Opening Briefs and Amicus - GIT Bankruptcy Appeal

8/14/2019 Opening Briefs and Amicus - GIT Bankruptcy Appeal

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No. 08-3650

In the United States Court of Appeals

for the Third Circuit

IN RE: GLOBAL INDUSTRIAL TECHNOLOGIES, INC., ET AL.

HARTFORD ACCIDENT AND INDEMNITY COMPANY, ET AL.,

Appellants,

v.

GLOBAL INDUSTRIAL TECHNOLOGIES,INC., ET AL.,

Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

BRIEF FOR APPELLANT AIG MEMBER COMPANIES

ZEICHNER ELLMAN &KRAUSE LLP

Michael S. Davis

575 Lexington Avenue

New York, NY 10022

TUCKER ARENSBERG, PCBeverly Weiss Manne

1500 One PPG Place

Pittsburgh PA 15222

BIVONA & COHENJoseph Boury

88 Pine Street

New York, NY 10005

Counsel for the Appellant, AIG Member Companies, including National

Union Fire Insurance Company of Pittsburgh, PA, Insurance Company of

the State of Pennsylvania, Lexington Insurance Company and AmericanHome Assurance Company

eceived and Filed

-3650

/19/08

arcia M. Waldron,

erk

Case: 08-3650 Document: 00312240403 Page: 1 Date Filed: 11/19/2008


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CORPORA TE DISCLOSURE STATEM ENT ANDSTATEMENT O F FINANCIAL INTERESTPursuant to Rule 26.1 and Third Circuit LAR 26.1, Appellant, AIG MemberCompanies make the following disclosure:1) For non-governmental corporate parties please list all parent corporations:

Am erican International Group, Inc.2) For non-governmental corporate parties please list all publicly held companies thathold 10% or more of the party's stock:

Am erican International Group, Inc.3) If there is a publicly held corporation which is not a party to the proceeding beforethis Court but which has as a financial interest in the outcome of the proceeding,please identify all such parties and specify the nature of the financial interest orinterests:Am erican International Group, Inc. a publicly held corporation that is not a partyto this appeal, as the parent corporation of the AIG Member Companies, has aninterest in the financial outcome of the proceeding.Dated: November, 18, 2008

TUCKER ARENSBERG, P.C.1500 One PPG PlacePittsburgh, PA 15222(412) 594-5525Email: bmanne@,tuckerlaw.comCounsel for Appellant National Union Fire InsuranceCompany of Pittsburgh, Pa; Insurance Company of theState of Pennsylvania; Lexington Insurance Company;American Home Assurance Company, and any otherentities related to American International Group, Inc.that engaged in business transactions with theReorganizing Debtors



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TABLE OF CONTENTS

Page

CORPORATE DISCLOSURE STATEMENT

I. TABLE OF AUTHORITIES .................................................................i

II. STATEMENT OF SUBJECT MATTER AND APPELLATE

JURISDICTION....................................................................................1

III. STATEMENT OF RELATED CASES AND PROCEEDINGS..........1

IV. STATEMENT OF THE STANDARD OF REVIEW...........................1

V. STATEMENT OF THE ISSUES PRESENTED FOR REVIEW.........2

VI. JOINDER OF AIG MEMBER COMPANIES .....................................2

VII. STATEMENT OF THE CASE AND

STATEMENT OF THE FACTS...........................................................3

VIII. SUMMARY OF ARGUMENT ............................................................6

IX. ARGUMENT ........................................................................................7

THE COURTS BELOW ERRED IN CONFIRMING A

PLAN THAT PAYS OFF CLAIMS THAT WOULD NOT

BE ALLOWED UNDER APPLICABLE BANKRUPTCY

LAW TO GARNER FAVORABLE VOTING BY THE

ASBESTOS CLAIMANTS

X. CONCLUSION ...................................................................................16

COMBINED CERTIFICATIONS ................................................................18



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(i)

I. TABLE OF AUTHORITIES

Statutes Page

11 U.S.C. 105......................................................................................................7, 8

11 U.S.C. 501........................................................................................................10

11 U.S.C. 502..............................................................................8, 9, 10, 11, 12, 13

11 U.S.C. 558........................................................................................................12

11 U.S.C. 1129................................................................................................7, 8, 9

Cases

In re Abbotts Dairies of Pa., Inc.,

788 F.2d 143 (3d Cir. 1986)......................................................................................9

Addison v. Langston ( In re Brints Cotton Marketing, Inc.),

737 F.2d 1338, 1341 (5th Cir. 1984) .................................................................11, 12

Butner v. United States,

440 U.S. 48, 99 S. Ct. 914, 59 L. Ed. 2d 136 ..........................................................11

In re Brill, 318 B.R. 49

(Bankr. S.D.N.Y. 2004) ...........................................................................................13

In re American Reserve Corp.,

840 F.2d 487 (7th Cir. 1988) ...................................................................................12

In re Combustion Engineering, Inc.,391 F.3d 190 (3d Cir. 2004)...........................................................................8, 11, 12

In re Continental Airlines, Inc.,

203 F.3d 203 (3d Cir. 2000)...................................................................................... 8



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(ii)

In re International Environmental Dynamics, Inc.,

718 F.2d 322, 326 (9th Cir. Cal. 1983). ....................................................................9

In re PWS Holding Corp.,228 F.3d 224 (3d Cir. 2000)...................................................................................8, 9

Norwest Bank Worthington v. Ahlers,

485 U.S. 197, 206, 99 L. Ed. 2d 169, 108 S. Ct. 963 (1988).....................................8

Phillips v. A-Best Products Co.,

665 A.2d 1167, 542 Pa. 142 (1995).........................................................................15

Travelers Cas. & Sur. Co. of America v. Pac. Gas & Elec. Co.,

549 U.S. 443, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007) ...................................11, 12

U.S. Lines, Inc. v. U.S. Lines Reorganization Trust (In re U.S. Lines, Inc.),

262 B.R. 223, (S.D.N.Y. 2001)................................................................................13

Vanston Bondholders Protective Committee v. Green,

329 U.S. 156, 67 S. Ct. 237, 91 L. Ed. 162 (1946)..................................................12

Secondary Materials

4 Collier on Bankruptcy (15th rev. ed. 2003) .........................................................11



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-1-

II. STATEMENT OF SUBJECT MATTER AND APPELLATE

JURISDICTION

The AIG Member Companies1 join in and adopt the Statement of Subject

Matter and Appellate Jurisdiction of Appellants Hartford and Century Indemnity.

III. STATEMENT OF RELATED CASES AND PROCEEDINGS

The AIG Member Companies join in and adopt the Statement of Related

Cases and Proceedings of Appellants Hartford and Century Indemnity.

IV. STATEMENT OF THE STANDARD OF REVIEW

The AIG Member Companies join in and adopt the Statement of Standard of

Review of Appellants Hartford and Century Indemnity.

1Appellant is National Union Fire Insurance Company of Pittsburgh, PA,

Insurance Company of the State of Pennsylvania, Lexington Insurance Company,American Home Insurance Company, and any other entities related to American

International Group, Inc. that engaged in business transactions with the

Reorganizing Debtors and referred to collectively as the AIG Member

Companies.



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V. STATEMENT OF THE ISSUES PRESENTED FOR REVIEW

The AIG Member Companies join in and adopt the Statement of Issues

Presented For Review of Appellants Hartford and Century Indemnity (Issues 1-3),

and further identify the following additional issue with respect to the AIG Member

Companies:

4. Did the bankruptcy court err in confirming a plan of reorganization

and establishment of a silica trust that contains no means of preventing the

payment of invalid silica claims, and thus threatens to decrease the recovery of

creditors with valid claims?

VI. JOINDER OF AIG MEMBER COMPANIES

The AIG Member Companies join in the Appellate Brief and associated

filings of Hartford and Century Indemnity.



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VII. STATEMENT OF THE CASE AND

STATEMENT OF THE FACTS

Appellant AIG Member Companies join in and incorporate the Statement of

the Case and the Statement of the Facts articulated by Appellants Hartford and

Century2 in their Appellate Brief.

In addition, the AIG Member Companies state as follows:

Global Industrial Technologies (GIT) and certain of its subsidiaries,

including both A.P. Green Industries, Inc. (APG) and Harbison-Walker

(collectively, the Debtors or GIT Debtors), filed Chapter 11 bankruptcy cases3

on February 14, 2002 (the Petition Date). All potential silica related injury

claims that existed prior to the Petition Date are pre-petition claims, including

2The other Appellants are Hartford Accident and Indemnity Company, First StateInsurance Company, and Twin City Fire Insurance Company (collectively,

Hartford); Century Indemnity Company, as successor to CIGNA Specialty

Company, formerly known as California Union Insurance Company, and

Westchester Fire Insurance Company, for itself and for International Insurance

Company (now known as TIG Insurance Company) (collectively, Century); and

the AIG Member Companies.

3GITs affiliate, NARCO and its subsidiary debtors (Narco) filed their chapter

11 cases in January 2002. The various GIT-related companies' cases have been

jointly administered under Case No. 02-21626. The NARCO cases were jointlyadministered under Case No. 02-20198. The Narco and GIT cases are related and

joint proceedings were held with respect to matters relating to plan confirmation

and the appeals have been consolidated before this Court. AIG Member

Companies' appeal concerns only issues arising in the GIT bankruptcy.



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claims that accrued after January 1, 2000 through the Petition Date (the Post-2000

Silica Claims).

The GIT Third Amended Plan (Plan or GIT Plan) was filed on

December 28, 2005, and on June 21, 2006, the Debtors filed Technical

Amendments to the GIT Plan at (Docket 6242 with additional substantive

amendments to the Plan being filed on December 15, 2006 (Docket 6971) and

Technical Amendments were filed on October 25, 2007 (Docket 7819). See, JA

2877 et seq.

Pursuant to settlement agreements between the Debtor and the AIG Member

Companies, the AIG Member Companies are creditors of GIT and have allowed

claims against the Silica Trust. See, JA 2441 - JA2484.

As creditors of the Silica Trust, the AIG Member Companies percentage

recovery will be the same as any other Silica Trust Creditor, but thousands of tort

claimants also will be Silica Trust Creditors and will be paid from the Silica Trust,

on account of the allowance of worthless claims, reducing the overall percentage of

the recovery by the AIG Member Companies and other bona fide Silica Trust

Creditors.

The Plan provides that all pre-petition silica claims, including the Post-2000

Silica Claims, will be administered through the Silica Trust, and such claims will



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be allowed and paid based upon exposure and diagnosis alone. JA73 (193), JA

2797 (193), JA 2799 (199), JA2973-4.

That payment scheme will prevail even though Debtor testified, and the

Bankruptcy Court opined, that the Post-2000 Silica Claimants should be subject

to all defenses available to Debtors. See JA 70 and JA1042. Specifically, after

2000, Debtor had implemented safety measures and warning procedures with

respect to their products. JA1042 (we've put ourselves into the best position we

can as far as product warnings and things like that and sophisticated

intermediaries). Thus, in the absence of the GIT Plan and the Silica Trust

Distribution Procedures (TDP), many or perhaps all of the Post-2000 Silica

Claimants claims would not otherwise be paid in the tort system or even be

allowed under the Bankruptcy Code.

Under the GIT Plan and Silica Trust Distribution Procedures, the Trustees

alone have the authority to "allow" a claim and no other parties can object -- not

allowed claimants whose pro-rata distribution will be diluted by the allowance, or

insurers who will be asked to pay for the claim allowed by the Trust. JA 2968,

2972, et seq.



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VIII. SUMMARY OF ARGUMENT

The AIG Member Companies respectfully submit that in addition to the

issues raised by Hartford and Century, the Bankruptcy Court erred in confirming

the GIT Plan and issuing the Silica Channeling injunction because the GIT Plan

allows legally worthless silica-related injury claims to receive a recovery that

would not be allowable under either bankruptcy or non-bankruptcy law, and the

GIT Plan and documentation contain no provision for the assertion of valid

defenses. This allowance of such claims comes at the expense of other claims to be

paid from the Trust, including those of the AIG Member Companies. The GIT Plan

is not equitable and it should not have been confirmed.

On appeal, the District Court missed the point of AIG Member Companies

arguments -namely that the AIG Member Companies are an actual creditor of the

APG Silica Trust and as a creditor AIG Member Companies object to the plan and

establishment of a trust that allows invalid claims to dilute AIG Member

Companies valid claims against the Trust.

This objection is in addition to the objections of AIG Member Companies as

insurers, as articulated and briefed by Hartford and Century in their Appellate

brief, in which objections and Brief the AIG Member Companies join.



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The additional issue raised by AIG Member Companies in the Courts below,

and thus here, is whether it was proper for those Courts to confirm a plan which

structured a mechanism for the allowance and payment of invalid claims, contrary

to the Bankruptcy Code's principles and statutory provisions and to the detriment

and dilution of rights of creditors with valid and allowed claims. Specifically, the

Plan and the Silica Trust Distribution Procedures inappropriately structure a

scheme whereby claims that would be unenforceable under applicable non-

bankruptcy law will nonetheless be allowed and paid, on a pro-rata basis, from a

limited pot of funds from which the AIG Member Companies claim is to be paid

pro-rata. The Debtors structured the Plan and Silica TDPs to eliminate the rights

of creditors (and insurers) to object to the payment of claims that would not

otherwise be allowed under bankruptcy law due to the claims being unenforceable

under applicable non-bankruptcy law.

IX ARGUMENT

THE COURTS BELOW ERRED IN CONFIRMING A PLAN THAT

PAYS OFF CLAIMS THAT WOULD NOT BE ALLOWED UNDER

APPLICABLE BANKRUPTCY LAW TO GARNER FAVORABLE

VOTING BY THE ASBESTOS CLAIMANTS

In confirming the Plan and approving the Silica Trust, the Bankruptcy Court

relied on Sections 105 and 1129 of the Bankruptcy Code. 11 U.S.C. 105, 1129.



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However, nothing in Section 105 authorizes a court to override the

command of 11 U.S.C. 502(b)(1) -- that claims are to be allowed or disallowed

pursuant to the principles of applicable nonbankruptcy law.

This Court has time and time again held that Section 105 does not provide

authority for a bankruptcy court to expand rights afforded to parties by the

Bankruptcy Code. See, In re Continental Airlines, Inc., 203 F.3d 203, 211 (3d Cir.

2000). Nor may a bankruptcy court disregard provisions of the Code. In re

Combustion Engineering, Inc., supra 391 F.3d at 235-6, citing, inter alia, Norwest

Bank Worthington v. Ahlers, 485 U.S. 197, 206, 99 L. Ed. 2d 169, 108 S. Ct. 963

(1988) ("Whatever equitable powers remain in the bankruptcy courts must and can

only be exercised within the confines of the Bankruptcy Code."). Section 1129 of

the Bankruptcy Code itself conditions confirmation of a plan on both the plan and

the plan proponent complying with applicable provisions of Title 11. 11 U.S.C.

1129(a)(1), (2). It further requires the plan to be proposed in good faith and not by

means forbidden by law. 11 U.S.C. 1129(a)(3). This Circuit has stated that "for

purposes of determining good faith under section 1129(a)(3) . . . the important

point of inquiry is the plan itself and whether such a plan will fairly achieve a

result consistent with the objectives and purposes of the Bankruptcy Code." In re



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PWS Holding Corp., 228 F.3d 224, 242 (3d Cir. 2000), citingIn re Abbotts Dairies

of Pa., Inc., 788 F.2d 143, 150 n.5 (3d Cir. 1986).

Just as attempts to manufacture artificially, or to gerrymander, classes to

obtain an accepting impaired non-insider class4 raise questions of good faith, so

does the inclusion in the silica trust of persons with claims that would not be

allowed under the Bankruptcy Code, and the divestiture of the mechanism for

creditors to challenge such claims under Section 502(b).

Further, the Bankruptcy Code set up a system with provisions that govern

how claims are handled in order to effectuate the Code's goal of ensuring a fair and

equal distribution to creditors. Thus a plan can be confirmed if it "complies with

the applicable provisions of this title." 11 U.S.C. 1129(a)(1). Failing to comply

with the provisions of the Code as a device to get votes for a plan is simply not

permissible. And in a case involving competing claims to a limited fund, a

claimant with an allowed claim has standing to appeal an order disposing of assets

(i.e., allowing a claim of another claimant) from which the claimants seeks to be

paid. See, e.g.,In re International Environmental Dynamics, Inc., 718 F.2d 322,

326 (9th Cir. Cal. 1983).

4In order to confirm a Plan, Section 1129 requires that the plan be accepted by at

least one class of impaired creditors. 11 U.S.C. 1129(a)(10).



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As this Court has stated:

'[t]o determine whether claims are enforceable for bankruptcy purposes,

502 relies upon applicable non-bankruptcy law. See 4 Collier on BankruptcyP 502.03[2][b][ii] (15th rev. ed. 2003) ('The validity and legality of claims is

generally determined by applicable non-bankruptcy law."). A claim against

the bankruptcy estate, therefore, "will not be allowed in a bankruptcy

proceeding if the same claim would not be enforceable against the debtor

outside of bankruptcy." (citations omitted).

In re Combustion Engineering, Inc., 391 F.3d 190, 245 (3d Cir. 2004)

State law ordinarily determines what claims of creditors are valid and

subsisting obligations. As articulated recently by the United States Supreme Court:

The basic federal rule' in bankruptcy is that state law governs the substance

of claims, Congress having 'generally left the determination of property

rights in the assets of a bankrupt's estate to state law.'" (Citations Omitted)

Accordingly, when the Bankruptcy Code uses the word "claim"--which the

Code itself defines as a "right to payment," 11 U.S.C. 101(5)(A) --it is

usually referring to a right to payment recognized under state law. As we

stated in Butner, "[p]roperty interests are created and defined by state law,"and "[u]nless some federal interest requires a different result, there is no

reason why such interests should be analyzed differently simply because an

interested party is involved in a bankruptcy proceeding." 440 U.S., at 55, 99

S. Ct. 914, 59 L. Ed. 2d 136;

Travelers Cas. & Sur. Co. of America v. Pac. Gas & Elec. Co., 549 U.S. 443, ,

127 S.Ct. 1199, 1205, 167 L.Ed.2d 178, 186-7 (2007).

From there, the bankruptcy court is to determine how and what claims are

allowable for bankruptcy purposes, in order to accomplish the statutory purpose of

advancing a fair and ratable distribution of assets among the creditors. Addison v.



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Langston ( In re Brints Cotton Marketing, Inc.), 737 F.2d 1338, 1341 (5th Cir.

1984), citing Vanston Bondholders Protective Committee v. Green, 329 U.S. 156,

161, 162-63, 67 S. Ct. 237, 239, 240, 91 L. Ed. 162 (1946). See also,In re

American Reserve Corp., 840 F.2d 487, 489 (7th Cir. 1988) (the courts shall look

to substantive nonbankruptcy law to determine the validity and amount of a claim

when the petition was filed). Ultimately, the effect of Section 502 is to provide a

bankruptcy trustee with the same rights and defenses to claims as held by the

debtor prior to bankruptcy. In re Combustion Eng'g, Inc., supra, 391 F.3d at 245

(3d Cir. Del. 2004). Moreover, Section 502 "is most naturally understood to

provide that, with limited exceptions, any defense to a claim that is available

outside of the bankruptcy context is also available in bankruptcy." Travelers Cas.

& Sur. Co. of America v. Pac. Gas & Elec. Co., supra, 549 U.S. , 127 S.Ct. at

1204, 167 L.Ed.2d at 182 (2007). "When the Bankruptcy Code uses the word

'claim' -- which the Code itself defines as a 'right to payment,' -- it is usually

referring to a right to payment under state law."Id. 594 U.S. , 127 S.Ct. at 1205,

167 L.Ed.2d at 182. Indeed, Section 558 of the Bankruptcy Code expressly

provides the bankruptcy estate with the benefit of any defense available to the

debtor as against any entity other than the estate. 11 U.S.C. 558. Thus, a claim

that would be subject to the statute of limitations, which is a waivable defense



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under the laws of many jurisdictions, would nonetheless be disallowed. It cannot

be disputed that where a claim would be unenforceable against the debtor outside

of bankruptcy because the statute of limitation had run, the claim will not be

allowed in a bankruptcy case. See, In re Brill, 318 B.R. 49, 53 (Bankr. S.D.N.Y.

2004) (Section 502(b)(1) requires a claim to be disallowed if such claim is

unenforceable against the debtor"), citing, inter alia, U.S. Lines, Inc. v. U.S. Lines

Reorganization Trust (In re U.S. Lines, Inc.), 262 B.R. 223, 234 (S.D.N.Y. 2001).

If the Post-2000 Silica Claims were submitted to the tort system, those

claimants would be subject to defenses to liability that could either reduce or

completely bar their claims. By shielding these claimants from valid liability

defenses, Post-2000 Silica Claims claimants will recover larger allowed amounts

by virtue of the GIT Plan than they would outside of bankruptcy in the tort system

(i.e., the otherwise applicable law to which Section 502 makes reference). This is

clearly contrary to the statutory scheme which provides for the allowance and

payment of a claim except to the extent that the claim is unenforceable against the

debtor under any agreement or applicable law. A plan that condones superior,

rather than equitable, treatment defies a principal purpose of the bankruptcy code

and should not have been confirmed.



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But for the GIT Plan and the Silica TDP, many, if not all, of the Post-2000

Silica Claimants claims would not otherwise be paid in the tort system or even be

allowed under the Bankruptcy Code. The Bankruptcy Court was mistaken when it

concluded that the Post-2000 Silica Claimants would be subject to defenses

available to Debtors. JA 73 (Memorandum Opinion of Confirmation of Third

Amended Plan of Reorganization, page 46). To the contrary, the GIT Plan and

TDPs are structured so that Post-2000 Silica Claims will be allowed and, thus paid,

simply upon a showing of exposure and injury --regardless of the existence of a

defense (such as refusal to wear an employer provided mask). JA2943. The

Futures Representative for Silica Claimants, Robert Pahigian, in his affidavit

averred that the Plan and Silica TDPs will be able to pay present claims and future

demands in a substantially similar manner.

5

JA2796, 2842. But, under

5 In his March 8, 2007 deposition, Mr. Pahigian acknowledged the potential

for greater recovery by silica claimants whose claims are administered by the trust.

(Bankruptcy Doc 7260, District Court Doc No. 13-2, Transcript, pp. 56-57):

Q: So when we talk about the claimants that are going to be treated --

channeled to the trust, this new group of claimants, and you said that you believe

that they would be treated more fairly than they would have in the tort system, do

you believe that they will also receive a greater recovery?

A: Than?Q: Than they would have had they not had their claims channeled to the

trust?

A: Yes. Thats my general belief. But as I said before, I cant tell you what

the tort system is going to provide to these claimants on any given day in the



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Pennsylvania law, the post-2000 Silica Claims would clearly be subject to

legitimate defenses that can limit or eliminate the claimants ability to recover.

See. Phillips v. A-Best Products Co., 542 Pa. 124, 665 A.2d 1176 (1995).6

The GIT Plan elevates the recovery by the Post-2000 Silica Claims

claimants and provides a windfall that would not otherwise exist, by requiring

without defense the allowance and payment of defensible claims. The GIT Plan

does so at the expense of the insurers generally and with respect to the AIG

Member Companies specifically as a Silica Trust Creditor whose claims are diluted

by payment of legally defensible claims which should be disallowed under the

Bankruptcy Code. The GIT plan and the Trust eviscerate the mechanism that

future. Youre talking about individuals who are going to develop disease a decade

or many decades down the road. The tort system may change during that period,

likely will. So I cant tell you how each I cant even begin to speculate how eachclaimant is going to be treated. I think as a whole, the concept of setting a

significant amount of money aside and significant potential insurance recoveries

aside for the group as a whole and distributing that money after analyses are done

about the number of future claimants expected assures all of them relatively equal

treatment andI think a more fair and equitable distribution of proceeds than would

occur under the tort system

6AIG Member Companies join in the Hartford and Century Appellant Brief which

includes a compelling showing that many silica claims, whether pre-2000 or post-

2000, are invalid and dilute the AIG Member Companies recovery as creditors ofthe Silica Trust. AIG Member Companies argue further that the failure to retain

any requirement to show actual tort liability for Post-2000 Claims is a further

impermissible dilution. Indeed, the Phillips v. A-Bestcase explicitly held that

silica claims against these Debtors were subject to such defenses.



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enables creditors with legitimate claims to object to claims that are not valid. A

plan that allows legally worthless claims to receive a recovery, with no provision

for disallowance in the face of a valid defense, at the expense of other claims, is

not equitable, is inconsistent with the principals and provisions of the Bankruptcy

Code and should not have been confirmed. The Bankruptcy Court erred in

entering the Order of Confirmation.

X CONCLUSION

The Bankruptcy Court and District Courts erred in confirming the GIT

Plan. The Plan inappropriately provides for the payment of invalid claims from the

Silica Trust to the detriment of valid claims with no mechanism for disallowance.

For the foregoing reasons, and the reasons set forth in the Hartford Brief, the

Orders of the District Court and the Bankruptcy Court confirming the GIT Plan

and authorizing the APG Silica Trust and TDPs should be reversed.



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Dated: November 19,2008 The AIG Member Companies, includingNational Union Fire Insurance Company ofPittsburgh, PA, Insurance Company of theState of Pennsylvania, Lexington InsuranceCompany and American Home AssuranceCompanyB m ttorneys:

~ e v e w e i s s anne (Pa. 34545)TUCKER ARENSBERG, P.C.1500 One PPG PlacePittsburgh, PA 15222Phone: 412-566-1212Telecopier: 4 12-594-5619Email : bmanne@,tuckerlaw.comMichael S. Davis, Esq.ZEICHNER ELLMAN & KRAUSE LLP575 Lexington AvenueNew York, New York 10022Phone: 212-223-0400Joseph Boury, Esq.BIVONA & COHEN, P.C.88 Pine StreetNew York, New York 10005Phone: (2 12) 363-3 100



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COMBINED CERTIFICATIONS

Beverly Weiss Manne certifies as follows:

1. Beverly Weiss Manne, Michael Davis and Joseph Boury are members in

good standing of the bar of the United States Court of Appeals for the Third

Circuit.

2. This brief complies with the type-volume limitations of Fed. R. App. P

32(a)(7)(B) because this brief contains 3090 words, excluding the parts of

the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

3. This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) becausethis brief has been prepared in a proportionally spaced typeface using

Microsoft Word 2003 in Times New Roman 14-point font.

4. The text of the electronic version of this brief is identical to the text of the

paper copies of this brief being filed with the Court except that the

attachments contained in Volume I of the Appendix are not included in the

electronic version.

5. A virus detection program on Kaspersky Anti-Virus software was run on thefile for the electronic version of the brief and no virus was detected.

6. On this 19th

day of November, 2008, a copy of the electronic version of the

brief was transmitted to the Office of the Clerk for the Third Circuit Court of

Appeals, ten hard copies of the brief were mailed to the Office of the Clerk

for the Third Circuit Court of Appeals.

Volume I of the Appendix is not included because it is attached to the

Appellate Brief of Hartford and Century Indemnity, in which Brief AIG

Member Companies have joined. Volumes I-V of the Appendix are beingserved by Hartford and Century Indemnity.

Two copies of this Brief were served upon the following counsel of record

by first class/priority mail, postage prepaid, addressed as follows:



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James J. Restivo, Jr., Esq.

Paul M. Singer, Esq.

David Ziegler, Esq.

Reed Smith435 Sixth Avenue

Pittsburgh, PA 15219-0000

Edwin J. Harron, Esq.

Sharon M. Zieg, Esq.

Young, Conaway, Stargatt & Taylor

1000 West Street, P.O. Box 391

17th Floor, Brandywine Building

Wilmington, DE 19899-0391

Joel M. Helmrich, Esq.

Meyer, Unkovic & Scott

535 Smithfield Street

1300 Oliver Building


Gary P. Nelson, Esq.

Sherrard, German & Kelly620 Liberty Avenue

Two PNC Plaza, 28th Floor


Douglas A. Campbell, Esq.

David B. Salzman, Esq.

Campbell & Levine

330 Grant Street

1700 Grant BuildingPittsburgh, PA 15219-0000



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Elihu Inselbuch, Esq.Caplin & Drysdale375 Park Avenue, 35th FloorNew York, NY 10 152-0000Peter V. Lockwood, Esq.Caplin & DrysdaleOne Thomas Circle, N.W.Washington, DC 20005-0000

Sally E. Edison, Esq.McGuireWoods625 Liberty A venue23rd Floor, Dominion TowerPittsburgh, PA 15222-0000Craig Goldblatt, Esq.Danielle M. Spinelli, Esq.Seth P. Waxman, Esq.Wilmer Hale1875 Pennsylvania Avenue, N.W.

Washington, DC 20006John D. Dernrny, Esq.Stevens& Lee1105 North Market Street, Suite 700Wilmington, DE 19801-0000

Dated: November 19,2008



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No. 08-3650

In the United States Court of Appealsfor the Third Circuit

IN RE: GLOBAL INDUSTRIAL TECHNOLOGIES, INC., ET AL.

HARTFORD ACCIDENT AND INDEMNITY COMPANY, ET AL.,Appellants,

v.

GLOBAL INDUSTRIAL TECHNOLOGIES,INC., ET AL.,

Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

BRIEF FOR APPELLANTS HARTFORD AND CENTURY

WILLIAM J.BOWMANJAMES P.RUGGERIEDWARD B.PARKS,IIHOGAN &HARTSON LLP555 Thirteenth Street, N.W.Columbia SquareWashington, D.C. 20004(202) 637-5600

SETH P.WAXMANCRAIG GOLDBLATTDANIELLE SPINELLINANCY L.MANZERCATHERINE M.A.CARROLLLISA EWARTWILMER CUTLER PICKERING

HALE AND DORR LLP1875 Pennsylvania Avenue, N.W.

Washington, D.C. 20006(202) 663-6000

Counsel for Appellants Hartford Accident and Indemnity Company,

First State Insurance Company, and Twin City Fire Insurance Company

Additional Parties and Counsel Listed on Inside Cover

08

12/

Marcia M. Wal



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JOHN D.DEMMYSTEVENS &LEE, P.C.1105North Market Street, 7th FloorWilmington, DE 19801(302) 425-3308

LEONARD P.GOLDBERGERSTEVENS &LEE, P.C.1818 Market Street, 29th FloorPhiladelphia, PA 19103(215) 751-2864

JOSEPH GIBBONSAMY E.VULPIO

WHITE AND WILLIAMS LLP1800 One Liberty PlacePhiladelphia, PA 19103(215) 864-7000

Counsel for Century Indemnity Company, as

successor to CIGNA Specialty Company,

formerly known as California Union

Insurance Company, and Westchester Fire

Insurance Company, for itself and for

International Insurance Company (nowknown as TIG Insurance Company)



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CORPORATE DISCLOSURE STATEMENT AND

STATEMENT OF FINANCIAL INTEREST

Pursuant to Fed. R. App. P. 26.1 and Third Circuit LAR 26.1, AppellantsHartford Accident and Indemnity Company, First State Insurance Company, and

Twin City Fire Insurance Company hereby make the following disclosure:

A. Hartford Accident and Indemnity Company. Hartford FireInsurance Company and The Hartford Financial Services Group, Inc. are parentcorporations. The Hartford Financial Services Group, Inc. (publicly held) holds100% of the stock of Hartford Fire Insurance Company (a non-party), which holds100% of the stock of Hartford Accident and Indemnity Company.

B. First State Insurance Company. Heritage Holdings, Inc. and TheHartford Financial Services Group, Inc. are parent corporations. The Hartford

Financial Services Group, Inc. (publicly held) holds 100% of the stock of HeritageHoldings, Inc. (a non-party), which holds 100% of the stock of First StateInsurance Company.

C. Twin City Fire Insurance Company. Hartford Fire InsuranceCompany and The Hartford Financial Services Group, Inc. are parent corporations.The Hartford Financial Services Group, Inc. (publicly held) holds 100% of thestock of Hartford Fire Insurance Company (a non-party), which holds 100% of thestock of Twin City Fire Insurance Company.

The Hartford Financial Services Group, Inc., a publicly held corporation thatis not a party to this appeal, has a financial interest in the outcome of this appealbecause it is the ultimate parent of the Appellants listed above.

Dated: November 19, 2008 /s/ Danielle SpinelliDanielle SpinelliWILMER CUTLER PICKERINGHALE AND DORR LLP1875 Pennsylvania Avenue, N.W.

Washington, D.C. 20006(202) 663-6000

Counsel for Appellants Hartford Accident

and Indemnity Company, First State

Insurance Company, and Twin City Fire

Insurance Company



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IN THE UNITED STATES COURT OF APPEALSFOR THE THIRD CIRCUITHART FOR D ACCIDENT AND INDEMNITY COM PANY , ET AL., Appellants,

GLO BAL INDU STRIAL TECHNOLO GIES, INC., ET AL., Appellees.CORPORA TE DISCLOSURE STATEMENT ANDSTATEMENT O F FINANCIAL INTEREST

Pursuant to Fed. R. App. P. 26.1 and T hird Circuit LAR 26.1, Appellants (i) CenturyIndem nity Com pany, as successor to CIGNA Specialty Comp any, formerly known as CaliforniaUnion Insurance C on ~p an y, nd (ii) Westchester Fire Insurance Compan y, for itself and forInternational Insurance Com pany (now known as TIG Insurance Compan y) (by operation ofnovation all rights and obligations under the policies have been transferred from InternationalInsurance Compan y to Westchester Fire lnsurance Com pany), hereby mak e the followingdisclosures:

Century Indemnity Company. Century Indemnity Company is a wholly ownedsubsidiary of Brandyw ine Holdings C orporation, which is not a publicly traded comp any, and itsultimate parent corporation is AC E Lim ited, which is a publicly traded con lpany having afinancial interest in this appeal.Westchester Fire Insurance Com pany. Westchester Fire Insurance Company is awholly ow ned subsidiary of AC E US H oldings, Inc., which is not a publicly traded compan y,

and its ultimate parent co rporation is ACE Lim ited, which is a publicly traded comp any having afinancial interest in this appeal.

Dated: September 25 ,20 08

1 105 N. Market S treet, 7th FloorWilmington, DE 1980 1Telephone: (302) 425-330 8Counsel for Centu ry Indemnity C ompany, assuccessor to CIG NA Specialty C omp any, formerlyknown as California Union Insurance Com pany,and W estchester Fire Insurtrnce Com pan y, or itselfand for Internutzonul Insurance C om pan y (nowknown us TIG Insz~ranceCompu ny) (bv operation o fnovalion all rights uncl obligalion~ mu'er /hepolicies have been iran .sfirredJron~ nlernnlionalIns~lranceComptmny t o Westchester Fire In.szrranceCompan,v)



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TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................................... iii

PRELIMINARY STATEMENT ...............................................................................1

JURISDICTIONAL STATEMENT ..........................................................................3

STATEMENT OF THE ISSUES...............................................................................4

STATEMENT OF THE CASE..................................................................................5

STATEMENT OF RELATED CASES .....................................................................7

STATEMENT OF FACTS ........................................................................................7

A. Debtors History And The Asbestos And Silica Claims.......................7

B. Debtors Bankruptcy Filings And Plan .................................................8

C. Plan Confirmation Proceedings...........................................................14

STANDARD OF REVIEW .....................................................................................15

SUMMARY OF ARGUMENT...............................................................................16

ARGUMENT...........................................................................................................19

I. THE SECTION 105(a) INJUNCTION AGAINST SILICACLAIMS IS UNLAWFUL............................................................................19

II. THE BANKRUPTCY CODE DOES NOT PREEMPT ANTI-

ASSIGNMENT PROVISIONS IN THE INSURERS POLICIES ..............28

A. The Text, Structure, History, And Context Of 1123(a)Make Clear That The Statute Does Not Preempt Anti-AssignmentProvisions In Insurance Policies .........................................................30

1. Section 1123(a)s Text And Structure ......................................32



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ii

2. Pre-Code Practice And Legislative History..............................35

3. The Broader Statutory Scheme.................................................42

4. The Absurd Consequences Of DebtorsInterpretation.............................................................................47

B. While This Court Has Not Addressed 1123(a)s PreemptiveScope, Decisions From This Court And Other Courts Of AppealsSupport The Narrower Construction...................................................49

III. HARTFORD AND CENTURY HAVE STANDING TO OBJECT TO

DEBTORS PLAN AND TO APPEAL THE ORDER CONFIRMINGTHE PLAN ....................................................................................................55

CONCLUSION........................................................................................................59



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iii

TABLE OF AUTHORITIES

CASES

Almendarez-Torres v. United States, 523 U.S. 224 (1998) .....................................35

BFP v. Resolution Trust Corp., 511 U.S. 531 (1994)..............................................31

Brockett v. Winkle Terra Cotta Co., 81 F.2d 949 (8th Cir. 1936)...........................37

Butner v. United States, 440 U.S. 48 (1979)............................................................30

Clinton v. City of New York, 524 U.S. 417 (1998) ..................................................55

Cohen v. de la Cruz, 523 U.S. 213 (1998)..................................................35, 39, 41

Danvers Motor Co. v. Ford Motor Co., 432 F.3d 286 (3d Cir. 2005).....................16

Colacicco v. Apotex Inc., 521 F.3d 253 (3d Cir. 2008) ...........................................15

Dewsnup v. Timm, 502 U.S. 410 (1992)............................................................35, 41

Hibbs v. Winn, 542 U.S. 88 (2004) ..........................................................................44

In re A.H. Robins Co., 880 F.2d 694 (4th Cir. 1989) ..............................................23

In re Amatex Corp., 755 F.2d 1034 (3d Cir. 1985) .................................................58

In re Combustion Engineering, Inc., 391 F.3d 190(3d Cir. 2004).........................................................................................passim

In re Congoleum Corp., 426 F.3d 675 (3d Cir. 2005) .........................................9, 58

In re Congoleum Corp., No. 03-51524, 2008 WL 4186899(Bankr. D.N.J. Sept. 2, 2008) ........................................................................54

In re Continental Airlines, 203 F.3d 203 (3d Cir. 2000) .................15, 16, 23, 24, 27

In re Dow Corning Corp., 280 F.3d 648 (6th Cir. 2002) ........................................23



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iv

In re FCX, Inc., 853 F.2d 1149 (4th Cir. 1988) .......................................................54

In re Johns-Manville Corp., 36 B.R. 743 (Bankr. S.D.N.Y. 1984)...................21, 24

In re Johns-Manville Corp., 68 B.R. 618 (Bankr. S.D.N.Y. 1986).........................20

In re Kaiser Aluminum Corp., 343 B.R. 88 (D. Del. 2006).....................................54

In re M. Frenville Co., 744 F.2d 332 (3d Cir. 1984)...............................................20

In re Porto Rican America Tobacco Co., 112 F.2d 655 (2d Cir. 1940) ..................37

In re Pressed Steel Car Co., 16 F. Supp. 329 (W.D. Pa. 1936) ..............................38

In re SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) ...........................................27

In re S.I. Acquisition, Inc., 817 F.2d 1142 (5th Cir. 1987) ......................................22

In re Silica Products Liability Litigation, 398 F. Supp. 2d 563(S.D. Tex. 2005) ..............................................................................1, 2, 12, 13

In re UNR Industries, Inc., 725 F.2d 1111 (7th Cir. 1984) ...............................21, 24

Integrated Solutions, Inc. v. Service Support Specialties, Inc.,124 F.3d 487 (3d Cir. 1997) ..................................................................passim

Kawaauhau v. Geiger, 523 U.S. 57 (1998) .............................................................43

Kelly v. Robinson, 479 U.S. 36 (1986) ....................................................................35

McConnell v. Federal Election Commission, 540 U.S. 93 (2003) ..........................55

Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) ...................................................30, 41

Midlantic National Bank v. New Jersey Department of Environmental

Protection, 474 U.S. 494 (1986)........................................................31, 35, 47

New York State Conference of Blue Cross & Blue Shield Plans v. Travelers

Insurance Co., 514 U.S. 645 (1995)..............................................................30



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v

Pacific Gas & Electric Co. v. California ex rel. Cal. Dept of Toxic

Substances Control, 350 F.3d 932 (9th Cir. 2003)......................44, 48, 53, 54

Schweitzer v. Consolidated Rail Corp., 758 F.2d 936 (3d Cir. 1985).....................20

United Savings Association v. Timbers of Inwood Forest Associates ,484 U.S. 365 (1988).................................................................................35, 42

Warner Bros. Pictures, Inc. v. Lawton-Byrne-Bruner Insurance Agency,79 F.2d 804 (8th Cir. 1935) ...........................................................................38

Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609 (1973)................42

Whitman v. American Trucking Associations, 531 U.S. 457 (2001) .......................46

STATUTORY PROVISIONS

11 U.S.C.105 ......................................................................................................passim365(b)...........................................................................................................46365(e) ...........................................................................................................43524(g)...................................................................................................passim525 ...............................................................................................................43

541 .........................................................................................................50, 51541(a) ...........................................................................................................52541(c) ...........................................................................................................511123(a).................................................................................................passim1141(d).........................................................................................................191142(a).......................................................................................42, 43, 44, 45

28 U.S.C.157(a).............................................................................................................3157(b).............................................................................................................3

157(c).............................................................................................................3158(a).............................................................................................................4158(d).............................................................................................................41291 ...............................................................................................................41334(a)...........................................................................................................31334(b)...........................................................................................................3



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vi

Tex. Civ. Prac. & Rem. Code Ann.90.004 ..........................................................................................................1390.006 ..........................................................................................................13

LEGISLATIVE MATERIALS

H.R. Conf. Rep. No. 98-882 (1984).........................................................................40

H.R. Rep. No. 96-1195 (1980).................................................................................40

H.R. Rep. No. 103-835 (1994)...........................................................................21, 22

S. Rep. No. 98-65 (1983) .........................................................................................40

Analysis of H.R. 12889, 74th Cong., 2d Sess. (1936) .............................................38

Pub. L. No. 73-296, 48 Stat. 911 (1934)............................................................36, 38

Pub. L. No. 75-696, 52 Stat. 840 (1938)..................................................................36

Pub. L. No. 98-353, 98 Stat. 333 (1984)..................................................................40

OTHER AUTHORITIES

Collier on Bankruptcy (14th ed. 1977) ....................................................................37

Hanna, John & McLaughlin, James Angell, The Bankruptcy Act of 1898 asAmended Including the Chandler Act of 1938 (1939)...................................38

Parloff, Roger, Welcome to the New Asbestos Scandal, Fortune,Sept. 6, 2004 ..................................................................................................57

Phillips, Walter Ray & Nadler, Charles Elihu, The Law of Debtor Relief:

Bankruptcy and Non-Bankruptcy Devices (1972).........................................37

Remington, Harold,A Treatise on the Bankruptcy Law of the United States(1961).............................................................................................................37

Weinstein, Jacob I., The Bankruptcy Law of 1938 (1938).......................................38



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PRELIMINARY STATEMENT

In recent years, plaintiffs lawyers have flooded the courts with dubious or

outright fraudulent claims of silica-related injury. As the district judge presiding

over the silica multidistrict litigation described such claims: [T]hese diagnoses

were driven by neither health nor justice: they were manufactured for money. In

re Silica Prods. Liab. Litig., 398 F. Supp. 2d 563, 635 (S.D. Tex. 2005) (Jack, J.).

This case centers on a scheme to use the bankruptcy process to generate similarly

dubious or fraudulent silica-related claims, to hand Debtors insurers the bill for

those claims, and to deprive insurers of defenses to coverage arising from that very

scheme.

Debtors filed for bankruptcy to address their substantial asbestos liability.

Prior to bankruptcy, Debtors had never paid a penny on account ofsilica claims

(and their primary insurer had paid a mere $312,000 to resolve such claims).

Debtors did, however, have liability insurance policies that excluded asbestos

claims but (they believed) covered silica claims. And Debtors desperately needed

to reach agreement with the plaintiffs bar to obtain the necessary votes to approve

the plan of reorganization that would resolve their asbestos liability. Debtors

therefore agreed not only to set up a trust for asbestos claims, but also to give the

plaintiffs lawyers something extra: a trust for silica claims, funded entirely by

insurance proceeds.



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2

After thateven though Debtors had faced fewer than 200 silica claims in

the 25 years before bankruptcyapproximately 5,000 silica claims poured in.

More than half were supported by doctors whose diagnoses Judge Jack had

rejected as fraudulent. And more than half were filed by persons previously

diagnosed with an asbestos-related disease, who almost certainly could not also

have had any silica-related disease. As Judge Jack explained, a golfer is more

likely to hit a hole-in-one than an occupational medicine specialist is to find a

single case of both silicosis and asbestosis, Silica Prods., 398 F. Supp. 2d at

603yet Debtors solicitation resulted in thousands of such claims.

Despite these obvious indicia of fraud, and despite their own projection that

the reorganized Debtors would be highly profitable, Debtors nonetheless

contended that they could not reorganize without an injunction under 105 of the

Bankruptcy Code channeling the silica claims to a trust. Their plan provided for

the creation of such a silica trust, to be funded solely by the proceeds of insurance

settlements and by the assignment of rights to Debtors insurance policies. The

plan also purported to bar insurers from invoking any defense to insurance

coverage arising out of Debtors violation of policy provisions restricting the

policies assignment.

Over the insurers objection, the bankruptcy court upheld both features of

the plan. It erred on both counts. As to the 105 injunction, the bankruptcy court



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3

failed to apply the legal standard articulated by this Court for granting such

extraordinary relief, failing to require Debtors to show that the injunction was truly

necessary for their reorganization. As to the provisions of the plan purporting to

strip insurers of their bargained-for defenses to coverage, the bankruptcy court

wrongly held that the Bankruptcy Code preempts those defenses, reasoning that

1123(a) of the Code authorizes a debtor to override any non-bankruptcy law or

contract governing the transactions through which it chooses to implement its plan.

That surpassingly broad reading of 1123(a) cannot be squared with its text or with

basic bankruptcy principles and gives rise to absurd consequences.

JURISDICTIONAL STATEMENT

The district court had original jurisdiction over Debtors Chapter 11 cases

under 28 U.S.C. 1334(a); the cases were referred to the bankruptcy court under 28

U.S.C. 157(a). The bankruptcy court had jurisdiction over plan confirmation

proceedings under 28 U.S.C. 1334(b). On September 24, 2007, the bankruptcy

court issued an order purporting to recommend the district courts confirmation

of the plan. JA2538-2550. Treating that order as a final order confirming the plan,

Appellants filed a timely notice of appeal to the district court. JA2667-2674.1 The

1 As to core matters such as plan confirmation, see 28 U.S.C.157(b)(2)(L), there is no statutory authority for the bankruptcy court to issuerecommended findings and conclusions subject to de novo review in the districtcourt. Cf. id. 157(c)(1) (establishing such a procedure for non-core matters).



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4

parties subsequently filed a timely joint motion to alter or amend the judgment.

JA2675-2681. On November 14, 2007, the bankruptcy court issued a revised order

and memorandum opinion confirming the plan. JA28-80; JA188-200. Appellants

filed a timely amended notice of appeal. JA3045-3054. The district court had

jurisdiction of that appeal under 28 U.S.C. 158(a).

On December 18, 2007, the district court issued an order, in Misc. No. 07-

319, affirming the confirmation order. JA3055-3067. Appellants filed a timely

motion for reconsideration on the ground that they had not yet had an opportunity

to brief their appeal. After briefing, on July 26, 2008, the district court entered a

final order in No. 07-1749 vacating its earlier order and again affirming the

bankruptcy courts confirmation order. JA11-27. Appellants filed a timely notice

of appeal to this Court on August 25, 2008. JA1-10. This Court has jurisdiction

under 28 U.S.C. 158(d)(1) and 1291.

STATEMENT OF THE ISSUES

1. Did Debtors meet their burden of demonstrating that an injunction

under 11 U.S.C. 105 channeling present and future silica-related claims against

Debtors to a trust was necessary to Debtors reorganization?2

2 Raised: Bankr. Docket Nos. 5993, 5994, 5996. Ruled on: JA47-63(bankruptcy court); JA19-21 (district court).



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5

2. Are provisions in Appellants insurance policies restricting their

assignment to third parties preempted by the Bankruptcy Code?3

3. Do Hartford and Century have standing to object to confirmation of

Debtors plan of reorganization and to appeal the order confirming the plan?4

STATEMENT OF THE CASE

This case arises out of the Chapter 11 petition filed in 2002 by Global

Industrial Technologies, Inc. (GIT) and its subsidiaries, including A.P. Green

Industries, Inc. Appellants are insurers who issued liability insurance policies to

A.P. Green.5 Debtors plan of reorganization provides for an injunction under

105 of the Bankruptcy Code, enjoining present and future silica-related claims

3 Raised: Bankr. Docket Nos. 6375, 6476, 6477. Ruled on: JA201-208(bankruptcy court); JA22-24 (district court).

4 Raised: Bankr. Docket No. 6477. Ruled on: JA201-208 (bankruptcy

court); JA16-19 (district court).5 Appellants are three groups of insurers: Hartford Accident and Indemnity

Company, First State Insurance Company, and Twin City Fire Insurance Company(collectively, Hartford); Century Indemnity Company, as successor to CIGNASpecialty Company, formerly known as California Union Insurance Company, andWestchester Fire Insurance Company, for itself and for International InsuranceCompany (now known as TIG Insurance Company) (collectively, Century); andNational Union Fire Insurance Company of Pittsburgh, PA, Insurance Company ofthe State of Pennsylvania, Lexington Insurance Company, American Home

Insurance Company, and any other entities related to American InternationalGroup, Inc. that engaged in business transactions with the Reorganizing Debtors(collectively, the AIG Member Companies). This brief is filed on behalf ofHartford and Century. While the AIG Member Companies have filed a separatebrief to address an additional issue, they join fully in this brief. See Brief forAppellants AIG Member Companies (AIG Br.) at 2.



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6

against Debtors and channeling the claims to a trust. Debtors plan assigns

Debtors rights in certain insurance policies to the trust. The plan also purports to

preempt provisions in the insurance policies restricting such an assignment.

Appellants objected to Debtors plan. Debtors moved to strike Hartford and

Centurys objections, arguing that they lacked standing (while conceding that the

AIG Member Companies, who were creditors as well as insurers of Debtors, had

standing). The bankruptcy court held hearings on confirmation of Debtors plan in

June and October 2006. On September 21, 2007, the bankruptcy court issued an

order holding that (1) Hartford and Century lacked standing to object to Debtors

plan; and (2) the Bankruptcy Code preempted any anti-assignment provisions in

the insurers policies. JA201-208. On September 24, 2007, the court issued an

order confirming Debtors plan and concluding that Debtors had demonstrated that

the silica injunction was necessary to their reorganization. JA2538-2550. The

parties sought modification of the bankruptcy courts confirmation order, JA2675-

2681, and on November 14, 2007, the bankruptcy court issued a final revised order

confirming Debtors plan. JA188-200.

Appellants appealed to the district court, which affirmed the bankruptcy

courts confirmation order. JA26-27. This appeal followed.



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7

STATEMENT OF RELATED CASES

In the bankruptcy court, GITs Chapter 11 case was jointly administered

with the Chapter 11 case of North American Refractories Company (NARCO), a

related entity. The bankruptcy court entered a final order confirming the NARCO

plan on November 14, 2007. Hartford appealed, and the district court affirmed on

July 26, 2008. That order is the subject of a separate appeal to this Court, No. 08-

3651. This appeal has been consolidated with the NARCO appeal for the purpose

of disposition.

STATEMENT OF FACTS

A. Debtors History And The Asbestos And Silica Claims

Debtor A.P. Green Industries, Inc., a Missouri corporation founded in 1915,

manufactures and sells refractory productsconstruction materials used in high-

temperature environments. In 1998, A.P. Green was acquired by GIT, also a

Debtor here. JA816. In 1999, GIT itself was acquired by RHI AG as part of

RHIs strategy to consolidate the North American refractories business. JA810.6

Before the mid-1970s, several of the refractory products manufactured and

sold by A.P. Green allegedly contained asbestos. Certain plaintiffs sued A.P.

Green, claiming injury from exposure to those products. JA820. As of the

6 RHI AG is also the ultimate parent of NARCO, the debtor in No. 08-3651,which it acquired at around the same time.



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8

bankruptcy filing in 2002, A.P. Green had paid approximately $448 million to

resolve more than 200,000 asbestos-related claims, and an additional 235,000

asbestos-related claims were pending. JA820-821.

A.P. Greens experience with silica was another story entirely. As of the

bankruptcy filing, there was exactly one lawsuit pending against A.P. Green, in

Texas state court, consisting of claims by 169 individuals for bodily injury caused

by silica-containing products. JA106, JA1011. Including those 169 claims,

Debtors identified fewer than 200 claims asserted against A.P. Green for silica-

related injury in the 25 years before the bankruptcy. JA106. In those 25 years,

A.P. Green never paid any of its own money on account of silica claims, and its

primary insurer had paid only $312,000 to resolve such claims. JA106-107.

B. Debtors Bankruptcy Filings And Plan

In February 2002, GIT and certain of its subsidiaries, including A.P. Green,

filed Chapter 11 bankruptcy cases. JA763-770. Debtors sought bankruptcy

protection not to address silica liability, but to address adverse business

conditions and to deal with the overwhelming number of asbestos liability

lawsuits and claims pending against them. JA117; see also JA780 (Debtors filed

for bankruptcy due to the costs of asbestos litigation, a deterioration of general

business conditions, and an inability to secure working capital financing).



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9

In order to confirm a plan of reorganization that would resolve that

overwhelming asbestos liability, Debtors needed the approval of 75% of the

asbestos claimants, and thus needed to reach a deal with plaintiffs lawyers. See In

re Congoleum Corp., 426 F.3d 675, 680 (3d Cir. 2005) (noting that [t]he realities

of securing favorable votes from thousands of claimants to meet the 75% approval

requirement forces debtors to work closely with plaintiffs lawyers). In the course

of negotiating that deal, Debtors determined that they had nearly $500 million in

potential insurance coverage that did not cover asbestos claims (generally because

of express asbestos exclusions, which became typical provisions in liability

policies in the 1980s) but that, in their view, was available to cover silica claims.

JA823. Accordingly, Debtors and asbestos plaintiffs counsel (many of whom also

represented persons asserting silica claims against other companies) agreed upon a

plan that included not just an asbestos trust and channeling injunction, but a silica

trust and channeling injunction as well. JA2891, JA2893.7 Debtors and plaintiffs

counsel also negotiated the Trust Distribution Proceduresthe terms under which

the silica trust would evaluate and pay claims. JA2968-3031. In addition, Debtors

agreed with plaintiffs counsel that the Trust Advisory Committee and the Future

7 Under the plan, silica claims against A.P. Green based on exposure prior tothe petition date will be channeled to the silica trust. JA119, JA892. Claims basedon post-petition exposure will ride through the bankruptcy and become theresponsibility of the reorganized Debtors. JA65, JA119, JA137.



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Claims Representativethat is, many of the persons in charge of operating the

trust and overseeing the evaluation and payment of silica claimswould be

lawyers representing the interests of alleged silica claimants. JA1332-1404.

Debtors are making no contribution of their own funds to the silica trust,

which will be funded entirely by insurance. JA2894-2895. The trust is to receive

$35.5 million in proceeds from several insurance settlements. In addition, A.P.

Green will assign to the trust its rights under its insurance policies with asbestos

exclusions, including policies issued by Appellants. JA892, JA2894-2895,

JA3037.

After agreeing with plaintiffs counsel to structure the plan to include the

silica trust, Debtors actively sought out claimants to support the plan. Having

virtually no silica claimants of their own, Debtors obtained a list of silica claimants

from another companys bankruptcy and solicited votes for their plan from counsel

for those claimants (many of whom were the same firms representing asbestos

claimants against Debtors). JA1466-1469. Ultimately, 5,125 votes were cast on

behalf of persons with alleged silica claims against Debtors. JA1412. The bulk of

these votes were submitted by a handful of law firms via master ballots. JA1417.



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Indeed, one law firm, the Provost Umphrey Law Firm, accounted for over half the

votes. JA1334.8

Initially, the ballots were the only evidence of the alleged silica liability

asserted in the bankruptcy case. The bankruptcy court ultimately required voting

claimants to file supplemental submissions, which provided minimal information

regarding the claimants diagnosis of a silica-related disease, their exposure to A.P.

Green silica-containing products, and any prior diagnoses of, or claims for,

asbestos-related disease. JA610 (Bankr. Docket No. 6305). Debtors received a

total of 4,636 supplemental submissions. JA108. Most were submitted by

counsel, many were incomplete, and some contained no information at all other

than the claimants name and address. JA1650-1652.

At the same time that Debtors creative vote-solicitation strategy was

generating an influx of new silica claims, developments outside bankruptcy cast

serious doubt on the legitimacy of such claims. First, in 2005, the district judge

presiding over the silica multidistrict litigation, Judge Janis Jack, made disturbing

8 Nearly 10% of the voted silica claims were ultimately withdrawn aftercounsel was forced to concede they were meritless. After Hartford served asubpoena on the Law Firm of Robert Taylor requesting information about the

claims the firm had voted, the firm withdrew 489 out of the 525 silica votes it hadcast. JA1563-1565. Although Taylor had previously certified that he hadauthorization to vote the claims, that the disease categories were correct, and thatthe claimants had been exposed to A.P. Green silica products, he explained in hismotion to withdraw the votes that he no longer represented these claimants due tothe dismissal of these claimants litigation claims. JA1564.



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findings regarding the mass screening resulting in over 10,000 silica claims. See In

re Silica Prods. Liab. Litig., 398 F. Supp. 2d 563 (S.D. Tex. 2005). Judge Jack

noted that of the approximately 9,000 plaintiffs who submitted medical

information, all were diagnosed with silicosis by the same 12 doctors affiliated

with a handful of law firms and mobile x-ray screening companies, who

employed diagnostic methods that ranged from questionable to abysmal. Id. at

580, 622. Moreover, of the 6,757 silicosis claims submitted by one law firm, over

4,000 were from persons who had previously made claims against the Manville

Trust for asbestosiswhich meant the odds were overwhelming that one, or both,

diagnoses were fraudulent. See id. at 603. As Judge Jack put it after a careful

review of the medical evidence, a golfer is more likely to hit a hole-in-one than an

occupational medicine specialist is to find a single case of both silicosis and

asbestosis, yet the plaintiffs law firm in question parked a van in some parking

lots and found over 4,000 such cases. Id.9 The court found the doctors diagnoses

inadmissible and imposed sanctions on the lawyers over whom it determined it had

jurisdiction for bringing such claims. See id. at 637-640, 676. As Judge Jack

9 See also id. at 608 (noting that when one of the diagnosing doctors firstexamined 1,807 Plaintiffs x-rays for asbestos litigation , he found them all to beconsistent with asbestosis and not with silicosis. But upon re-examining these1,807 MDL Plaintiffs x-rays for silica litigation, [he] found evidence of silicosisin every case).



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summed it up: [T]hese diagnoses were driven by neither health nor justice: they

were manufactured for money. Id. at 635.

A separate, but equally potent development driving a decline in silica-related

claims was state tort reform. Texas, for example, required asbestos and silica

plaintiffs, within 30 days of bringing suit, to provide specific medical evidence of

disease, including a detailed diagnosis by a physician. See Tex. Civ. Prac. & Rem.

Code Ann. 90.004, 90.006 (Vernon 2005); JA2169-2170. Mississippi required

plaintiffs to meet specific venue requirements in order to bring a silica-related

lawsuit, making it much harder to sue out-of-state defendants. JA2169-2170.

Other states have also enacted legislation requiring evidence of impairment for

silica-related claims. Id.

These developments, combined with a review of the supplemental

submissions in this case, leave little doubt that most of the claims asserted by the

5,125 silica claimants who voted on the plan are invalid. Over half the claimants

who submitted supplemental forms were diagnosed by doctors whose diagnoses

were rejected as fraudulent by Judge Jack. JA2074. In addition, over half the

claimants had previously filed asbestos-related claims or been diagnosed with an

asbestos-related disease, JA2159making it extremely unlikely that they also had

a legitimate silica-related claim. In re Silica Prods. Liab. Litig., 398 F. Supp. 2d at

603; see also JA1431 (Decl. of David Weill) (noting the near impossibility of a



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persons contracting both an asbestos-related and a silica-related disease in a

working lifetime). Fully 82% of the claims bore at least one of these markers of

fraud. JA2159.

C. Plan Confirmation Proceedings

Unsurprisingly, the asbestos and silica claimants approved Debtors plan. In

June 2006, the bankruptcy court held a hearing on plan confirmation. In support of

the proposed silica injunction, Debtors relied primarily on the 5,125 votes cast by

alleged silica claimants. The bankruptcy court concluded that this evidence was

insufficient to support a silica injunction. Rather than simply denying

confirmation, however, the bankruptcy court adjourned the confirmation hearing to

allow submission of additional evidence regarding the silica claims and Debtors

ability to pay them. As discussed above, approximately 4,600 silica claimants filed

such supplemental submissions.

Following a continued confirmation hearing in October 2006, the

bankruptcy court confirmed the plan, concluding that the silica injunction was

necessary to Debtors reorganization. JA188-200. The court made no findings as

to the merits of the silica claims, but concluded that [w]hether or not [the] claims

prove to be compensable, Debtor[s] must address them, either in the tort system

with its inherent risks and the possibility that any one judgment could be materially



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adverse and constitute a default under its financing covenants, or through a trust.

JA55.

The bankruptcy court issued a separate order addressing the insurers

standing to object to the GIT plan and the plans assignment of A.P. Greens

insurance rights to the trust. JA201-209. The court concluded that the Bankruptcy

Code preempted the insurers ability to assert the anti-assignment clauses in their

policies as a defense to coverage. JA207. In addition, the court held that Hartford

and Century lacked standing to object to confirmation of the plan (indeed, the court

found that they lacked standing to be heard even as to the assignment of rights

under their policies). JA201-209. Because Appellants AIG Member Companies

were creditors, as well as insurers, their standing was not contested. JA34.

The district court affirmed both rulings. JA11-27. This appeal followed.

STANDARD OF REVIEW

As to the bankruptcy courts judgment that Debtors were entitled to a 105

injunction against silica claims, this Court accepts the bankruptcy courts findings

of fact unless clearly erroneous, but reviews de novo whether those facts meet the

legal standard for issuance of such an injunction. In re Continental Airlines, 203

F.3d 203, 208 (3d Cir. 2000). This Court reviews the bankruptcy courts

preemption and standing rulings, which present pure questions of law, de novo.

Colacicco v. Apotex Inc., 521 F.3d 253, 261 (3d Cir. 2008) (preemption);Danvers



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Motor Co. v. Ford Motor Co., 432 F.3d 286, 291 (3d Cir. 2005) (standing). In

doing so, it affords no deference to the district court, but reviews the bankruptcy

courts judgment using the standard the district court should have employed.

Continental, 203 F.3d at 208.

SUMMARY OF ARGUMENT

I. As this Court has made clear, a bankruptcy courts authority under

105 of the Bankruptcy Code to issue an injunction effectively discharging claims

that otherwise could not be discharged in bankruptcy is strictly circumscribed.

Such an injunction is permissible only when the bankruptcy court makes specific

factual findings demonstrating that the debtor could not reorganize without the

injunction. In granting Debtors a 105 injunction against future silica claims, the

bankruptcy court failed to apply that standard. On the undisputed facts here, there

can be no doubt that Debtors did not meet their burden of showing that they could

not reorganize without a silica injunction. Debtors had only minimal silica liability

before the bankruptcy was filed; over four-fifths of the claims asserted in response

to Debtors active solicitation during the bankruptcy bore obvious indicia of fraud;

and the reorganized Debtors financial health and profitability were never in

question.

II. The bankruptcy court likewise erred in concluding that 1123(a) of

the Bankruptcy Code preempts the anti-assignment provisions in Appellants



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insurance policies. Section 1123(a) provides that, [n]otwithstanding any

otherwise applicable nonbankruptcy law, a plan shall contain eight required

elements. By its terms, that provision preempts only non-bankruptcy law that

would bar a debtor from complying with (or authorize a debtor not to comply with)

1123(a)s eight requirements. Nothing in 1123(a), however, requires a debtor to

transfer its property to a third party, and the provision simply does not affect state-

law restrictions on such transfers. As this Court stated in rejecting a similar

argument that the Bankruptcy Code preempted state-law restrictions on assignment

of property, it is a fundamental principle that the estate succeeds only to the

nature and the rights of the property interest that the debtor possessed pre-petition.

Integrated Solutions, Inc. v. Service Support Specialties, Inc., 124 F.3d 487, 495

(3d Cir. 1997). The Bankruptcy Code does not erase the anti-assignment

provisions of Debtors policies merely because Debtors would find it convenient to

assign them under their plan.

The lower courts contrary reading cannot be reconciled with 1123(a)s

text, with its history, or with the overall structure and purpose of the Bankruptcy

Code. And that reading produces the illogical and unacceptable result that a debtor

would be entitled to override all state or federal law regulating any transaction

through which it chooses to implement its planincluding applicable antitrust,



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environmental, or even criminal lawseven though the Bankruptcy Code nowhere

requires that a debtor engage in such a transaction in the first place.

III. Finally, while this Court need not reach the question in light of the

AIG Member Companies conceded standing, the lower courts erred in holding

that Hartford and Century lacked standing to contest these features of Debtors

plan. As a result of Debtors bankruptcy, their creation of a trust with assets

specifically designated for silica claims, and their active solicitation, thousands of

new silica claims were asserted against Debtors in a matter of monthsclaims that

otherwise might never have been asserted at all and that bore multiple indicia of

fraud. The silica trust is funded solely by insurance settlement proceeds and rights

under insurance policies. Yet the insurers had no role in the creation of the trust

distribution procedures that will govern payment of claims and will have no ability

to defend or associate in the defense of the claims, as their policies give them the

right to do. The obvious harm to insurers from such a scheme gives them a

practical stake in the proceedings sufficient to permit them to be heard in

bankruptcy court, and increases their burdens and impairs their rights in a manner

that gives them the right to be heard on appeal.



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ARGUMENT

I. THE 105(a) INJUNCTION AGAINST SILICA CLAIMS ISUNLAWFUL

Debtors had virtually no silica liability prior to bankruptcy. Together with

the plaintiffs lawyers, they used the bankruptcy process to manufacture silica

claims that previously did not existand that, as shown above, bear patent signs of

fraud. Debtors now point to their own handiwork to argue that they must have an

injunction against silica claims or (despite the substantial profits they project) they

will be unable to reorganize at all. But the extraordinary relief of a 105 injunction

requires a showing ofreal necessity: it has never been available as a bandage for

self-inflicted wounds. On this record, it is not possible to conclude that Debtors

have met their burden of demonstrating the need for a 105 injunction.

A Chapter 11 debtor who reorganizes in bankruptcy typically obtains a

discharge of cla

Documents

Opening Briefs and Amicus - GIT Bankruptcy Appeal