In re Bestwall LLC

658 B.R. 348

IN RE: BESTWALL LLC, Debtor.

Case No. 17-31795

United States Bankruptcy Court, W.D. North Carolina, Charlotte Division

Signed February 21, 2024

Danielle Barav-Johnson, Hannah N. Basta, Danielle D. Donovan, Jeffrey Brian Ellman, Alisha Goel, Jeffrey A. Kaplan, Megan A. Kirk, T. Preston Moore, II, Ariel J. Pinsky, Jones Day, Atlanta, GA, Demi Lorant Bostian, Robinson, Bradshaw and Hinson, Chapel Hill, NC, Garland S. Cassada, Hana Crandall, Kevin R. Crandall, Jonathan C. Krisko, Timothy P. Misner, Stuart L. Pratt, David M. Schilli, Garrett Steadman, Andrew W.J. Tarr, Richard C. Worf, Bestwall LLC, Robinson Bradshaw & Hinson, Charlotte, NC, Jennifer L. Del Medico, James M. Jones, Jones Day, New York, NY, Brad B. Erens, Chicago, IL, Kelly E. Farnan, Kevin Gross, Richards Layton & Finger, Wilmington, DE, Gregory M. Gordon, Daniel B. Prieto, Amanda Rush, Jones Day, Dallas, TX, Barbara Harding, Washington, DC, Raymond Paul Harris, Jr., Erin A. Therrian, Schachter Harris LLP, Irving, TX, Livia M. Kiser, King & Spalding LLP, Chicago, IL, John R. Miller, Jr., RAYBURN COOPER & DURHAM, P.A., Charlotte, NC, Preetha Suresh Rini, Robinson, Bradshaw and Hinson, Raleigh, NC, Cary Ira Schachter, Schachter Harris LLP, Irving, TX, Richard A. Schneider, King & Spalding LLP, Atlanta, GA, Rachael M. Trummel, King & Spalding, Chicago, IL, for Debtor.

John Robert Buric, James, McElroy & Diehl, P.A., Charlotte, NC, Thomas W. Waldrep, Jr., Waldrep Wall Babcock & Bailey PLLC, Winston-Salem, NC for Special Counsel.

Robert A. Cox, Jr., Kenneth Brian Dantinne, Glenn C. Thompson, Hamilton Stephens Steele & Martin, PLLC, Charlotte, NC, Benjamin M. Daniels, Natalie D. Ramsey, Robinson & Cole LLP, Hartford, CT, Thomas J. Donlon, Robinson + Cole LLP, Stamford, CT, Mark Andrew Fink, New York Office, New York, NY, Earl M. Forte, Robinson Cole LLP, Philadelphia, PA, David C. Frederick, Kellogg, Hansen, Todd, Figel & Frederick, Washington, DC, Mills & Reeve LLP, Linda Wright Simpson, JD Thompson Law, Charlotte, NC, Davis Lee Wright, Robinson & Cole LLP, Wilmington, DE for Creditor Committee.

ORDER DENYING THE MOTIONS TO DISMISS OF CLAIMANTS WILSON BUCKINGHAM AND ANGELIKA WEISS AND THE OFFICIAL COMMITTEE OF ASBESTOS CLAIMANTS

Laura T. Beyer, United States Bankruptcy Judge

This matter comes before the court on the February 17, 2023 Motion to Dismiss of Claimants Wilson Buckingham and Angelika Weiss (Dkt. 2882¹) (the "Buckingham Motion") and the March 30, 2023 Official Committee of Asbestos Claimants' Motion to Dismiss for Lack of Subject Matter Jurisdiction (Dkt. 2925) (the "Committee's Motion") (collectively the "Motions to Dismiss"). The court concludes that it has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334,² venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409, and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Having reviewed and considered the Motions to Dismiss, the joinders, responses, and replies thereto, and after considering the arguments of counsel at the hearings on March 15, 2023 and May 17, 2023 and having announced its ruling on the Motions to Dismiss at a hearing on July 28, 2023, the court further finds and concludes that it should deny the Motions to Dismiss for the reasons that follow.

Facts and Procedural History

1. Bestwall LLC (the "Debtor") filed a petition under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") on November 2, 2017. The Debtor's pre-petition history was unusual and unusually brief. About three months prior to the petition date, the Debtor was created in a divisive merger corporate transaction pursuant to Texas state law that has come to be known as the "Texas Two-Step." See Debtor's Opposition to Third Motion to Dismiss Chapter 11 Case (Dkt. 2894) ("Debtor's Response to the Buckingham Motion") at 3 (noting corporate restructuring on July 31, 2017); Michael A. Francus, Texas Two-Stepping Out of Bankruptcy, 120 MICH. L. REV. ONLINE 38, 40 (2022) (explaining divisive mergers). The transaction divided the Debtor's predecessor, Georgia-Pacific LLC ("Old GP" prior to the transaction), into two new entities, the Debtor and a new version of Georgia-Pacific LLC ("New GP"). Informational Brief of Bestwall LLC (Dkt. 12) at 7-8. The divisive merger imbued the Debtor with Old GP's asbestos liability and certain assets including a "funding agreement" with New GP that "ensures that the Debtor has the same financial resources and ability to satisfy asbestos claims as Old GP had prior to the 2017 Corporate Restructuring," while New GP took all of Old GP's other assets and liabilities.³ Id. at 8.

2. The Motions to Dismiss constitute the third and fourth motions to dismiss this bankruptcy case. On August 15, 2018, the Official Committee of Asbestos Claimants (the "Committee") filed a motion to dismiss this case as a bad faith filing pursuant to 11 U.S.C. § 1112(b)⁴ or, alternatively, to transfer venue of the case to Delaware (Dkt. 495) (the "First Motion to Dismiss"). The court entered its Memorandum Opinion and Order Denying the Official Committee of Asbestos Claimants' Motion for Dismissal, or Alternatively, Venue Transfer (Dkt. 891) (the "Opinion and Order") on July 29, 2019. In re Bestwall LLC, 605 B.R. 43 (Bankr. W.D.N.C. 2019). In its Opinion and Order, the court summarizes the two-prong standard for dismissing a Chapter 11 case as a bad faith filing established by the United States Court of Appeals for the Fourth Circuit (the "Fourth Circuit") in the Carolin case, which requires a determination that the case is both (i) objectively futile and (ii) filed in subjective bad faith. Bestwall, 605 B.R. at 48 (citing Carolin Corp. v. Miller, 886 F.2d 693, 700-01 (4th Cir. 1989)). Among other things, the court determined that "[a]ttempting to resolve asbestos claims through 11 U.S.C. § 524(g) is a valid reorganizational purpose, and filing for Chapter 11, especially in the context of an asbestos or mass tort case, need not be due to insolvency." Id. at 49. The court also stated that "[t]he volume of current asbestos claims that Bestwall faced as of the Petition Date, coupled with the projected number of claims to be filed through 2050 and beyond, is sufficient financial distress for Bestwall to seek resolution under section 524(g) of the Bankruptcy Code" and that the asbestos-related claims could be "sufficiently addressed and fairly adjudicated through a section 524(g) trust." Id. at 49, 50. The court concluded that because Bestwall has the resources with which to reorganize, this case is not objectively futile, it need not reach the issue of whether the case was filed in subjective bad faith, and dismissal was not appropriate under the Fourth Circuit's stringent two-prong dismissal standard. Id. at 50-51.

3. On August 12, 2019, the Committee filed a notice of appeal (Dkt. 917) of the Opinion and Order, a motion for leave to appeal (Dkt. 918), and a request for certification of direct appeal to the Fourth Circuit (Dkt. 920). This court approved the request for the direct appeal on September 11, 2019 in its Certification for Direct Appeal to the United States Court of Appeals for the Fourth Circuit Under 28 U.S.C. § 158(d)(2) (Dkt. 987) ("Certification for Direct Appeal"),⁵ and, in turn, the Committee filed its petition for direct appeal with the Fourth Circuit on October 11, 2019. On November 14, 2019, the Fourth Circuit denied the petition for direct appeal, and New GP opposed the Committee's motion for leave to appeal before the United States District Court for the Western District of North Carolina (the "District Court").

4. On February 3, 2023, the Committee filed a notice of supplemental authority (W.D.N.C. Dkt. 12⁶) ("Committee's Notice") bringing to the attention of the District Court the "pertinent and significant new authority" of the opinion of the United States Court of Appeals for the Third Circuit in the LTL Management case (the "LTL Opinion"). Committee's Notice at 2; see LTL Mgmt., LLC v. Those Parties Listed on Appendix A to Complaint and John and Jane Does 1-1000 (In re LTL Mgmt., LLC), 64 F.4th 84 (3d Cir. 2023). Based on the LTL Opinion, the Committee urged the District Court to accept the pending notice of appeal (or grant the Committee's motion for leave to pursue an interlocutory appeal) so the Fourth Circuit would have a chance to consider the applicability of the Carolin standard to "a debtor that failed to exhibit financial distress prior to invoking the substantial protections of the Bankruptcy Code." Committee's Notice at 2. The Debtor responded (W.D.N.C. Dkt. 13) ("Debtor's Response to Committee's Notice") and asserted that nothing about the LTL Opinion changed the reasons why the District Court should "deny leave to appeal the interlocutory order denying the Committee's motion to dismiss Bestwall's bankruptcy case." Debtor's Response to Committee's Notice. The Debtor further opined that the LTL Opinion is based on a different standard and has no application to the appeal of the Opinion and Order. Id. at ¶ 3.

5. More recently in the District Court and based on the pleadings filed by the Committee in this case related to the Committee's Motion, the Debtor filed a motion for leave to file a statement regarding the Committee's change in position on the finality of the Opinion and Order (W.D.N.C. Dkt. 14) ("Debtor's Motion for Leave"). The Debtor points out that in support of the Committee's Motion in this court, the Committee argues that the Opinion and Order denying the First Motion to Dismiss is interlocutory contrary to its position in the District Court that the Opinion and Order is final and appealable as of right. Debtor's Motion for Leave. In addition, the Committee filed a second notice of supplemental authority (W.D.N.C. Dkt. 15) notifying the District Court of the recent decision of the United States Bankruptcy Court for the Southern District of Indiana dismissing Aearo's bankruptcy cases, which it argues...