THAN Asbestos Bankruptcy - Memorandum of Law in Support of AIG's Motion to Reopen the Case to Assert Audit Rights

8/12/2019 THAN Asbestos Bankruptcy - Memorandum of Law in Support of AIG's Motion to Reopen the Case to Assert Audit

1/17

Return Date: Wednesday, March 19,2014 at 9:45 A.M.SSTResponsive Papers Due: Wednesday, March 12,2013

UNITEDSTATESBANKRUPTCY COURTFORTHESOUTHERNDISTRICTOFNSWYORK

I n Re:T I AGRICULTURE NUTRITION, . L . C . C h a p t e r 1 1D e b t o r . Case No. 08-14692

Hon. Robert E. e r b e r P r e s i d i n g

MEMORANDUMOFLAW N SUPPORTOFAIG M~MI3I:R COMPANIES'MOTION TO REOPENCHAPTER 1 CAST;PURSUANTTOSECTION S0(b)OFTITLE 1 OFTHEUNITEDSTAT~SCODS, EDERALRULEOFBANKRUPTCYPROCEDURI. 010,AND LOCALBANKRUPTCYRULE FORTHI;_SOUTHERN

DISTRICTOFNEWYORK O10- 1HARDIN KUNDI,A MCKTONPOLETTO, .A,S t e v e n P. Mui r a y E s q .110 W i l l i a m S t r e e t 5 ` x F l o o rNew ork,NY 10038Phone: (212) 71 - 0 1 1John S . F a v a t e Esq.Henry T. M. eFevre- S n e e E s q .673 M o r r i s AvenueS p r i n g f i e l d New e r s e y 07081Phone: 973) 1 2-5222AtCorneys . f o g P l c r r . a ~ l i ~ f s , AlUI ~ s t a ~ance C o ~ n p a r t y A ~ ~ e ~ i c a hHon2e Assu~ a r ~ c e Compc+ny,B i r m i n g l ~ . a m I i j e I n s u ~anteCompa~~y o f P e n ~ ~ s y l v a n i u G~ a n i s eS t a t e I n s u ~ante Cofnpany, LexingtonInsurance Co mpany, and NationalUnion Fire Insurance Company o fP i t t s b u r g h Pa.

08-14692-reg Doc 614-1 Filed 03/03/14 Entered 03/03/14 13:39:02 Memorandumof Law Pg 1 of 17


2/17

T BU FCONTENTS

Tableof u t h o r i t i e s i i

I N T R O D U C T I O N 1

B A C K G R O U N D 1

J U R I S D I C T I O N 8

B SISFOR LI F 1

C O N C L U S I O N 1 3



3/17

TBUFAUTHORITIES

Cases

B a r t l e v . M a r l c s o n 357F.2d5172d. i r . 1966). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0C e l o t e x Corp. . Ed ward s,514U.S. 300 L.Ed. 2 d 403, 115S . C t . 1493 1995). . . . . . . . . . . . . . . 8I n r e Chateaugay C o r g i 2 01B. R. 48 Bankr. S. D. N. Y. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9I n r e E l n n i e r l i n ~ , 2 2 3 B. R. 860 B.A.P. 2 d C i r . 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 lI n r e F i b r e m a r l c , 369 B.R.76 1(Bankr.D.Vt.2 007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1 1I n r e Garlock S e a l i n , ~ , T e c h n o l o g i e s , N o . 0 -31607, 014 a n l c r . LEXIS157 Bankr.W. D . N . C . a n . 1 0 2 014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

I n r e IonpSphere Clubs, n c . , 2 62 . I Z . 604B a n l c r . S. D. N. Y. 2 001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9I n r e Johns- Manville C o r i . 7.3d 322 d C i r . 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

I n r e P o r e s, 44 . 3 d 1 S 92 d C i r . 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1I n r e T . H . A g r i c u l t u r e Nutrition, . L . C . N o . 8- 14692 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2T.H. g r i c u l t u r e Nutrition, .L.C. . ACEr o p e r t y and Cas. o . e t a l .No . 2CI I 19 037, i r c u i t Courtof C o n k County, l l i n o i s , Chancery D i v i s i o n . . . . . . . . . . . . . . . . 1S t a t u t e s1 1 U.S.C.105(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1 1 U.S.L. ~350 (b ). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 , 10

1 1 U.S.C.52 4~ ~). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 8U.S.C.1334(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9

Co ur t RulesPed.R. a n l c r . P.5010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lF e d . R. a n l c r . P.9019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4F e d . . R. Bankr. . 7001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l 0

i i



4/17

S D N Y Bankr Local R 5010 1



5/17

INTRODUCTIONAIU I n s u r a n c e Company, American Home Assurance Company, Birmingham F i r e

I n s u r a n c e Company of P e n n s y l v a n i a , G r a n i t e S t a t e I n s u r a n c e Company, Lexington I n s u r a n c eCompany, and N a t i o n a l Union F i r e I n s u r a n c e Company of P i t t s b u r g h , Pa. ( c o l l e c t i v e l y , t h eAIG Member Companies) hereby r e s p e c t f u l l y submit t h i s motion p u r s u a n t t o S e c t i o n 350(b)of i t l e 11 of h e U n i t e d S t a t e s Code ( t h e `Bankruptcy Code ) , l ~ e d e i a l Rule of BankruptcyProcedure (`Bankruptcy Rul e) 010, and Local Bankruptcy Rule f o r t h e S o u t h e r n D i s t r i c t ofNew Y o r l c 50 1 0- 1 Motion ) , f o r e n t r y of an o r d e r r e o p e n i n g T H g r i c u l t u r e &NutritionL . L . C . ' s THAN) Chapter 1 1 c a s e ( t h e Chapter 1 1 Case) n o r d e r t o commence anAdversary Proceeding f o r p u r p o s e s of e a r i n g and o r d e r i n g t h e r e l i e f sought n t h e AIG MemberCompanies' Complaint ( t h e Complaint E x h i b i t 1 t o A f f i d a v i t of 5teveu P. Murray, Esc.(Murray A f f .)) r i s i n g from a b r e a c h by THAN and t s p a r e n t c o r p o r a t i o n , P h i l i p s E l e c t s o n i c sNorth American C o r p o r a t i o n ' s PENAL) of t h a t c e r t a i n S e t t l e m e n t Agreement and MutualR e l e a s e S e t t l e m e n t Agreement) E x . A t o t h e Complaint) e n t e r e d i n t o among t J ~ e A IGMember Companies,THAN and PF.,NAC on A p r i l 1 5 , 2009, and approved by t h i s Court i n a ~ 1Order d a t e d May 6, 2009. I n t h e i r Complaint, h e AIG Member Companies s e e k , among t l l e ~ r e m e d i e s , a e c l a r a t o r y . T u d ~ ; m e n t and S p e c i f i c ~ ' e r f o r m a n c e.

BACKGROUNDThe AIG Member Companies, THAN and PENAL were a l l p a r t i e s t o an i n s u r a n c e

coverage d i s p u t e c a p t i o n e d TH g r i c u l t u r e u t i i t i o n , L.L,C. v . ACS r o p e r t y and Cas. Coe t a l . No. 0 2 C I - ~ 19037, C i r c u i t Court of Cook County, I l l i n o i s , C h a ~ ~ c e r y D i v i s i o n ( t h eCoverage A c t i o n ) . See S e t t l e m e n t Agreement, . .

-1-



6/17

On November 24, 2008, THAN commenced r e o r g a n i z a t i o n p r o c e e d i n g s b e f ~ > r e t h e

United S t a t e s Bankruptcy Court o r t h e Southenl i s t r i c t ofNew o r l < p u r s u a n t t o Chapter l of

t h e B a i ~ i c r u p t c y Code, a p t i o n e d a s I n r e T I A g r i c u l t u r e Nutrition, . L . C . , No. 8-14692. SeeSettlement Agreement, . l.

On p r i l 15, 2009, h e AIG Member Companies,THAN nd PENAC n t e r e d i n t o t h e

Settlement Agreement, which r e s o l v e d t h e Coverage A c t i o n , p r o v i d e d f o r t h e AIG MemberC o i ~ ~ p a n i e s t o n 7 a l c e c e r t a i n s u b s t a n t i a l payments t o P~N~1C and, among o t h e r r i g h t s , gaveP l a i n t i f f s v a l u a b l e a u d i t r i g h t s . See S e t t l e m e n t Agreement, 2 . 3 .

The S e t t l e m e n t Agreement c a l l s f o r t h e AIG Member Companies t o make s e t t l e m e n tpayments o PENAC epending upon c e r t a i n payment m i l e s t o n e s being reached by t h e Asbestos

PI T r u s t . ' See S e t t l e m e n t Agreement, 2 . 1 . The Asbestos PI Trust was e s t a b l i s h e d t o p r o c e s s

and pay a s b e s t o s claims channeled t o i t p u r s u a n t t o t h e TI-IAN F i r s t Amended I l a n ofR e o r g a n i z a t i o n .

S e c t i o n 2 . 3 of t h e S e t t l e m e n t Agreement p r o v i d e s f o r broad a u d i t r i g h t s , whi ch were

bargained f o r by h e AIG Member ompanies and r e p r e s e n t v a l u a b l e and m a t e r i a l c o ~ l s i d e r a t i o n

i n r e t u r n f o r t h e AIG Member Companies' e ~ ~ t e r i n g i n t o t h e S e t t l e m e n t Agi c e m e n t . See

Complai nt, 20. T l ~ e a u d i t i f i g h t s p r o t e c t t h e i n t e r e s t s of t h e AIG Member Companies, l ~ eAsbestos PI T r u s t , and t h e i n t e g r i t y of h e THAN bankruptcy proceeding i t s e l f by p r o v i d i n g a

means f o r t h e AIG Member Companies t o o b t a i n i n f o r m a t i o n r e g a r d i n g claims p a i d by t h e

Asbestos PI Trust t o c l a i m a n t s , i n c l u d i n g i n f o r m a t i o n s u f f i c i e n t t o d e t e c t any m i s c a l c u l a t i o n of

The Asbestos YI Trust i s a Delaware I ' i ~ ~ s t formed p u r s u a n t t o S e c t i o n 524(8) of t h eBankruptcy Code, as p a r t of t h e B a n l ~ u p t c y Plan implemented i n I n r e 1 H ~ r i c u l t u r eN u t r i t i o n , L.L.C.

-2-



7/17

payments o r d i s t r i b u t i o n s and f r a u d a g a i n s t t h e Asbestos PI T r u s t , each o f which c o n s t i t u t e

grounds up on w hi ch t h e AIG M e m b e r Companies m a y w i t h h o l d payment p u r s u a n t t o t h eS e t t l e m e n t Ag reement and t a k e o t h e r a c t i o n a s m a y be a p p r o p r i a t e . See S e t t l e m e n t A g z e e m e n t , 2 . 4 .

S e c t i o n 2 . 3 o f h e S e t t l e m e n t Ag reement p r o v i d e s :7 ' h e AIG Me m b e r Companies s h a l l have t h e r i g h t t o a u d i t payments andd i s t r i b u t i o n s m a d e b y t h e T r u s t a i t h e i r own xpense, no m o r e h a n once e i ~ y e a r .Before c o n d u c t i n g any a u d i t , A IG s h a l l a g r e e t o keep l l i n f o r m a t i o n c o n f i d e n t i a land s h a l l f u r t h e r a g r e e n o t t o u t i l i z e any i n f o r m a t i o n f o r a n y t h i n g o t h e r t h a n t oa s s e s s whether t h e T r u s t i n f a c t m a de payments t o t h e c l a i m a n t s a s s e t f o r t h i nt h e q u a r t e r l y r e p o r t s .S e c t i o n 2 . 4 o f h e S e t t l e m e n t Ag reement u r t h e r p r o v i d e s :The AIG Me m b e r Companies s h a l l n o t he e n t i t l e d t o c h a l l e n g e o r q u e s t i o n t h epayments o r d i s t r i b u t i o n s o f h e T r u s t , n o r s h a l l t h e y be e n t i t l e d t o c h a l l e n g e o r t oq u e s t i o n t h e i r o b l i g a t i o n s t o s n a k e payments p u r s u a n t t o t h e terms and c o n d i t i o n so f t h i s S e t t l e m e n t Agreement, o r t o o f f s e t , t a k e c r e d i t a g a i n s t o r o t h e r w i s ew i t h h o l d any such payments b a s e d on any c l a i m t h a t t h e T r u s t o r i t s t r u s t e e s ) t h e T r u s t e e ( s ) ) i d not p r o p e r l y i n c u r expenses o r d i d n o t p r o p e r l y l i q u i d a t e c l a i m sa c c o r d i n g t o t h e T r u s t ' s p r o c e d u r e s , o r o t h e r w i s e , w i t h t w o e x c e p t i o n s :a . I f t h e AIG M e m b e r Companies d e t e r m i n e b a s e d o n t h e i r review and/ o r

a u d i t t h a t payments made. b y t h e T r u s t t o a s b e s t o s c l a i m a n t s a l l e g i n gm a l i g n a n t i n j u r i e s a i l d u s e d a s t h e b a s i s f o r c a l c u l a t i n g t h e p e r c e n t a g es h a r e t o b e p a i d by t h e A IG M e m b e r Companies o r r o l l o v e r amounts, l la s p r o v i d e d i n S e c t i o n 2 . 1 , were m i s c a l c u l a t e d due t o an a c c o u n t i n g e r r o r t h e AIG Member- Companies m a y b r i n g such a c c o u n t i n g e r r o r t o t h ea t t e n t i o n o f h e Trustees) and r e q u e s t t h a t t h e Trustees) eview t h e m a t t e rand, i f t h e Trustees) a g r e e t h a t t h e r e has been an a c c o u n t i n g e r r o r , t h eAIG M e m b e r Companies w i l l b e c r e d i t e d t h e a m o u n t o f any overpaymentb y t h e AIG M e m b e r Companies r e s u l t i n g from t h e a c c o u n t i n g ; e r r o r anda p p l y such c r e d i t toward t h e A I C J Me m b e r Companies' o b l i g a t i o n s t om a k e payments under t h i s S e t t l e m e n t Ag reement w i t h o u t , however,r e d u c i n g t h e A I C ' J M e m b e r Companies' o v e r a l l o b l i g a t i o n t o pay t h eS e t t l e m e n t A m o u n t , a s p r o v i d e d i n S e c t i o n 2 . 1 . PENAC c z g ~ e e s t oc o o p e r a t e w i t h t h e A IG M e ~ ~ ~ ~ b e r Companies i n o b t a i n i n g any p e ~ ~ t i n e n ti n f o m a t r o n .

3



8/17

b . I f t h e AIG Member Companies have r e a s o n t o b e l i e v e t h a t a i r y of t h eClaims u b m i t t e d t o and p a i d by h e T r u s t were r a u d u l e n t , . e . were b a s e don n t e n t i o n a l l y f a l s e i n f o r m a t i o n t h a t was a t e r i a l t o t h e a l l o w a n c e of h eClaims, such t h a t t h e T r u s t was d e f r a u d e d and has a i g h t t o r e c o v e r backpayments made on such Claims, h e AIG Member Companies may b r i n gsuch evidence of such f r a u d t o t h e a t t e n t i o n of h e Trustees) a nd r e q u e s tt h a t t h e Trustees)review t h e e v i d e n c e . F u r t h e r , n o t h i n g i n t h i s S e t t l e m e n tAgreement h a l l p r e v e n t t h e AIG Member Companies from b t i n g i n g suche v i d e n c e t o t h e a t t e n t i o n of t h e Bankruptcy Court and / o r t o t l i c U n i t e dS t a t e s A t t o r n e y ' s O f f i c e f o r t h e S o u t h e r n D i s t r i c t of New Y o r l c . I f t h eTrustees) g r e e t h a t t h e e v i d e n c e s u p p o r t s t h e AIG Member Companiesc l a i m t h a t t h e T r u s t h a s been d e f r a u d e d and/ o r w a r r a n t s f u r t h e ri n v e s t i g a t i o n i n t o p o s s i b l e f r a u d , concludes t h a t i t would be i n t h e b e s ti n t e r e s t of h e T r u s t t o u n d e r t a k e t h e e f f o r t s and i n c u r t h e expense r e q u i r e dt o p u r s u e r e c o v e r y and/ o r conduct such f u r t h e r i n v e s t i g a t i o n , andu l t i m a t e l y r e c o v e r s back a l l o r some of t h e amounts p a i d towardf r a u d u l e n t Claims a s t o which t h e AIG Member Companies madereimbursement t o PENAC , P~NAC w i l l c r e d i t t h e AIG MemberCompanies w i t h t h e a p p l i c a b l e p e r c e n t a g e (as p r o v i d e d i n S e c t i o n 2 .] b))of t h e r e c o v e r e d amount and a p p l y such c r e d i t toward t h e P a r t i e s 'o b l i g a t i o n s t o make payments under t h i s S e t t l e m e n t Agreement w i t h o u t ,however, e d u c i n g t h e AIG Member Companies v e ~ ~ a l l o b l i g a t i o n t o payup t o t h e S e t t l e m e n t , a s p r o v i d e d i n S e c t i o n 2 . 1 . PENAC a g e e e s t oc o o p e r a t e ~ ~ i t h t h e AIG Member Companies i n o b t a i n i n g any p e r t i n e n ti n f o ~ m c ~ t i o n .[Emphasis d d e d . ]

S e c t i o n 8 of h e S e t t l e m e n t Agreement r o v i d e s :The a r t i e s s h a l l c o o p e i a t e t o p r e s c i v e t h e v a l i d i t y , f i n a l i t y , and e n f o r c e a b i l i t y oft h i s S e t t l e m e n t Agreement. T h e P a r t i e s s h a l l u s e t h e i r h e s t e f f o r t s t o r e s o l v eand/ o r t o oppose any and a l l e f f o r t s o r o b j e c t i o n s t o c h a l l e n g e t h i s S e t t l e m e n tAgreement under any r o v i s i o n of h e Bankruptcy Code.S e c t i o n 16 of h e S e t t l e m e n t Agreement r o v i d e s :This S e t t l e m e n t Agreement may n o t be amended, l t e r e d o r m o d i f i e d e x c e p t by aw r i t t e n amendment duly e x e c u t e d by t h e o r i g i n a l P a r t i e s o r t h e i r s u c c e s s o r s o ra s s i g n s .On May , 2009, h i s Court e n t e r e d an Order Pursuant o Fed. R, a n l c r . P. 9019 and 1 1

U.S.L. 105(a) pproving h e [ S e t t l e m e n t Agreement]between[THAN], PENAL] nd t h e AIGMember Companies t h e May , 009 Order ) . See x h i b i t A o t h e Complaint;TCF oc. 24 .

-4-



9/17

I n a d d i t i o n t o a p p r o v i n g t h e S e t t l e m e n t Agreement, t h e May , 2009 Order p r o v i d e s i n p a r t : . . . t h i s Count s h a l l r e t a i n j u r i s d i c t i o n w i t h r e s p e c t t o t h e i m p l e m e n t a t i o n of t l ~ e S e t t l e m e n tA g r e e m e n t and t h i s O r d e r . I d . On May 28, 2009 t h i s Court e n t e r e d F i n d i n g s of F a c t ,Conclusions of Law, and confirmed THAN's F i r s t A m e n d e d P r e p a c i c a ~ e d Y l a n ofR e o r g a n i z a t i o n ( t h e Plan ) . I n t h e May 8, 2009 O r d e r , t h e Court r e t a i n e d j u r i s d i c t i o n o v e r t h em a t t e r s s e t f o r t h i n A r t i c l e 1 3 . 1 of h e P l a n . See ~CF Doc. 464, ~ S. A r t i c l e 1 3 . 1 of l ~ e P l a np r o v i d e s , i n t u r n , t h a t t h i s Court s h a l l r e t a i n c o n t i n u i n g b u t n o t e x c l u s i v e j u r i s d i c t i o n a v e r

Asbestos I n s u r a n c e A c t i o n s . See i d . a t A r t . 1 3 . 1 . The Plan d e f i n e s Asbestos I n s u r a n c eActions s any . . r i g h t of any Asbestos I n s u r a n c e E n t i t y a g a i n s t any of P]~NAC, e o r g a n i z e d1 I-IAN, r THAN e l a t e d t o any ...Insurance S e t t l e m e n t A ~ r e e n z e n t ... See i d _ a t A r t . 1 . 1 0 .A s d e f i n e d i n t h e P l a n , I n s u r a n c e S e t t l e m e n t Agreement i n c l u d e s t h e S e t t l e m e n t Agrcemenl.See i d . a t A r t . 1 . 8 5 and S e c t i o n I X of x h i b i t G o t h e P l a n .

E f f e c t i v e Novem b er 30, 2009,THAN,PENAC nd t h e Asbestos PI T r u s t e n t e r e d i n t o anAsbestos Records Cooperation A g r e e m e n t t h e ARCA ) , which PENAC nd THAN e l y upon

t o p u r p o r t e d l y m a t e r i a l l y d i m i n i s h and r e n d e r i n e f f e c t i v e t l ~ e A1G Member Companies' a u d i t

r i g h t s and t o c o n s h a i n PL;NA C and THI~N's a b i l i t y t o c o o p e r a t e w i t h t h e I ~ I G MemberC o m p a n i e s i n e n f o r c i n g t h e AIG M e m b e r Com pa n ie s' a u d i t r i g h t s p u r s u a n t t o t h e S e t t l e m e n tAgreement. See E x h i b i t C o t h e P l a n .

The AIG M e m b e r C o m p a n i e s a r e n o t s i g n a t o r i e s t o t h e ARCA and a r e n o t bound by i t .Furthermore, h e ARCA oes n o t a l t e r , modify o r change t h e S e t t l e m e n t Agreement a r t 1 1 e A I C JM e m b e r Com pa n ie s' a u d i t r i g h t s under t h e S e t t l e m e n t Agreement. The P l a n p r o v i d e s t h a t .n o t w i t h s t a n d i n g a n y t h i n g t o t h e c o n t r a r y i n t h e C o n t i r i n a t i o n O r d e r , t h e P l a n o r any of h e P l a nDocum e n t s, n o t h i n g i n t h e P l a n , t h e Plan Docum e n t s, h e C o n f i i m a t i o i ~ O r d e r , a i r y f i n d i n g of

-5-



10/17

f a c t and/ o r c o n c l u s i o n of law w i t h r e s p e c t t o t h e c o n f i r m a t i o ~ l of h e P l a n , r any F i n a l Order o r

o p i n i o n e n t e r e d on a p p e a l from t h e C o n f i r r r i a t i o n Order ( i n c l u d i n g any o t h e r p r o v i s i o n t h a t

p u r p o r t s t o be preemptory o r supervening) s h a l l i n any w a y o p e r a t e t o , o r have t h e e f f e c t o f ,i m p a i r i n g : (a) any Asbestos I n s u r a n c e E n t i t y ' s l e g a l , e q u i t a b l e o r C o n t i a c t u a l r i g h t s , i f any, i n

any r e s p e c t under any Asbestos PI I n s u r a n c e C o n t r a c t ... See A r t . 1 0 . 4 t o t h e P l a n . P u r s u a i a t t o

t h e P l a n , Asbestos PI I n s u r a n c e C o n t r a c t i n c l u d e s any I n s u r a n c e S e t t l e m e n t Agreements.

Se e A r t . 1 . 1 4 t o t h e P l a n . s e f i n e d i n t h e P l a n , I n s u r a n c e S e t t l e m e n t Ag r e emen t n c l u d e s t h e

S e t t l e m e n t Agreement. Se e i d . a t A r t . 1 . 8 5 and S e c t i o n I X of x h i b i t G o t h e P l a n .On a n u a r y 6, 2010, h i s Court e n t e r e d a F i n a l Decree and c l o s e d t h e TH N ~ h a p t e r 1 1

P r o c e e d i n g s . Se e ECP 77.S i n c e t h e S e t t l e m e n t Ag r e emen t became e f f e c t i v e , t h e IGM em b e r Companies have me t

and c o n t i n u e t o f u l f i l l a l l of h e i r o b l i g a t i o n s under t h e S e t t l e m e n t A greem ent , n c l u d i n g making

a l l r e q u i r e d payments. Se e Complaint, 31.S e c t i o n 2 . 4 ( b ) of h e S e t t l e m e n t Ag r e emen t p e c i f i c a l l y c o n t e m p l a t e s t h a t t h e T r u s t c o u l d

f a l l v i c t i m t o f r a u d and p r o v i d e s t h a t t h e A IG m e m b e r Companies ...ma y b r i m ; ...evidence...of raud o t h e T r u s t e e , t h i s Court and/ o i ~ t h e United S t a t e s A t t o r n e y f o r t h e S o u t h e r n D i s t r i c t

of New Y o r l c . PEN C a g r e e s i n S e c t i o n 2 . 4 ( b ) . . . t o c o o p e r a t e w i t h t h e AIG M e m b e rCompanies i n o b t a i n i n g any p e r t i n e n t i n f o r m a t i o n r e g a r d i n g f r a u d . The r e c o g n i t i o n i n t h eS e t t l e m e n t Ag r e emen t of h e p o s s i b i l i t y t h a t f r a u d c o u l d be p e r p e t r a t e d on t h e A s b e s t o s P1 I ' i u s t

and t h e AIG M e m b e r Companies' i g h t s t o a d d r e s s any such f r a u d i s w e l l founded and s e r v e s n o to n l y t h e i n t e r e s t s of h e IG M em b e r Companies, u t a l s o t h e Asbestos P I T r u s t and t h e T I-IANbankruptcy p r o c e e d i n g s and P l a n .



11/17

For i n s t a n c e , i n t h e r e c e n t d e c i s i o n i n In r e Garlock S e a l i n g Technologies, No. 1 0 -31607,2014 B a n l c r . LEXIS 157 (Bankr. W.D.N.C. J a n . 10, 2014), t h e Bankruptcy Court a s s e s s e d t h ee f f e c t s on t h e v a l u a t i o n of a s b e s t o s l i a b i l i t i e s of a d e b t o ~ ~ i n l i g h t of proof d e m o n s t z a t i n g t h a ta s p e c t s of t h e a s b e s t o s t o r t and t r u s t system h ave be c o m e i n f e c t e d by t h e m a n i p u l a t i o n ofexposure evidence by p l a i n t i f f s and t h e i r lawyers, and c i t e d s e v e r a l p a r t i c u l a r i n s t a n c e s oft a c t i c s em pl oyed by s o m e a s b e s t o s p l a i n t i f f s and t h e i r a t t o r n e y s t o i n f l a t e z e c o v e r i e s . 2014B a n l c r . LEXIS 157 a t *32, 37- 4 0 . T h e bankruptcy c o u r t c h a r a c t e r i z e d t h e s e f i n d i n g s a s s u r p r i s i n g and p e r s u a s i v e, noted they s h o w e d a p a t t e r n s u f f i c i e n t l y widespread t o have as i g n i f i c a n t impact on Garlock's s e t t l e m e n t p r a c t i c e s and r e s u l t s, and concluded t h a t [ i ] tappears c e r t a i n t h a t m o r e e x t e n s i v e d i s c o v e r y would s h o w m o r e e x t e n s i v e a b u s e . I d . a t *40- 4 2 .Up o n i n f o r m a t i o n and b e l i e f , -many of h e s a m e p l a i n t i f f s ' a t t o r n e y s who u b m i t t e d claims i n t l ~ eGarlock m a t t e r may ave a l s o s u b m i t t e d claims t o t h e Asbestos PI T r u s t .

T h e A I C J Member Co m p a n i e s n o t i f i e d THAN n d P~NAC f h e i r i n t e n t t o p r o c e e d w i t han annual a u d i t p u r s u a n t t o t h e S e t t l e m e n t Agreement. S ee Complaint, ( 3 3 , THAN and PEN/1Cresponded, a s s e r t i n g i n s u b s t a n c e t h a t , n o t w i t h s t a n d i n g t h e p r o v i s i o n s of t h e S e t t l e m e n tA greem en t , t h e AIG Member C o m p a n i e s ' a u d i t r i g h t s under t h e S e t t l e m e n t A g r e e m e n t w e r el i m i t e d , a n d s u b o r d i n a t e t o a n d o t h e r w i s e c o n s t r a i n e d by t h e ARCA. e e i d . , 34. THAN andPENAC d e m a n d e d t h a t t h e AIG Member Co m p a n i e s a g r e e t o be bound by t h e terms of t h eARCA, nd r e f u s e d t o allow t h e AIG M e mb e r Co m p a n i e s t o e x e r c i s e t h e i r a u d i t f i g h t s u n l e s s t h eAIG Member Co m p a n i e s a g i e e t o a d d i t i o n a l l i i ~ i t t i o n s n o t r e q u i r e d by t h e S e t t l e i l l e n tAgreement. Se e i d . , 36- 3 7 . T h e s e l i m i t a t i o n s would narrow t h e AIG M e mb e r Compa n ies 'a u d i t r i g h t s t o such a degree so a s t o r e n d e r t h e a u d i t r i g h t s meaningless and m a k e t i m p o s s i b l et o d e t e c t t h e m i s c a l c u l a t i o n addressed i n t h e S e c t i o n 2 . 4 ( a ) of h e S e t t l e m e n t A g r e e m e n t and t h e

-7-



12/17

f r a u d c o n t e m p l a t e d by S e c t i o n 2 . 4 (b) of h e S e t t l e m e n t Agreement. PF,NAC and TH N avet h u s p r e c l u d e d t h e IG M e m b e r Companies from even h a v i n g t h e o p p o r t u n i t y t o u n c o v e r f r a u d

and b r i n g i t t o t 1 1 e a t t e n t i o n of h e T r u s t e e , t h i s C o u r t o r t h e U n i t e d S t a t e s A t t o r n e y , a s e x p r e s s l yp r o v i d e d f o r i n S e c t i o n 2 . 4 ( b ) of h e S e t t l e m e n t Agreement. PEN L nd THAN h a v e t h e r e b yb r e a c h e d t h e S e t t l e m e n t Agreement, r e q u i r i n g t h i s C o u r t ' s i n t e r v e n t i o n t o e n f o r c e t h e A IGM e m b e r Companies' a u d i t r i g h t s an d r i g h t s t o s e e k r e d r e s s i n t h e e v e n t of m i s c a l c u l a t i o n andf r a u d .

JURISDICTION

T h i s Court h a s s u b j e c t m a t t e r j u r i s d i c t i o n o v e r t h i s m a t t e r p u r s u a n t t o 28 U . S . C , ~ 1334(b)b e c a u s e t h i s a d v e r s a r y p r o c e e d i n g a r i s e s i n , a r i s e s u n d e r , o r i s r e l a t e d t o t h e C h a p t e r 1 1 c a s e ,T I _ r i g c u l t u r e &Nutrition, . L . C . , i n t h e U n i t e d S t a t e s Bankruptcy Court o r t h e S o u t h e r n D i s t r i c tofNew o r l c , a s Case No. 8-14692.

T h i s C o u r t ' s s t a t u t o r y j u r i s d i c t i o n u n d e r S e c t i o n 1 3 3 4 i s e x t r e m e l y b r o a d . I n r eChateaugay C o r p . , 201 B.R. 48, 6 3 F 3 a n l c r . S.D.N.Y. 1996) c h i n C e l o t e x Corp. v . Edwards,5 1 4 U.S. 300, 131 L. Ed. 2d 403, 115 S . C t . 1 4 9 3 ( 1 9 9 5 ) ) . c o u r t e n j o y s r e l a t e d t oj u r i s d i c t i o n o v e r a ny m a t t e r where, a s i n t h i s c a s e , t h e ou tcome might have any ` c o n c e i v a b l ee f f e c t ' on t h e b a n k r u p t c y e s t a t e o r i f t h e p r o c e e d i n g h a s ` a n y s i g n i f i c a n t c o n n e c t i o n ' w i t h t h eb a n k r u p t c y e s t a t e . I b i d . ( i n t e r n a l c i t a t i o n s o m i t t e d ) . Here, t h e S e t t l e m e n t / l g r e e m c n t was a ni n t e g r a l p a t t of and s s i g n i f i c a n t l y c o n n e c t e d t o t h e TH N a n k r u p t c y , such t h a t t h e outcome oft h e Adversary P r o c e e d i n g might have an e f f e c t on t h e TIIAN b a n k r u p t c y and/ o r o p e r a t i o n of h eA s b e s t o s PI T r u s t . The S e t t l e m e n t A g r e e m e n t p r o v i d e s f o r t h e AIG M e m b e r Companies o m a k es u b s t a n t i a l payments t o PEN L s t h e A s b e s t o s PI T r u s t r e a c h e s c e r t a i n payment m i l e s t o n e s .F u r t h e r m o r e , t h e AIG M e m b e r Companies' a b i l i t y t o e x e r c i s e t h e i r a u d i t r i g h t s a s p r o v i d e d f o r



13/17

i n t h e S e t t l e m e n t Agreement and t h e i r r i g h t t o t a k e a c t i o n i n t h e e v e n t of payment

m i s c a l c u l a t i o n s and/ o r f r a u d w i t h o u t b e i n g s u b j e c t t o a d d i t i o n a l post hoc c o n d i t i o n s and l i m i t s i sl i k e l y t o f u r t h e r a s s u r e t h e a p p r o p r i a t e o p e r a t i o n of h e Asbestos PI T r u s t .

This Court has a l s o e x p r e s s l y r e t a i n e d a n c i l l a r y j u r i s d i c t i o n over t h i s m a t t e r p u r s u a n t t o

t h e May 28, 2009 C o n f i r m a t i o n O r d e r , S e c t i o n 1 3 . 1 of t h e P l a n and t h e May 6, 200) Orderapproving t h e S e t t l e m e n t Agreement. I n r e C h a t e a u g _ a y C o r p . , supra, 201 B.R. a t 6 2Bankruptcy C o u r t s have i n h e r e n t o r a n c i l l a r y j u r i s d i c t i o n t o i n t e r p r e t and e n f o r c e t h e i r owno r d e r s wholly independent of h e s t a t u t o r y g r a n t under 2 8 U.S.C. 1334. ) ; I n r e P e t r i e R e t a i lI n c . , 304 F . 3 d 223, 23 0 (2d C i r . 2002)(A b a n k r u p t c y c o u r t r e t a i n s p o s t- c o n f i r m a t i o nj u r i s d i c t i o n t o i n t e r p r e t and e n f o r c e i t s own r d e r s . ) ; I n r e J o h n s - M a z l v i l l e C o r U . , 7 . 3 d 32, 3 4(2d C i r . 1993) A bankruptcy c o u r t r e t a i n s p o s t- c o n f i r m a t i o n j u r i s d i c t i o n i n a c h a p t e r 1 1

p r o c e e d i n g only t o t h e e x t e n t p r o v i d e d i n t h e p l a n of e o r g a n i z a t i o n . . . T h e b a n k r u p t c y c o u r t ' sp o s t - c o n f i r m a t i o n j u r i s d i c t i o n t h e r e f o r e i s d e f i n e d b y r e f e r e n c e t o t h e P l a n . ) ; I n r e I o n o s p h e r e

Clubs, n c . , 2 6 2 B.R. 604, l 3 B a n l < r . S .DN,Y. 2001) ~ n d i n ~ ; u r i s d i c t i o n o v e r d i s p u t e s i i s i n ga f t e r f i n a l d e c r e e where c o n f i r m a t i o n o r d e r p r o v i d e d f o r r e t e n t i o n of j u r i s d i c t i o n ) ; I n r eFibremark, 369 B.R. 761, 7 6 7-68 (Bankr. D.Vt. 2007) f i n d i n g j u r i s d i c t i o n and r e o p e n i n g c l o s e dbankruptcy c a s e where c o n f i r m a t i o n o r d e r and p l a n r e t a i n e d j u r i s d i c t i o n over d i s p u t e ) .

S e c t i o n S of h i s C o u r t ' s May 8, 2009 Order p r o v i d e s t h a t T h e Bankruptcy C o L n ~ t ma yp r o p e r l y r e t a i n j u r i s d i c t i o n o v e r t h e m a t t e r s s e t f o r t h i n A r t i c l e 1 3 . 1 of h e P l a n . A r t i c l e 1 3 , oft h e Plan p r o v i d e s , i n t u r n , t h a t t h e Bankruptcy Court s h a l l r e t a i n c o n t i n u i n g b u t n o t e x c l u s i v ej u r i s d i c t i o n over Asbestos I n s u r a n c e A c t i o n s . A r t i c l e 1 . 1 0 of t h e Plan d e f i n e s Asbestos

I n s u r a n c e Actions a s any ...right of any Asbestos I n s u r a n c e E n t i t y a g a i n s t any of PEN~1C,Reorganized THAN, r THAN e l a t e d t o any ...Insurance S e t t l e m e n t Agreement ... r t i c l e

-9-



14/17

1 . 8 5 of h e Plan, n t u r n , d e f i n e s Insurance S e t t l e m e n t Agre em e nt a s any of h e agreementsl i s t e d on t h e a n n ex ed E x h i b i t G t o t h e P l a n ] . The S e t t l e m e n t Agre em e nt s l i s t e d under S e c t i o n

IX of ~ x h i b i t G o t h e P l a n . Accordingly, p u r s u a n t t o t h e B a n i < r u p t c y Order and t l ~ Y l a n , t h i s

Court has e t a i n e d j u r i s d i c t i o n t o g r a n t t h e r e l i e f sought by t h e AIG Companies n t h e Complaint,a r i s i n g from PENAC n d THAN s reach of h e S e t t l e m e n t Agreement.

BASIS OR ELIEF

PENAC n d THAN have breached t h e S e t t l e m e n t Agreement by r e f u s i n g t o allow t l ~AIG Member Companies t o e x e r c i s e t h e a u d i t r i g h t s accorded t o them. By w a y of t h e i rComplaint, t h e AIU Member Companies seek remedies f o r t h i s b r e a c h , i n c l u d i n g s p e c i f i cperformance a nd d e c l a r a t o r y r e l i e f . C om m e n c e m e n t of a n a d v e r s a r y proceeding i s t h e r e f o r ep r o p e r , pursuant t o Fed. R. Bankr. P . 7001(1), 7 ) , a nd 9 ) . This Court has s t a t t r t o r y j u r i s d i c t i o npursuant t o 28 U.S.C. 1334(b), a nd has r e t a i n e d a n c i l la r y j u r i s d i c t i o n over implementation of

t h e Settlement A g r e e n ~ e i l t p u r s u a n t t o S e c t i o n 1 3 . 1 of t h e Plan a ~ ~ d t h i s C o u t t ' s May h , 2009Order approving t h e S e t t l e m e n t Agreement. Ho w ev e r , because a f i n a l d e c r e e has been e n t e r e dc l o s i n g t h e Debtor's Chapter 11 Case, h e Gourt i s r e s p e c t f u l l y urged t o reopen t h e Chapter 1 1

La s e so as o allow t h e AIG Member ompa n i e s ' Adversa ry Proceedin g t o mo v e forward.Bankruptcy Rule 5 0 1 0 p r o v i d e s t h a t [a] a s e m a y be r eopened o z 1 motion of h e d e b t o r

or o t h e r p a r t y i n i n t e r e s t p u r s u a n t t o 350(b) of h e Code. Fed. R. a n l < r . P , X010. 3 a n 1< r u p t c yCod e S e c t i o n 350(b) n t u r n p r o v i d e s t h a t [a] c a s e n ~ i a y be reopened i n t h e c o u r t i n which suchcase w a s l o s e d t o a d m i n i s t e r a s s e t s , t o accord r e l i e f t o t h e d e b t o r , o r f o r o t h e r c a u s e . 11 U.S.C.~ 3 5 0 ( b ) . While t h e Bankruptcy C o d e does not d e f i n e other c a u s e , t h i s Court has broadd i s c r e t i o n t o determine what o n s t i t u t e s cause f o r reopening t h i s c a s e p u r s u a n t t o 3 S 0 ( b ) . B a e t l e

v . Marl s o n , 3 5 7 F.2d S 7, 523 2d C i r . 1966) Wh a t o n s t i t u t e s ' c a u s e ' i s n o t d e l ~ ~ n e d and l ies- 1 0 -



15/17

p r i m a r i l y w i t h i n t h e d i s c r e t i o n of h e [ c o u ~ ~ t ] ... ) . This Court can c o n s i d e r numerous f a c t o r s ,i n c l u d i n g e q u i t a b l e c o n c e r n s , and ought t o emphasize s u b s t a n c e over t e c h n i c a l c o n s i d e r a t i o n s .

I n r e Emmerlin~, 223 B.R. 860, 864 B.A.P. 2d C i r . 1 9 9 7 ) . When o n s i d e r i n g whether t o r e o p e n

a b a n k r u p t c y c a s e t o c o m m e n c e a d v e r s a r y p r o c e e d i n g s , c o u r t s s h o u l d c o n s i d e r f o u r f = a c t o r sj u d i c i a l economy, onvenience t o t h e p a r t i e s , f a i r n e s s and comity. n r e Fibermark, upra, 369B.R. a t 768 ( u o t i n I n r e P o r e s , 44 F.3d 159, 163 (2d C i r . 1995)) f i n d i n g cause f o rr e o p e n i n g c a s e where, a m o n g o t h e r r e a s o n s , c o u r t had o v e r s e e n b a n k r u p t c y from i t s i n c e p t i o n ,w a s t h e r e f o r e i n t i m a t e l y f a m i l i a r w i t h t h c i s s u e s i n t h e c a s e, s e n d i n g m a t t e r t o s t a t e c o u ~ t

would waste r e s o u r c e s of h e p a r t i e s and t h e c o u r t , l i t i g a t i o n i n b a n k r u p t c y c o u r t d i d not a p p e a r

t o b e i n c o n v e n i e n t t o t h e p a r t i e s , and n o s t a t e c o u r t p r o c e e d i n g w a s e x t a n t , q u e l l i n g any comity

c o n c e r n s ) .

Here, cause e x i s t s t o reopen t h e Chapter 1 1 Case f o r p u r p o s e s of commencing; anAdversary Proceeding t o award t h e AIG M em b e r Companies t h e r e l i e f sought i n t h e Complaint.T h e S e t t l e m e n t Agreement, w h i ch t h i s Court approved and has r e t a i n e d j u r i s d i c t i o n o v e r ,p r o v i d e s i n S e c t i o n 2 . 3 t h a t t h e IG Mem b e r Companies have t h e r i g h t t o conduct an a n n u a la u d i t of payments and d i s t r i b u t i o n s m a d e b y t h e Asbestos PI T r u s t . PEN C and TI-IAN havei n t e r f e r e d w i t h t h e AIG Me m b e r Companies' a u d i t r i g h t s b y c o n d i t i o n i n g t h e e x e r c i s e of h o s er i g h t s on an agreement t o be bound by t h e CR and o t h e r c o n d i t i o n s and l i m i t a t i o ~ l s n o t

p r o v i d e d f o r i n t h e S e t t l e m e n t Agreement. A s a r e s u l t , t h e IG Mem b e r Compa n ie s have beenu n a b l e t o c a r r y o u t a meaningful a u d i t , a s t h e y a r e e n t i t l e d t o do under t h e S e t t l e m e n tAgreement. This Count has o v e r s e e n t h e TH N b a n l a ~ u p t c y from i t s i n c e p t i o n , i s i n t i n l ~ t c l y

f a m i l i a r w i t h t h e i s s u e s i n t h e c a s e, 369 B.R. t 768, and no p r o c e e d i n g s have been c o m m e n c e d

i n any o t h e r c o u r t t o e n f o r c e t h e IG Me m b e r Companies' i g h t s . Sending t h i s m a t t e r t o a n o t h e r-I1-



16/17

c o u r t would be a w a s t e of u d i c i a l r e s o u r c e s . Moreover h e S e t t l e m e n t Agreement which g i v e st h e AIG M e m b e r Companies t h e i r a u d i t r i g h t s and t h e i r r i g h t s t o t a k e a c t i o n s w i t h r e s p e c t t opayment m i s c a l c u l a t i o n s and f r a u d was a p p r o v e d b y t h e C o u r t a n d t h i s C o u r t h a s r e t a i n e dj u r i s d i c t i o n o v e r t h e S e t t l e m e n t Agreement and t s i m p l e m e n t a t i o n . Cause t h e r e f o r e e x i s t s t or e o p e n t h e C h a p t e r 1 1 Case f o r t h e p u r p o s e s of o m m en c i n g h i s Adversary P r o c e e d i n g .

-12-



17/17

CONCLUSION

For t h e r e a s o n s s e t f o r t h above, h e AIG M em b e r Companies r e s p e c t f u l l y r e q u e s t t h a t t h eCourt e n t e r an o r d e r s u b s t a n t i a l l y i n t h e form of h e Proposed Order t h a t 1) e o p e n s t h e C h a p t e r

1 1 Case t o a l l o w t h e AIG M em b e r Companies o commence a n Adversary Proceeding t o e n f o r c et h e i r r i g h t s under t h e S e t t l e m e n t Agreement; and 2) r a n t s such o t h e r and f u r t h e r r e l i e f a s t l ~ e

Court deems u s t and p r o p e r .Dated: New o r l < , New o r l

THAN Asbestos Bankruptcy - Memorandum of Law in Support of AIG's Motion to Reopen the Case to Assert Audit Rights

Documents