral argument. At
the conclusion of this painstaking process (including months of extraordinary negotiations and
legal proceedings under the guidance of the Bankruptcy Court), and in reliance on the consensual
bifurcated order procedure, the insurers' varous objections respecting the Plan's compliance

with Section 524(g) of the Bankrptcy Code were voluntarily resolved or withdrawn.1o The

Bankrptcy Court then entered an unopposed Confirmation Order confirmng the Plan and issued
detailed and uncontested Findings and Conclusions in support of the Confirmation Order that

specifically determned, among other things, that the Plan satisfied Section 524(g) of the

Bankrptcy Code in all respects (including the provision - Section 524(g)(2)(B)(i)(II) - belatedly

cited by LMI in its brief). See,~, Findings and Conclusions, Sections I.F.1.c. and II.E. (D.I.
13672) .11
-:

As noted, the Confirmation Order was affirmed, and the Findings and Conclusions were

adopted by this Court, in its November 13, 2007 Affirmance Order. No pary appealed, nor
sought to rehear, reconsider, vacate or stay, the Bankrptcy Court's Confirmation Order, its

10 See, ~, Withdrawal by ACE Insurers, One Beacon, Seaton, and Stonewall of All Plan
Objections, Motions, Discovery, and Proofs of Claim, dated November 21,2007. (D.I. 13721). 11 For example, the Bankrptcy Court expressly found that "(t)he Trust is to be funded by the

Trust Assets, which include... the Reorganized Federal-Mogul Class B Common Stock, which constitutes securities of one of the Debtors involved in the Plan.... Under the Certificate of Incorporation for Reorganized Federal-Mogul, the holders of the Reorganized Federal-Mogul Class B Common Stock have the right to receive a proportionate share of the distributions made to holders of common stock in Reorganized Federal-MoguL... Accordingly, the Plan satisfies
section 524(g)(2)(B)(i)(II) of the Bankrptcy Code." Findings and Conclusions, § I.F.1.c. (D.I.

13672). In addition, the Bankrptcy Court concluded that "(a)s set forth in Section I.F. above,
the Plan complies in all respects with the applicable requirements of section 524(g) of the

Bankrptcy Code." Findings and Conclusions, § II.E. (D.I. 13672).
13

Case 1:08-cv-00229-JHR

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Findings and Conclusions or this Court's Affirmance Order. It is therefore undisputed that the
Confirmation Order is a final and non-appealable order, and the terms of that order and the

Debtors' confirmed Plan are binding upon LMI, the other appealing insurers and all other paries

in interest. The Plan's compliance with Section 524(g) has thus been fully and finally
established as a matter of fact and law, and cannot be collaterally attacked by LMI (or any other

pary). For LMI to even remotely suggest otherwise should not be countenanced by this Court.
For the sake of completeness, the Reorganized Debtors would also like to make clear

that, even if the doctrine of res judicata did not defeat LMI's attempt to cast doubt upon the core
protections in the Debtors' confirmed Plan, LMI's suggestion that the Plan somehow does not

comply with Section 524(g)(2)(B)(i)(II) of the Bankrptcy Code would fail for several reasons.
For example, LMI did not press this Section 524(g)(2)(B)(i)(II) compliance argument before the

Bankrptcy Court.12 To the contrary, LMI stipulated with the Plan Proponents that the only
issue it would litigate in connection with Plan confirmation would be the limited federal asbestos

insurance assignment and preemption issue (in contrast to certain other objecting insurers, who
stipulated they would limit their Plan objections to the federal asbestos insurance assignment and

preemption issue and Section 524(g) compliance issues). See LMI Insurance Stipulation, l) 2

(D.I. 13062); Certain Insurers' Insurance Stipulation, l) 3.a (D.I. 10113). It is black-letter law
that an argument is deemed waived on appeal if the pary, as here, has contractually relinquished

13 See,~, Fleck v. KDI
the issue or did not otherwise press the argument in the court below.

12 Nor did LMI preserve the right to challenge TDP issues below. See LMI Insurance
Stipulation, l) 2 (D.I. 13062). 13 Furthermore, LMI's unsubstantiated "factual" assertions regarding the funding of the Trust are

baseless, simply incorrect, and outside of the record on appeaL. Similarly, to the extent LMI purports to describe the application of the legal standards in Section 524(g) to the facts of this case or the establishment and administration of the Trust, its analysis is flawed as a matter of law, and should have no bearng on the subject matter of these appeals.
14

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Sylvan Pools, Inc., 981 F.2d 107, 116 (3d Cir. 1992) ("It is axiomatic that a pary who fails to
object to errors or to raise issues at trial waives the right to complain on

appeaL"). 14

Accordingly, LMI's Section 524(g) argument should be summarly dismissed.

Conclusion
Based upon the foregoing, and for the reasons set forth in the appellee briefs of the ACC

and the FCR fied in connection herewith, as well as the varous briefs filed by the Plan Proponents in the Bankrptcy Court in support of confirmation of the Plan, the Reorganized
Debtors respectfully request that this Court enter an order affirmng the judgment of the

Bankrptcy Court in the Preemption Order, dismissing these appeals, and granting the
Reorganized Debtors such further relief as may be just and proper.

14 The Third Circuit in Fleck further stated that "(w)hen a litigant takes an unequivocal position

at trial, he cannot on appeal assume a contrary position simply because the decision in retrospect was a tactical mistake, or perhaps a candid but regretted concession." 981 F.2d at 116 (citations omitted).
15

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Dated: Wilmington, Delaware
June 18, 2008

Respectfully submitted,

SIDLEY AUSTIN LLP James F. Conlan Jeffrey C. Steen Kevin T. Lantry Kenneth P. Kansa Wiliam A. Evanoff One South Dearborn Street Chicago, llinois 60603
Telephone: (312) 853-7000

-and-

PACHUSKI STANG ZIEHL & JONES LLP
Isl James E. O'Neil Laura Davis Jones (Bar No. 2436)
James E. O'Neil (Bar No. 4042)

Scotta E. McFarland (No. 4184)
919 North Market Street, 17th Floor

P.O. Box 8705 Wilmington, Delaware 19899-8705
Telephone: (302) 652-4100
Facsimile: (302) 652-4400

16
CHI

4307255v.1

r'.

Case 1:08-cv-00229-JHR

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Page 1 of 5

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELA WARE

)

FEDERAL-MOGUL GLOBAL INC., T &N LIMITED, et ai.,
Reorganized Debtors.

) Chapter 11 ) ) Bankrptcy Case No. 01-10578
) )

)

CERTAIN UNERWRITERS AT LLOYDS, LONDON, et. ai.,
Appellants,
v.

) Civil Action Nos. 08-0229 and 08-0230

) )

) Judge Joseph H. Rodrguez ) )
) ) ) ) )

FEDERAL-MOGUL GLOBAL INC., et al.,
Appellees.

CERTIFICA TE OF SERVICE
I, James E. O'Neil, hereby certify that on the 18th day of June, 2008, I caused a

copy of the following document(s) to be served on the individuals on the attached service lists in
the manner indicated:

BRIEF OF APPELLEE REORGANIZED DEBTORS

J

~Gd~

DOCS_DE: 138200.1

Case 1:08-cv-00229-JHR

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Page 2 of 5

Federal Mol!l 2008 Insurers' Appeal Email Service List

Nancy .ManzerØJ wilmerhale.com;Anna.N ewsom ØJ mendes.com; bej ameson ØJ prickett.com;DTarp ey ØJ seyfarth.com; eharron ØJ ycst.com; Eileen.McCabe ØJmendes.com; efelix ØJ margolisedelstein.com;jpatton ØJ ycst.com; yoderj ØJ whi teandwiliams.com; JKahane ØJ duanemorrs.com; j dorsey ØJ ycst.com; kcusick ØJ crowelL. com;
kkansa ØJ sidley .com;KCM ØJ capdale.com;klantry ØJ sidley .com;khartley ØJ butlerrbin.com;krosell

a ØJ seyfarth.com;mmnella ØJ ycst.com;mshinerØJ tuckerlaw .com;
P Alp ØJ crowell.com;pzevnik ØJ morganlewis.com;pvnl ØJ capdale.com;rpalacio ØJ ashbygeddes.com;rwriley ØJ duanemorrs.com;RJZapf ØJ duanemorrs.com;

RWRoten ØJduanemorrs.com; sbellew ØJcozen.com; thomas.quinn ØJ mendes.com; WFactorØJ seyfarh.com;wbowden ØJ ashby-geddes.com; jsteen ØJ sidley.com;jconlan ØJ sidley.com;ljone ØJpszjlaw .com;joneil ØJpszjlaw .com;
ei ØJ capdale.com;szieg ØJ ycst.com Craig. Goldblatt ØJ wilmerhale.com; Michelle.Goldis ØJ wilmerhale.com;MYurkewi ØJ klehr.com;kfinlayson ØJpszjlaw .com

27440-001 \DOCS_DE: 138199.1

Case 1:08-cv-00229-JHR

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Federal Mogul Insurers Revised Service List
Case No. 01-10578 (JKF)
Document No. 138201

Hand Delivery

(Counsel for Columbia Casualty Company,
et aL)

09 - Hand Delivery

13 - First Class Mail

Bruce E. Jameson, Esquire Prickett, Jones & Elliott, P.AI 1310 King Street Wilmington, DE 19801
Hand Delivery

Hand Delivery
(U.S. Trustee)

(Counsel for AIG Casualty Company, et
aL)

Richard Schepacarter, Esquire the United States Trustee Office of 844 King Street, Ste 2207 Wilmington, DE 19801
Hand Delivery
(Counsel for Certain Underwriters at

Sean J. Bellew, Esquire Cozen 0' Connor Chase Manhattan Centre 1201 North Market Street Suite 1400 Wilmington, DE 19801
Hand Delivery

Lloyd's

London, and Certain London Market Companies) Richard W. Riley, Esquire Duane Morrs LLP
1100 North Market Street Suite 1200 Wilmington, DE 19801
Hand Delivery
(Co-Counsel for Offcial Committee of

(Counsel for Allanz Companies) James S. Yoder, Esquire White & Wiliams LLP 824 Market Street, Ste 902 Wilmington, DE 19801
Hand Delivery

(Counsel for Fireman's Fund Insurance Company & National Surety Company)
John D. Demmy, Esquire Stevens & Lee, P .C. 1105 North Market Street, ih Floor Wilmington, DE 19801
Hand Delivery
(Counsel for Hartford Accident & Indemnity
Company, First State Insurance Company and New England Insurance Company)

Asbestos Claimants) Marla R. Eskin, Esquire Kathleen Campbell Davis, Esquire Campbell& Levine, LLC 800 King Street, Ste 300 Wilmington, DE 19801
Hand Delivery

(Counsel for Eric D. Green, Futures Representative) James L. Patton, Jr., Esquire Edwin J. Harron, Esquire Young Conaway Stargatt & Taylor, LLP 1 000 West Street, 1 ih Floor Wilmington, DE 19801

Michael W. Yurkewicz, Esquire
Klehr, Harrson, Harvey, Branzburg & Ellers LLP 919 Market Street Suite 1000

Wilmington, DE 19801

Case 1:08-cv-00229-JHR

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First Class Mail
(Counsel for Certain Underwriters at

Lloyd's

First Class Mail (Counsel for Columbia Casualty Company,
et aL)

London, and Certain London Market Companies) Eileen T. McCabe, Esquire
Mendes & Mount, LLP 750 Seventh Avenue New York, NY 10019

David C. Chrstian II, Esquire Wiliam J. Factor, Esquire Seyfarth Shaw, LLP 131 S. Dearborn, Suite 2400
Chicago,IL 60603

First Class Mail
(Counsel for Certain Underwriters at

First Class Mail (Counsel for AIG Casualty Company, et
aL)

Lloyd's

London, and Certain London Market Companies) Russell W. Roten, Esquire Jeff D. Kahane, Esquire Katherine Nichols, Esquire Duane Morrs LLP 633 W. Fifth Street, Suite 4600 Los Angeles, CA 90071

Michael S. Davis, Esquire Zantra Van Roy, Esquire Zeichner Ellman & Krause LLP 575 Lexington Avenue New York, NY 10022

First Class Mail (Counselfor Allanz AG)
Elit R. Felix, II Esquire Margolis Edelstein
The Curtis Center, 4th Floor

First Class Mail
(Counsel for Certain Underwriters at

Lloyd's

London, and Certain London Market Companies) Michael A. Shiner, Esquire Tucker Arensberg
1500 One PPG Place Pittsburgh, P A 15222

601 Walnut Street Philadelphia, P A 19106

First Class Mail (Counsel for Fireman's Fund Insurance Company & National Surety Company)
Leonard P. Goldberger, Esquire Stevens & Lee, P.C.
1818 Market Street, 29th Floor

First Class Mail (Co-Counsel to Asbestos Committee) Elihu Inselbuch, Esquire Rita Tobin, Esquire Caplin & Drysdale, Chartered
375 Park Avenue, 35th Floor

Philadelphia, P A 19103

First Class Mail
(Counsel for Defendants Hartford Accident and Indemnity Company, et al.)

New York, NY 10152-3500

First Class Mail (Co-Counsel to Asbestos Committee) Peter Van N. Lockwood Esquire Caplin & Drysdale, Chartered
One Thomas Circle, N.W. Washington, DC 20005

Wiliam J. Bowman, Esquire James P. Ruggeri, Esquire, Esquire Edward B. Parks, II, Esquire Hogan & Hartson, LLP
555 13th Street, NW

Washington, DC 20004

:\

Case 1:08-cv-00229-JHR

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First Class Mail
(Counselfor Hartford Accident & Indemnity
Company, First State Insurance Company and New England Insurance Company)

Craig Goldblatt, Esquire Nancy L. Manzer, Esquire Wilmer Cutler Pickering Hale and Dorr LLP 1875 Pennsylvania Avenue NW Washington, DC 20006

First Class Mail (Counsel for Columbia Casualty Company,
et aL)

Steven M. Crane, Esquire Berkes Crane Robinson & Seal LLP
515 South Figueroa Street, Ste 1500

Los Angeles, CA 90071

First Class Mail
(Counsel for Debtors)

James F. Conlan, Esquire Larry J. Nyhan, Esquire Jeffrey C. Steen, Esquire Kevin T. Lantry, Esquire Kenneth P. Kansa, Esquire
Sidley Austin LLP

One South Dearborn Street
Chicago, IL 60603