In re Nash Eng'g Co.

643 B.R. 654

IN RE: The NASH ENGINEERING COMPANY, Debtor.

CASE No. 21-50644 (JAM)

United States Bankruptcy Court, D. Connecticut.

Signed May 25, 2022

James Berman, Esq., Attorney for the Debtor, Zeisler and Zeisler, 10 Middle Street, 15^th Floor, Bridgeport, Connecticut 06604.

Irve J. Goldman, Esq., Attorney for Century and Pacific, Pullman & Comley, 850 Main Street, 8th Floor, P.O. Box 7006, Bridgeport, Connecticut 06601-7006.

Henry P. Baer, Esq., Attorney for Gardner Denver, Inc., Finn Dixon & Herling LLP, Six Landmark Square, Stamford, CT 06901-2704.

Mr. George I. Roumeliotis, Chapter 7 Trustee, Roumeliotis Law Group, P.C., 157 Church Street, 19^th Floor, New Haven, Connecticut 06510.

Taruna Garg, Esq., Daniel Cohn, Esq., Proposed Counsel for the Chapter 7 Trustee, Murtha Cullina LLP, 177 Broad Street, Stamford, CT 06901.

MEMORANDUM OF DECISION AND ORDER DISMISSING CASE PURSUANT TO 11 U.S.C. § 707(a)

Julie A. Manning, United States Bankruptcy Judge

I. Introduction

At first glance, the Chapter 7 case of The Nash Engineering Company (the "Debtor") appears to be an ordinary Chapter 7 case requiring minimal court intervention. However, the Debtor's case is anything but ordinary. More than ninety eight percent of the Debtor's creditors—1,668 of the total 1,696 creditors—are contingent, disputed, and unliquidated asbestos personal injury tort claimants. Consequently, the Court finds itself in the unfortunate position of having to scrutinize the proposed administration of this case and examine the reasons why certain parties, but not the Debtor, oppose dismissal of this case.

When the unusual facts and circumstances surrounding the Debtor's case became apparent, the Court issued an Order Scheduling a Status Conference to discuss, among other things, the administration of the Debtor's case (ECF No. 41). After conducting two Status Conferences, the Court then issued an Order: (I) Providing Opportunity to Show Cause Why Court Should Not Dismiss Case Pursuant to 11 U.S.C. §§ 305 and/or 707(a) ; and (II) Staying Case Pending Ruling on Dismissal of Case (the "Order to Show Cause," ECF No. 98). The Order to Show Cause identified several reasons why the Debtor's case should be dismissed, including: (i) the plain language of 28 U.S.C. § 157(b)(2)(B) prohibits the "liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11 ," 28 U.S.C. § 157(b)(2)(B) (emphasis added); and (ii) the Debtor's case lacks a legitimate bankruptcy purpose. The Order to Show Cause was served on all appearing parties and on all the Debtor's contingent and unliquidated asbestos personal injury tort claimants.

Not one of the 1,668 contingent and unliquidated asbestos personal injury tort claimants filed a response to the Order to Show Cause. The only parties who filed a response to the Order to Show Cause are the Debtor, George Roumeliotis (the "Chapter 7 Trustee"), Century Indemnity Company and Pacific Employers Insurance Company ("Century and Pacific"), and Gardner Denver ("Gardner Denver") (ECF Nos. 102, 103, 104, and 106)¹ . The Debtor states in its response that it takes "no position with respect to resolution of [the] Order to Show Cause," thereby waiving any objection to dismissal of its Chapter 7 case. The responses filed by the Chapter 7 Trustee and Century and Pacific oppose dismissal of the Debtor's case, asserting dismissal is not appropriate under section 305(a) or section 707(a). Finally, the response of Gardner Denver contends that dismissal of the Debtor's case at this stage would be premature.

The Court held a hearing on the Order to Show Cause on April 27, 2022. At the conclusion of the hearing, the Court took the Order to Show Cause under advisement. After a careful review of the record in this case and consideration of the arguments advanced by the parties during the Status Conferences and the hearing on the Order to Show Cause, under the specific facts and circumstances of this case, the Court concludes that cause exists to dismiss the Debtor's case pursuant to 11 U.S.C. § 707(a).²

II. Facts

The facts leading up to and following the filing of the Debtor's Chapter 7 case are not in dispute. On October 19, 2021, the Debtor filed a voluntary Chapter 7 no asset case. On October 20, 2021, the Clerk's Office issued an Official Form 309C Notice of Chapter 7 Bankruptcy Case—No Proof of Claim Deadline (ECF No. 4), which instructed creditors not to file Proofs of Claim because no property appeared to be available to pay creditors. The Debtor filed its Schedules and Statement of Affairs on November 2, 2021 (ECF Nos. 8 and 9), which confirmed that it has: (i) no assets other than product liability insurance with unknown value; (ii) 1,696 unsecured creditors, 98.3% of which are disputed, contingent, or unliquidated asbestos personal injury tort claimants; (iii) no gross revenue from business operations; and (iv) no non-business revenue including money collected from lawsuits.

The Debtor was in the business of manufacturing liquid ring vacuum pumps used in various industries for vacuum steam heating systems, vacuum sewage collection systems, and to manufacture pulp and paper (ECF No. 106 at p. 2). Notably, the Debtor's business has not operated since 2002. In addition, the Debtor sold all of its assets to Gardner Denver in 2004. On April 20, 2020, the Debtor filed a Certificate of Dissolution with the Secretary of the State of Connecticut, almost eighteen (18) months before filing this voluntary no asset Chapter 7 case (Jan. 25, 2022 Status Conf. at 47:28 to 49:47).

Before filing this case, the Debtor resolved more than 27,000 asbestos personal injury tort claims asserted against it despite being out of business and selling off all of its assets decades ago (Jan. 25, 2022 Status Conf. at 3:36 to 4:11). However, at the time of the filing of this case, there were still more than 1,600 asbestos personal injury tort claims pending against the Debtor and other defendants in various courts throughout the country. In addition, all the asbestos personal injury tort claims are listed in the Debtor's Schedules as disputed, contingent, and unliquidated , a fact of which the Debtor was keenly aware of when it filed its case. (emphasis added). The Debtor admitted that it filed this case because the proceeds of the Debtor's insurance policies that might be a source of payment on the remaining asbestos personal injury tort claims were largely exhausted. (ECF No. 8 and Jan. 25, 2022 Status Conf. at 3:36 to 4:21).

After the Section 341 Meeting of Creditors was held, the Chapter 7 Trustee filed the Trustee's Report of Assets in a Chapter 7 Case, thereby converting the Debtor's Chapter 7 no asset case to a Chapter 7 asset case (ECF No. 18). The Report of Assets described the discovered assets as "Potential insurance policy recoveries" and as "personal property," rather than "causes of action."³ In addition to the thousands of pending asbestos personal injury actions commenced against the Debtor and other defendants, the "potential insurance policy recoveries" that the Chapter 7 Trustee asserts will allow him to administer the Debtor's estate are also the subject of pre-petition litigation—a declaratory judgment action commenced by umbrella level liability insurers against the Debtor in the United States District Court for the District of Connecticut. See Columbia Casualty Company et al. v. Nash Engineering Co. , No. 21-01075 (D. Conn., the "District Court action"). Much like Century and Pacific, the Plaintiffs in the District Court action are the Debtor's additional umbrella level liability insurers who seek a determination that they have no obligation to pay any amounts under the umbrella level liability policies until the limits of the primary level liability insurance policies are exhausted.

The Chapter 7 Trustee and Century and Pacific continue to insist that the Chapter 7 Trustee is entitled to administer the contingent and unliquidated asbestos personal injury tort claims, the Debtor's case serves a legitimate bankruptcy purpose, and that the Debtor's case should not be dismissed. The Court disagrees.

III. Analysis

A. Dismissal pursuant to 11 U.S.C. § 707(a).

Section 707(a) governs dismissal of a Chapter 7 case. The Court is allowed to dismiss a case under Section 707(a) "only after notice and a hearing and only for cause..." The section goes on to list examples of when dismissal may be appropriate. Those listed examples, however, are not exclusive. See 11 U.S.C. § 102(3) ; In re Murray , 900 F.3d 53 (2d Cir. 2018) (affirming the district court and bankruptcy court decisions dismissing case under section 707(a) for cause) (citing In re Smith , 507 F.3d 64, 72 (2d Cir. 2007) ). While "cause" is not defined in the Code, courts in this circuit have noted that "cause" includes "bad faith or circumstances falling short of bad faith but nevertheless representing an inappropriate use of the Code. " In re Murray , 543 B.R. 484, 490 (Bankr. S.D.N.Y. 2016) (emphasis added). Although Murray was an involuntary Chapter 7 case, its analysis of section 707(a) confirms that dismissal for cause under section 707(a) can occur in both involuntary and voluntary Chapter 7 cases. In re Murray , 565 B.R. 527, 531 (S.D.N.Y. 2017). The reasoning employed by the bankruptcy court in Murray – which was affirmed by both the United States District Court for the Southern District of New York and the United States Court of Appeals for the Second Circuit – clearly provides that cases filed in bad faith, or in an attempt to inappropriately use the Code, can be dismissed for cause under section 707(a). In re Murray , 543 B.R. at 490. Murray also finds that "cause" for dismissal under section 707(a) (and section 1112(b) or relief from the stay, whose standards are not substantively different) may result from circumstances not specifically mentioned in the Code. Id. (citing C-TC 9th...