In re Fairbanks Co.

601 B.R. 831
CourtUnited States Bankruptcy Court, N.D. Georgia
DecidedApril 17, 2019
DocketCASE NO. 18-41768-PWB
StatusPublished
Cited by3 cases

This text of 601 B.R. 831 (In re Fairbanks Co.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Georgia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Fairbanks Co., 601 B.R. 831 (Ga. 2019).

Opinion

Paul W. Bonapfel, U.S. Bankruptcy Court Judge

A mass tort bankruptcy case involves two groups of tort claimants: present claimants (individuals who know they have been injured) and future claimants (individuals who do not know of their exposure or injury and, therefore, are unknown). A chapter 11 plan can deal with future claims through a so-called "channeling injunction" that prevents them from asserting their claims other than against a trust established under the plan, provided that certain requirements are met. 11 U.S.C. § 524(g).

Present claimants can protect their rights in a chapter 11 case themselves and participate in the bankruptcy process; future claimants cannot. To protect the interests of unknown future claimants, one of the requirements for a channeling injunction is the appointment of a legal representative "for the purpose of protecting the rights" of future claimants. 11 U.S.C. § 524(g)(4)(B)(i). This representative is commonly referred to as the "future claimants' representative" (the "FCR").

The Fairbanks Company (the "Debtor"), supported by the Committee of Asbestos Claimants (the "Committee"), has nominated James L. Patton, Jr., to serve as the future claimants' representative. The United States Trustee objects to Mr. Patton's appointment and has nominated three alternative candidates. The Debtor and the Committee object to the U.S. Trustee's nominees.

The dispute over the appointment of a future claimants' representative raises both legal and factual issues. The legal issues are: (1) What is the proper procedure for the appointment of a future claimants' representative? and (2) What is the proper standard for appointment of a future claimants' representative? The factual issue is which individual will best protect the rights of future claimants.

This Order explains the Court's conclusions that: (1) the procedure for the appointment of a future claimants' representative permits nominations from any party in interest in the case and requires the *834Court's independent inquiry into a proposed representative's qualifications and ability to protect the rights of future claimants; and (2) the proper standard for consideration of a future claims representative is akin to that of a guardian ad litem such that the individual must be not only disinterested and qualified, but also objective, independent, and loyally committed to protecting the interests of future claimants. The Order then explains why, after an evidentiary hearing at which the Court heard testimony from the nominees and the Debtor's president, the Court has decided to appoint James L. Patton, Jr., as the future claimants' representative.

I. BACKGROUND

The Debtor is a small business in Rome, Georgia with 36 employees. It previously manufactured, sold or distributed a line of bronze and iron valves that contained asbestos packing. [Doc. 3, Declaration of Robert P. Lahre].

For many years, the Debtor has been a defendant in litigation in multiple jurisdictions in which individuals have asserted claims for personal injury and wrongful death as a result of alleged exposure to asbestos-containing products that it manufactured, sold, or distributed. Since 2005, the Debtor has resolved approximately 2,500 cases and has paid in excess of $ 30 million to do so. [Doc. 256, Transcript of March 28, 2019 Hearing at 9]. At the time of the filing of its voluntary chapter 11 petition on July 31, 2018, more than 1,300 asbestos claims were pending against it.

The Debtor filed its chapter 11 petition to address present and future asbestos claims through the confirmation of a plan and the issuance of a so-called "channeling injunction" pursuant to 11 U.S.C. § 524(g). The Debtor's objective is to confirm a plan that provides for an asbestos personal injury trust funded by approximately $ 40 million in insurance proceeds from a settlement with Liberty Mutual Insurance Company and the net proceeds from the sale of its business as a going concern.

The trust will assume liability for all asbestos claims (present and future) and use its assets to resolve them. The process of establishing procedures to resolve and pay present and future claims is one of negotiation among the relevant parties, most importantly the present claimants and the future claimants who must share in the limited pot of funds.

Consistent with these goals, and in accordance with the usual practice in asbestos cases, the Debtor filed an application to appoint a future claimants' representative and proposed James L. Patton, Jr., for that position.1 [Doc. 117]. Mr. Patton is chairman of the law firm Young Conaway Stargatt & Taylor, LLP and a partner in its Bankruptcy and Corporate Restructuring section. Mr. Patton has served as the future claimants' representative in five asbestos bankruptcy cases.2

The U.S. Trustee objects to Mr. Patton's appointment. He contends (1) that the Debtor is not the appropriate party to nominate a future claimants' representative *835and (2) that Mr. Patton may lack the independence necessary for the job.

The Court held an initial hearing on the Debtor's application to appoint Mr. Patton on December 18, 2018. Shortly thereafter, the U.S. Trustee filed his motion to appoint a future claims representative to which the Debtor and Committee objected. [Doc. 157, 178]. The U.S. Trustee later proposed three individuals - Joseph W. Grier, III, Joe D. Whitley, and Peggy Ableman - as alternative candidates. [Doc. 202].

The Debtor and Committee object to the procedure for appointment of a future claimants' representative advocated by the U.S. Trustee and to the appointment of any of the U.S. Trustee's candidates.

On March 28 and 29, 2019, the Court conducted an evidentiary hearing at which the Court heard testimony from Mr. Patton, Mr. Grier, Ms. Ableman, Mr. Whitley, and Mr. Joseph Lahre, president of the Debtor. The Court took the matter under advisement to consider the factual and legal issues.

Part II sets out the arguments of the parties. Parts III and IV discuss, respectively, the appropriate procedure for appointment of a future claimants' representative and the standards for making the appointment. Part V states the basis for the Court's appointment of Mr. Patton.

II. THE PARTIES' POSITIONS

A. The Procedure for Appointment of a Future Claimants' Representative

Section 524(g) does not set forth a method or procedure for selecting the future claimants' representative. The parties disagree on how the Court should proceed.

The U.S. Trustee contends that the position of future claimants' representative is unique in the Bankruptcy Code.

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Cite This Page — Counsel Stack

Bluebook (online)
601 B.R. 831, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-fairbanks-co-ganb-2019.