Class Five Nevada v. Dow Corning Corp. (In Re Dow Corning Corp.)

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3(116WKH EDQNUXSWF\ FRXUW LV@ UHYHUVHG RQ The Plan divides claims and interests into thirty-three
DSSHDO ZLWK UHJDUG WR WKH VFRSH DQG SHUPLVVLELOLW\ RI WKH classes and subclassesClasses 6.1 and 6.2 are composed of
UHOHDVHDQGLQMXQFWLRQSURYLVLRQV´ ,QUH'RZ&RUQLQJ&RUS foreign breast-implant claimants who are given the
244 B.R. at 747. These are inconsistent fact findings that the opportunity to either settle or litigate their claims. Settlement
bankruptcy court must clarify in order for us to endorse payments to foreign breast implant claimants are between
enjoining claims against non-debtors. 35% and 60% of the amounts to be paid to domestic breast-
implant claimants.
Second, the bankruptcy court did not make sufficiently
particularized factual findings that the Settling Insurers, Class 15 is composed of all "Government Payer
Corning, Incorporated, the Dow Chemical Company, and Claimants," namely, the United States and the governments
Dow’s affiliates will make significant contributions to the of the Canadian provinces of Alberta and Manitoba. Class 15
reorganization pursuant to the Plan The bankruptcy court voted against the Plan. The United States filed claims under
declared the contributions important without explaining how the Medicare Secondary Payer Program, 42 U.S.C. § 1395y
or why it reached this conclusion. To satisfy the "unusual (b) (2), and the Federal Medical Care Recovery Act, 42
circumstances" test, the bankruptcy court must specify facts U.S.C. §§ 2651-2653, which JUDQWWKH8QLWHG6WDWHVWKHULJKW
that support a conclusion that the released parties will make WRUHFRYHUIURPLQVXUHUVDQGRWKHUWKLUGSDUWLHVWKHFRVWRI
significant contributions to the reorganization pursuant to the PHGLFDOFDUHWKDWWKRXJKWKHOHJDOUHVSRQVLELOLW\RIDQRWKHU
Plan. SDUW\KDVEHHQSDLGIRURUSURYLGHGWKURXJKDIHGHUDOKHDOWK
EHQHILWSURJUDP.
Third, in order for the Plan to be approved under the
"unusual circumstances" test, it must ensure an opportunity Class 15 claims not resolved before the Plan’s
for those claimants who choose not to settle to recover in full, Confirmation Date are liquidated through the Litigation
and this determination must be supported by particularized Facility. Canada Claimants recovering through either the
factual findings. The bankruptcy court determined that Class Settlement Facility or the Litigation Facility are required to
15 claimants, composed of the United States and the notify the claims administrator of any unresolved subrogation
Canadian provinces of Alberta and Manitoba, "who obtain claims or liens held by the Canadian provinces. The claims
judgments against the Litigation Facility will be paid in full." administrator is under a duty to determine whether one of the
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Canadian provinces has a claim with respect to an impending (2) The non-debtor has contributed substantial assets to the
Canada Claimant’s payment, and to notify the province of its reorganization; (3) The injunction is essential to
potential claim. The claims administrator must hold the reorganization, namely, WKH UHRUJDQL]DWLRQ KLQJHV RQ WKH
claimant’s payment in a trust until he receives instructions GHEWRU EHLQJ IUHH IURP LQGLUHFW VXLWV DJDLQVW SDUWLHV ZKR
from the claimant and the Canadian province that they have ZRXOG KDYH LQGHPQLW\ RU FRQWULEXWLRQ FODLPV DJDLQVW WKH
reached an agreement as to the appropriate allocation of a GHEWRU; (4) The impacted class, or classes, has
settlement payment. If no agreement is reached, the dispute overwhelmingly voted to accept the plan; (5) The plan
is referred to a court for resolution. provides a mechanism to pay for all, or substantially all, of
the class or classes affected by the injunction; (6)7KHSODQ
The United States’s claims are not accorded similar SURYLGHVDQRSSRUWXQLW\IRUWKRVHFODLPDQWVZKRFKRRVHQRW
protection. The Plan does not specifically permit the United WRVHWWOHWRUHFRYHULQIXOODQG7KHEDQNUXSWF\FRXUWPDGH
States to interfere with payment to a claimant. Once a D UHFRUG RI VSHFLILF IDFWXDO ILQGLQJV WKDW VXSSRUW LWV
specific claimant has been paid, the United States’s claims FRQFOXVLRQV See In re A.H. Robins, 880 F.2d at 701-702;
against Dow, and all other entities created by the Plan, are cut Johns-Manville, 837 F.2d at 92-94; ,QUH&RQWLQHQWDO$LUOLQHV
off for costs related to that claimant. )GDW
The bankruptcy court confirmed the Plan, but construed the For several reasons, the record produced by the bankruptcy
non-debtor release and injunction provisions to apply only to court in this case does not support a finding of "unusual
consenting creditors. ,QUH'RZ&RUQLQJ&RUS244 B.R at circumstances" such that we can endorse enjoining non-
745. Although the bankruptcy court determined that it has consenting creditors’ claims against a non-debtor. The
authority under the Bankruptcy Code to enjoin a non- bankruptcy court’s findings of fact with regards to the
consenting creditor’s claims against non-debtors, it decided, "unusual circumstances" test were no more than conclusory
based on non-bankruptcy law, that such injunctions are statements that restated elements of the test in the form of
inappropriate as applied to non-consenting creditors, and factual conclusions. The bankruptcy court provided no
construed the Plan accordingly. Id. The district court explanation or discussion of the evidence underlying these
affirmed the bankruptcy court's Confirmation Order but findings. Moreover, the findings did not discuss the facts as
reversed the bankruptcy court’s interpretation of the release they related specifically to the various released parties, but
and injunction provisions of the Plan. The district court merely made sweeping statements as to all released parties
interpreted the non-debtor release and injunction provisions collectively. Such factual determinations are not sufficiently
of the Plan to apply to all creditors, consenting and non- specific and explained to support a finding of "unusual
consenting. circumstances." And, when "the bankruptcy court’s factual
findings are silent or ambiguous as to. . . outcome
II. determinative factual question[s],. . . [we] must remand the
case to the bankruptcy court for the necessary factual
In a bankruptcy proceeding, the bankruptcy court is the determination[s]." ,QUH&DOGZHOO)GDW.
finder of fact. ,QUH&DOGZHOO)GWK&LU
When a district court acts as an appellate court as it
does in a bankruptcy proceeding, it reviews the bankruptcy
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the statute authorizing tax injunctions. Grupo Mexicano, court’s factual findings under the clearly erroneous standard,
527 U.S. at 326. Thus, because the district court had a and its conclusions of law de novo. Id. "In appeals from the
statutory basis for issuing such an injunction, it was not decision of a district court on appeal from the bankruptcy
confined to traditional equity jurisprudence available at the court, the court of appeals independently reviews the
enactment of the Judiciary Act of 1789. The statute in First bankruptcy court's decision, applying the clearly erroneous
National gave courts the power to grant injunctions standard to findings of fact and de novo review to conclusions
necessary or appropriate for the enforcement of the internal of law." In re Madaj, 149 F.3d 467, 468 (6th Cir. 1998)
revenue laws. 26 U.S.C.§ 7402(a) (1964). Similarly, the (quoting In re Century Boat Co., 986 F.2d 154, 156 (6th Cir.
Bankruptcy Code gives bankruptcy courts the power to grant 1993)). We review the district court’s legal conclusions de
injunctions ³QHFHVVDU\ RU DSSURSULDWH WR FDUU\ RXW WKH novo. In re Downs, 103 F.3d 472, 477 (6th Cir. 1996).
SURYLVLRQVRI>WKH%DQNUXSWF\&RGH@´86&D
We conclude that due to this statutory grant of power, the The first issue we are asked to decide LV ZKHWKHU D
bankruptcy court is not confined to traditional equity EDQNUXSWF\FRXUWKDVWKHDXWKRULW\WRHQMRLQDQRQFRQVHQWLQJ
jurisprudence and therefore, the bankruptcy court’s Grupo FUHGLWRU¶V FODLPV DJDLQVW D QRQGHEWRU WR IDFLOLWDWH D
Mexicano analysis was misplaced. UHRUJDQL]DWLRQ SODQ XQGHU &KDSWHU RI WKH %DQNUXSWF\
&RGH. This is a question of first impression in this Circuit.
Because we determine that enjoining a non-consenting
creditor’s claim against a non-debtor is "not inconsistent" The Bankruptcy Code does not explicitly prohibit or
with the Code and that Grupo Mexicano does not preclude authorize a bankruptcy court to enjoin a non-consenting
such an injunction, we turn to when such an injunction is an creditor’s claims against a non-debtor to facilitate a
"appropriate provision" of a reorganization plan pursuant to reorganization plan. ,QUH&RQWLQHQWDO$LUOLQHV)G
section 1123(b)(6). Because such an injunction is a dramatic G&LU However, bankruptcy courts, "as courts
measure to be used cautiously, we follow those circuits that of equity, have broad authority to modify creditor-debtor
have held that enjoining a non-consenting creditor’s claim is relationships." United States v. Energy Resources Co., 495
only appropriate in "unusual circumstances." See In re Drexel U.S. 545, 549 (1990). For example, section 105 (a) of the
Burnham Lambert Group, Inc., 960 F.2d 285, 293 (2nd Cir. Bankruptcy Code grants a bankruptcy court the broad
1992); In Re A.H. Robins Co., 880 F.2d at 702; MacArthur v. authority to issue "DQ\ RUGHU SURFHVV RU MXGJPHQW WKDW LV
Johns-Manville, Corp., 837 F.2d 89, 93-94 (2nd Cir. 1988). QHFHVVDU\RUDSSURSULDWHWRFDUU\RXWWKHSURYLVLRQVRIWKLV
In determining whether there are "unusual circumstances," WLWOH´86&D7KLVVHFWLRQJUDQWVWKHEDQNUXSWF\
our sister circuits have considered a number of factors, which FRXUWWKHSRZHUWRWDNHDSSURSULDWHHTXLWDEOHPHDVXUHVQHHGHG
are summarized in our holding below. We hold that when the WRLPSOHPHQWRWKHUVHFWLRQVRIWKH&RGH6HH,QUH*UDQJHU
following seven factors are present, the bankruptcy court may *DUDJH,QF)GWK&LU
enjoin a non-consenting creditor’s claims against a non-
debtor: (1) There is an identity of interests between the &RQVLVWHQWZLWKVHFWLRQD¶VEURDGJUDQWRIDXWKRULW\
debtor and the third party, usually an indemnity relationship, WKH&RGHDOORZVEDQNUXSWF\FRXUWVFRQVLGHUDEOHGLVFUHWLRQWR
such that a suit against the non-debtor is, in essence, a suit DSSURYHSODQVRIUHRUJDQL]DWLRQ Energy Resources Co., 495
against the debtor or will deplete the assets of the estate; U.S. at 549. 6ection 1123(b)(6) permits a reorganization plan
to "include any. . . appropriate provision not inconsistent
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with the applicable provisions of this title." 11 U.S.C. a non-bankruptcy law limitation on the bankruptcy courts
§ 1123(b)(6). Thus, the bankruptcy court, as a forum for equity power. In re Dow Corning Corp., 244 B.R at 744. We
resolving large and complex mass litigations, has substantial disagree. The bankruptcy court cited Grupo Mexicano de
power to reorder creditor-debtor relations needed to achieve Desarrollo v. Alliance Bond Fund, Inc., 527 U.S. 308, 322
a successful reorganization. For example, under the doctrine (1999), for the proposition that a courts use of its general
of marshaling of assets, "[t]he bankruptcy court has the power equity powers is confined within the broad boundaries of
to order a creditor who has two funds to satisfy his debt to traditional equitable relief." The Grupo Mexicano Court
resort to the fund that will not defeat other creditors." In re explained that, "the equity jurisdiction of the federal courts is
A.H. Robins Co., 880 F.2d 694, 701 (4th Cir. 1989). the jurisdiction in equity exercised by the High Court of
Moreover, it is an "ancient but very much alive doctrine . . . Chancery in England at the time of the adoption of the
[that]. . . a creditor has no right to choose which of two funds Constitution and the enactment of the original Judiciary Act,
will pay his claim." Id. Likewise, when a plan provides for 1789." Id. at 318 (quoting A. Dobie, Handbook of Federal
the full payment of all claims, enjoining claims against a non- Jurisdiction and Procedure 660 (1928)). Based upon this
debtor so as not to defeat reorganization is consistent with the principle, the Grupo Mexicano Court vacated an injunction
bankruptcy court’s primary function. See id. For the preventing a toll road operator from dissipating, transferring,
foregoing reasons, such an injunction is "not inconsistent" or encumbering its only assets to the prejudice of an
with the Code, and is authorized by section 1123(b)(6). unsecured note holder because traditional equity
jurisprudence did not allow such remedies until a debt had
Nevertheless, some courts have found that the Bankruptcy been established. Id. at 319. The bankruptcy court, applying
Code does not permit enjoining a non-consenting creditor’s the Grupo Mexicano analysis, concluded that non-debtor
claims against a non-debtor. See In re Lowenschuss, 67 F.3d releases were also unprecedented in traditional equity
1394, 1401 (9th Cir. 1995); ,QUH:HVWHUQ5HDO(VWDWH)XQG jurisprudence, and therefore exceeded the bankruptcy court’s
,QF )G WK &LU . These courts equitable powers. In re Dow Corning Corp.%5DW
primarily rely on section 524(e) of the Code, which SURYLGHV
WKDW³WKHGLVFKDUJHRIWKHGHEWRIWKHGHEWRUGRHVQRWDIIHFWWKH 7KHGLVWULFWFRXUWUHMHFWHGWKLVDUJXPHQWRQWKHJURXQGVWKDW
OLDELOLW\RIDQ\RWKHUHQWLW\RQRUWKHSURSHUW\RIDQ\RWKHU WKHUHOHDVHVZHUHDXWKRUL]HGE\³VXIILFLHQW statutory authority
HQWLW\IRUVXFKGHEW´86&H. However, this under the Bankruptcy Code.´ In re Dow Corning Corp., 255
language explains the effect of a debtor’s discharge. It does B.R. at 480. For the following reasons, we agree with the
not prohibit the release of a non-debtor. See In re Specialty district court. In Grupo Mexicano, the Supreme Court
Equip. Co., 3 F.3d 1043, 1047 (7th Cir. 1993) (This language distinguished its own holding from that in United States v.
does not purport to limit or restrict the power of the First NaWLRQDO City Bank, 379 U.S. 378 (1965). 527 U.S. at
bankruptcy court to otherwise grant a release to a third 326. First National approved an injunction preventing a
party.); Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1050 third-party bank from transferring any of a taxpayers assets.
(5th Cir. 1987); In re A.H. Robins Co., 880 F.2d at 702. 379 U.S at 379-380. The Grupo Mexicano Court
distinguished that holding on the grounds that the First
The bankruptcy court concluded that non-debtor releases National case "involved not the Courts general equitable
were authorized by section 1123(b)(6), but were precluded by powers under the Judiciary Act of 1789, but its powers under

Class Five Nevada v. Dow Corning Corp. (In Re Dow Corning Corp.)

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