CHARLOTTE, N.C. – Bankruptcy judge Laura T. Beyer said Bestwall LLC’s Chapter 11 bankruptcy petition under Section 524(g) was “wrongfully motivated” but denied the Asbestos Claimants' Committee's (ACC) motion to dismiss for filing in bad faith.
According to a recently obtained transcript of the Jan. 24 hearing, Beyer denied the ACC's’ motion to dismiss, or, in the alternative, transfer the venue. She also granted Bestwall’s motion for an order preliminarily enjoining certain actions against non-debtors. Bestwall is formerly part of Georgia Pacific LLC.
The ACC argued that Bestwall’s attempt at chapter 11bankruptcy was wasting time when cases could still be resolved in litigation.
Beyer disagreed, saying the time it takes to reach a bankruptcy plan is on the attorneys.
“That’s on all of you,” she said. “You all, the parties to this case, control where this case goes from here and how expeditiously we get there. I can assure you that the court will not be the cause of any delay.”
“[W]hile I don’t have personal experience with mesothelioma, it was one year ago this week that I lost a close family member to two different forms of cancer and I have one of my oldest, dearest friends struggling mightily with cancer, as I speak. So I get it. However, I’m not convinced that the claimants are necessarily worse off here. I believe their claims can be sufficiently addressed and fairly adjudicated through a trust created in this case. Some would argue it can be done more efficiently and with less cost, but that’s on you,” Beyer added.
The ACC and debtor made their arguments on the motion to dismiss or transfer at a hearing on Nov. 9 in the U.S. Bankruptcy Court for the Western District of North Carolina. During the Jan. 24 hearing, Beyer provided a detailed explanation on her ruling.
Beyer recognized “how complicated these issues are” and acknowledged “that there are no easy answers.”
“For what it’s worth, I don’t make this decision lightly, nor do I make it easily,” she said.
The Official Committee of Asbestos Claimants, or ACC, filed a motion to dismiss or alternatively transfer venue on Aug. 15 through attorney Glenn C. Thompson of Hamilton Stephens Steele & Martin PLLC.
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.”
Bestwall attorney Garland Cassada of Robinson Bradshaw & Hinson argued in an objection that Bestwall’s bankruptcy filing has a proper reorganizational purpose and there was no showing of subjective bad faith.
“Bestwall has fulfilled its obligations as a debtor in possession and funded millions of dollars for the ACC and the FCR to participate in this case,” the objection states. “None of this is consistent with the notion that Bestwall has engaged in ‘sham transactions’ for the purpose of harming claimants.”
In her ruling on the ACC’s motion to dismiss, Beyer noted that the Fourth Circuit standard for dismissal of a chapter 11 case for bad faith “is one of the most stringent articulated by federal courts.” In order to succeed, movants must prove that the case is objectively futile and that the debtor filed the case in subjective bad faith.
“I recognize that the result may well be different if we were in a different Circuit, but we aren’t,” she said.
Beyer concluded that the case is not objectively futile, so she did not provide a decision on whether the case was filed in bad faith.
“I will ultimately have to rule on the debtor’s good faith, albeit in a different context, when we get a confirmation. Suffice it to say at this point, on the one hand, how the debtor got here and the filing of this case may technically comply with the relevant statutes. On the other hand, I’m not sure it’s what Congress had in mind when it drafted Section 524(g) to address mass tort bankruptcies,” she said.
Beyer said Bestwall’s case is “arguably, wrongfully motivated,” but she concluded that it is better to risk proceeding in the case than to “risk cutting off the possibility that the filing might result in a successful reorganization. At this point, I conclude that that possibility exists.”
Beyer agreed with Bestwall that the volume of asbestos claims it faces plus the number of claims projected to be filed through 2050 provides “sufficient financial distress” for Bestwall to seek bankruptcy protection.
The ACC had argued that Bestwall was no more than a “corporate sacrificial lamb” for Georgia Pacific LLC, formerly known as Georgia Pacific Corporation, due to its recent corporate restructuring.
However, Beyer noted that the restructured funding agreement allows Bestwall to draw necessary funds from New GP to pay the costs of its chapter 11 case to the extent Bestwall’s assets are insufficient to do so.
Even as a holding company, Bestwall owns assets and operating businesses that produce cashflow and have an enterprise value of nearly $150 million. Therefore, Beyer concluded Bestwall has the ability to make future payments as required by Section 524(g) bankruptcy.
“In support of its argument that the case is objectively futile the Committee asked the court to ignore the funding and other support agreements, but that ignores reality. The committee argues that the funding agreement creates the illusion of a viable business arrangement where one would not otherwise exist. That, too, ignores reality …” Beyer said.
As for the ACC’s request to transfer, Beyer found that venue was proper in the Western District of North Carolina.
“The debtor is neither organized in Delaware, nor does it have its principal place of business or assets there. The debtor’s domiciled here in the Western District of North Carolina and many of its assets are here.
“Keeping the case in this district will avoid the expense and delay associated with transferring the case to Delaware or Georgia, especially now that the case has been pending in this district for over a year and given this court’s familiarity with the case and the fact that the debtor says it stands ready to file a plan and disclosure statement, I disagree with the committee’s assertions that this case is in its infancy,” she said.
Beyer chastised the ACC for arguing that Bestwall engaged in obvious forum shopping in an effort to take advantage of Fourth Circuit law and “to taint this case with the factual findings” made in the “vastly different and unrelated” Garlock Sealing Technologies case.
She reminded the parties that Bestwall’s case is not Garlock, and she is not Bankruptcy Judge George Hodges.
“Neither of us are bound by the Garlock decision and you fail to give me proper credit by presuming that because that case was heard in this District the outcome of an estimation trial in this case would necessarily be the same or even similar,” Beyer said.
ACC counsel Natalie Ramsey of Robinson & Cole in Wilmington, Del., later responded, “ The evisceration of the protections 524(g)was intended to refer to the playbook of going through the Texas divisive merger and coming back. It was not intended to refer to the Garlock decision …So I just did just want to clarify that for the court. And I also wanted to say directly that we have every confidence in your honor, so thank you.”
In Garlock, Hodges issued a landmark ruling in favor of the debtor. 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 recover against Garlock.
Casada had also been Garlock’s lead attorney.
Hodges was recalled out of retirement to serve again as a bankruptcy judge in the Western District of North Carolina on Nov. 6.
In her ruling on the ACC’s motion to transfer, Beyer added that the Fourth Circuit has experience with asbestos cases and is “gaining more experience every day.” She also said the court is well equipped and a more convenient forum to handle the case given its location and flexibility.
Beyer said that while Bestwall “won the battle, so to speak, they still have to win the war. And pardon my analogy. As I’ve said, I don’t believe this case should be or needs to be a war, but I think you know what I mean.
“Going forward, the debtors will have to work with the committee and the FCR to confirm a plan and get a channeling injunction and we’ll see where we go from here,” she added.
Bestwall filed a voluntary petition for bankruptcy on Nov. 2, 2017.
Bestwall and its predecessor Georgia Pacific manufactured a joint compound product containing “minimal amounts” of chrysotile asbestos prior to1978, according to a brief filed by Cassada.
Despite “minimal” exposure, Bestwall argues that it has been “burdened” with asbestos litigation for 40 years and will likely continue until at least 2050, according to the bankruptcy petition.
Bestwall became its own company on July 31, 2017 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.
Local attorney Beth A. Gori of Gori Julian & Associates PC in Edwardsville is included on the committee of lawyers for asbestos claimants. She is representing Elizabeth Ann Harding, as special administrator of Steven Lanphear.
Attorney Andrew O’Brien of O’Brien Law Firm PC in St. Louis is also included on the committee of lawyers for asbestos claimants. He is representing plaintiff Rick Benson.
Local asbestos firm Maune Raichle Hartley French & Mudd is also among four plaintiff’s firms acting as special litigation counsel on medical science maters in the bankruptcy proceeding.