CHARLOTTE, N.C. – The Official Committee of Asbestos Claimants, or ACC, argues that Bestwall LLC’s Chapter 11 bankruptcy proceeding is a “sham” and was filed in bad faith in an effort to limit asbestos liabilities in a favorable venue.
“The debtor’s bankruptcy proceeding is little more than a bad-faith litigation tactic as evidenced by its gerrymandering of assets and liabilities …” the motion states.
On Aug. 15, ACC attorney Glenn C. Thompson of Hamilton Stephens Steele & Martin PLLC filed the 30-page motion to dismiss or alternatively transfer venue to the District of Delaware or another appropriate district “in the interest of justice and for the convenience of parties.”
He wrote that Bestwall filed its bankruptcy proceeding “in an attempt to manipulate the provisions of the Bankruptcy Code, exploit venue loopholes, and gain approval from a court in a jurisdiction it perceives is a favorable jurisdiction for asbestos-related bankruptcies all for the benefit of the debtors’ corporate shareholder, affiliates, and ultimate corporate parents.”
Thompson calls Bestwall a “corporate sacrificial lamb” for Georgia Pacific LLC, formerly known as Georgia Pacific Corporation, due to its recent corporate restructuring.
Bestwall LLC, formerly part of Georgia Pacific LLC, filed a voluntary petition for bankruptcy on Nov. 2, 2017, in the U.S. Bankruptcy Court for the Western District of North Carolina. The debtor is represented by Garland Casada of Robinson Bradshaw & Hinson in Charlotte, N.C.
Bestwall and its predecessor Georgia Pacific manufactured a joint compound product containing “minimal amounts” of chrysotile asbestos prior to 1978, according to a brief filed by Casada.
Despite “minimal” exposure, Bestwall argues that it has been “burdened” with asbestos litigation for 40 years and will likely continue until at least 2050.
Bestwall became its own company on July 31 after Old Georgia Pacific underwent a corporate restructuring. As a result, Bestwall and Georgia Pacific LLC were created. Bestwall succeeded to certain assets and liability of Old Georgia Pacific, including certain assets of the historical Bestwall Gypsum business and Old Georgia Pacific’s asbestos liability, the brief states.
“The purpose of the 2017 Corporate Restructuring was twofold: it better aligned the defense of Bestwall’s asbestos claims with the individuals primarily responsible for their management, and also provided Bestwall with the option to seek a resolution of the asbestos claims in this court under section 524(g) of the Bankruptcy Code, without subjecting the entire Old GP enterprise (and its unrelated businesses) to chapter 11 reorganization,” Casada wrote.
In the ACC’s motion to dismiss, Thompson wrote that Georgia Pacific is not the “victim” in the bankruptcy case. He wrote that the company “poisoned thousands of Americans through the manufacture and sale of its asbestos containing products and thereby contributed to the suffering and death of countless men, women and children.”
He added that Georgia Pacific formed Bestwall “barely a year ago” with the purpose “to abscond with billions of dollars of equity and assets after divesting itself of billions of dollars of Georgia-Pacific Asbestos Liabilities (and foisting those liabilities on a nascent holding company), while leaving tens of thousands of asbestos victims – sick and dying asbestos victims – to recover only a small fraction of what is rightfully owed to them by Old GP.”
Thompson argues that Georgia Pacific executed a “deliberately planned and carefully orchestrated contrivance” when it re-domiciled itself from Delaware to Texas for less than one day to split into two separate entities. The motion states that Georgia Pacific relied upon Texas’ “unique divisive merger provisions.”
Georgia Pacific LLC received most of the corporate assets and then re-domiciled itself back in Delaware to “continue its Atlanta-based business operations uninterrupted, all while being purportedly cleansed” of asbestos liabilities.
Bestwall was assigned billions of dollars of asbestos-related liabilities along with a number of assets worth approximately $175 million and a “funding agreement” regarding the debtor’s asbestos liability. Bestwall was not provided with any employees, operations or viable plan for bankruptcy, the motion states.
Bestwall then re-domiciled itself from Texas to North Carolina.
“By spending less than one day as Texas entities, Old GP and New GP attempted to utilize state law and manipulate statutory venue provisions in order to provide relief from legacy asbestos liabilities that only the bankruptcy code can provide, all while attempting to avoid the scrutiny and transparency mandated by the bankruptcy process,” the motion states.
Thompson argues that it is no coincidence that the Georgia Pacific entities chose the Western District of North Carolina for Bestwall’s bankruptcy case, which is where U.S. District Judge George Hodges issued his landmark ruling favoring debtor Garlock Sealing Technologies LLC.
Garlock sought bankruptcy protection to escape increasing asbestos-related settlement awards and jury verdicts, which it blamed on plaintiff attorneys who were allegedly withholding evidence of other company culpability.
Hodges agreed, finding that the amount of previous awards and settlements paid by Garlock in the civil justice system were not reliable because plaintiffs’ attorneys had withheld evidence of their clients’ exposure to asbestos-containing products manufactured by other companies in order to maximize recovery against Garlock.
Casada had also been Garlock’s lead attorney.
In the ACC’s motion to dismiss, Thompson wrote that Bestwall uses the Garlock decision to downplay Georgia Pacific’s asbestos liabilities.
“The debtor’s obvious forum shopping evidences a clear effort to take advantage of Fourth Circuit law and to taint this case with the factual findings made in Garlock, a vastly different – and unrelated – case,” he wrote.
In a footnote, Thompson wrote that Garlock’s asbestos-containing products were used in “highly limited applications” while Georgia Pacific manufactured “numerous asbestos-containing products for use in a multitude of different settings,” and is liable for asbestos exposure to other products in Georgia Pacific factories, such as insulation.
“The debtors have limited their briefing to drywall products, but this is just a portion of the Georgia-Pacific Asbestos Liabilities,” the motion states.
Thompson wrote that prior to its corporate restructuring, Georgia Pacific was a multi-billion dollar corporate enterprise and had been able to pay all of its liabilities on time, meaning it had “no reason” to seek bankruptcy protection.
“Instead, Old GP contrived the Corporate Restructuring and Bestwall’s bankruptcy filing as a tactic to hinder, delay, and defraud its creditors in order to shield Old GP and New GP form the Georgia-Pacific Asbestos Liabilities and shift the true value of Old GP’s equity to its insiders without technically running afoul of fraudulent transfer laws,” Thompson wrote.
He argues that a debtor cannot use Chapter 11 bankruptcy in order to take advantage of the Bankruptcy Code’s distribution scheme.
“The bankruptcy process should be used to maximize value to creditors, not funnel that value to corporate insiders while simultaneously denying present and future asbestos victims their due process rights as creditors,” the motion states.
Thompson urges the bankruptcy court to reject Georgia Pacific’s corporate restructuring, arguing that it is necessary to protect the integrity of the bankruptcy process.
“Endorsing the Corporate Restructuring would give a green light to all debtors, especially those facing mass tort liabilities, to engage in manipulations and sham transactions in order to cabin liabilities, eliminate onerous contracts, abrogate debt and credit agreements, or preserve shareholder equity for corporate insiders to the detriment of all creditors,” he wrote.
Local attorneys Beth A. Gori of Gori Julian & Associates PC in Edwardsville and Andrew O’Brien of O’Brien Law Firm PC in St. Louis are included on the committee of lawyers for claimants.
U.S. Bankruptcy Court for the Western District of North Carolina case number 17-31795