Asbestos claimant representatives seek to modify a preliminary injunction in Bestwall LLC’s Chapter 11 bankruptcy petition, arguing that they seek to preserve the status quo while the order is on appeal.
The preliminary injunction was granted on July 29, 2019, and stayed the filing and pursuit of asbestos claims against Georgia Pacific, or New Georgia Pacific, and other non-debtor entities. Georgia Pacific is Bestwall's predecessor.
“It protected Bestwall from the burden, expense, and distraction of defending those claims in the tort system while working to resolve them globally in this bankruptcy …” Bestwall attorney Garland Cassada wrote in his opposition to the motion to modify the preliminary injunction.
The Official Committee of Asbestos Claimants and the Future Claimants’ Representative (FCR) separately appealed the order, which are still pending.
The Committee and FCR filed the motion to modify the preliminary injunction issued for Georgia Pacific and other non-debtors’ benefit on July 29 through attorney Sander Esserman.
“[T]he Claimant Representatives believe that certain conditions to the Preliminary Injunction … are necessary to ensure that the assets of New GP are not depleted to the detriment of the Debtor’s estate,” Esserman wrote.
The Committee and FCR seek an order requiring New Georgia Pacific to provide monthly operating reports and quarterly financial statements and requiring GP Holdings to continue owning 100 percent of the debtor’s stock. They also seek to require New Georgia Pacific and GP Holdings to provide notice to the claimant representatives and obtain court approval before engaging in any transactions “out of the ordinary course of business,” making any dividends or returners of investment or changing any compensation agreements for officers and directors of New Georgia Pacific.
They request the court to issue an order preserving the status quo while the preliminary injunction protecting New Georgia Pacific remains in place. The Committee and FCR state that pursuant to a funding agreement between New Georgia Pacific and Bestwall, New Georgia Pacific is responsible for paying Bestwall’s liabilities.
“The purpose of this motion is to ensure that the claimed ‘manifest intent’ of the Funding Agreement is accomplished and the primary funding source for asbestos-related personal-injury claims will actually be available as represented to this court,” Esserman wrote.
The Committee and FCR argue that as it currently reads, the funding agreement does not prohibit New Georgia Pacific from selling assets or making changes to its business. They claim New Georgia Pacific has distributed dividends to its parent company in excess of $500 million since the bankruptcy case was filed.
“Absent the relief requested by this motion, there will be no impediment or check on New GP’s ability to distribute additional dividends (even while asbestos claimants are dying without compensation from Bestwall and New GP) and there can be no assurance that the benefits of the Funding Agreement - as repeatedly promised by both Bestwall and New GP - will actually be available,” Esserman wrote.
“As a result of using the Texas divisive merger to attempt to silo the asbestos liabilities and the stay of those liabilities under the preliminary injunction, New GP currently enjoys the protections of the Bankruptcy Code and this court’s orders without filing bankruptcy with concomitant protections to creditors, including disclosures and court supervision,” he added.
The Committee and FCR argue that New Georgia Pacific is avoiding more than $160 million per year in asbestos claims while “funneling” money to its corporate parent without restrictions.
“As long as New GP receives the benefits of bankruptcy without incurring any of the burdens, it has diminished incentives to actually resolve this bankruptcy case,” Esserman wrote.
“Thus, it is no surprise that mediation was unsuccessful, and that New GP now advocates for an estimation process that would unnecessarily prolong this case while simultaneously depriving desperately sick and dying asbestos personal injury claimants of compensation,” he added.
Cassada filed a response in opposition on behalf of Bestwall on Aug. 12, arguing that the Committee and FCR seek to modify the order they chose to appeal.
Cassada argues that the motion should be denied because the bankruptcy court has no jurisdiction to modify an injunction on appeal, which would “interfere impermissibly with the appellate process.”
“Nor can the Claimant Representatives’ invitation to interfere credibly be characterized as an effort to ‘preserve the status quo,’” he wrote. “They candidly seek to ‘modify,’ or change, the injunction - to add a lengthy list of material conditions to the relief it provides.
“They seek these ‘conditions’ not to preserve anything, but expressly to ‘incentivize New GP to promptly resolve this case,’” he added.
Cassada also argues that the motion should be denied because the legal and factual premises are baseless. He wrote that neither the claimant representatives nor their constituents have “interest in property” supporting a claim for “adequate protection.”
He added that the claimant representatives have “no legitimate concerns regarding the Funding Agreement,” because Bestwall and New Georgia Pacific have offered to amend the Funding Agreement to address concerns including restricting distributions to affiliates if they would reduce net worth below $10 billion.
“The purpose of the Claimant Representatives' Motion is patent and improper,” Cassada wrote. “It is an avowed attempt to leverage the Claimant Representatives’ unreasonable positions in the underlying chapter 11 case - to ‘incentivize New GP’ to act as they wish - by asking this Court to do what it cannot: to modify an injunction that is on appeal to the District Court.”
Georgia Pacific also filed a response on Aug. 12 through attorneys John Miller Jr. and M. Natasha Labovitz. It argues that when the Committee and FCR appealed the preliminary injunction, “the Court was divested of its jurisdiction to substantively modify or condition it.”
“The ACC [or Committee] and FCR had every opportunity to raise these demands when the Court was considering the Preliminary Injunction,” Miller wrote. “The ACC and FCR made the strategic decision at that time to oppose the Preliminary Injunction wholesale, and not raise any arguments about possible conditions for its imposition, in each of their multiple opposition pleadings. The ACC and FCR must live with their strategic decisions, and the Court should not reward them with another bite at the apple to raise arguments that could have been raised and dealt with long ago.”
Miller further argues that the motion to modify is “based on the entirely incorrect factual assumption” that New Georgia Pacific is now less willing or unable to fulfill its obligations.
“Much to the contrary, any argument that New GP is unable or unwilling to fulfill its obligations under the Funding Agreement and fully fund a section 524(g) trust are rebutted by New GP’s agreement, upon Court approval, to immediately place $1 billion in cash into a qualified settlement fund to thereafter fund a section 524(g) trust to pay Bestwall Asbestos Claimants,” he wrote.
The Committee and FCR filed a reply in support of their motion on Sept. 4 through attorney Felton Parrish, arguing that a preliminary injunction order can be modified to preserve the status quo while on appeal.
“In support of their request for a Preliminary Inunction, Bestwall and New GP assured the Court that asbestos claimants would not be prejudiced because claimants would continue to have access to all assets of New GP,” Parrish wrote. “Bestwall and New GP therefore have no legitimate basis to complain about the imposition of conditions that would do just that.”
They also state in their reply that New Georgia Pacific has an estimated net worth of $22 billion.
“By their motion, the Claimant Representatives seek relief to preserve the status quo in a manner consistent with their prior assurances of Bestwall and New GP and to ensure that all of the assets and paying power of New GP continue to be available to satisfy asbestos claims,” Parrish wrote.
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.
Cassada of Robinson Bradshaw & Hinson also represented Garlock Sealing Technologies during its Chapter 11 bankruptcy case before bankruptcy judge George Hodges.
During Garlock’s bankruptcy proceedings, Cassada made similar arguments in regards to exaggerated exposures and inflated liability claims.
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.
Hodges was recalled out of retirement to serve again as a bankruptcy judge in the Western District of North Carolina in November 2019.