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IN RE BURNS AND ROE ENTERPRISES

November 2, 2005.

In re: BURNS AND ROE ENTERPRISES, INC., Chapter 11, Debtor. CONTINENTAL CASUALTY COMPANY AMERICAN CASUALTY COMPANY, Appellants,
v.
BURNS AND ROE ENTERPRISES, INC., Appellee.



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

OPINION

I. INTRODUCTION

Appellee-debtor Burns and Roe Enterprises, Inc. ("appellee" or "debtor") filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on December 4, 2000 and continues to operate the business as the debtor-in-possession. On April 11, 2005, U.S. Bankruptcy Judge Rosemary Gambardella granted debtor its fourteenth extension of exclusivity in which to file and solicit acceptances of a plan of reorganization pursuant to 11 U.S.C. § 1121(d) to May 16, 2005 and July 15, 2005, respectively. On June 29, 2005, Judge Gambardella granted debtor's fifteenth motion to extend the exclusivity periods to August 15, 2005 and October 15, 2005. Appellants Continental Casualty Company and American Casualty Company (collectively "CNA" or "appellants") appeal both orders. Appellants request that the Court reverse these two extension orders; enter an order providing that the debtor's exclusivity period for filing a plan of reorganization is terminated effective April 11, 2005 (alternatively June 29, 2005); prohibit debtor from requesting or receiving any other extensions of exclusivity; and provide other further relief as the Court deems just. For the reasons that follow, the decisions of the bankruptcy court are affirmed.

  II. BACKGROUND

  In its brief on the first appeal, the debtor states that "[t]he Chapter 11 filing was precipitated by massive increases in asbestos-related personal injury complaints filed against [it], coupled with the refusal of [CNA] to defend or indemnify the Debtor in asbestos lawsuits, despite a 16-year history of contributing to defense and settlement costs." Appellee's Brief at 2, No. 05-2529 (July 7, 2005). Upon the filing of the bankruptcy, the United States Trustee appointed a Committee of Unsecured Creditors ("Creditors' Committee") and, as well, a Future Claims Representative ("FCR") to represent the present and future asbestos-related personal injury claimants. Pursuant to § 524(g) of the Bankruptcy Code, the debtor has set up a trust that will assume all present and future liabilities incurred by personal injury, wrongful death, or property-damage actions caused by asbestos. Upon confirmation of a reorganization plan that includes a § 524(g) trust, a bankruptcy court issues a "channeling injunction" that prevents anyone from taking legal action against the debtor for claims that should be channeled to the trust. Both the trust and the channeling injunction must be included in the reorganization plan, and 75% of the class claimants who will be channeled to the trust (here, represented by the FCR) must vote in favor of the reorganization plan in order for the § 524(g) trust mechanism to be utilized. If approved, the combination of the trust and the channeling injunction allows a company to emerge intact from Chapter 11 bankruptcy essentially free from both present and future asbestos-related tort liability.

  Because the only two extensions at issue in these appeals are the fourteenth and fifteenth, the details of the early background of the Chapter 11 case will not be addressed. On December 15, 2003, debtor filed its first amended Plan of Reorganization as well as a Disclosure Statement, and was under a deadline of February 13, 2004 to solicit acceptances to its Plan. Due in part to the numerous objections filed to both the Plan and the Disclosure Statement, including objections by appellants, the bankruptcy court extended debtor's solicitation deadline numerous times. The bankruptcy court approved the Disclosure Statement on June 4, 2004 after two amendments, but did not approve the Plan of Reorganization pending discovery and hearings on the objections. At a status conference on November 18, 2004 debtor informed the bankruptcy court that it had reached a settlement with one of its insurance carriers, Hartford Accident and Indemnity Company ("Hartford"), under which Hartford would pay the bankruptcy estate $62.5 million to fund the § 524(g) trust for asbestos claimants. If approved, the Hartford settlement would necessitate changes to the then-filed Plan of Reorganization. On December 6, 2004, debtor filed a motion for approval of the settlement to which appellants objected. The court overruled the appellants' objections to the settlement and directed the parties to agree on the form of the orders. The court also granted debtor the thirteenth extension of its period of exclusivity to file and solicit acceptances of its Plan to March 15, 2005 and May 15, 2005, respectively. Because the parties were unable to agree on their own to the form of orders approving the Hartford settlement, the bankruptcy court drafted and entered the approval order on February 17, 2005.

  At this point, however, debtor was compelled to draft substantial changes to its Plan in order to comply with the decision in In re Combustion Engineering, Inc., 391 F.3d 190 (3d Cir. 2004), which was issued on December 2, 2004. There the Third Circuit held that a channeling injunction could not be used to shield non-debtor affiliates against independent asbestos-related claims, and it invalidated a reorganization plan with a channeling injunction that had the effect of "extend[ing] bankruptcy relief to two non-debtor companies outside of bankruptcy." Id. at 237. Believing this ruling would preclude approval of its then-existing Plan, debtor began making changes. Because of the need to change the Plan as well as the delay in the approval of the Hartford settlement, debtor requested another extension. The bankruptcy court held a hearing on April 11, 2005, at which both the Creditors' Committee and the FCR supported the extension motion. The bankruptcy court granted debtor the extensions to May 16, 2005 and July 15, 2005 for the filing and solicitation of acceptances of its Plan. This was the fourteenth extension granted to debtor, and is the subject of appellants' first appeal to this Court, #05-2529.

  In granting that extension, the bankruptcy court held that debtor had presented sufficient cause to justify extending its period of exclusivity because, first, the Hartford settlement was a significant step in the reorganization in that it would allow the debtor to file a plan in which the trust for future asbestos claimants would be funded by $62.5 million. Transcript of Hearing 62:6-14, In Re Burns & Roe Enter., Inc., No. 00-41610 (Bankr. D.N.J., April 11, 2005). Second, negotiations were taking place with both the Creditors' Committee and the FCR regarding distribution of the trust proceeds, which the bankruptcy court deemed to be evidence of debtor's good faith progress toward reorganization. Id. 62:15-19. The bankruptcy court also found that the size and the complexity of the case as well as the need to comply with the Third Circuit decision in Combustion Engineering contributed to sufficient cause to grant debtor's request for extension. Id. 63:10-20. The bankruptcy court found that the debtor was making significant progress in its reorganization and would continue to make progress going forward. Id. 63:16-20. It also found that there were unresolved contingencies that would have a substantial effect on the debtor's Plan if they were resolved. Id. 64:1-5. Finally, the bankruptcy court did not find any evidence that the debtor was seeking the extension of time in order to pressure creditors to accede to reorganization demands. Id. 63:1-4.

  Before the appeal of the fourteenth extension was decided, debtor moved for another extension of its exclusivity period. The bankruptcy court heard this motion on June 29, 2005, and granted debtor's request for extension of exclusivity and solicitation of acceptances to August 15 and October 15, 2005, respectively. This was the fifteenth extension granted to debtor, and is the subject of appellants' second appeal to this Court, #05-4125. In granting this extension, the bankruptcy court found that the record supported cause for the extension because of the size and complexity of the case, the good faith progress towards reorganization, and the bankruptcy court's belief that the debtor was not seeking extension of exclusivity to pressure creditors to accede to reorganization demands. Transcript of Motion Hearing 48:5-25, In Re Burns & Roe Enter., Inc., No. 00-41610 (Bankr. D.N.J., June 29, 2005). In addition, the bankruptcy court found that the resolution of the unresolved contingencies was "under way." Id. 49:5-11. The bankruptcy court also noted that both the Creditors' Committee and the FCR again supported the extension. Id. 48:25-49:4. Finally, the bankruptcy court stated that it was "satisfied that there has not been the type of prejudice to [the appellants] to tip the balance in favor of ending exclusivity today." Id. 49:15-21. The bankruptcy court declined to declare that this was debtor's final extension, but cautioned the debtor that it would "take that request into consideration" if necessary at a later date. Id. 50:1-11.

  III. STANDARD OF REVIEW

  This Court reviews a bankruptcy court's decision to extend debtor's periods of exclusivity for abuse of discretion. In re Hoffinger Indus., Inc., 292 B.R. 639, 642 (B.A.P. 8th Cir. 2003). See also In re Geriatrics Nursing Home, Inc., 187 B.R. 128, 131 (D.N.J. 1995). Abuse of discretion can lie in either the failure to "apply the proper legal standard or to follow proper procedures in making the determination." Zolfo, Cooper & Co. v. Sunbeam-Oster Co., Inc., 50 F.3d 253, 257 (3d Cir. 1995). Abuse of discretion can also be found if the bankruptcy court's decision was based on clearly erroneous findings of fact. Resyn Corp. v. United States, 851 F.2d 660, 664 (3d Cir. 1988). Any legal interpretations of the bankruptcy court receive plenary review. In re Engel, 124 F.3d 567, 571 (3d Cir. 1997).

  IV. JURISDICTION

  This Court has jurisdiction to hear an appeal from an order of the bankruptcy court pursuant to 28 U.S.C.A. § 158(a)(2), which states that "[t]he district courts of the United States shall have jurisdiction to hear appeals . . . from interlocutory orders and decrees issued under section 1121(d) of title 11 increasing or reducing the time periods referred to in section 1121 of such title. . . ...


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