Official Committee of Asbestos v. Bestwall LLC

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

3:19-cv-00396-RJC

OFFICIAL COMMITTEE OF ASBESTOS )

CLAIMANTS, )

)

Appellant, )

)

v. )

)

BESTWALL LLC, )

)

Appellee. )

_________________________________________ )

) ORDER

IN RE BESTWALL LLC, )

)

Debtor. )

)

THIS MATTER is before the Court on the Motion of the Official Committee of Asbestos

Claimants for Leave to Appeal the Order Denying Dismissal (the “Motion for Leave”) (Doc. No.

2) and the Motion of Debtor Bestwall LLC for Leave to File Statement Regarding the Official

Committee of Asbestos Claimants’ Change in Position of Finality of Appealed Order (Doc. No.

14). The Court has reviewed the Motions and related filings, record, and applicable authority. For

the reasons stated herein the Motion for Leave to Appeal is DENIED. The Motion of Debtor

Bestwall LLC for Leave to File Statement Regarding the Official Committee of Asbestos

Claimants’ Change in Position of Finality of Appealed Order is DENIED as moot.

I. BACKGROUND

A. The Debtor

The Debtor Bestwall LLC (the “Debtor”) was formed on July 31, 2017, as a result of a

corporate restructuring of Georgia-Pacific LLC. Bankruptcy Case No. 17-31795, Doc. No. 651 ¶¶

6, 13. Prior to July 2017, the Debtor’s predecessor underwent various corporate changes from its

inception in 1927, eventually resulting in the Georgia-Pacific LLC, a wholly-owned subsidiary of

Georgia-Pacific Holdings, LLC (from its inception in 1927 to July 31, 2017 referred to herein as

“Old GP”). Id. ¶ 5.

In 1965, Old GP acquired Bestwall Gypsum Company. Id. ¶¶ 12, 22. Bestwall Gypsum

Company manufactured certain asbestos-containing products and Old GP continued to

manufacture and sell those products following acquisition. Id. ¶¶ 22-23. Old GP had a decades-

long history of asbestos litigation derived from its acquisition of Bestwall Gypsum Company and

its asbestos-containing products. Id.

As a result of the asbestos litigation, on July 31, 2017, Old GP underwent a corporate

restructuring in which Old GP ceased to exist and two new entities were created. Id. ¶ 6, 13. The

restructuring occurred by way of a series of transactions that included, among others, Old GP

converting to a Texas limited liability company. Id. ¶ 14. Then, Old GP effected a divisional

merger under a Texas merger statute1 which allows a single Texas entity to “merge” into two or

more entities. Id. The divisional merger was accomplished by way of a Plan of Merger. Id.

Pursuant to the Plan of Merger, the Old GP ceased to exist, and two new entities were created,

each a direct wholly owned subsidiary of Georgia-Pacific Holdings, LLC, as follows:

(1) A limited liability company which ultimately became Bestwall LLC, the Debtor,

that received certain assets and liabilities of Old GP, including (a) Old GP’s

asbestos liabilities; and (b) certain other assets, including three bank accounts with

approximately $32 million in cash, all contracts of Old GP related to its asbestos-

related litigation, real estate in Mt. Holly, North Carolina, and all equity interests

in a non-debtor projected to generate annual cash flow of $18 million starting in

2019, and valued at approximately $145 million. Id. ¶¶ 14-16.

(2) The new Georgia-Pacific LLC which received all other assets and liabilities of

Old GP (the “New GP”). Id. ¶¶ 14-15.

1 See Tex. Bus. Orgs. Code § 1.002(55)(A).

As part of the restructuring, the Debtor became the payee to a Funding Agreement with New GP,

under which the Debtor is entitled, to the extent its assets are insufficient, to funding for all costs

and expenses the Debtor incurs in the normal course of its business and the funding of a section

524(g) asbestos trust, without any corresponding repayment obligation by Debtor. Id. ¶¶14-17;

Bankr. Doc. No. 641 ¶ 7, Ex. A.

Thereafter, on November 2, 2017, the Debtor filed a Chapter 11 bankruptcy case in this

District to resolve the asbestos-related claims. Bankr. Doc. No. 1. As of September 30, 2017,

there were approximately 64,000 asbestos-related claims pending against the Debtor, including

approximately 22,000 that were being actively litigated and approximately 13,300 claims pending

on inactive dockets, with thousands more anticipated in the future. Bankr. Doc. No. 651 ¶¶ 23,

29.

B. Procedural Background

As noted, on November 2, 2017, Debtor filed a Chapter 11 bankruptcy case in this District

for the purpose of resolving asbestos-related claims against it by way of a trust under section 524(g)

of the Bankruptcy Code. Bankr. Doc. Nos. 1 & 12 at 8. The Bankruptcy Court approved the

appointment of an Official Committee of Asbestos Claimants to represent asbestos claimants’

interests (the “Committee”). Bankr. Doc. No. 97.

On August 15, 2018, the Committee filed a motion to dismiss requesting that the

Bankruptcy Court either dismiss the Debtor’s bankruptcy case as a bad faith filing pursuant to 11

U.S.C. § 1112(b), or in the alternative, transfer venue (the “Committee’s Motion to Dismiss or

Transfer Venue”). Bankr. Doc. No. 495. Ultimately, the Bankruptcy Court denied the

Committee’s Motion to Dismiss or Transfer Venue (“Bankruptcy Court’s Denial Order”). Bankr.

No. 891. In so doing, the Bankruptcy Court applied the two-prong test used in the Fourth Circuit

for considering such motions, as adopted in Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989).

Doc. No. 1-1 at 4-7. The two-prong test requires the party moving for dismissal to show both (1)

objective futility of any possible reorganization; and (2) subjective bad faith. Carolin Corp., 886

F.2d at 700-01; Doc. No. 1-1 at 4-5. Applying Carolin, the Bankruptcy Court concluded that the

Debtor’s bankruptcy case is not objectively futile and denied the motion to dismiss. Doc. No. 1-1

at 4-7. Because the Bankruptcy Court found the Debtor’s bankruptcy case is not objectively futile,

the Bankruptcy Court did not consider subjective bad faith. Id. at 7.

The Committee appealed the Bankruptcy Court’s Denial Order. Doc. No. 1. The

Committee also filed a request for certification of a direct appeal of the Bankruptcy Court’s Denial

Order to the Fourth Circuit Court of Appeals. Bankr. Doc. No. 920. The Bankruptcy Court

certified for direct appeal to the Fourth Circuit the Committee’s appeal of the Bankruptcy Court’s

Denial Order. Bankr. Doc. No. 987. However, the Fourth Circuit denied the Committee’s petition

for direct appeal to the Court of Appeals. Bankr. Doc. No. 1827.

Now, the Committee’s appeal is pending before this Court.2 The Committee asserts that

the Bankruptcy Court’s Denial Order is a final, appealable order. Bankr. Doc. 918; Doc. No. 2.

In the alternative, the Committee seeks leave to appeal the Bankruptcy Court’s Denial Order.

Bankr. Doc. No. 918; Doc. No. 2.

II. DISCUSSION

A. The Bankruptcy Court’s Denial Order is Not a Final Order

This Court has jurisdiction over “final judgments, orders, and decrees . . . and with leave

of court, from interlocutory orders and decrees, of bankruptcy judges . . . .” 28 U.S.C. § 158(a).

2 Due to an unknown error, the Fourth Circuit’s order denying the Committee’s petition for direct

appeal was not docketed with this Court causing this case to remain in appeal status and a delay in

the Court’s ruling on the Committee’s Motion for Leave to Appeal.

Bankruptcy cases involve “an aggregation of individual controversies, many of which would exist

as stand-alone lawsuits but for the bankruptcy status of the debtor.” Bullard v. Blue Hills Bank,

575 U.S. 496, 501 (2015). On the other hand, the list of contested matters and controversies in a

bankruptcy case is “endless.” Id. at 505. Thus, courts take a pragmatic view of finality in

bankruptcy cases and orders in bankruptcy cases “may be immediately appealed if they finally

dispose of discrete disputes within the larger case.” Id.; In re Comput. Learning Ctrs., Inc., 407

F.3d 656, 660 (4th Cir. 2005) (citation omitted). The finality of a bankruptcy order is determined

by whether it “alters the status quo and fixes the rights and obligations of the parties” as opposed

to when the “parties’ rights and obligations remain unsettled.” Bullard, 575 U.S. at 502-03.

The Committee first argues that the Bankruptcy Court’s Denial Order is a final order

subject to appeal pursuant to 28 U.S.C. § 158(a)(1). The Court disagrees. The Bankruptcy Court’s

Denial Order, among other things, denied the Committee’s motion to dismiss the Debtor’s

bankruptcy case as a bad faith filing pursuant to 11 U.S.C. § 1112(b). The Bankruptcy Court’s

Denial Order did not alter the status quo or fix the rights and obligations of any party. It did not

determine any claims or rights of the Committee, nor did it dismiss the bankruptcy proceeding or

otherwise dispose of any discrete disputes within the bankruptcy case. Rather, the Bankruptcy

Court’s Denial Order simply allowed the Debtor’s bankruptcy proceeding to continue, and the

parties and claimants’ rights and obligations remained the same.

The Committee relies on Mort Ranta v. Gorman, in which the Fourth Circuit concluded a

bankruptcy court’s denial of plan confirmation was a final order despite the bankruptcy case not

being dismissed. Mort Ranta v. Gorman, 721 F.3d 241, 246 (4th Cir. 2013). However, Mort Ranta

was decided before Bullard, wherein the Supreme Court held that a bankruptcy court’s denial of

plan confirmation without prejudice and without dismissal is not a final order. Bullard, 575 U.S.

496. Therefore, the Court applies the reasoning from Bullard, as discussed above.

In any event, the Court finds McDow v. Dudley, more instructive here. 662 F.3d 284 (4th

Cir. 2011). In McDow, the Fourth Circuit concluded that a bankruptcy court’s order was final

where it denied the United States Trustee’s motion to dismiss a Chapter 7 bankruptcy case as

abusive under 11 U.S.C. § 707(b). Id. at 288-91. In reaching this conclusion, the Fourth Circuit

analyzed the language and congressional intent behind § 707(b) specifically. The Court of Appeals

distinguished the motion to dismiss under § 707(b), at issue in McDow, from a motion to dismiss

under § 1112(b), at issue here. It explained:

These new provisions manifest a congressional policy to police all Chapter 7 cases

for abuse at the outset of a Chapter 7 proceeding, and they raise pragmatic

considerations that indicate that the denial of a § 707(b) motion to dismiss is

different from the denial of other motions to dismiss, such as those filed under

Federal Rule of Civil Procedure 12(b) or 11 U.S.C. § 1112(b)(1)-(4). Section

707(b) requires that the U.S. Trustee apply the means test to Chapter 7 cases within

a short time frame and, if the means test creates a presumption of abuse, to file a

motion to dismiss the case within another relatively short time frame. Because of

these strict time periods, which indicate that the issue is a threshold matter, the

motion to dismiss a Chapter 7 case as abusive cannot be filed at any other time

during the bankruptcy proceedings. Moreover, the U.S. Trustee is directed to apply

the statutory means test and, if a presumption of abuse is created, to file the motion

to dismiss or explain his decision not to. In contrast, under the dismissal provision

in Chapter 11 proceedings, parties may bring an action to dismiss for “cause” under

§ 1112(b) throughout the bankruptcy proceedings, and the circumstances or events

that constitute “cause” may arise at any time.

Id. at 289-90.

The Committee argues that the Fourth Circuit’s comments above, distinguishing a § 707(b)

motion to dismiss from a § 1112(b) motion to dismiss, are only dicta. Nevertheless, the Court

finds these statements persuasive here, particularly in light of the Court’s own analysis and

conclusion that the Bankruptcy Court’s Denial Order is not a final order.3 See In re Jartran, Inc.,

886 F.2d 859, 863-64 (7th Cir. 1989) (concluding order denying motion to dismiss under § 1112(b)

was not final, appealable order); In re N. Bedford Dr. Corp., 778 F.2d 1374, 1377-79 (9th Cir.

1985) (same); Comm 2013 CCRE12 Crossing Mall Road, LLC v. Tara Retail Group, LLC, No.

1:17CV67, 2017 WL 2837015 (N.D. W. Va. June 30, 2017) (same); but see In re Brown, 916 F.2d

120 (3d Cir. 1990) (concluding order denying motion to dismiss under § 1112(b) was final,

appealable order).

B. The Court Denies Leave For the Committee To Appeal the Bankruptcy

Court’s Denial Order

In the alternative, the Committee asks the Court to exercise its discretion and grant it leave

to appeal the Bankruptcy Court’s Denial Order under 28 U.S.C. § 158(a)(3). Pursuant to 28 U.S.C.

§ 158(a)(3), this Court may exercise its discretion to hear an interlocutory appeal. See 28 U.S.C.

§ 158(a)(3). Bankruptcy appeals “shall be taken in the same manner as appeals in civil proceedings

generally are taken to the courts of appeals from the district courts.” See 28 U.S.C. § 158(c)(2).

Thus, district courts look to 28 U.S.C. § 1292(b), and appellate courts interpreting this statutory

provision, when exercising their discretion under section 158(a)(3). See, e.g., In re Biltmore Invs.,

Ltd., 538 B.R. 706, 710–11 (W.D.N.C. 2015); Charlotte Com. Grp., Inc. v. Fleet Nat’l Bank, No.

01- 52684C-11W, 2003 WL 1790882, at *1 (M.D.N.C. Mar. 13, 2003); KPMG Peat Marwick,

L.L.P. v. Estate of Nelco, Ltd., 250 B.R. 74, 78 (E.D. Va. 2000).

3 In fact, based on recent filings it appears the Committee may now concede that the Bankruptcy

Court’s Denial Order is not a final, appealable order. See Doc. No. 14-1 (explaining statements

made by the Committee in recent filings in the Bankruptcy Court indicating that the Bankruptcy

Court’s denial of a motion to dismiss is interlocutory). However, given the Court’s own analysis

and conclusion, the Court need not consider or otherwise give weight to the Committee’s potential

change in position.

Under 28 U.S.C. § 1292(b), leave to file an interlocutory appeal should be granted only

when (1) the order to be appealed involves a controlling question of law, (2) as to which there is

substantial ground for difference of opinion, and (3) that an immediate appeal from the order may

materially advance the ultimate termination of the litigation. In re Biltmore Invs., Ltd., 538 B.R.

at 711; MacGregor v. Sink, Tr. for Duncan Morgan, LLC, No. 5:20-CV-210-BO, 2020 WL

3549990, at *2 (E.D.N.C. June 30, 2020). “In seeking leave to appeal an interlocutory order or

decision [of the Bankruptcy Court], the appellant must demonstrate that exceptional circumstances

justify a departure from the basic policy of postponing appellate review until after the entry of a

final judgment.” In re Robinson, No. 1:10-cv-226, 2011 WL 1695914, at *3 (W.D.N.C. May 3,

2011) (quoting KPMG Peat Marwick, L.L.P., 250 B.R. at 78). As to the first factor, courts in the

Fourth Circuit have described a “controlling question of law” as a “narrow question of pure law

whose resolution will be completely dispositive of the litigation, either as a legal or practical

matter, whichever way it goes.” KPMG Peat Marwick, L.L.P., 250 B.R. at 78 (quoting Fannin v.

CSX Transp. Inc., 873 F.2d 1438 (4th Cir.1989)).

Courts in the Fourth Circuit apply a two-prong test when considering requests to dismiss a

bankruptcy case under 11 U.S.C. § 1112(b). Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989).

Under Carolin, to dismiss the case as a bad faith filing, the court must find (1) objective futility;

and (2) subjective bad faith. Id.at 700-01. This remains the test today. In re Bestwall LLC, 71

F.4th 168, 182 (4th Cir. 2023). The Committee argues that the fact pattern raised by the Debtor’s

bankruptcy case is different than the facts in Carolin and the Fourth Circuit should “have the

opportunity to revisit the applicability of the Carolin standard,” in light of changing bankruptcy

practices and recent cases dismissing bankruptcy proceedings with similar fact patterns – albeit

not applying the Carolin test and in different circuits. Doc. No. 12 at 2; see In re LTL Mgmt., LLC,

64 F.4th 84, 92 (3d Cir. 2023); In re: Aearo Techs. LLC, No. 22-02890-93-JJG-11, 2023 WL

3938436 (Bankr. S.D. Ind. June 9, 2023). As those courts, and the Fourth Circuit recently

acknowledged in another appeal involving the same Debtor, the Fourth Circuit “applies a more

comprehensive standard to a request for dismissal of a bankruptcy petition for lack of good faith;

that is, the complaining party must show both ‘subjective bad faith’ and the ‘objective futility of

any possible reorganization.’”4 In re Bestwall LLC, 71 F.4th 168, 182 (4th Cir. 2023) (quoting In

re LTL Mgmt., LLC, 64 F.4th at 98 n.8)).

The Bankruptcy Court applied Carolin, the binding law in this Circuit, to the facts here.

Thus, an appeal of the Bankruptcy Court’s Denial Order does not involve a controlling question

of pure law – the controlling question of law was decided in Carolin. Instead, the Bankruptcy

Court applied the law in the Fourth Circuit and concluded the Debtor’s bankruptcy case is not

objectively futile – a factual question. If this Court were to grant leave to appeal and consider the

Committee’s appeal, it would be asked to either (a) adopt a new standard in the Fourth Circuit, in

conflict with the “comprehensive standard” adopted by the Fourth’s Circuit in Carolin – which the

Court will not do given the law in the Fourth Circuit, or (b) consider whether the Bankruptcy Court

correctly concluded the Debtor’s bankruptcy case is not objectively futile – a factual issue. In

addition, if the Court affirmed the Bankruptcy Court, resolution of the appeal would not be

completely dispositive of the bankruptcy case, in either a legal or practical matter. The Bankruptcy

Case would continue towards plan confirmation or other resolution. For these same reasons, there

is not substantial ground for difference of opinion of the test to use when considering motions to

dismiss under section 1112(b) in the Fourth Circuit.

4 The Fourth Circuit denied the petitions for rehearing en banc of the decision in In re Bestwall

LLC, 71 F.4th 168 (4th Cir. 2023). See Case No. 3:20-cv-103-RJC, Doc. No. 20.

The Committee must demonstrate that exceptional circumstances justify a departure from

the basic policy of postponing appellate review. In re Robinson, 2011 WL 1695914, at *3. The

Committee has not done that here where the Bankruptcy Court applied binding law set forth by

the Fourth Circuit, and noted that the Committee will have a chance to challenge the Debtor’s good

faith – something the Committee is apparently eager to do5 – at plan confirmation. Doc. No. 1-1

at 7. This Court’s conclusion that the Committee has not demonstrated such exceptional

circumstances is bolstered by the Fourth Circuit’s own decision to deny certification of direct

appeal after certification by the Bankruptcy Court. Accordingly, the Court denies leave for the

Committee to appeal the Bankruptcy Court’s Denial Order.

III. CONCLUSION

IT IS, THEREFORE, ORDERED that:

1. The Motion of Debtor Bestwall LLC for Leave to File Statement Regarding the

Official Committee of Asbestos Claimants’ Change in Position of Finality of

Appealed Order (Doc. No. 14) is DENIED as moot;

2. The Motion of the Official Committee of Asbestos Claimants for Leave to Appeal

the Order Denying Dismissal (Doc. No. 2) is DENIED; and

3. This appeal is DISMISSED.

5 If the Committee seriously wishes to challenge the Debtor’s good faith and may be able to do so

in a different context at plan confirmation, then, as noted by the Fourth Circuit, “[i]t is not clear

why Claimant Representatives’ counsel have relentlessly attempted to circumvent the bankruptcy

proceeding.” In re Bestwall, 71 F.4th at 183-84.

The Clerk of Court is directed to close this case.

SO ORDERED. November 6, 2023

Robert J. Conrad, Jr. hee»

United States District Judge “ae