In re Allied Consol. Indus., Inc., CASE NUMBER 16–40675 (Substantively Consolidated)

569 B.R. 284

IN RE: ALLIED CONSOLIDATED INDUSTRIES, INC., Debtor/Debtor-in-Possession.

CASE NUMBER 16–40675 (Substantively Consolidated)

United States Bankruptcy Court, N.D. Ohio.

Signed June 19, 2017

Joseph R Macejko, Suhar & Macejko LLC, Youngstown, Oh, Debtor/Debtor-in-Possession.

MEMORANDUM OPINION OVERRULING OBJECTION OF UNITED STATES STEEL CORPORATION TO CONFIRMATION OF SECOND AMENDED JOINT PLAN OF REORGANIZATION

Kay Woods, United States Bankruptcy Judge

On May 2, 2017, Debtors and Debtors-in-Possession Allied Consolidated Industries, Inc., Allied Erecting & Dismantling Co., Inc., Allied Industrial Scrap, Inc. ("AIS"), and Allied–Gator, Inc. ("AGI") (collectively, "Debtors") and the Official Committee of Unsecured Creditors ("Committee") jointly filed Second Amended Joint Plan of Reorganization Proposed by the Debtor and the Official Committee of Unsecured Creditors ("Joint Plan") (Doc. 356). On May 31, 2017, United States Steel Corporation ("U. S. Steel") filed Objection of United States Steel Corporation to Confirmation of Second Amended Joint Plan of Reorganization ("Objection") (Doc. 364), which is presently before the Court.

The Court held a hearing to consider confirmation of the Joint Plan on June 7, 2017, which hearing was continued to and concluded on June 14, 2017 ("Confirmation Hearing"). At the Confirmation Hearing, the Court heard the testimony of (i) John K. Lane of Inglewood Associates, LLC, Crisis Manager for the Debtors and proposed "Creditor Trustee"¹ ; and (ii) Michael R. Ramun, Sales and Marketing Manager for AGI. The Court admitted into evidence Joint Exhibits 1 through 19 and U. S. Steel Exhibit 8. Upon conclusion of the Confirmation Hearing, the Court orally approved confirmation of the Joint Plan and overruled the Objection. The Court enters this Memorandum Opinion and accompanying Order to memorialize its overruling of the Objection.²

This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and General Order No. 2012–7 entered in this district pursuant to 28 U.S.C. § 157(a). Venue in this Court is proper pursuant to 28 U.S.C. §§ 1391(b), 1408, and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). The following constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

I. BACKGROUND

On April 13, 2016, the Debtors filed voluntary petitions pursuant to chapter 11 of Title 11. The Debtors' cases were substantively consolidated on July 11, 2016 (see Doc. 123).

On March 9, 2017, the Debtors and the Committee jointly filed (i) First Joint Plan of Reorganization Proposed by the Debtor and the Official Committee of Unsecured Creditors (Doc. 313); and (ii) First Disclosure Statement for Joint Plan of Reorganization Proposed by the Debtor and the Official Committee of Unsecured Creditors (Doc. 314). A hearing to consider approval of the Joint Disclosure Statement was scheduled for April 25, 2017 ("Disclosure Hearing") (see Doc. 317).

The day prior to the Disclosure Hearing, the Debtors and the Committee jointly filed (i) First Amended Joint Plan of Reorganization Proposed by the Debtor and the Official Committee of Unsecured Creditors (Doc. 345); and (ii) Amended First Disclosure Statement for Joint Plan of Reorganization Proposed by the Debtor and the Official Committee of Unsecured Creditors ("Joint Disclosure Statement") (Doc. 346).

At the Disclosure Hearing, the Court conditionally approved the Joint Disclosure Statement as modified on the record. The Court directed the Debtors and the Committee to file a second amended joint plan of reorganization and a second amended joint disclosure statement to incorporate the changes to those documents conditionally approved by the Court at the Disclosure Hearing.

On May 2, 2017, the Debtors and the Committee jointly filed (i) the Joint Plan; and (ii) Amended Second Disclosure Statement for Joint Plan of Reorganization Proposed by the Debtor and the Official Committee of Unsecured Creditors ("Final Joint Disclosure Statement") (Doc. 357). On that same date, the Court entered Order (a) Approving Second Amended Disclosure Statement for Second Amended Joint Chapter 11 Plan of Reorganization; (b) Setting Deadline for Return of Ballots; (c) Setting Confirmation Hearing; and (d) Setting Deadline for Objection to Confirmation of the Proposed Second Amended Joint Chapter 11 Plan of Reorganization (Doc. 358), in which the Court, inter alia , approved the Final Joint Disclosure Statement and scheduled a hearing to consider confirmation of the Joint Plan on June 7, 2017.

On May 31, 2017, U. S. Steel filed its Objection, and, on June 6, 2017, the Committee filed Official Committee of Unsecured Creditors' Response to Objection of United States Steel Corporation to Confirmation of Second Amended Joint Plan of Reorganization (Doc. 369).

On June 1, 2017, the Debtors filed Ballot Tabulation Report (Doc. 366), in which the Debtors represented that 42 of 43 voting creditors accepted the Joint Plan. Specifically, Classes 1, 3, 4, 5, 6, and 7 voted in favor of the Joint Plan. Class 2, consisting only of U. S. Steel, voted to reject the Joint Plan.

At the June 7, 2017 Confirmation Hearing, the following parties appeared: (i) Andrew W. Suhar, Esq., Melissa M. Macejko, Esq., and Joseph R. Macejko, Esq. on behalf of the Debtors; (ii) Frederic P. Schwieg, Esq. on behalf of the Committee; (iii) Charles M. Oellermann, Esq., Michael R. Gladman, Esq., and David M. Belczyk, Esq. on behalf of U. S. Steel; (iv) Amy L. Good, Esq. on behalf of Daniel M. McDermott, United States Trustee for Region 9 ("UST"); (v) Harry A. Readshaw, Esq., on behalf (a) Eckert Seamans Cherin & Mellot, LLC, (b) Nadler Nadler & Burdman Co., LPA, and (c) Anness Gerlach & Williams, Inc. (collectively, the "Professionals"); (vi) Scott A. Norcross, Esq. on behalf of Norfolk Southern Railway Co. ("Norfolk Southern"); and (vii) Jonathan K. Schoenike, Esq. on behalf of Michael D. Ramun.

At the June 14, 2017 Confirmation Hearing, the following parties appeared: (i) Mr. Suhar and Ms. Macejko on behalf of the Debtors; (ii) Mr. Schwieg on behalf of the Committee; (iii) Messrs. Oellermann, Gladman, and Belczyk on behalf of U. S. Steel; (iv) Ms. Good on behalf of the UST; (v) R. Scott Heasley, Esq. on behalf of Norfolk Southern; and (vi) Mr. Schoenike on behalf of Michael D. Ramun.

II. ANALYSIS

The Objection contains several discrete objections to the Joint Plan. Two objections asserted by U. S. Steel have been resolved by agreement and modification on the record at the Confirmation Hearing: (i) the Debtors have agreed to use language offered by U. S. Steel to modify certain alleged contradictory and/or ambiguous provisions of the Joint Plan; and (ii) the Debtors have agreed that the "Fairless Agreements" would be rejected rather than assumed.³ The remaining objections can be summarized, as follows:

First, the Joint Plan is mischaracterized as a plan of reorganization, whereas it actually provides for liquidation of the Debtors' assets rather than reorganization of the Debtors' business operations. Second, the Joint Plan fails to meet the best-interest-of-creditors test in 11 U.S.C. § 1129(a)(7), which requires the Joint Plan to provide U. S. Steel with no less than what it would receive if the Debtors' assets were liquidated under chapter 7. Third, the Joint Plan is not feasible. Fourth, the Joint Plan does not comply with the cramdown standard in 11 U.S.C. § 1129(b)(2)(A) with respect to U. S. Steel's claim. The Court will address each of these objections, in turn.

A. The Joint Plan Is Not a Plan of Reorganization

Turning to the first objection, the Court finds that the Joint Plan is a plan of reorganization. U. S. Steel asserts that the Joint Plan is a liquidating plan because it falls squarely under 11 U.S.C. § 1141(d)(3), which provides:

[d](3) The confirmation of a plan does not discharge a debtor if—

(A) the plan provides for the liquidation of all or substantially all of the property of the estate;

(B) the debtor does not engage in business after consummation of the plan; and

(C) the debtor would be denied a discharge under section 727(a) of this title if the case were a case under chapter 7 of this title.

11 U.S.C. § 1141(d)(3) (2017). Here, there is no question that the Joint Plan provides for the liquidation of substantially all of the Debtors' property and that the Debtors would not be entitled to a discharge if this case were a chapter 7 case. Thus, the requirements in subparagraphs (A) and (C) are met. However, because 11 U.S.C. § 1141(d)(3) is in the conjunctive, all three provisions of this subsection must be met for the Joint Plan to be a liquidating plan. The Court finds that Joint Plan does not meet the requirement in subparagraph (B).

The Joint Plan provides for the Debtors to engage in business after consummation of the Joint Plan. Section 8.2 of the Joint Plan, which defines "Trust Assets," provides that the "Reorganized Debtor" will continue operations post-confirmation during the time the "Creditor Trust" is liquidating assets.⁴ Section 8.2(d) of the Joint Plan provides for certain income from the Reorganized Debtor's ongoing operations to be contributed to the Creditor Trust; specifically, "[t]he net income from scrap processing operations of AIS and the ongoing sales and other operations of the hydraulic shear business known as AGI." (Jt. Plan § 8.2(d).) Section 8.3(b) of the Joint Plan states, "The [Joint] Plan contemplates that operations income from AIS and AGI will be used to fund the [Joint] Plan." (Id. § 8.3(b) (n.4 omitted).) The Joint Plan further states, "Upon termination of the Creditor Trust, all remaining assets of the Creditor Trust will vest with the Reorganized Debtor. It is anticipated that this will include, among other assets, the operating assets of the hydraulic shear business knowns [sic] as AGI." (Id. § 8.9.)

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