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In re G-I Holdings Inc.

June 27, 2003

IN RE G-I HOLDINGS INC., ET AL., DEBTORS,
OFFICIAL COMMITTEE OF ASBESTOS CLAIMANTS, APPELLANT,
v.
G-I HOLDINGS INC. APPELLEE.



The opinion of the court was delivered by: Bassler, District Judge

FOR PUBLICATION

OPINION

Before the Court is an appeal by the Official Committee of Asbestos Claimants ("the Committee") of an order by the Bankruptcy Court denying the Committee's motion for appointment of a chapter 11 trustee for the estate of the Debtor, G-I Holdings, Inc. ("G-I"). The Court has jurisdiction of the appeal under 28 U.S.C. § 158(a)(1) because an order appointing or denying appointment of a bankruptcy trustee is a "final order" within the meaning of the statute. In re Marvel Entertainment Group, Inc., 140 F.3d 463, 470-71 (3d Cir. 1998). For the reasons set forth below, the Court affirms the decision of the Bankruptcy Court declining to appoint a chapter 11 Trustee.

FACTS AND PROCEDURAL HISTORY

On January 5, 2001, G-I commenced its voluntary petition for reorganization under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"). G-I now operates as debtor-in-possession ("DIP") pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

G-I is a holding company that succeeded to the liabilities of GAF Corporation ("GAF") and the Ruberoid Company ("Ruberoid"). (Appellant Br. at 8.) Beginning in the 1970s, GAF and Ruberoid, along with other former producers of asbestos and asbestos-containing products, faced mass tort litigation throughout the United States regarding asbestos-related injuries. See Official Committee of Asbestos Claimants of G-I Holding, Inc. v. Heyman, 277 B.R. 20, 25 (S.D.N.Y. 2002)(describing background of GAF's asbestos liabilities). *fn1 Before filing for chapter 11 reorganization, G-I "inherited responsibility for some 150,000 pending asbestos suits" from GAF and Ruberoid. (BC Op. *fn2 at 6; Appellant's Br. at 8.)

A man named Samuel Heyman owns substantially all of G-I's stock. Heyman came to be G-I's controlling shareholder by originally acquiring GAF in 1983, when it was a publicly-held company. He took GAF private, conducting a leveraged buyout with a small management team. Heyman, 277 B.R. at 25; (Appellant Br. at 9.)

GAF was the parent holding company of two principal operating businesses: (1) ISP, a manufacturer of specialty chemicals and mineral products; and (2) Building Materials Corporation of America ("BMCA"), a manufacturer of roofing and building products. GAF later merged with G-I. Id. at 24. Heyman created BMCA in 1994 to assume GAF's building and roofing products business. According to the Committee, this so-called "push-down transaction" unfairly insulated BMCA from asbestos-related liability:

Before the push-down transaction, the gross assets of the building and roofing products business were available to satisfy the claims of persons injured by the asbestos torts of GAF and Ruberoid. But after that transaction - if it is respected - asbestos claimants can look only to the net assets of that business, as embodied in the stock of BMCA in the hands of the Debtor [G-I]. Thus, by the push-down transaction, Heyman aimed to achieve a "structural subordination" of asbestos creditors' claims to the claims of BMCA's other creditors.

(Appellant Br. at 10.)

Not surprisingly, G-I disputes this characterization of the BMCA restructuring. At the outset of the bankruptcy proceedings, G-I sought and obtained from the Bankruptcy Court a preliminary injunction enjoining the assertion of present and future asbestos claims against the G-I subsidiary BMCA. Explaining its tactics, G-I asserts the following:

From the outset of its chapter 11 case, G-I has done everything possible to preserve the value of its primary asset, BMCA, for its creditors and shareholders. To that end, G-I secured a preliminary injunction protecting BMCA from the assertion of asbestos claims until confirmation of a chapter 11 plan or a determination of whether it has successor liability for G-I's asbestos claims. As a result, BMCA's business is thriving.

(Appellee Br. at 13, internal citations to record omitted.) According to G-I, therefore, "BMCA has flourished under Mr. Heyman's control," and G-I has complied with its fiduciary obligations as DIP. (Id. at 15, 17.)

Subject to certain terms and conditions, the Bankruptcy Court granted the preliminary injunction enjoining the assertion of present and future asbestos claims against BMCA. (BC Op. at 7.) In addition, on February 7, 2001, G-I and BMCA filed an adversary proceeding in the Bankruptcy Court seeking a declaratory judgment that BMCA was not liable for pending or future asbestos claims against G-I under successor liability or alter ego theories. (Id.)

On January 18, 2001, pursuant to 11 U.S.C. § 1102(a), the United States trustee appointed the Committee to represent persons asserting tort claims against G-I for alleged injuries caused by asbestos-containing products manufactured and distributed by GAF or Ruberoid. On November 11, 2002, the Committee filed the present motion for appointment of a chapter 11 trustee ("Trustee Motion"). *fn3 On December 10, 2002, G-I filed its objection to the Trustee Motion. On December 13, 2002, United States Bankruptcy Judge Rosemary Gambardella held a hearing on the Trustee Motion in preparation for which the parties produced and she reviewed over 250 exhibits. *fn4

The Committee advanced two arguments in support of its Trustee Motion before the Bankruptcy Court. First, it argued, based on a recent opinion by a panel of the Third Circuit, that an official creditors' committee such as the Committee could not sue to recover property on behalf of a bankruptcy estate. See In re Cybergenics Corp., 304 F.3d 316, 332 (3d Cir. 2002)("Cybergenics II"), rehearing en banc granted and opinion vacated by Official Committee of Unsecured Creditors of Cybergenics Corp. v. Chinery, 310 F.3d 785 (3d Cir. 2002). *fn5 The Committee therefore contended that a trustee must be appointed in order to prosecute certain fraudulent-transfer and preference-avoidance actions against Heyman and other defendants. According to the Committee, G-I would never prosecute such actions due to its domination by Heyman. (Appellant Br. at 23.) Thus a trustee was claimed to be necessary to advance the interests of the G-I estate and its creditors.

In her 33-page opinion denying the Trustee Motion, Judge Gambardella rejected the Committee's Cybergenics II argument. She found:

Heyman and other entities which are the target of potential avoidance actions have ... executed tolling agreements in favor of the Committee in the event the decision in Cybergenics [II] is reinstated.

(BC Op. at 14-15.) Judge Gambardella believed such tolling agreements sufficiently protected G-I because they allowed a trustee to be appointed or other appropriate measures taken in the event that the Third Circuit ruled that the Committee could not prosecute the avoidance actions on its own.

The second argument asserted by the Committee in its Trustee Motion before the Bankruptcy Court was "that excessive conflict between [G-I] and its principal creditors, in the totality of the circumstances, warrants appointment of a trustee." (Appellant Br. at 25.) Judge Gambardella also rejected this argument, finding that the "grounds" asserted by the Committee were "insufficient to mandate appointment of a trustee" and ...


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