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CERTAIN UNDERWRITERS AT LLOYD'S v. ABB LUMMUS GLOBAL

February 3, 2004.

CERTAIN UNDERWRITERS AT LLOYD's, LONDON and CERTAIN LONDON MARKET INSURANCE COMPANIES, Plaintiff's, -against- ABB LUMMUS GLOBAL, INC., BASIC INC., ACE USA (a successor-in-interest to Insurance Co. of North America), and LIBERTY MUTUAL INSURANCE COMPANY, Defendants, And NORTH RIVER INSURANCE COMPANY, Nominal Defendant


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

OPINION and ORDER

This case arises out of a reorganization plan drafted in connection with the chapter 11 bankruptcy of Combustion Engineering, Inc. ("CE"). CE is the former parent corporation of the defendants, ABB Lummus ("Lummus") and Basic, Inc. ("Basic") (collectively, "the defendants"). CE and the defendants are now all owned by the same parent corporation, ABB Limited ("ABB"). Facing significant exposure to liability for asbestos-related injuries, CE filed, and the Bankruptcy Court for the District of Delaware approved, a reorganization plan establishing a trust to pay asbestos claims against CE. The plan also provided that the trust would handle the asbestos-related Page 2 liability of Lummus and Basic. The Delaware Bankruptcy Court issued an injunction channeling the liability of CE and the defendants into the trust and enjoined third-party claimants from bringing asbestos claims against CE, Lummus, and Basic.

The Plaintiff's, Certain Underwriters at Lloyds, London and Certain London Market Insurance Companies, sued the defendants Lummus and Basic, Inc. in the New York State Supreme Court, New York County. The complaint sought a declaratory judgment relieving the Plaintiff's from their obligation to indemnify the defendants for asbestos-related bodily injury claims asserted by third-party claimants. The Plaintiff's claim that the defendants breached the terms and conditions of certain insurance policies by assigning those policies to a trust established pursuant to CE's bankruptcy reorganization plan.

  Pursuant to 28 U.S.C. § 1334(b) and 1452(a), the defendants removed the claims against them to the Southern District of New York as "related to" CE's chapter 11 bankruptcy. The defendants further moved pursuant to 28 U.S.C. § 1404 (a) for a transfer of venue to the United States District Court, District of Delaware so that the case could then be referred to the Delaware Bankruptcy Court. The Plaintiff's have opposed the motion, arguing that this case is not related to the CE bankruptcy case because it has no conceivable effect on the debtor. The Plaintiff's also move to remand the case to state Page 3 court. In the alternative, they contend that the Court should exercise its discretion to abstain pursuant to § 1334(c)(1) or order equitable remand pursuant to 28 U.S.C. § 1452(b).

  I.

  The following facts are undisputed unless otherwise noted. On February 17, 2003, CE filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. (See Findings of Fact and Conclusions of Law, In re Combustion Eng'g, Inc., Ch. 11 Case No. 03-10495, at 4 (Bankr. D. Del. June 23, 2003) ("Findings"), attached at Defs.' Mem. in Supp. of Mot. to Transfer Action ("Defs.' Mem."), Ex. A.) At the time, CE was a wholly owned subsidiary of Asea Brown Boveri, Inc. ("US ABB"), and ABB was the ultimate corporate parent of US ABB and CE. (Id.) ABB is also the ultimate corporate parent of defendants Lummus and Basic. (Compl. ¶ 27.) Lummus and Basic are both former subsidiaries of CE. (Findings at 40.)

  CE's bankruptcy resulted from its inability to pay substantial obligations for asbestos-related person injury claims. (See id. at 5.) As of 2002, CE was dependent on funding from its parent ABB to cover payments owed on outstanding claims, but ABB was facing financial problems and needed to refinance to avoid bankruptcy. (Id. at 5-6.) To resolve its financial problems, ABB began a divestment and Page 4 restructuring plan. (Id. at 7.) Part of that plan included the sale of Lummus, but Lummus could not be sold unless its asbestos liability was defined and resolved. (Id.) Indeed, there was evidence that so long as asbestos liabilities remained in the ABB groups, ABB's ability to provide financing would run out. (Id. at 8.)

  In filing its petition for bankruptcy, CE filed a "prepackaged" Plan of Reorganization ("Reorganization Plan" or "Plan"). (See id. at 1; Compl. ¶ 40.) The Plan was designed to handle the asbestos liability of CE and other ABB subsidiaries so that ABB could obtain financing, which was critical to CE's liquidity. (See generally Findings at 6-17.) The Plan established a bankruptcy trust, known as the Asbestos PI Trust (the "Trust"), to handle all pending and future asbestos personal injury claims against CE and other non-debtors, including Lummus and Basic, both of whom had some asbestos liability and some shared insurance with CE. (See id. at 40; Compl. ¶¶ 40-41). With respect to Lummus and Basic, the Plan called for "the release and assignment to the Asbestos PI Trust of all their rights to proceeds under insurance covering asbestos personal injury claims, including certain policies shared with CE." (Findings at 29-30, 40.)

  There were objections to the Plan, including those raised by the Plaintiff's and other insurance companies that objected Page 5 particularly to the inclusion of Lummus and Basic and the channeling of all their asbestos liability into the Trust. Judge Fitzgerald of the Delaware Bankruptcy Court held hearings in April and May 2003 and, on June 23, 2003, made findings of fact and conclusions of law approving the plan. (See id. at 4.) The Plan had originally called for a channeling injunction to be imposed pursuant to 11 U.S.C. § 524(g) to direct all claims to the Trust and to enjoin claimants from bringing asbestos claims against CE, Basic, and Lummus. (Id. at 10.) Judge Fitzgerald held that § 524(g) could not be applied to claims against Lummus and Basic to the extent that they were not derivative of claims against CE. (See id. at 53.) The court found, however, that a channeling injunction could be issued with respect to claims against Lummus and Basic pursuant to 11 U.S.C. § 105(a). (Id.)

  On July 31, 2003, Judge Wolin of the United States District Court for the District of Delaware confirmed the Plan approved by Judge Fitzgerald. (See Tr. of Confirmation Hearing and Bench Opinion, In re Combustion Eng'g, Inc., Ch. 11 Case No. 03-10495 (D. Del. July 31, 2003) ("Bench Op."), attached at Def.'s Mem., Ex. B.) The court rejected the insurers' objections to the Plan. (Bench Op. at 1.) It found, among other things:

  [E]xtending the channeling injunction to Lummus and Basic is an integral part of the plan. The evidence is compelling that omitting a channeling injunction for Lummus and Basic would have a string of unfortunate consequences. . . . ABB Limited would not Page 6 be able to restructure its debt and could not make contributions to the plan.

 (Id. at 161.) The district court also addressed the argument, raised by certain objectors to the plan, that the court lacked jurisdiction over non-debtors. The district court noted that "the analysis of the Section 105 channeling injunction, and the jurisdictional question of whether claims against the non-debtors are related to the bankruptcy, substantially overlap," and it found that there was jurisdiction to issue the injunction. (Id. at 162-63.) The court ultimately approved the channeling injunction as "clearly sensible, fair, and in the best interests of everyone involved." (Id. at 163.)

  On August 8, 2003, Judge Wolin issued a Revised Proposed Confirmation Order. (Revised Proposed Confirmation Order, In re Combustion Eng'g, Inc., Ch. 11 Case No. 03-10495 (D. Del. Aug. 8, 2003) ("Confirmation Order"), attached at Defs.' Mem., Ex D.) Among other things, the Confirmation Order addressed the institution and maintenance of proceedings, including the power of the Asbestos PI Trust "to initiate, prosecute, defend and resolve all legal actions and other proceedings related to any asset, liability, or responsibility of the Asbestos PI Trust." (Confirmation Order ¶ 16.) In an attempt to address objections raised by insurers with respect to the use of insurance proceeds Page 7 for the claims against Lummus and Basic, the Confirmation Order declared:
[N]othing in this Order, the Plan, or any of the Plan Documents . . . shall in any way operate to, or have the effect of, impairing the insurers' legal, equitable or contractual rights, if any, in respect of any claims. . . . The rights of insurers shall be determined under the Subject Insurance Policies. as applicable, and under applicable law.
(Id. ¶ 17.) The parties in this case represented that the Confirmation Order is currently being appealed to the Court of Appeals for the Third Circuit, but the Court has not been asked to stay the decision on the pending motions to await the result of the appeal.

  Following the Confirmation Order, on August 29, 2003, the Plaintiff's filed a civil action against the defendants in the New York State Supreme Court, New York County. Certain Underwriters at Lloyd's, London v. ABB Lummus Global, Inc., No. 115322/03 (N.Y.Sup.Ct. filed Aug. 29, 2003) ("Complaint"). The Complaint seeks declaratory relief and argues that the Plaintiff's should not be required to indemnify Lummus and Basic because the Asbestos PI Trust procedure materially deviates from the claims handling procedures specified in the insurance policies. (See generally Compl. ¶¶ 1, 51-54, 69-76.) On September 16, 2003, the defendants filed a Notice of Removal pursuant to 28 U.S.C. § 1452 (a) and Federal Rule of Bankruptcy Procedure 9027, with jurisdiction being asserted under 28 U.S.C. § 1334(b).*fn1 Page 8 The defendants' intent in removing the claims against them to this Court is to facilitate transfer of the claims to the United ...


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