In Re Quigley Company Inc.

437 B.R. 102

In re QUIGLEY COMPANY, INC., Debtors.

No. 04-15739 (SMB).

United States Bankruptcy Court,S.D. New York.

Sept. 8, 2010.

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Schulte Roth & Zabel LLP, Michael L. Cook, Esq., Lawrence V. Gelber, Esq., Of Counsel, New York, NY, Attorneys for the Debtor.

Greenberg Traurig, LLP, Bruce R. Zirinsky, Esq., John H. Bae, Esq., Gary D. Ticoll, Esq., Of Counsel, Cadwalader, Wickersham & Taft, LLP, Dennis J. Block, Esq., Ingrid Bagby, Esq., Of Counsel, New York, NY, Powers Frost, Sharla J. Frost, Esq., Patrick C. Smith, Esq., R. Clive Markland, Esq., Of Counsel, Houston, TX, Attorneys for Pfizer, Inc.

Brown Rudnick LLP, Edward S. Weisfelner, Esq., Jeffrey L. Jonas, Esq., James W. Stoll, Esq., Gregory T. Arnold, Esq., Of Counsel, New York, NY, Attorneys for the Ad Hoc Committee of Tort Victims.

Caplin & Drysdale, Charted, Ronald E. Reinsel, Esq., Of Counsel, Washington, D.C., Attorneys for the Official Committee of Unsecured Creditors.

Togut, Segal & Segal, LLP, Richard K. Milin, Esq., Scott E. Ratner, Esq., Of Counsel, New York, NY, Attorneys for the Future Claims Representative.

Greg M. Zipes, Esq., Serene K. Nakano, Esq., Of Counsel, New York, NY, Office of the United States Trustee.

Stutzman, Bromberg, Esserman & Plifka, PC, Andrea L. Ducayet, Esq., Of Counsel, Dallas, TX, Attorneys for Baron & Budd, P.C.

White & Williams, LLP, Karel S. Karpe, Esq., Of Counsel, New York, NY, Attorneys for Allianz, Inc.

POST-TRIAL FINDINGS OF FACT AND CONCLUSIONS OF LAW

STUART M. BERNSTEIN, Bankruptcy Judge.

Quigley Company Inc. (“Quigley”) commenced this case under chapter 11 of the Bankruptcy Code (the “Code”) on September 3, 2004 (the “Petition Date”), and now seeks to confirm its Fourth Amended and Restated Plan of Reorganization, modified as of August 6, 2009 (J47 (“ Fourth Plan”)). ¹ The Official Committee of Unsecured Creditors (“Committee”), Albert Togut, Esq., the Future Claims Representative (“FCR”), and Pfizer, Inc. (“Pfizer”), Quigley's parent, support confirmation. The Ad Hoc Committee of Tort Victims (“AHC”) and the United States Trustee oppose confirmation, and seek dismissal of the case. The parties also seek other relief discussed below, but confirmation is the main event.

The Court conducted a 15-day bench trial during which it heard numerous fact and expert witnesses, and received scores of documentary exhibits. The case was exceptionally well-tried on all sides. For the reasons that follow, the application to confirm the Fourth Plan is denied. In addition, Quigley's motion to exclude portions of the testimony, illustrative slides, and expert report of Dr. Israel Shaked is granted in part and denied in part, the motion made or joined in by various Settling Law Firms to seal certain information is denied, and the United States Trustee's objection to the Street Employment Motion is overruled.

BACKGROUND

A. Quigley's Asbestos Liability

Quigley, founded in 1916, was a manufacturer of refractory products used primarily in the iron, steel, power generation, petroleum, chemical, and glass industries. ( Pre-Trial Order, Undisputed Facts at ¶¶ 1-2, dated Aug. 12, 2009 ( “PTO Undisputed Facts”) (ECF Doc. # 1885).) Between the 1940s and 1970s, ² Quigley manufactured and sold three asbestos-containing products: Insulag, Panelag, and Damit. ( PTO Undisputed Facts ¶ 5.)

Pfizer acquired Quigley in 1968 and remains Quigley's sole shareholder. (Tr. 1398:10-13 (Kilian); Tr. 223:25-224:2; 376:5-7 (Berland).) Pfizer is a research-based, global pharmaceutical company that develops and manufactures prescription medicines. (J466 at 1 (Pfizer 2008 10-K).) Before it streamlined its business to focus on pharmaceuticals, Pfizer also manufactured asbestos-containing products including Kilnoise, an acoustical plaster, (Tr. 146:6-8 (Kany)), and Firex, used to treat and insulate armaments in the military. (Tr. 2432:15-18, 2433:5-6 (Cooney).) Pfizer also manufactured, and in some cases faced, product liability claims relating to the Shiley Heart Valve, Howmedica hip and knee products, and various other household and pharmaceutical products. (Tr. 2697:3-13 (Berland).) After Quigley became a Pfizer subsidiary, many of Pfizer's liability policies provided joint coverage to both companies.

In September 1992, Quigley sold substantially all of its operating assets to Specialty Refractories, Inc. (“SPI”). (Tr. 178:17-179:2 (Kany); Tr. 252:16-17 (Berland).) SPI subsequently transferred the assets to Minerals Technologies, Inc. (“MTI”). (Tr. 522:24-523:8 (Berland).) Quigley did not operate any business between the time that its assets were sold and just prior to the Petition Date. (Tr. 311:13-313:19 (Berland).)

The sale of assets did not affect Quigley's asbestos liability. Quigley was first named as a defendant in asbestos-related personal injury claims in 1979 or 1980, ( PTO Undisputed Facts ¶ 6), and by the Petition Date, had been named as a defendant with respect to approximately 411,100 asbestos personal injury claims asserted in approximately 131,500 civil actions in federal and state courts throughout the United States. (J42 at 34 ( Fifth Amended and Restated Disclosure Statement with Respect to Quigley Company, Inc. Fourth Amended and Restated Plan of Reorganization under Chapter 11 of the Bankruptcy Code (as Modified as March 28, 2008), dated Mar. 28, 2008 (“ Fifth Disclosure Statement ”)).) As of the Petition Date, 212,000 asbestos personal injury claims were either actually pending or expected to be asserted against Quigley-not including future demands. ( Fifth Disclosure Statement at 9.) Francine Rabinovitz, the FCR's expert, estimated the tort-system value of the outstanding claims to be $1.258 billion, applying historic qualification rates. (P3075 at 3.) She also estimated that there would be 261,567 future demands extending until 2052, with a present value of $2.667 billion, applying the same historic qualification rates. (P3075 at 3; Fifth Disclosure Statement, Ex. I at 3-4.)

Pfizer was also a defendant with respect to 280,343 of the 411,100 claims asserted against Quigley. ( Fifth Disclosure Statement at 35.) Most if not all of these claims were based on exposure to Quigley's products rather than Pfizer's products such as Kilnoise or Firex. In other words, the plaintiffs in these lawsuits sued Pfizer, Quigley's wealthy parent, for injuries resulting from Quigley's alleged misconduct relating to the manufacture and sale of Insulag or one of Quigley's other asbestos-containing products. The claims against Pfizer based on Quigley products are referred to as derivative claims.

Over the years, Quigley and Pfizer tried various methods to deal with the growing number of asbestos claims. In June 1985, they executed the “Wellington Agreement,” ( PTO Undisputed Facts ¶ 9), ³ under which personal injury claims against Quigley, Pfizer, and other participating companies were administered by the Asbestos Claims Facility (“ACF”). ( PTO Undisputed Facts ¶ 10.) The Wellington Agreement allocated a fixed share of the costs of the ACF to each signatory, which was then billed to insurers. (Tr. 156:13-158:15 (Kany); Fifth Disclosure Statement at 25.) The ACF dissolved in 1986 due to disputes among the members regarding the allocation of liability. (Tr. 220:18-22 (Berland); Tr. 159:13-22 (Kany).)

After the dissolution of the ACF, the Center for Claims Resolution (the “CCR”), a non-profit organization, administered asbestos personal injury claims asserted against, among others, Quigley and Pfizer. ( PTO Undisputed Facts ¶ 11.) The CCR members were each charged a share of defense and indemnity costs, based on formulas that evolved over time, and each member billed its own insurer for its allocated share. (Tr. 159:23-160:22 (Kany); Tr. 220:13-221:7 (Berland); Tr. 1450:9-15 (Jenkins).) Each CCR settlement or release provided for a release of every member, including those against whom no claim had been filed. ( PTO Undisputed Facts ¶ 12.) Quigley and Pfizer terminated their membership in the CCR in July 2001. (Tr. 231:16-19 (Berland); Tr. 1450:16-18 (Jenkins).)

In addition to their participation in the ACR and CCR, Pfizer and Quigley tried other approaches. For example, they took part in the Georgine class-action settlement that was overturned by the United States Supreme Court in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). In addition, Pfizer, Quigley and a number of asbestos defendants supported efforts to pass legislation aimed at creating a mechanism to divert cases from the tort system into an industry and insurance-funded trust that would process claims. (Tr. 219:6-24 (Berland).) This effort also proved unsuccessful. (Tr. 219:25-220:2 (Berland).)

By 2001, a substantial number of “front-line defendants” or major producers of asbestos had sought bankruptcy relief. (Tr. 219:17-19 (Berland).) Plaintiffs began to assert claims against the remaining solvent ex-CCR members. (Tr. 2024:10-25 (Rozen).) In January 2002, Pfizer formed a claims-handling unit (“CHU”) to process asbestos personal-injury claims and certain other personal-injury claims asserted against Quigley and Pfizer. (Tr. 172:25-173:22 (Kany).) Kim Jenkins, a Pfizer employee, ran the CHU. ( PTO Undisputed Facts ¶ 28.)

B. Pfizer's Global Strategy

As of 2003, Quigley was a non-operating wholly-owned subsidiary of Pfizer. Both companies faced diminishing shared insurance and increasing litigation. They had failed to resolve their asbestos liabilities through the ACR, CCR, legislation and the Georgine class action. It was around this time that Pfizer devised its global strategy to deal with their asbestos liability, a strategy that involved two discrete but related components. First, Pfizer would resurrect Quigley as an independent, operating...