Escolar Documentos
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Cultura Documentos
BRIEF OF APPELLEE
THE FUTURE CLAIMANTS’ REPRESENTATIVE
_____________________________________________________________________________ _
BRUNE & RICHARD LLP
Susan E. Brune
Theresa Trzaskoma
80 Broad Street
New York, New York 10004
Telephone: (212) 668-1900
Facsimile: (212) 668-0315
Email: sbrune@bruneandrichard.com
ttrzaskoma@bruneandrichard.com
and
STUTZMAN, BROMBERG, ESSERMAN &
PLIFKA, A Professional Corporation
Sander L. Esserman (Admitted Pro Hac Vice)
Andrea L. Ducayet (Admitted Pro Hac Vice)
2323 Bryan Street, Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Email: esserman@sbep-law.com
ducayet@sbep-law.com
TABLE OF CONTENTS
TABLE OF CONTENTS.............................................................................................................. ii
TABLE OF AUTHORITIES....................................................................................................... iv
Procedural History.............................................................................................................2
IV. ARGUMENT......................................................................................................................9
ii
ii. The Kraus Claimants Have Not Demonstrated that the
Bankruptcy Court Erred in Denying Their Request for a
Continuance Under Section 105 of the Bankruptcy Code. ..................18
V. CONCLUSION ................................................................................................................25
iii
TABLE OF AUTHORITIES
CASES
Austin v. Healey,
5 F.3d 598 (2d Cir. 1993)...........................................................................................................9
Begier v. I.R.S.,
496 U.S. 53 (1990).............................................................................................................23, 24
Ferrell v. Countryman,
398 B.R. 857 (E.D. Tex. 2009) ................................................................................................10
Greenburg v. Chrust,
282 F. Supp. 2d 112 (S.D.N.Y. 2003)......................................................................................19
In re Chateaugay Corp.,
89 F.3d 942 (2d Cir. 1996).......................................................................................................23
In re Dill,
163 B.R. 221 (E.D.N.Y. 1994) ................................................................................................12
In re Enron Corp.,
419 F.3d 115 (2d Cir. 2005)...............................................................................2, 13, 14, 16, 17
iv
In re Facility Sys., Inc.,
101 B.R. 519 (N.D. Ill. 1989) ............................................................................................11, 12
In re Lionel Corp.,
29 F.3d 88 (2d Cir. 1994).....................................................................................................9, 12
In re Monetary Group,
91 B.R. 138 (M.D. Fla. 1988) ..................................................................................................10
NWL Holdings, Inc. v. Eden Center, Inc. (In re Ames Dep’t Stores, Inc.),
317 B.R. 260 (Bankr. S.D.N.Y. 2004).....................................................................................18
Stone v. Schultz,
647 N.Y.S.2d 822 (N.Y. App. Div. 1996) .........................................................................19, 20
United States v. Sutton, 786 F.2d 1305 (5th Cir. 1986) .................................................................18
v
STATUTES
11 U.S.C. § 301..............................................................................................................................21
11 U.S.C. § 303..............................................................................................................................21
11 U.S.C. § 524(g)(2)(B)(i)(III).....................................................................................................22
11 U.S.C. § 524(g)(3)(A).................................................................................................................4
RULES
vi
Appellee Professor Samuel Issacharoff, the court-appointed legal representative for future
asbestos personal injury claimants (the “Future Claimants’ Representative” or “Appellee”) in the
chapter 11 bankruptcy case of T H Agriculture & Nutrition, L.L.C., respectfully files this brief in
opposition to the appeal by certain claimants represented by the Waters & Kraus, LLP law firm
(the “Kraus Claimants” or “Appellants”) of the Confirmation Order (defined below) issued on
May 29, 2009, by Judge Robert E. Gerber of the United States Bankruptcy Court for the
I.
STATEMENT OF ISSUE ON APPEAL
This is a limited appeal that concerns only whether the Bankruptcy Court abused its
discretion in denying the motion filed by the Kraus Claimants on the eve of the Debtor’s
pursue possible objections to confirmation of the Debtor’s Plan. The Bankruptcy Court rejected
any further delay in plan confirmation given the pressing need of asbestos claimants for
compensation, and given that the Kraus Claimants had long since received notice of the
Bankruptcy Court’s deadline for filing of objections to confirmation and had failed to file any
objection.
II.
STANDARD OF REVIEW
This Court acts as an appellate court in reviewing the judgments rendered by the
Bankruptcy Court. In re Adelphia Commc’ns Corp., 371 B.R. 660, 665 (S.D.N.Y. 2007) (citing
In re Sanshoe Worldwide Corp., 993 F.2d 300, 305 (2d Cir.1993)). The Bankruptcy Court’s
findings of fact shall not be set aside unless clearly erroneous; its conclusions of law are
reviewed de novo. In re Ionosphere Clubs, Inc., 922 F.2d 984, 988-89 (2d Cir. 1990).
1
Matters falling within the discretion of the Bankruptcy Court, such as the denial of a
request for an extension of time under Federal Rule of Bankruptcy Procedure 9006 (“Bankruptcy
Rule”), are reviewed for abuse of discretion. In re Enron Corp., 419 F.3d 115, 124 (2d Cir.
2005). Decisions within a bankruptcy judge’s discretion “will not be disturbed … unless the
district court finds that no reasonable man could agree with the bankruptcy judge’s decision.”
Id. (quoting In re Integrated Res., Inc., 157 B.R. 66, 72 (S.D.N.Y. 1993)).
III.
STATEMENT OF THE CASE
Procedural History
On November 24, 2008 (the “Petition Date”), T H Agriculture & Nutrition, L.L.C.
(“THAN” or the “Debtor”) filed a voluntary petition for relief under chapter 11 of title 11 of the
United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States
On the Petition Date, THAN filed both a prepackaged plan of reorganization and a
disclosure statement (respectively, as subsequently amended, the “Plan” and the “Disclosure
Statement”).1
The Bankruptcy Court entered a scheduling order (the “Scheduling Order”) setting a
combined hearing for May 21, 2009, to consider approval of the Disclosure Statement,
solicitation procedures, and confirmation of the Plan (the “Confirmation Hearing”).2 Pursuant to
1
Prepackaged Plan of Reorganization of T H Agriculture & Nutrition, L.L.C. Under Chapter 11
of the Bankruptcy Code and the Disclosure Statement with Respect to a Prepackaged Plan of
Reorganization of T H Agriculture & Nutrition, L.L.C. Under Chapter 11 of the Bankruptcy
Code [Docket Nos. 20, 21, respectively]. All references to the docket herein refer to the docket
in the bankruptcy case of T H Agriculture & Nutrition, L.L.C. pending in the U.S. Bankruptcy
Court for the Southern District of New York, Case No. 08-14692 (REG).
2
Second Amended and Supplemental Order (A) Scheduling a Combined Hearing to Consider
Approval of Disclosure Statement and Solicitation Procedures, and Confirmation of Prepackaged
2
the Scheduling Order, the deadline established for filing objections to the Plan was May 15,
2009.
On May 20, 2009, on the eve of the Confirmation Hearing and past the objection
deadline, the Kraus Claimants filed a motion seeking to continue the Confirmation Hearing (the
Later the same day, the Debtor filed an objection to the Continuance Motion objecting to
Just prior to the Confirmation Hearing on May 21, 2009, the Bankruptcy Court heard
arguments on the Continuance Motion and denied the Kraus Claimants’ request for a
continuance of the Confirmation Hearing. (Confirmation Hr’g Tr. 20:22-23, May 21, 2009).
The Bankruptcy Court made an oral ruling denying the Continuance Motion
(Confirmation Hr’g Tr. 20:22-23) and proceeded with the Confirmation Hearing, after which it
On May 29, 2009, the Bankruptcy Court entered a written order containing the court’s
findings and orders with respect to confirmation (the “Confirmation Order”), which included
Plan of Reorganization, (B) Establishing Deadlines and Procedures for Filing Objections, and
(C) Approving Form and Manner of Supplemental Notice of Combined Hearing [Docket No.
432].
3
The Waters & Kraus Claimants’ (A) Application to Extend the Time to Interpose Full and
Complete Objections to the Confirmation of the First Amended Prepackaged Plan of
Reorganization of T H Agriculture & Nutrition, LLC Under Chapter 11 of the Bankruptcy Code
(B) Initial Objection and (C) Application for Continuance to Submit Full and Complete
Objections [Docket No. 453].
4
Debtor’s Response to the Waters & Kraus Claimants’ (A) Application to Extend the Time to
Interpose Full and Complete Objections to the Confirmation of the First Amended Prepackaged
Plan of Reorganization of T H Agriculture & Nutrition, L.L.C. Under Chapter 11 of the
Bankruptcy Code (B) Initial Objection and (C) Application for Continuance to Submit Full and
Complete Objections [Docket No. 455].
3
findings and orders relating to its earlier bench ruling denying the Kraus Claimants’ Continuance
Motion.5
Shortly after the Bankruptcy Court entered the Confirmation Order, the Debtor filed an
application requesting entry of an order by this Court affirming the Confirmation Order (the
“Affirmance Motion”)6 as required under section 524(g)(3)(A) of the Bankruptcy Code.7 Thirty-
five (35) days after entry of an order by this Court affirming the Confirmation Order, the Plan
will become effective and the Asbestos PI Trust will be funded with $900 million for payment of
On June 8, 2009, the Kraus Claimants filed a Notice of Appeal appealing the
Confirmation Order.8 The Debtor’s Affirmance Motion is a separate matter pending before this
Statement of Facts
Prior to the Petition Date, THAN was named as a defendant in a significant number of
lawsuits wherein the plaintiffs asserted claims against THAN for asbestos-related personal
injuries and wrongful death arising from exposure to asbestos distributed by THAN (“Asbestos
5
Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. §§ 1125 and 1129(a) and (b)
and Fed. R. Bankr. P. 3020 Confirming First Amended Prepackaged Plan of Reorganization of T
H Agriculture & Nutrition, L.L.C. Under Chapter 11 of the Bankruptcy Code and Approving the
Disclosure Statement and the Solicitation Procedures [Docket No. 465].
6
Debtor’s Application for District Court Affirmance of the Bankruptcy Court’s Confirmation of
the First Amended Prepackaged Plan of Reorganization of T H Agriculture & Nutrition, L.L.C.
Under Chapter 11 of the Bankruptcy Code [Docket No. 467].
7
See 11 U.S.C. § 524(g)(3)(A) (an order confirming a plan containing a section 524(g)
injunction must be issued or affirmed by the district court that has jurisdiction over the
reorganization case).
8
Notice of Appeal [Docket No. 468].
4
PI Claims”). (Disclosure Statement 4). In addition to claims asserted against THAN, plaintiffs
asserted derivative or successor Asbestos PI Claims against other parties related to THAN
THAN entered into negotiations with PENAC, numerous law firms that represent a majority of
the present holders of Asbestos PI Claims against THAN and PENAC, including the Waters &
Kraus, LLP law firm (“Waters & Kraus”), and Professor Issacharoff as the putative
representative with respect to future Asbestos PI Claims. (Disclosure Statement 19-21). These
The Plan seeks to implement a permanent channeling injunction under section 524(g) of
the Bankruptcy Code, enjoining the assertion of all present and future Asbestos PI Claims
against THAN, PENAC and certain other parties and channeling those claims to a $900 million
trust to be established under section 524(g) of the Bankruptcy Code (the “Asbestos PI Trust”) to
be funded by the Debtor and PENAC. Under the Plan, all present and future Asbestos PI Claims
will be channeled to the Asbestos PI Trust for processing and payment in accordance with the
T H Agriculture & Nutrition, L.L.C. Asbestos Personal Injury Trust Distribution Procedures (the
“TDP”). (Plan Art. 4.4). The TDP, an exhibit incorporated into the Plan, contains specific
evidentiary requirements which every asbestos claimant must satisfy in order to be compensated.
Additionally, the TDP sets forth specific guidelines and procedures that must be followed in
determining the amount of compensation that may be awarded to each asbestos claimant in order
to ensure that all asbestos claimants—both present and future—are treated fairly and equitably in
the amount of compensation that they recover from the Asbestos PI Trust.
5
The Pre-Petition Solicitation of the Plan
Prior to the commencement of its bankruptcy case, the Debtor solicited votes in support
of the Plan by sending a copy of the Plan, including the TDP, to all law firms the Debtor
believed may represent holders of Asbestos PI Claims, including Waters & Kraus.9
The Plan received the support of 90% in number and 91% in amount of holders of Class
4 – Asbestos PI Claims, including the Kraus Claimants, numbers exceeding the statutory
On November 24, 2008, the Debtor commenced its bankruptcy case and filed its
On December 1, 2008, the United States Trustee for the Southern District of New York
appointed the Official Committee of Unsecured Creditors (the “Committee”). Peter Kraus, an
On December 17, 2008, Professor Issacharoff was appointed by the Bankruptcy Court to
serve as the Future Claimants’ Representative in the Debtor’s bankruptcy case in order to protect
the rights of persons who may, subsequent to any date of confirmation of any chapter 11 plan of
reorganization, assert demands for compensation for asbestos disease against the Debtor and
9
Debtor’s Motion for (I) an Order (A) Scheduling a Combined Hearing to Consider Approval of
Disclosure Statement and Solicitation Procedures, and Confirmation of Prepackaged Plan of
Reorganization, (B) Establishing Deadlines and Procedures for Filing Objections, and (C)
Approving Form and Manner of Notice of Combined Hearing; and (II) an Order Approving
Disclosure Statement and Solicitation Procedures 7-9 [Docket No. 3].
10
Declaration of James Sean McGuire Certifying Tabulation of Ballots Regarding Voting on
Debtor’s Prepackaged Plan of Reorganization 6 [Docket No. 29].
11
Appointment of Official Committee of Unsecured Creditors 2 [Docket No. 65].
6
affiliated parties protected under any channeling injunction issued in the case pursuant to section
Pursuant to the Scheduling Order entered by the Bankruptcy Court, the Confirmation
Hearing was scheduled for May 21, 2009 and the last deadline established for filing objections to
Waters & Kraus received actual notice of the deadline for filing objections to
On the evening of May 20, 2009, just hours before the Confirmation Hearing and past the
objection deadline of May 15, 2009, the Kraus Claimants filed the Continuance Motion. The
Kraus Claimants asserted that during the pre-bankruptcy negotiations regarding the possible
terms of the TDP and Plan, counsel for the Debtor and PENAC had made a secret commitment,
contrary to the terms of the TDP, to provide special and preferential treatment to the Kraus
Claimants, which would enable them to recover more from the Asbestos PI Trust than other
asbestos claimants. (Continuance Motion 2-4). The Kraus Claimants asserted that they refrained
from objecting to confirmation of the Plan based on that purported secret commitment.
(Continuance Motion 4, 7). The Debtor filed its Response to the Continuance Motion later the
same day, denying that the Debtor and PENAC ever had made a secret deal with Waters & Kraus
and that any assertion to the contrary was contradicted by the terms of the Plan and the TDP,
which had been provided to the Kraus Claimants at least six months prior to the Confirmation
Hearing. (Response 2). Moreover, the Debtor contended there was no excuse for the Kraus
12
Order Appointing a Legal Representative for Future Asbestos Personal Injury Claimants
[Docket No. 145].
13
Exhibit A to Affidavit of Service, dated May 15, 2009 [Docket No. 434].
7
Claimants’ delay in filing their objection to Plan confirmation, as they had had ample time and
opportunity to file their objection by the May 15, 2009 deadline. (Response 7-9).
The Kraus Claimants’ Continuance Motion did not set forth their actual objections to the
Debtor’s Plan; instead, the motion cursorily stated two bases of their “intended objections”: (1)
that the Kraus Claimants should be considered a distinct group of claimants, entitled to specific
treatment under any plan of reorganization and (2) that PENAC’s corporate veil should be
pierced. (Continuance Motion 4-5). They asked for a 30 day continuance to pursue possible
On May 21, 2009, prior to the commencement of the otherwise uncontested Confirmation
Hearing, the Bankruptcy Court heard arguments with respect to the Continuance Motion and
denied the Continuance Motion. (Confirmation Hr’g Tr. 20:22-23). The Bankruptcy Court
declined to make any factual findings to resolve the dispute over “who said what” with respect to
the allegations as to what may or may not have been promised. (Confirmation Hr’g Tr. 22:7-12,
Confirmation Order 26-27). Instead, the Bankruptcy Court denied the Continuance Motion on
two independent and equally dispositive grounds. (Confirmation Hr’g Tr. 23:23-24, 25:5-12;
First, the Bankruptcy Court ruled that the Kraus Claimants failed to establish excusable
neglect that would justify any adjournment of the Confirmation Hearing under Bankruptcy Rule
9006(b)(1). (Confirmation Hr’g Tr. 23:23-24; Confirmation Order 27). The Bankruptcy Court
found that the nature and basis of the preliminary objections raised by the Kraus Claimants were
known to the parties as of the Petition Date and could have been raised by the objection deadline
established pursuant to the Scheduling Order. (Confirmation Hr’g Tr. 24:4-25; Confirmation
Order 27). The Bankruptcy Court also concluded that to allow a continuance of the
8
Confirmation Hearing would prejudice the holders of Class 4 – Asbestos PI Claims who are
awaiting the emergence of the Debtor from bankruptcy so that the Asbestos PI Trust can begin to
pay Asbestos PI Claims. (Confirmation Hr’g Tr. 24:23-25:4; Confirmation Order at 27).
Second, the Bankruptcy Court ruled that the Kraus Claimants could not, as a matter of
law, reasonably have relied on the alleged oral promise to forgo timely objecting to the Plan in
light of the fact that the Kraus Claimants had been provided with the Plan and TDP months prior
to the commencement of the chapter 11 case, and the terms of the Plan and TDP directly
contradict the terms of the alleged oral promise. (Confirmation Hr’g Tr. 25:5-8; Confirmation
Order 26-28).
On May 29, 2009, the Bankruptcy Court entered its Confirmation Order. On June 8,
2009, the Kraus Claimants filed a Notice of Appeal appealing the Confirmation Order.
IV.
ARGUMENT
A. The Sole Issue Properly Before this Court in this Appeal Is Whether the Bankruptcy
Court Abused Its Discretion in Denying the Waters & Kraus Claimants’ Request for
a Continuance to Pursue Possible Objections to Confirmation of the Plan.
The Second Circuit recognizes the general rule that “a federal appellate court does not
consider an issue not passed upon [by the court below.]” In re Lionel Corp., 29 F.3d 88, 92 (2d
Cir. 1994) (quoting Austin v. Healey, 5 F.3d 598, 601 (2d Cir. 1993)); see also, Authentic
Hansom Cabs, Ltd. v. Nisselson, No. 03 CV 9468 (GBD), 2004 WL 2997794, at *5 (S.D.N.Y.
Dec. 27, 2004) (arguments not advanced to bankruptcy court not subject to appellate review by
appellate review. Nisselson, 2004 WL 299774, at *5 (quoting Norton v. Sam’s Club, 145 F.3d
114, 117 (2d Cir. 1998) and citing Frank v. United States, 78 F.3d 815, 833 (2d Cir. 1996),
9
vacated on other grounds, 521 U.S. 1114 (1997)). “[T]o be preserved, an argument must be
pressed, not merely intimated.” Ferrell v. Countryman, 398 B.R. 857, 864 (E.D. Tex. 2009)
(citations omitted). Moreover, if the record reflects an issue was not actively litigated, or
presented only in a cursory manner and never properly presented to a bankruptcy court, the issue
is not preserved for appeal. In re George’s Candy Shop, Inc., Civil Action No. 08-177-KD-B,
2008 WL 2945560, at *3 (S.D. Ala. July 28, 2008); In re Monetary Group, 91 B.R. 138, 140
Appellants raise three “points” in their brief. Only Point I raises an issue properly before
this Court: whether the Bankruptcy Court abused its discretion in denying the Kraus Claimants’
request for a continuance to pursue possible objections to confirmation of the Plan. Points II and
III of Appellants’ Brief raise for the first time arguments that were never presented to the
Bankruptcy Court and that are not properly before this Court. In Point II, Appellants argue a
confirmation objection: that the Plan should not have been confirmed under section 524(g) of the
Bankruptcy Code based on their allegations dehors the record that the corporate veil should be
pierced. (Appellants’ Brief 27). What is more, Appellants attempt to support these allegations
with more than 140 pages of “evidence” that was never presented to the Bankruptcy Court and is
not part of the record on appeal. (See Exhibits A-L attached to Appellants’ Brief). In their Point
III, Appellants argue a different confirmation objection: that they should be separately classified
under the Debtor’s Plan. (Appellants’ Brief 31). The Kraus Claimants never timely presented
these confirmation objections to the Bankruptcy Court for consideration, and now improperly
Not only does the record on appeal demonstrate that the Kraus Claimants never filed
objections to confirmation, their own counsel recognized that their intimated objections were not
10
before the Bankruptcy Court. Counsel to the Kraus Claimants even urged the Bankruptcy Court
at the hearing on the Continuance Motion to refrain from making any findings with respect to
Mr. Kraus: Your Honor, … I would simply suggest that it’s inappropriate for the
Court to make findings of law with respect to my objection on the record before it
now, and would urge the Court not to do so at this time.
Based on similar facts, the district court in In re Facility Systems, Inc. held that issues not
presented to the bankruptcy court were not preserved for appeal. In re Facility Sys., Inc., 101
B.R. 519 (N.D. Ill. 1989). In Facility Systems, Inc., rather than filing an objection to a fee
application, a creditor filed a motion requesting a continuance of the hearing to conduct further
discovery in order to sift out potential objections to the application. Id. at 520. The bankruptcy
court denied the creditor’s motion, and entered an order allowing the compensation. Id. The
On appeal, the creditor raised several issues regarding the propriety of the bankruptcy
court’s compensation order, many of which were supported by reference to matters not part of the
record on appeal, including exhibits submitted with its appellate brief. Id. at 521-22. The
appellees moved to strike creditor’s brief and dismiss the appeal, asserting that the creditor could
not raise arguments in its brief that were not first made to the bankruptcy court. Id. at 521.
In striking the creditor’s brief, the district court held that the only issue the creditor
preserved for review on appeal was whether the bankruptcy court abused its discretion in denying
the creditor an extension of time in which to conduct discovery relating to the fee application. Id.
at 524. The district court ordered the creditor to submit a revised brief restricted to this issue, and
further ordered that all factual assertions be supported by citations to the record on appeal. Id.
11
Appellants here attempt to do the same, presenting for the first time under their Points II
and III arguments and evidence that were never presented to the Bankruptcy Court, are not part
of the record on appeal, and that accordingly are not subject to appellate review. In re Facility
Sys., Inc., 101 B.R. at 524; see also, In re Lionel Corp., 29 F.3d at 92; Nisselson, 2004 WL
2997794, at *5 (arguments not advanced to bankruptcy court not subject to appellate review by
the district court). Evidence that was not presented to the Bankruptcy Court and is not part of the
record on appeal also is improper and should not be considered by this Court. In re Bear Stearns
High-Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 339 (S.D.N.Y. 2008)
(“if an item was not considered by the [bankruptcy] court, it should be stricken from the record
on appeal”); In re Dill, 163 B.R. 221, 224 (E.D.N.Y. 1994) (“[O]n appeal from an order of the
bankruptcy court, the district court should not consider any evidence not before the bankruptcy
For these reasons, the arguments raised in Points II and III of Appellants’ Brief should
not be considered by this Court, although these points will be addressed below should the Court
be prepared to entertain the merits. The only issue properly before the Court on appeal is
whether the Bankruptcy Court abused its discretion in denying the Kraus Claimants’ request for
B. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court Abused
Its Discretion in Denying Their Continuance Motion.
The Bankruptcy Court denied the Continuance Motion on two independent and equally
dispositive grounds, ruling that (1) the Kraus Claimants failed to establish excusable neglect to
justify any adjournment of the Confirmation Hearing under Bankruptcy Rule 9006(b)(1), and (2)
the Kraus Claimants could not, as a matter of law, reasonably have relied on the alleged oral
promise to forgo timely objecting to the Plan when the Kraus Claimants were provided with the
12
Plan and the TDP months prior to the commencement of the chapter 11 case, and the terms of the
Plan and TDP directly contradict the terms of the alleged oral promise. (Confirmation Hr’g Tr.
23:23-24, 25:5-12; Confirmation Order at 27-28). Appellants do not address the Bankruptcy
i. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court
Abused Its Discretion in Denying Their Request for a Continuance Under
Bankruptcy Rule 9006.
Fed. R. Bankr. P. 9006(b)(1). The Supreme Court has set forth the following factors to evaluate
(2) the length of the delay and its potential impact on judicial proceedings,
(3) the reason for the delay, including whether it was within the reasonable control of the
movant, and
Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993). The Second
Circuit has taken a “hard line” in applying the Pioneer factors, focusing its inquiry on the third
factor—the reason for the delay, including whether it was within the reasonable control of the
movant. In re Enron Corp., 419 F.3d at 122-23 (citing Silivanch v. Celebrity Cruises, Inc., 333
F.3d 355, 367 n.7 (2d Cir. 2003) (the reason for the delay has the greatest import; the other
13
As set forth below, the Bankruptcy Court correctly found that the Kraus Claimants’
failure to timely file their objections to the Debtor’s Plan by the established deadline was not the
Delaying the Confirmation Hearing to permit the Kraus Claimants to explore possible
objections to confirmation, when they were aware of the terms of the Plan and the TDP more
than six months prior to the objection deadline, would prejudice the Debtor by requiring it to
needlessly incur further administrative expense to defend against objections that could have and
should have been timely raised by the established deadline. The Bankruptcy Court found that the
stated bases of the Kraus Claimants’ intended objections were both apparent from the “get-go.”
(Confirmation Hr’g Tr. 24:6-11). Moreover, a delay of the Confirmation Hearing would not
only be prejudicial to the Debtor but to all other parties in the case who worked diligently over
the prior months to reach agreement on a plan that was acceptable to all constituencies involved.
The Bankruptcy Court found the Kraus Claimants’ failure to raise arguments which were known
for so long was simply not excusable. (Confirmation Hr’g Tr. 24:19-20). For these reasons, the
2. The length of the delay and its potential impact on judicial proceedings.
“In determining how long is too long, courts generally consider the degree to which,
in the context of a particular proceeding, the delay ‘may disrupt the judicial administration of the
case.’” In re Enron Corp., 419 F.3d at 128 (citations omitted). The Committee appointed to
represent the interests of all holders of Asbestos PI Claims, including the Kraus Claimants,
opposed the Kraus Claimants’ request for a continuance of the Confirmation Hearing, as did
each of the other stakeholders in the Debtor’s Plan. Counsel for the Committee emphasized to
14
the Bankruptcy Court the importance of timing in a case dealing with the claims of asbestos
victims:
[T]iming is very important, and without being dramatic you can honestly
say in an asbestos bankruptcy that people are dying and they need the
money. And saying it’s a matter of a month doesn’t really give them any
comfort. It’s important for people to get money. … and any further delay
really is inappropriate.
(Confirmation Hr’g Tr. 19: 3-11). The Bankruptcy Court found that any delay in the
Hr’g Tr. 24:23-25:2; Confirmation Order 27 (“[T]o allow a continuance would prejudice the
holders of Class 4 Asbestos PI Claims that are awaiting the emergence of the Debtor from
bankruptcy so that the Asbestos PI Trust can begin to pay Asbestos PI Claims.”)).
substantial rights may be, and often are, forfeited if they are not asserted within time limits
established by law.” Silivanch, 333 F.3d at 367. The “legal system would groan under the
weight of a regimen of uncertainty in which time limitations were not rigorously enforced –
where every missed deadline was the occasion for the embarkation on extensive trial and
appellate litigation to determine the equities of enforcing the bar.” Id. at 368. The Kraus
Claimants are represented by experienced counsel and nothing prevented them from filing a
timely objection to preserve their rights where their counsel was aware of the potential issues and
deadline for objecting to the Plan. The Bankruptcy Court correctly found that the length of delay
and its potential impact on the proceedings weighed against a finding of excusable neglect.
15
3. The reason for the delay, including whether it was within the reasonable
control of the movant.
In the Second Circuit, the reason for the delay is the most important single factor in
determining whether neglect is excusable. In re Enron Corp., 419 F.3d at 123. The Kraus
Claimants assert that the sole reason they failed to file their confirmation objections by the
established deadline is that they were fraudulently induced by the Debtor and PENAC into
supporting the Debtor’s Plan. (Continuance Motion 6-7). The Bankruptcy Court declined to
make any findings as to “who said what,” and instead ruled that even if the Kraus Claimants
were promised special treatment, they could not, as a matter of law, have reasonably relied on
the alleged oral promise to forgo timely objecting to the Plan because the Kraus Claimants had
been provided with the Plan and the TDP months prior to the objection deadline, and the terms of
the Plan and TDP directly contradict the terms of the alleged oral promise. (Confirmation Hr’g
Moreover, “in applying the concept of excusable neglect, counsel must prove its failure
to timely file the objection was not preventable by the exercise of ordinary diligence.” In re
Richard Buick, Inc., 126 B.R. 840, 849 (Bankr. E.D. Pa. 1991). “Ordinary diligence would
require counsel to be cognizant of court-imposed deadlines.” Id. The Kraus Claimants received
notice of the May 15, 2009 objection deadline. The Kraus Claimants did not provide any reason
why they were unable to timely file their objections. The Bankruptcy Court found the objections
to the Debtor’s Plan which the Kraus Claimants sought to raise were apparent from the outset of
the case. (Confirmation Hr’g Tr. 24:4-11; Confirmation Order 27). The Kraus Claimants’
failure to timely object to confirmation of the Plan was the fault of no one but themselves. In re
Northwest Airlines Corp., No. 05-17930 (ALG), 2007 WL 498285, at *3 (Bankr. S.D.N.Y. Feb.
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9, 2007) (the fact that movant conducted an investigation and tried to resolve the issue by good
faith negotiations not proper grounds for excusable neglect because “[a]ll of this can be done
after a filing is first made and rights are preserved.”); In re Enron Corp., 419 F.3d at 126 (failure
to timely file claim because attorney was focused on negotiations with the debtor not excusable
neglect). The Bankruptcy Court correctly found that the reason for the delay weighed against a
effort to secure a more favorable treatment than other holders of Asbestos PI Claims, in violation
of the terms of the Plan, TDP and the Bankruptcy Code. At the hearing on the Continuance
Motion, counsel for the Kraus Claimants admitted that the reason they sought a 30-day
continuance of the Confirmation Hearing was to permit the Debtor’s third-party claims processor
sufficient time to value the Kraus Claimants’ Asbestos PI Claims, so that the Kraus Claimants
could then determine whether there was any dispute requiring them to assert objections to the
Debtor’s Plan. (Confirmation Hr’g Tr. 17:10-19). Thus, whether the Kraus Claimants would
have actually pursued their intended objections to the Plan appears to be contingent on the
monetary value assigned to their claims by the claims processor engaged to implement the terms
of the TDP. The TDP establishes neutral criteria that will apply to all claimants, and all known
claimants were given ample opportunity to review them. An attempt to hold the Confirmation
Hearing hostage in order to get an “advance read” of how their claims will ultimately be treated
As shown, the Pioneer factors uniformly support the Bankruptcy Court’s finding that the
Kraus Claimants’ failure to timely file their objections by the established deadline was not the
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result of any excusable neglect. Accordingly, the Bankruptcy Court did not abuse its discretion
ii. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court
Erred in Denying Their Request for a Continuance Under Section 105 of the
Bankruptcy Code.
In the Continuance Motion, the Kraus Claimants requested that the Bankruptcy Court
invoke its equitable powers under section 105(a) of the Bankruptcy Code as an additional basis
for granting them a 30-day continuance of the Confirmation Hearing. (Continuance Motion 8-9).
Because section 105(a) does not provide an independent basis for relief, the Bankruptcy Court
properly ruled that the request to file an untimely objection is governed by Bankruptcy Rule
9006(b)(1). (Confirmation Hr’g Tr., 23:16-18). Section 105(a) of the Bankruptcy Code gives
the bankruptcy court equitable power to “issue any order, process, or judgment that is necessary
or appropriate to carry out the provisions of the [Bankruptcy Code].” 11 U.S.C. § 105(a).
Section 105(a) may not be invoked absent another provision of the Bankruptcy Code. In re
Dairy Mart Convenience Stores, Inc., 351 F.3d 86, 91-92 (2d Cir. 2003) (citations omitted); see
also, NWL Holdings, Inc. v. Eden Center, Inc. (In re Ames Dep’t Stores, Inc.), 317 B.R. 260, 273
(Bankr. S.D.N.Y. 2004). It does not “authorize the bankruptcy courts to create substantive rights
that are otherwise unavailable under applicable law, or constitute a roving commission to do
equity.” In re Dairy Mart Convenience Stores, Inc., 351 F.3d at 92 (quoting United States v.
The Kraus Claimants are unable to cite any provision of the Bankruptcy Code that
supports their request for a continuance. Therefore, the Kraus Claimants have not demonstrated
that the Bankruptcy Court erred in not invoking its equitable powers to grant the Kraus
Claimants’ request for a continuance under section 105(a) of the Bankruptcy Code.
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iii. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court
Erred in Ruling that the Kraus Claimants Could Not, as a Matter of Law,
Reasonably Have Relied on the Alleged Promise to Forgo Timely Objecting
to the Plan.
The Kraus Claimants asserted that they were fraudulently induced into voting in favor of
the Plan and into refraining from timely objecting to confirmation of the Plan. As noted above,
in this appeal the Kraus Claimants do not address the Bankruptcy Court’s independent finding
that they could not, as a matter of law, reasonably have relied on the alleged oral promise to
forgo timely objecting to the Plan when they had in their possession a copy of the Plan and the
TDP months prior to the objection deadline, and the terms of the Plan and the TDP directly
Under New York law, in order to establish a claim for fraudulent inducement a plaintiff
must prove by “clear and convincing evidence”: “(1) that the defendant made a representation,
(2) as to a material fact, (3) which was false, (4) and known to be false by the defendant, (5) that
the representation was made for the purpose of inducing the other party to rely upon it, (6) that
the other party rightfully did so rely, (7) in ignorance of its falsity, (8) to his injury.”
4Connections LLC v. Optical Commc’ns Group, Inc., 618 F. Supp. 2d 178, 185 (E.D.N.Y. 2009);
see also, Allen v. J.P. Morgan Chase & Co., No. 06 Civ. 8712 (JGK), 2009 WL 857555, at *14
(S.D.N.Y. Mar. 31, 2009) (identifying five similar factors). In Stone v. Schulz, 647 N.Y.S.2d
822 (N.Y. App. Div. 1996), the plaintiff brought a claim for fraudulent inducement against
defendant based on his reliance on alleged oral promises that were expressly contradicted by the
terms of a written agreement between the plaintiff and defendant. Id. at 822-23. The court held
contract and a prior alleged oral representation, the conflict negates a claim of a reasonable
reliance upon the oral representation.” Id. (citations omitted); see also, Greenberg v. Chrust, 282
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F. Supp. 2d 112, 121 (S.D.N.Y. 2003) (reasonable reliance is precluded when “an express
Similarly, the Kraus Claimants assert that they were fraudulently induced to vote in favor
of the Plan based upon a prior alleged oral promise by the Debtor and PENAC to provide the
Kraus Claimants with special and preferential treatment enabling them to recover more from the
Asbestos PI Trust than any other asbestos claimant. The express terms of the TDP contradict the
Kraus Claimants’ alleged oral promise. This conflict between the subsequent written text and
the alleged prior agreement “negates a claim of a reasonable reliance upon the oral
representation.” Stone, 647 N.Y.S.2d at 823; Allen, 2009 WL 857555, at *14. Thus, the
C. Even if this Court Were to Consider the Kraus Claimants’ Other Issues Not
Properly Before this Court on Appeal, the Bankruptcy Court Did Not Err in
Confirming the Debtor’s Plan.
The Kraus Claimants ask this Court to determine whether the Bankruptcy Court erred and
abused its discretion in not allowing them to (1) present evidence that THAN and PENAC
constitute a single business entity and (2) to be classified separately from other asbestos
claimants. (See Appellants’ Brief 1). As stated in IV.A above, these issues were not presented
to, much less ruled on, by the Bankruptcy Court. This Court should not consider arguments that
were not before the Bankruptcy Court and are being introduced for the first time on appeal.
However, even if these issues were properly before this Court, the Kraus Claimants cannot show
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i. The Plan Is Confirmable Under Section 524(g) of the Bankruptcy Code.
The Kraus Claimants allege that the corporate veil should have been pierced and PENAC
“treated as the true debtor.”14 (Appellants’ Brief 27). The Kraus Claimants then assert that
confirmation of the Plan should have been denied because PENAC, “by not contributing a
majority of its voting shares to the trust, has failed to satisfy the requirements of 524(g) for a
The Kraus Claimants cite scant legal authority in support of their untimely argument to
pierce the corporate veil and attempt to support this baseless claim with more than 140 pages of
“evidence” that was never presented to the Bankruptcy Court and is not part of the record on
appeal. (See Exhibits A-L attached to Appellants’ Brief). This Court should not review
evidence that was not presented to the Bankruptcy Court. In re Bear Stearns High-Grade
Structured Credit Strategies Master Fund, Ltd., 389 B.R. at 339 (“if an item was not considered
As previously noted, there is no provision in the Bankruptcy Code that permits an entity
to be “treated as a debtor.” But if PENAC had been a debtor, the Kraus Claimants’ contentions
would still fail because section 524(g) does not require a debtor to contribute a majority of its
There are two provisions in section 524(g) of the Bankruptcy Code that require
contributions to be made to the Asbestos PI Trust, both of which are satisfied by the Plan. One
requires that the Asbestos PI Trust be funded by “the securities of 1 or more debtors involved in
14
It is unclear what the Kraus Claimants mean by this statement. The Bankruptcy Code does not
contain any provision permitting a person or entity to be “treated as a debtor.” A person or entity
becomes a “debtor,” as that term is used in the Bankruptcy Code, and entitled to the rights and
protections afforded thereunder by filing a voluntary petition under 11 U.S.C. § 301 or by having
an involuntary case commenced against him under 11 U.S.C. § 303.
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such plan and by the obligation of such debtor or debtors to make future payments, including
additional debtor, the promissory note that THAN will contribute to the Asbestos PI Trust under
the Plan satisfies this requirement and it would not be necessary for PENAC to contribute
The other provision requires the trust to own or if specified contingencies occur, have the
right to own the majority of the voting shares of either (a) each debtor, (b) the parent corporation
of each debtor, or (c) a subsidiary of each debtor that is also a debtor. 11 U.S.C. §
524(g)(2)(B)(i)(III). Because the entities that will satisfy this requirement are listed in the
disjunctive, the Plan can satisfy the requirement of this section by providing that the Asbestos PI
Trust will have the ability to own a majority of the shares of THAN. Again, if PENAC were a
debtor the Plan would still satisfy the requirements of section 524(g)(2)(B)(i)(III) because if
specified contingencies occur the Asbestos PI Trust will be entitled to own one-hundred percent
of the voting shares in THAN—a subsidiary of PENAC and a debtor in the case.
ii. The Kraus Claimants Have Not Demonstrated that They Are Entitled to
Separate Classification Under the Plan from All Other Asbestos Claimants.
The Kraus Claimants request this Court to “revise” the Plan by separately classifying
their claims and allowing them to obtain better treatment than other asbestos creditors.
(Appellants’ Brief 31). Their sole basis for that request is the Kraus Claimants’ contention that
the law firm representing them has historically obtained higher settlement values in the tort
system against THAN and its claimants are entitled to be treated consistently with those
historical settlement values. (Appellants’ Brief 29). This request demonstrates a disregard for
what the Supreme Court has called “a central policy of the Bankruptcy Code,” namely the
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Begier v. I.R.S., 496 U.S. 53, 58 (1990). In any event, this untimely objection, not properly
before this Court, is easily disposed of since the Kraus Claimants have failed to demonstrate that
Section 1122 of the Bankruptcy Code governs the classification of claims in chapter 11
plans. This section provides in relevant part that “a plan may place a claim or an interest in a
particular class only if such claim or interest is substantially similar to the other claims or
interests of such class.” 11 U.S.C. § 1122(a). While section 1122 does not explicitly prohibit the
separate classification of similarly situated claims, the courts have derived two fundamental rules
(b) similar claims may only be separately classified for a legitimate reason.
In re Chateaugay Corp., 89 F.3d 942, 949 (2d Cir. 1996); see also In re Quigley Co., Inc., 377
B.R. 110, 116 (Bankr. S.D.N.Y. 2007). Thus, although Congress has granted plan proponents
substantial flexibility in crafting classes of claims, plan proponents will only be allowed to
separately classify similarly situated claims if the plan proponent can present credible proof of a
legitimate reason for the separate classification. In re Chateaugay, 89 F.3d at 949. Whether
claims are substantially similar in nature depends on the legal nature of the claim and whether
the claimants are entitled to the same right and priority in the debtor’s assets. In re Quigley Co.,
In a recent asbestos bankruptcy case, the court determined that asbestos-personal injury
claims are substantially similar claims that can and should be classified together. In the case of
In re Quigley Co., Inc., the court held that the fact that some asbestos claimants held prepetition
settlements with the debtor’s parent that entitled them to future payments from the parent did not
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prevent all asbestos claims from being classified together in a single class. In re Quigley Co.,
Inc., 377 B.R. at 116. Instead, the court held that because all of the asbestos claims were
unsecured claims against the debtor, the claims had the same legal rights against the estate and
were substantially similar claims. Id. Thus, separate classification of the settled and non-settled
Additionally, separate classification of similarly situated claims for the sole purpose of
allowing certain asbestos claimants to obtain better treatment than others would violate the
Bankruptcy Code’s central policy of equality of distribution among similarly situated creditors
and is inappropriate. See Begier v. I.R.S., 496 U.S. at 58. Contrary to their assertions, the
Asbestos PI Claims held by the Kraus Claimants are no different than Asbestos PI Claims held
by other claimants. All holders of Asbestos PI Claims hold general unsecured claims against the
Debtor and as the court in Quigley noted, it is appropriate to classify such claims together. In re
Quigley Co., Inc., 377 B.R. at 116; see also, In re Armstrong World Indus., Inc., 348 B.R. 136,
159-60 (D. Del. 2006) (finding it appropriate to classify asbestos personal injury claims, whether
Here, the Kraus Claimants are asking the Court to separately classify their claims so that
they may obtain better treatment from the Debtor than other similarly situated asbestos
claimants. The Kraus Claimants’ claims are substantially similar to the claims of other asbestos
claimants and the Kraus Claimants cannot support their request for separate classification. The
Debtor’s Plan achieves the goal of equality of distribution by classifying all asbestos claimants
together and providing that all asbestos claims will be processed and paid by the Asbestos PI
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Thus, even if the Kraus Claimants’ confirmation objection based on separate
classification were properly before this Court—which it is not—the Kraus Claimants cannot
show that they were entitled to separate classification under the Debtor’s Plan. Accordingly, the
Kraus Claimants’ cannot demonstrate that the Bankruptcy Court erred in confirming the Debtor’s
Plan.
V.
CONCLUSION
For the foregoing reasons, the Future Claimants’ Representative respectfully prays that
this Court AFFIRM the Confirmation Order and grant any and all further relief to which the
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