Aldrich Pump LLC v. Those Parties to Actions Listed On Appendix A to C to Complaint (In re Aldrich Pump LLC)

In re ALDRICH PUMP LLC, et al., ^[1] Debtors,

ALDRICH PUMP LLC AND MURRAY BOILDER LLC, Plaintiffs, v. THOSE PARTIES TO ACTIONS LISTED ON APPENDIX A TO COMPLAINT and JOHN AND JANE DOES 1-1000. Defendants.

No. 20-30608 (JCW)

Adversary Proceeding No. 20-03041 (JCW)

United States Bankruptcy Court, W.D. North Carolina

August 20, 2021

FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING ORDER: (I) DECLARING THAT THE AUTOMATIC STAY APPLIES TO CERTAIN ACTIONS AGAINST NON-DEBTORS, (II) PRELIMINARILY ENJOINING SUCH ACTIONS, AND (III) GRANTING IN PART DENYING IN PART THE MOTION TO COMEPL

J CRAIG WHITLEY UNITED STATES BANKRUPTCY JUDGE

I. PROCEDURAL BACKGROUND

1. The Debtor's predecessors are respectively, the former Trane Technologies Company LLC, successor by merger to Ingersoll-Rand Company (a former New Jersey corporation) (collectively, "Old IRNJ"), and the former Trane U.S. Inc. ("Old Trane"). These entities and their subsidiary companies were global manufacturers of climate control products for buildings, homes, and transportation.

2. On May 1, 2020, Old IRNJ and Old Trane utilized a provision under Texas law to undergo divisional mergers. Old IRNJ divided itself into two companies: Trane Technologies Company LLC ("New TTC") and Aldrich, LLC ("Aldrich"). Old Trane similarly divided itself into two companies: Trane U.S. Inc. ("New Trane") and Murray Boiler LLC ("Murray").

3. New TTC and New Trane are almost mirror images of Old IRNJ and Old Trane: fully operating companies that retained all of their predecessor's employees, the bulk of their assets and business operations, and all of their non-asbestos creditors. The other new entities, Aldrich and Murray, are quite different. The merger allocated to them no employees no operations, and relatively few assets. However, in one respect the mergers were quite generous with Aldrich and Murray. The two new companies were allocated 100% of their respective predecessor's considerable asbestos liabilities.

4. Seven weeks later, on June 18, 2020 (the "Petition Date"), Aldrich and Murray (together, the "Debtors") filed voluntary chapter 11 petitions (together, these "Chapter 11 Cases") in this bankruptcy court, and the complaint initiating this Adversary Proceeding.

5. The complaint in turn was accompanied by a motion for a temporary restraining order, a preliminary injunction, and a request for declaratory relief (that the automatic stay in 11 U.S.C. § 362 applied to such actions) (the "PI Motion") [Adv. Pro. Dkt. 2]. Through the PI Motion, the Debtors seek an indefinite, nationwide preliminary injunction that would protect the parties defined by the Debtors as "Protected Parties" from litigation involving any claim attributable to the Debtors' newly acquired asbestos liabilities. These non-debtor "Protected Parties" are 204 affiliates of the Debtors ("Non-Debtor Affiliates"), including TTC and New Trane, 15 unaffiliated entities that allegedly hold asbestos-related indemnification rights against the Debtors under prepetition sale and divestiture agreements ("Indemnified Parties") and 182 insurance companies ("Insurers" and collectively, the "Protected Parties").^[2]

6. On June 22, 2020, certain asbestos personal injury claimants filed objections to the Debtors' request for a temporary restraining order [Adv. Pro. Dkts. 17, 18, 20]. On that same day, an emergency hearing was held, and on June 25, 2020, the Court entered the Temporary Restraining Order [Adv. Pro. Dkt. 26] (the "TRO") to preserve the then-existing status quo. The TRO ran through and including July 6, 2020. Following a second hearing held on July 6, 2020, the TRO was extended through July 23, 2020 [Adv. Pro. Dkt. 51].

7. On July 15, 2020, a hearing was held to consider, among other things, the entry of an order that provided for a preliminary injunction through the date of a full hearing on the Motion. On July 23, 2020, the Court entered an agreed order [Adv. Pro. Dkt. 58] in a form negotiated by the Debtors and the Official Committee of Asbestos Personal Injury Claimants (the "ACC"), which order continued the injunction imposed by the TRO pending a future hearing on the merits of the Motion. 8. After the appointments of the ACC and the Future Claimants' Representative (the "FCR") as well as counsel therefor, the ACC, the FCR, the Debtors, and the Non-Debtor Affiliates engaged in extensive discovery in this Adversary Proceeding.

9. On December 31, 2020, New TTC and New Trane filed a joint response in support of the PI Motion [Adv. Pro. Dkt. 84] (the "TTC/New Trane Initial Response").

10. On January 25, 2021, Aldrich and Murray filed the Debtors' Motion for Partial Summary Judgment That All Actions Against the Protected Parties to Recover Aldrich/Murray Asbestos Claims Are Automatically Stayed by Section 362 of the Bankruptcy Code [Adv. Pro. Dkt. 90] (the "Summary Judgment Motion").

11. On February 8, 2021, Joseph W. Grier, III, the FCR, joined the Summary Judgment Motion [Adv. Pro. Dkt. 105]. On March 19, 2021, the FCR filed his initial submission in support of the PI Motion [Adv. Pro. Dkt. 129] (the "FCR's Initial Submission").^[3]

12. On March 24, 2021 the ACC filed its Motion of the Official Committee of Asbestos Personal Injury Claimants to Compel the Debtors and Non-Debtor Affiliates to (I) Provide Testimony Regarding Certain Matters and (II) Produce Certain Withheld Documents [Adv. Pro. Dkt. 141] (the "Motion to Compel").

13. On April 2, 2021 the ACC filed its opposition [Adv. Pro. Dkt. 151] (the "ACC Objection") to the PI Motion and declaratory relief and then on April 19, 2021, and after the close of fact depositions, a supplemental memorandum in opposition [Adv. Pro. Dkt. 179] (the "Supplemental ACC Objection") to the two Motions. 14. On April 14, 2021 the Debtors filed The Debtors' Objection to Official Committee of Asbestos Personal Injury Claimants' Motion to Compel [Adv. Pro. Dkt. 173] and the Non-Debtor Affiliates filed the Non-Debtor Affiliates' Objection to the Official Committee of Asbestos Personal Injury Claimants' Motion to Compel [Adv. Pro. Dkt. 176].

15. On April 23, 2021, the Debtors, New TTC/New Trane and the FCR, filed replies in response to both the ACC Objection and the Supplemental ACC Objection: [Adv. Pro. Dkt. 187] (the "FCR's Reply"); [Adv. Pro. Dkt. 188] (the "Debtors' Reply"); and [Adv. Pro. Dkt. 193] (the "New TTC/New Trane Reply").

16. The Motions were heard together upon a consolidated evidentiary record. Due to the COVID-19 Pandemic, and by consent, the hearing was conducted remotely via Microsoft Teams from May 5 through May 7, 2021 (the "Hearing"). The Court heard (a) opening statements from the Debtors, the ACC, and the FCR; (b) live testimony from Allan Tananbaum (Chief Legal Officer and Secretary for each Debtor), Amy Roeder (Chief Financial Officer, Treasurer, and Member of the Board of Managers for each Debtor), and Chris Kuehn (Senior Vice-President, Chief Financial Officer and Board Member of New TTC and Vice-President of New Trane) and three expert witnesses, Laureen M. Ryan of Alvarez & Marsal and Dr. Charles H. Mullin of Bates White for the Debtors, and Matthew Diaz of FTI Consulting, Inc. for the ACC;^[4] and (c) closing arguments from the Debtors, the ACC, and the FCR. Subject to reservations of evidentiary objections, the Court received proffers of the parties' evidence, including deposition designations and the parties' exhibits. 17. On June 10, 2021, the parties filed an Evidentiary Stipulation that detailed their agreement on the admission into evidence of the testimony proffered at the Hearing, whether elicited live during the Hearing or submitted through deposition designations or the proffered exhibits.

18. The Court has reviewed and considered the Motions, Responses, Replies, and all related briefing papers filed in connection with the Motions; the Court has reviewed and considered the testimonial and documentary evidence proffered at or in connection with the Hearing, and the Court has heard and considered the arguments of counsel presented during the Hearing.

Holding: By virtue of the Texas merger statutes, the asbestos claims of Old IRNJ and Old Trane that the ACC and the individual asbestos claimants would like to pursue in the tort system as against the Protected Parties, primarily New TTC and New Trane, are presently claims owed by Aldrich and/or Murray and no other party. Thus, they are subject to the automatic stay under Bankruptcy Code Sections 362(a)(1) and/or Section 105.

Due to the apparent negative effects of the Divisional Merger (and these ensuing bankruptcy filings) on the legal rights of Asbestos Claimants, that Merger and its allocations may constitute avoidable fraudulent transfers and/or be subject to attack under remedial creditor doctrines like alter ego and successor liability. If so, New TTC and New Trane could eventually be held responsible for Old IRNJ and Old Trane's asbestos liabilities, in whole or in part.

However the aforementioned apparent injuries are not specific to individual creditors but are instead "general" injuries-as to Aldrich/Murray as well as their respective asbestos claimants. With the Debtors in chapter 11, if such remedial actions lie, these causes are: (a) bankruptcy estate property under Section 541 and/or (b) avoidance actions that, under the Fourth Circuit's "first crack" doctrine, must be asserted by a bankruptcy trustee, and not individual creditors. Thus, the causes of action by which the Divisional Merger might be contested-and through which claims might be asserted against the Protected Parties-are bankruptcy estate property under Section 541, and also subject to the automatic stay, particularly Section 362(a)(3). Additionally, the Debtors' insurance coverage is estate property and...