UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

)
In re ) Chapter 11
)
T H AGRICULTURE & NUTRITION, L.L.C. ) Bankr. Case No. 08-14692
) (REG)
Debtor, )
__________________________ ________________ )
)
WATERS & KRAUS CLAIMANTS, )
) Case No. 1:09-cv-6432
Appellant, ) (WHP)
)
vs. )
)
T H AGRICULTURE & NUTRITION, L.L.C., )
)
Appellee, )
)
THE FUTURE CLAIMANTS’ )
REPRESENTATIVE )
)
Appellee. )
)

BRIEF OF APPELLEE
THE FUTURE CLAIMANTS’ REPRESENTATIVE
_____________________________________________________________________________ _
BRUNE & RICHARD LLP
Susan E. Brune
Theresa Trzaskoma
80 Broad Street
New York, New York 10004
Telephone: (212) 668-1900
Facsimile: (212) 668-0315
Email: sbrune@bruneandrichard.com
ttrzaskoma@bruneandrichard.com
and
STUTZMAN, BROMBERG, ESSERMAN &
PLIFKA, A Professional Corporation
Sander L. Esserman (Admitted Pro Hac Vice)
Andrea L. Ducayet (Admitted Pro Hac Vice)
2323 Bryan Street, Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Email: esserman@sbep-law.com
ducayet@sbep-law.com
 TABLE OF CONTENTS

TABLE OF CONTENTS.............................................................................................................. ii

TABLE OF AUTHORITIES....................................................................................................... iv

I. STATEMENT OF ISSUE ON APPEAL ..........................................................................1

II. STANDARD OF REVIEW ...............................................................................................1

III. STATEMENT OF THE CASE .........................................................................................2

Procedural History.............................................................................................................2

Statement of the Facts .......................................................................................................4

The Pre-Petition Negotiations and the Resulting Prepackaged Plan ...................4

The Pre-Petition Solicitation of the Plan ...............................................................6

THAN’s Bankruptcy Case ......................................................................................6

The Continuance Motion........................................................................................7

IV. ARGUMENT......................................................................................................................9

A. The Sole Issue Properly Before this Court in this Appeal Is

Whether the Bankruptcy Court Abused Its Discretion in Denying
the Waters & Kraus Claimants’ Request for a Continuance to
Pursue Possible Objections to Confirmation of the Plan. ..................................9

B. The Kraus Claimants Have Not Demonstrated that the

Bankruptcy Court Abused Its Discretion in Denying Their
Continuance Motion. ...........................................................................................12

i. The Kraus Claimants Have Not Demonstrated that the

Bankruptcy Court Abused Its Discretion in Denying Their
Request for a Continuance Under Bankruptcy Rule 9006...................13

1. The danger of prejudice to the debtor. ......................................14

2. The length of the delay and its potential impact on

judicial proceedings. ....................................................................14

3. The reason for the delay, including whether it was in

the reasonable control of the movant. ........................................16

4. Whether the movant acted in good faith....................................17

ii
 ii. The Kraus Claimants Have Not Demonstrated that the
Bankruptcy Court Erred in Denying Their Request for a
Continuance Under Section 105 of the Bankruptcy Code. ..................18

iii. The Kraus Claimants Have Not Demonstrated that the

Bankruptcy Court Erred in Ruling that the Kraus
Claimants Could Not, as a Matter of Law, Reasonably
Have Relied on the Alleged Promise to Forgo Timely
Objecting to the Plan. ..............................................................................19

C. Even if this Court Were to Consider the Kraus Claimants’ Other

Issues Not Properly Before this Court on Appeal, the Bankruptcy
Court Did Not Err in Confirming the Debtor’s Plan. ......................................20

i. The Plan is Confirmable Under Section 524(g) of the

Bankruptcy Code. ....................................................................................21

ii. The Kraus Claimants Have Not Demonstrated that They

Are Entitled to Separate Classification Under the Plan
from All Other Asbestos Claimants. ......................................................22

V. CONCLUSION ................................................................................................................25

iii
 TABLE OF AUTHORITIES

CASES

4Connections LLC v. Optical Commc’ns Group, Inc.,

618 F. Supp. 2d 178 (E.D.N.Y. 2009) .....................................................................................19

Allen v. J.P. Morgan Chase & Co.,

No. 06 Civ. 8712(JGK), 2009 WL 857555 (S.D.N.Y. March 31, 2009)...........................19, 20

Austin v. Healey,
5 F.3d 598 (2d Cir. 1993)...........................................................................................................9

Authentic Hansom Cabs, Ltd. v. Nisselson,

No. 03 CV 9468(GBD), 2004 WL 2997794 (S.D.N.Y. Dec. 27, 2004)..............................9, 12

Begier v. I.R.S.,
496 U.S. 53 (1990).............................................................................................................23, 24

Ferrell v. Countryman,
398 B.R. 857 (E.D. Tex. 2009) ................................................................................................10

Frank v. United States,

78 F.3d 815 (2d Cir. 1996).........................................................................................................9

Greenburg v. Chrust,
282 F. Supp. 2d 112 (S.D.N.Y. 2003)......................................................................................19

In re Adelphia Commc’ns Corp.,

371 B.R. 660 (S.D.N.Y. 2007)...................................................................................................1

In re Armstrong World Indus., Inc.,

348 B.R. 136 (D. Del. 2006)....................................................................................................24

In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,

389 B.R. 325 (S.D.N.Y. 2008)...........................................................................................12, 21

In re Chateaugay Corp.,
89 F.3d 942 (2d Cir. 1996).......................................................................................................23

In re Dairy Mart Convenience Stores, Inc.,

351 F.3d 86 (2d Cir. 2003).......................................................................................................18

In re Dill,
163 B.R. 221 (E.D.N.Y. 1994) ................................................................................................12

In re Enron Corp.,
419 F.3d 115 (2d Cir. 2005)...............................................................................2, 13, 14, 16, 17

iv
In re Facility Sys., Inc.,
101 B.R. 519 (N.D. Ill. 1989) ............................................................................................11, 12

In re George’s Candy Shop, Inc.,

Civil Action No. 08-177-KD-B, 2008 WL 2945560 (S.D. Ala. 2008)....................................10

In re Integrated Res., Inc.,

157 B.R. 66 (S.D.N.Y. 1993).....................................................................................................2

In re Ionosphere Clubs, Inc.,

922 F.2d 984 (2d Cir. 1990).......................................................................................................1

In re Lionel Corp.,
29 F.3d 88 (2d Cir. 1994).....................................................................................................9, 12

In re Monetary Group,
91 B.R. 138 (M.D. Fla. 1988) ..................................................................................................10

In re Northwest Airlines Corp.,

No. 05-17930 (ALG), 2007 WL 498285 (Bankr. S.D.N.Y. 2007)..........................................16

In re Quigley Co., Inc.,

377 B.R. 110 (Bankr. S.D.N.Y. 2007)...............................................................................23, 24

In re Richard Buick, Inc.,

126 B.R. 840 (Bankr. E.D. Pa. 1991) ......................................................................................16

In re Sanshoe Worldwide Corp.,

993 F.2d 300 (2d Cir. 1993).......................................................................................................1

Norton v. Sam’s Club,

145 F.3d 114 (2d Cir. 1998).......................................................................................................9

NWL Holdings, Inc. v. Eden Center, Inc. (In re Ames Dep’t Stores, Inc.),
317 B.R. 260 (Bankr. S.D.N.Y. 2004).....................................................................................18

Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship,

507 U.S. 380 (1993).................................................................................................................13

Silivanch v. Celebrity Cruises, Inc.,

333 F.3d 355 (2d Cir. 2003)...............................................................................................13, 15

Stone v. Schultz,
647 N.Y.S.2d 822 (N.Y. App. Div. 1996) .........................................................................19, 20

United States v. Sutton, 786 F.2d 1305 (5th Cir. 1986) .................................................................18

v
STATUTES

11 U.S.C. § 105(a) .........................................................................................................................18

11 U.S.C. § 301..............................................................................................................................21

11 U.S.C. § 303..............................................................................................................................21

11 U.S.C. § 524(g) .........................................................................................................................21

11 U.S.C. § 524(g)(2)(B)(i)(II) ......................................................................................................22

11 U.S.C. § 524(g)(2)(B)(i)(III).....................................................................................................22

11 U.S.C. § 524(g)(3)(A).................................................................................................................4

11 U.S.C. § 1122(a) .......................................................................................................................23

RULES

FED. R. BANKR. P. 9006 ...................................................................................................................2

FED. R. BANKR. P. 9006(b)(1) ..................................................................................................13, 18

vi
 Appellee Professor Samuel Issacharoff, the court-appointed legal representative for future

asbestos personal injury claimants (the “Future Claimants’ Representative” or “Appellee”) in the

chapter 11 bankruptcy case of T H Agriculture & Nutrition, L.L.C., respectfully files this brief in

opposition to the appeal by certain claimants represented by the Waters & Kraus, LLP law firm

(the “Kraus Claimants” or “Appellants”) of the Confirmation Order (defined below) issued on

May 29, 2009, by Judge Robert E. Gerber of the United States Bankruptcy Court for the

Southern District of New York (the “Bankruptcy Court”).

I.
STATEMENT OF ISSUE ON APPEAL

This is a limited appeal that concerns only whether the Bankruptcy Court abused its

discretion in denying the motion filed by the Kraus Claimants on the eve of the Debtor’s

confirmation hearing, seeking a 30-day adjournment of the confirmation hearing in order to

pursue possible objections to confirmation of the Debtor’s Plan. The Bankruptcy Court rejected

any further delay in plan confirmation given the pressing need of asbestos claimants for

compensation, and given that the Kraus Claimants had long since received notice of the

Bankruptcy Court’s deadline for filing of objections to confirmation and had failed to file any

objection.

II.
STANDARD OF REVIEW

This Court acts as an appellate court in reviewing the judgments rendered by the

Bankruptcy Court. In re Adelphia Commc’ns Corp., 371 B.R. 660, 665 (S.D.N.Y. 2007) (citing

In re Sanshoe Worldwide Corp., 993 F.2d 300, 305 (2d Cir.1993)). The Bankruptcy Court’s

findings of fact shall not be set aside unless clearly erroneous; its conclusions of law are

reviewed de novo. In re Ionosphere Clubs, Inc., 922 F.2d 984, 988-89 (2d Cir. 1990).

1
 Matters falling within the discretion of the Bankruptcy Court, such as the denial of a

request for an extension of time under Federal Rule of Bankruptcy Procedure 9006 (“Bankruptcy

Rule”), are reviewed for abuse of discretion. In re Enron Corp., 419 F.3d 115, 124 (2d Cir.

2005). Decisions within a bankruptcy judge’s discretion “will not be disturbed … unless the

district court finds that no reasonable man could agree with the bankruptcy judge’s decision.”

Id. (quoting In re Integrated Res., Inc., 157 B.R. 66, 72 (S.D.N.Y. 1993)).

III.
STATEMENT OF THE CASE

Procedural History

On November 24, 2008 (the “Petition Date”), T H Agriculture & Nutrition, L.L.C.

(“THAN” or the “Debtor”) filed a voluntary petition for relief under chapter 11 of title 11 of the

United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States

Bankruptcy Court for the Southern District of New York.

On the Petition Date, THAN filed both a prepackaged plan of reorganization and a

disclosure statement (respectively, as subsequently amended, the “Plan” and the “Disclosure

Statement”).1

The Bankruptcy Court entered a scheduling order (the “Scheduling Order”) setting a

combined hearing for May 21, 2009, to consider approval of the Disclosure Statement,

solicitation procedures, and confirmation of the Plan (the “Confirmation Hearing”).2 Pursuant to

1
Prepackaged Plan of Reorganization of T H Agriculture & Nutrition, L.L.C. Under Chapter 11
of the Bankruptcy Code and the Disclosure Statement with Respect to a Prepackaged Plan of
Reorganization of T H Agriculture & Nutrition, L.L.C. Under Chapter 11 of the Bankruptcy
Code [Docket Nos. 20, 21, respectively]. All references to the docket herein refer to the docket
in the bankruptcy case of T H Agriculture & Nutrition, L.L.C. pending in the U.S. Bankruptcy
Court for the Southern District of New York, Case No. 08-14692 (REG).
2
Second Amended and Supplemental Order (A) Scheduling a Combined Hearing to Consider
Approval of Disclosure Statement and Solicitation Procedures, and Confirmation of Prepackaged

2
the Scheduling Order, the deadline established for filing objections to the Plan was May 15,

2009.

On May 20, 2009, on the eve of the Confirmation Hearing and past the objection

deadline, the Kraus Claimants filed a motion seeking to continue the Confirmation Hearing (the

“Continuance Motion”),3 requesting a 30-day adjournment in order to pursue possible objections

to confirmation of the Debtor’s Plan.

Later the same day, the Debtor filed an objection to the Continuance Motion objecting to

the request for an adjournment of the Confirmation Hearing (the “Response”).4

Just prior to the Confirmation Hearing on May 21, 2009, the Bankruptcy Court heard

arguments on the Continuance Motion and denied the Kraus Claimants’ request for a

continuance of the Confirmation Hearing. (Confirmation Hr’g Tr. 20:22-23, May 21, 2009).

The Bankruptcy Court made an oral ruling denying the Continuance Motion

(Confirmation Hr’g Tr. 20:22-23) and proceeded with the Confirmation Hearing, after which it

approved confirmation of the Debtor’s Plan. (Confirmation Hr’g Tr. 31:16-17).

On May 29, 2009, the Bankruptcy Court entered a written order containing the court’s

findings and orders with respect to confirmation (the “Confirmation Order”), which included

Plan of Reorganization, (B) Establishing Deadlines and Procedures for Filing Objections, and
(C) Approving Form and Manner of Supplemental Notice of Combined Hearing [Docket No.
432].
3
The Waters & Kraus Claimants’ (A) Application to Extend the Time to Interpose Full and
Complete Objections to the Confirmation of the First Amended Prepackaged Plan of
Reorganization of T H Agriculture & Nutrition, LLC Under Chapter 11 of the Bankruptcy Code
(B) Initial Objection and (C) Application for Continuance to Submit Full and Complete
Objections [Docket No. 453].
4
Debtor’s Response to the Waters & Kraus Claimants’ (A) Application to Extend the Time to
Interpose Full and Complete Objections to the Confirmation of the First Amended Prepackaged
Plan of Reorganization of T H Agriculture & Nutrition, L.L.C. Under Chapter 11 of the
Bankruptcy Code (B) Initial Objection and (C) Application for Continuance to Submit Full and
Complete Objections [Docket No. 455].

3
findings and orders relating to its earlier bench ruling denying the Kraus Claimants’ Continuance

Motion.5

Shortly after the Bankruptcy Court entered the Confirmation Order, the Debtor filed an

application requesting entry of an order by this Court affirming the Confirmation Order (the

“Affirmance Motion”)6 as required under section 524(g)(3)(A) of the Bankruptcy Code.7 Thirty-

five (35) days after entry of an order by this Court affirming the Confirmation Order, the Plan

will become effective and the Asbestos PI Trust will be funded with $900 million for payment of

Asbestos PI Claims. Plan, Art. 12.2.

On June 8, 2009, the Kraus Claimants filed a Notice of Appeal appealing the

Confirmation Order.8 The Debtor’s Affirmance Motion is a separate matter pending before this

Court; this brief addresses only the Kraus Claimants’ appeal.

Statement of Facts

The Pre-Petition Negotiations and the Resulting Prepackaged Plan

Prior to the Petition Date, THAN was named as a defendant in a significant number of

lawsuits wherein the plaintiffs asserted claims against THAN for asbestos-related personal

injuries and wrongful death arising from exposure to asbestos distributed by THAN (“Asbestos

5
Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. §§ 1125 and 1129(a) and (b)
and Fed. R. Bankr. P. 3020 Confirming First Amended Prepackaged Plan of Reorganization of T
H Agriculture & Nutrition, L.L.C. Under Chapter 11 of the Bankruptcy Code and Approving the
Disclosure Statement and the Solicitation Procedures [Docket No. 465].
6
Debtor’s Application for District Court Affirmance of the Bankruptcy Court’s Confirmation of
the First Amended Prepackaged Plan of Reorganization of T H Agriculture & Nutrition, L.L.C.
Under Chapter 11 of the Bankruptcy Code [Docket No. 467].
7
See 11 U.S.C. § 524(g)(3)(A) (an order confirming a plan containing a section 524(g)
injunction must be issued or affirmed by the district court that has jurisdiction over the
reorganization case).
8
Notice of Appeal [Docket No. 468].

4
PI Claims”). (Disclosure Statement 4). In addition to claims asserted against THAN, plaintiffs

asserted derivative or successor Asbestos PI Claims against other parties related to THAN

including Philips Electronics North America Corporation (“PENAC”), THAN’s corporate

parent. (Disclosure Statement 10).

In approximately March of 2007, in an effort to address its asbestos-related liabilities,

THAN entered into negotiations with PENAC, numerous law firms that represent a majority of

the present holders of Asbestos PI Claims against THAN and PENAC, including the Waters &

Kraus, LLP law firm (“Waters & Kraus”), and Professor Issacharoff as the putative

representative with respect to future Asbestos PI Claims. (Disclosure Statement 19-21). These

pre-petition negotiations resulted in the formulation of the Plan.

The Plan seeks to implement a permanent channeling injunction under section 524(g) of

the Bankruptcy Code, enjoining the assertion of all present and future Asbestos PI Claims

against THAN, PENAC and certain other parties and channeling those claims to a $900 million

trust to be established under section 524(g) of the Bankruptcy Code (the “Asbestos PI Trust”) to

be funded by the Debtor and PENAC. Under the Plan, all present and future Asbestos PI Claims

will be channeled to the Asbestos PI Trust for processing and payment in accordance with the

T H Agriculture & Nutrition, L.L.C. Asbestos Personal Injury Trust Distribution Procedures (the

“TDP”). (Plan Art. 4.4). The TDP, an exhibit incorporated into the Plan, contains specific

evidentiary requirements which every asbestos claimant must satisfy in order to be compensated.

Additionally, the TDP sets forth specific guidelines and procedures that must be followed in

determining the amount of compensation that may be awarded to each asbestos claimant in order

to ensure that all asbestos claimants—both present and future—are treated fairly and equitably in

the amount of compensation that they recover from the Asbestos PI Trust.

5
The Pre-Petition Solicitation of the Plan

Prior to the commencement of its bankruptcy case, the Debtor solicited votes in support

of the Plan by sending a copy of the Plan, including the TDP, to all law firms the Debtor

believed may represent holders of Asbestos PI Claims, including Waters & Kraus.9

The Plan received the support of 90% in number and 91% in amount of holders of Class

4 – Asbestos PI Claims, including the Kraus Claimants, numbers exceeding the statutory

minimum imposed by section 524(g) of the Bankruptcy Code.10

THAN’s Bankruptcy Case

On November 24, 2008, the Debtor commenced its bankruptcy case and filed its

prepackaged Plan and Disclosure Statement.

On December 1, 2008, the United States Trustee for the Southern District of New York

appointed the Official Committee of Unsecured Creditors (the “Committee”). Peter Kraus, an

attorney at Waters & Kraus, was appointed as a member of the Committee.11

On December 17, 2008, Professor Issacharoff was appointed by the Bankruptcy Court to

serve as the Future Claimants’ Representative in the Debtor’s bankruptcy case in order to protect

the rights of persons who may, subsequent to any date of confirmation of any chapter 11 plan of

reorganization, assert demands for compensation for asbestos disease against the Debtor and

9
Debtor’s Motion for (I) an Order (A) Scheduling a Combined Hearing to Consider Approval of
Disclosure Statement and Solicitation Procedures, and Confirmation of Prepackaged Plan of
Reorganization, (B) Establishing Deadlines and Procedures for Filing Objections, and (C)
Approving Form and Manner of Notice of Combined Hearing; and (II) an Order Approving
Disclosure Statement and Solicitation Procedures 7-9 [Docket No. 3].
10
Declaration of James Sean McGuire Certifying Tabulation of Ballots Regarding Voting on
Debtor’s Prepackaged Plan of Reorganization 6 [Docket No. 29].
11
Appointment of Official Committee of Unsecured Creditors 2 [Docket No. 65].

6
affiliated parties protected under any channeling injunction issued in the case pursuant to section

524(g) of the Bankruptcy Code.12

Pursuant to the Scheduling Order entered by the Bankruptcy Court, the Confirmation

Hearing was scheduled for May 21, 2009 and the last deadline established for filing objections to

the Plan was May 15, 2009.

Waters & Kraus received actual notice of the deadline for filing objections to

confirmation of the Debtor’s Plan.13

The Continuance Motion

On the evening of May 20, 2009, just hours before the Confirmation Hearing and past the

objection deadline of May 15, 2009, the Kraus Claimants filed the Continuance Motion. The

Kraus Claimants asserted that during the pre-bankruptcy negotiations regarding the possible

terms of the TDP and Plan, counsel for the Debtor and PENAC had made a secret commitment,

contrary to the terms of the TDP, to provide special and preferential treatment to the Kraus

Claimants, which would enable them to recover more from the Asbestos PI Trust than other

asbestos claimants. (Continuance Motion 2-4). The Kraus Claimants asserted that they refrained

from objecting to confirmation of the Plan based on that purported secret commitment.

(Continuance Motion 4, 7). The Debtor filed its Response to the Continuance Motion later the

same day, denying that the Debtor and PENAC ever had made a secret deal with Waters & Kraus

and that any assertion to the contrary was contradicted by the terms of the Plan and the TDP,

which had been provided to the Kraus Claimants at least six months prior to the Confirmation

Hearing. (Response 2). Moreover, the Debtor contended there was no excuse for the Kraus

12
Order Appointing a Legal Representative for Future Asbestos Personal Injury Claimants
[Docket No. 145].
13
Exhibit A to Affidavit of Service, dated May 15, 2009 [Docket No. 434].

7
Claimants’ delay in filing their objection to Plan confirmation, as they had had ample time and

opportunity to file their objection by the May 15, 2009 deadline. (Response 7-9).

The Kraus Claimants’ Continuance Motion did not set forth their actual objections to the

Debtor’s Plan; instead, the motion cursorily stated two bases of their “intended objections”: (1)

that the Kraus Claimants should be considered a distinct group of claimants, entitled to specific

treatment under any plan of reorganization and (2) that PENAC’s corporate veil should be

pierced. (Continuance Motion 4-5). They asked for a 30 day continuance to pursue possible

objections to confirmation. (Continuance Motion 4).

On May 21, 2009, prior to the commencement of the otherwise uncontested Confirmation

Hearing, the Bankruptcy Court heard arguments with respect to the Continuance Motion and

denied the Continuance Motion. (Confirmation Hr’g Tr. 20:22-23). The Bankruptcy Court

declined to make any factual findings to resolve the dispute over “who said what” with respect to

the allegations as to what may or may not have been promised. (Confirmation Hr’g Tr. 22:7-12,

Confirmation Order 26-27). Instead, the Bankruptcy Court denied the Continuance Motion on

two independent and equally dispositive grounds. (Confirmation Hr’g Tr. 23:23-24, 25:5-12;

Confirmation Order 27).

First, the Bankruptcy Court ruled that the Kraus Claimants failed to establish excusable

neglect that would justify any adjournment of the Confirmation Hearing under Bankruptcy Rule

9006(b)(1). (Confirmation Hr’g Tr. 23:23-24; Confirmation Order 27). The Bankruptcy Court

found that the nature and basis of the preliminary objections raised by the Kraus Claimants were

known to the parties as of the Petition Date and could have been raised by the objection deadline

established pursuant to the Scheduling Order. (Confirmation Hr’g Tr. 24:4-25; Confirmation

Order 27). The Bankruptcy Court also concluded that to allow a continuance of the

8
Confirmation Hearing would prejudice the holders of Class 4 – Asbestos PI Claims who are

awaiting the emergence of the Debtor from bankruptcy so that the Asbestos PI Trust can begin to

pay Asbestos PI Claims. (Confirmation Hr’g Tr. 24:23-25:4; Confirmation Order at 27).

Second, the Bankruptcy Court ruled that the Kraus Claimants could not, as a matter of

law, reasonably have relied on the alleged oral promise to forgo timely objecting to the Plan in

light of the fact that the Kraus Claimants had been provided with the Plan and TDP months prior

to the commencement of the chapter 11 case, and the terms of the Plan and TDP directly

contradict the terms of the alleged oral promise. (Confirmation Hr’g Tr. 25:5-8; Confirmation

Order 26-28).

On May 29, 2009, the Bankruptcy Court entered its Confirmation Order. On June 8,

2009, the Kraus Claimants filed a Notice of Appeal appealing the Confirmation Order.

IV.
ARGUMENT

A. The Sole Issue Properly Before this Court in this Appeal Is Whether the Bankruptcy
Court Abused Its Discretion in Denying the Waters & Kraus Claimants’ Request for
a Continuance to Pursue Possible Objections to Confirmation of the Plan.

The Second Circuit recognizes the general rule that “a federal appellate court does not

consider an issue not passed upon [by the court below.]” In re Lionel Corp., 29 F.3d 88, 92 (2d

Cir. 1994) (quoting Austin v. Healey, 5 F.3d 598, 601 (2d Cir. 1993)); see also, Authentic

Hansom Cabs, Ltd. v. Nisselson, No. 03 CV 9468 (GBD), 2004 WL 2997794, at *5 (S.D.N.Y.

Dec. 27, 2004) (arguments not advanced to bankruptcy court not subject to appellate review by

the district court).

“Stating an issue without advancing an argument” is inadequate to preserve an issue for

appellate review. Nisselson, 2004 WL 299774, at *5 (quoting Norton v. Sam’s Club, 145 F.3d

114, 117 (2d Cir. 1998) and citing Frank v. United States, 78 F.3d 815, 833 (2d Cir. 1996),

9
vacated on other grounds, 521 U.S. 1114 (1997)). “[T]o be preserved, an argument must be

pressed, not merely intimated.” Ferrell v. Countryman, 398 B.R. 857, 864 (E.D. Tex. 2009)

(citations omitted). Moreover, if the record reflects an issue was not actively litigated, or

presented only in a cursory manner and never properly presented to a bankruptcy court, the issue

is not preserved for appeal. In re George’s Candy Shop, Inc., Civil Action No. 08-177-KD-B,

2008 WL 2945560, at *3 (S.D. Ala. July 28, 2008); In re Monetary Group, 91 B.R. 138, 140

(M.D. Fla. 1988).

Appellants raise three “points” in their brief. Only Point I raises an issue properly before

this Court: whether the Bankruptcy Court abused its discretion in denying the Kraus Claimants’

request for a continuance to pursue possible objections to confirmation of the Plan. Points II and

III of Appellants’ Brief raise for the first time arguments that were never presented to the

Bankruptcy Court and that are not properly before this Court. In Point II, Appellants argue a

confirmation objection: that the Plan should not have been confirmed under section 524(g) of the

Bankruptcy Code based on their allegations dehors the record that the corporate veil should be

pierced. (Appellants’ Brief 27). What is more, Appellants attempt to support these allegations

with more than 140 pages of “evidence” that was never presented to the Bankruptcy Court and is

not part of the record on appeal. (See Exhibits A-L attached to Appellants’ Brief). In their Point

III, Appellants argue a different confirmation objection: that they should be separately classified

under the Debtor’s Plan. (Appellants’ Brief 31). The Kraus Claimants never timely presented

these confirmation objections to the Bankruptcy Court for consideration, and now improperly

attempt to introduce them to this Court.

Not only does the record on appeal demonstrate that the Kraus Claimants never filed

objections to confirmation, their own counsel recognized that their intimated objections were not

10
before the Bankruptcy Court. Counsel to the Kraus Claimants even urged the Bankruptcy Court

at the hearing on the Continuance Motion to refrain from making any findings with respect to

their as yet unspecified objections:

Mr. Kraus: Your Honor, … I would simply suggest that it’s inappropriate for the
Court to make findings of law with respect to my objection on the record before it
now, and would urge the Court not to do so at this time.

(Confirmation Hr’g Tr. 14:2-6).

Based on similar facts, the district court in In re Facility Systems, Inc. held that issues not

presented to the bankruptcy court were not preserved for appeal. In re Facility Sys., Inc., 101

B.R. 519 (N.D. Ill. 1989). In Facility Systems, Inc., rather than filing an objection to a fee

application, a creditor filed a motion requesting a continuance of the hearing to conduct further

discovery in order to sift out potential objections to the application. Id. at 520. The bankruptcy

court denied the creditor’s motion, and entered an order allowing the compensation. Id. The

creditor appealed to the district court. Id. at 521.

On appeal, the creditor raised several issues regarding the propriety of the bankruptcy

court’s compensation order, many of which were supported by reference to matters not part of the

record on appeal, including exhibits submitted with its appellate brief. Id. at 521-22. The

appellees moved to strike creditor’s brief and dismiss the appeal, asserting that the creditor could

not raise arguments in its brief that were not first made to the bankruptcy court. Id. at 521.

In striking the creditor’s brief, the district court held that the only issue the creditor

preserved for review on appeal was whether the bankruptcy court abused its discretion in denying

the creditor an extension of time in which to conduct discovery relating to the fee application. Id.

at 524. The district court ordered the creditor to submit a revised brief restricted to this issue, and

further ordered that all factual assertions be supported by citations to the record on appeal. Id.

11
 Appellants here attempt to do the same, presenting for the first time under their Points II

and III arguments and evidence that were never presented to the Bankruptcy Court, are not part

of the record on appeal, and that accordingly are not subject to appellate review. In re Facility

Sys., Inc., 101 B.R. at 524; see also, In re Lionel Corp., 29 F.3d at 92; Nisselson, 2004 WL

2997794, at *5 (arguments not advanced to bankruptcy court not subject to appellate review by

the district court). Evidence that was not presented to the Bankruptcy Court and is not part of the

record on appeal also is improper and should not be considered by this Court. In re Bear Stearns

High-Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 339 (S.D.N.Y. 2008)

(“if an item was not considered by the [bankruptcy] court, it should be stricken from the record

on appeal”); In re Dill, 163 B.R. 221, 224 (E.D.N.Y. 1994) (“[O]n appeal from an order of the

bankruptcy court, the district court should not consider any evidence not before the bankruptcy

court at the original hearing.”).

For these reasons, the arguments raised in Points II and III of Appellants’ Brief should

not be considered by this Court, although these points will be addressed below should the Court

be prepared to entertain the merits. The only issue properly before the Court on appeal is

whether the Bankruptcy Court abused its discretion in denying the Kraus Claimants’ request for

a continuance to object to confirmation of the Plan.

B. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court Abused
Its Discretion in Denying Their Continuance Motion.

The Bankruptcy Court denied the Continuance Motion on two independent and equally

dispositive grounds, ruling that (1) the Kraus Claimants failed to establish excusable neglect to

justify any adjournment of the Confirmation Hearing under Bankruptcy Rule 9006(b)(1), and (2)

the Kraus Claimants could not, as a matter of law, reasonably have relied on the alleged oral

promise to forgo timely objecting to the Plan when the Kraus Claimants were provided with the

12
Plan and the TDP months prior to the commencement of the chapter 11 case, and the terms of the

Plan and TDP directly contradict the terms of the alleged oral promise. (Confirmation Hr’g Tr.

23:23-24, 25:5-12; Confirmation Order at 27-28). Appellants do not address the Bankruptcy

Court’s latter ruling in their brief.

i. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court
Abused Its Discretion in Denying Their Request for a Continuance Under
Bankruptcy Rule 9006.

Bankruptcy Rule 9006(b) provides in relevant part that

when an act is required or allowed to be done at or within a specified period

… by a notice given thereunder or by order of court, the court for cause
shown may at any time in its discretion … on motion made after the
expiration of the specified period permit the act to be done where the failure
to act was the result of excusable neglect.

Fed. R. Bankr. P. 9006(b)(1). The Supreme Court has set forth the following factors to evaluate

whether a movant’s failure to comply with a deadline is justified by “excusable neglect:”

(1) the danger of prejudice to the debtor,

(2) the length of the delay and its potential impact on judicial proceedings,

(3) the reason for the delay, including whether it was within the reasonable control of the
movant, and

(4) whether the movant acted in good faith.

Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993). The Second

Circuit has taken a “hard line” in applying the Pioneer factors, focusing its inquiry on the third

factor—the reason for the delay, including whether it was within the reasonable control of the

movant. In re Enron Corp., 419 F.3d at 122-23 (citing Silivanch v. Celebrity Cruises, Inc., 333

F.3d 355, 367 n.7 (2d Cir. 2003) (the reason for the delay has the greatest import; the other

factors may have more relevance in a close case)).

13
 As set forth below, the Bankruptcy Court correctly found that the Kraus Claimants’

failure to timely file their objections to the Debtor’s Plan by the established deadline was not the

result of excusable neglect.

1. The danger of prejudice to the debtor.

Delaying the Confirmation Hearing to permit the Kraus Claimants to explore possible

objections to confirmation, when they were aware of the terms of the Plan and the TDP more

than six months prior to the objection deadline, would prejudice the Debtor by requiring it to

needlessly incur further administrative expense to defend against objections that could have and

should have been timely raised by the established deadline. The Bankruptcy Court found that the

stated bases of the Kraus Claimants’ intended objections were both apparent from the “get-go.”

(Confirmation Hr’g Tr. 24:6-11). Moreover, a delay of the Confirmation Hearing would not

only be prejudicial to the Debtor but to all other parties in the case who worked diligently over

the prior months to reach agreement on a plan that was acceptable to all constituencies involved.

The Bankruptcy Court found the Kraus Claimants’ failure to raise arguments which were known

for so long was simply not excusable. (Confirmation Hr’g Tr. 24:19-20). For these reasons, the

danger of prejudice weighs against a finding of excusable neglect.

2. The length of the delay and its potential impact on judicial proceedings.

“In determining how long is too long, courts generally consider the degree to which,

in the context of a particular proceeding, the delay ‘may disrupt the judicial administration of the

case.’” In re Enron Corp., 419 F.3d at 128 (citations omitted). The Committee appointed to

represent the interests of all holders of Asbestos PI Claims, including the Kraus Claimants,

opposed the Kraus Claimants’ request for a continuance of the Confirmation Hearing, as did

each of the other stakeholders in the Debtor’s Plan. Counsel for the Committee emphasized to

14
the Bankruptcy Court the importance of timing in a case dealing with the claims of asbestos

victims:

[T]iming is very important, and without being dramatic you can honestly
say in an asbestos bankruptcy that people are dying and they need the
money. And saying it’s a matter of a month doesn’t really give them any
comfort. It’s important for people to get money. … and any further delay
really is inappropriate.

(Confirmation Hr’g Tr. 19: 3-11). The Bankruptcy Court found that any delay in the

Confirmation Hearing would be prejudicial to the holders of Asbestos PI Claims. (Confirmation

Hr’g Tr. 24:23-25:2; Confirmation Order 27 (“[T]o allow a continuance would prejudice the

holders of Class 4 Asbestos PI Claims that are awaiting the emergence of the Debtor from

bankruptcy so that the Asbestos PI Trust can begin to pay Asbestos PI Claims.”)).

As the Second Circuit has recognized, “[w]e operate in an environment … in which

substantial rights may be, and often are, forfeited if they are not asserted within time limits

established by law.” Silivanch, 333 F.3d at 367. The “legal system would groan under the

weight of a regimen of uncertainty in which time limitations were not rigorously enforced –

where every missed deadline was the occasion for the embarkation on extensive trial and

appellate litigation to determine the equities of enforcing the bar.” Id. at 368. The Kraus

Claimants are represented by experienced counsel and nothing prevented them from filing a

timely objection to preserve their rights where their counsel was aware of the potential issues and

deadline for objecting to the Plan. The Bankruptcy Court correctly found that the length of delay

and its potential impact on the proceedings weighed against a finding of excusable neglect.

15
 3. The reason for the delay, including whether it was within the reasonable
control of the movant.

In the Second Circuit, the reason for the delay is the most important single factor in

determining whether neglect is excusable. In re Enron Corp., 419 F.3d at 123. The Kraus

Claimants assert that the sole reason they failed to file their confirmation objections by the

established deadline is that they were fraudulently induced by the Debtor and PENAC into

supporting the Debtor’s Plan. (Continuance Motion 6-7). The Bankruptcy Court declined to

make any findings as to “who said what,” and instead ruled that even if the Kraus Claimants

were promised special treatment, they could not, as a matter of law, have reasonably relied on

the alleged oral promise to forgo timely objecting to the Plan because the Kraus Claimants had

been provided with the Plan and the TDP months prior to the objection deadline, and the terms of

the Plan and TDP directly contradict the terms of the alleged oral promise. (Confirmation Hr’g

Tr. 22:7-18; Confirmation Order at 26-27).

Moreover, “in applying the concept of excusable neglect, counsel must prove its failure

to timely file the objection was not preventable by the exercise of ordinary diligence.” In re

Richard Buick, Inc., 126 B.R. 840, 849 (Bankr. E.D. Pa. 1991). “Ordinary diligence would

require counsel to be cognizant of court-imposed deadlines.” Id. The Kraus Claimants received

notice of the May 15, 2009 objection deadline. The Kraus Claimants did not provide any reason

why they were unable to timely file their objections. The Bankruptcy Court found the objections

to the Debtor’s Plan which the Kraus Claimants sought to raise were apparent from the outset of

the case. (Confirmation Hr’g Tr. 24:4-11; Confirmation Order 27). The Kraus Claimants’

failure to timely object to confirmation of the Plan was the fault of no one but themselves. In re

Northwest Airlines Corp., No. 05-17930 (ALG), 2007 WL 498285, at *3 (Bankr. S.D.N.Y. Feb.

16
9, 2007) (the fact that movant conducted an investigation and tried to resolve the issue by good

faith negotiations not proper grounds for excusable neglect because “[a]ll of this can be done

after a filing is first made and rights are preserved.”); In re Enron Corp., 419 F.3d at 126 (failure

to timely file claim because attorney was focused on negotiations with the debtor not excusable

neglect). The Bankruptcy Court correctly found that the reason for the delay weighed against a

finding of excusable neglect.

4. Whether the movant acted in good faith.

The Kraus Claimants’ request to continue the Confirmation Hearing appears to be an

effort to secure a more favorable treatment than other holders of Asbestos PI Claims, in violation

of the terms of the Plan, TDP and the Bankruptcy Code. At the hearing on the Continuance

Motion, counsel for the Kraus Claimants admitted that the reason they sought a 30-day

continuance of the Confirmation Hearing was to permit the Debtor’s third-party claims processor

sufficient time to value the Kraus Claimants’ Asbestos PI Claims, so that the Kraus Claimants

could then determine whether there was any dispute requiring them to assert objections to the

Debtor’s Plan. (Confirmation Hr’g Tr. 17:10-19). Thus, whether the Kraus Claimants would

have actually pursued their intended objections to the Plan appears to be contingent on the

monetary value assigned to their claims by the claims processor engaged to implement the terms

of the TDP. The TDP establishes neutral criteria that will apply to all claimants, and all known

claimants were given ample opportunity to review them. An attempt to hold the Confirmation

Hearing hostage in order to get an “advance read” of how their claims will ultimately be treated

cannot be considered good faith.

As shown, the Pioneer factors uniformly support the Bankruptcy Court’s finding that the

Kraus Claimants’ failure to timely file their objections by the established deadline was not the

17
result of any excusable neglect. Accordingly, the Bankruptcy Court did not abuse its discretion

in denying the Continuance Motion under Bankruptcy Rule 9006(b).

ii. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court
Erred in Denying Their Request for a Continuance Under Section 105 of the
Bankruptcy Code.

In the Continuance Motion, the Kraus Claimants requested that the Bankruptcy Court

invoke its equitable powers under section 105(a) of the Bankruptcy Code as an additional basis

for granting them a 30-day continuance of the Confirmation Hearing. (Continuance Motion 8-9).

Because section 105(a) does not provide an independent basis for relief, the Bankruptcy Court

properly ruled that the request to file an untimely objection is governed by Bankruptcy Rule

9006(b)(1). (Confirmation Hr’g Tr., 23:16-18). Section 105(a) of the Bankruptcy Code gives

the bankruptcy court equitable power to “issue any order, process, or judgment that is necessary

or appropriate to carry out the provisions of the [Bankruptcy Code].” 11 U.S.C. § 105(a).

Section 105(a) may not be invoked absent another provision of the Bankruptcy Code. In re

Dairy Mart Convenience Stores, Inc., 351 F.3d 86, 91-92 (2d Cir. 2003) (citations omitted); see

also, NWL Holdings, Inc. v. Eden Center, Inc. (In re Ames Dep’t Stores, Inc.), 317 B.R. 260, 273

(Bankr. S.D.N.Y. 2004). It does not “authorize the bankruptcy courts to create substantive rights

that are otherwise unavailable under applicable law, or constitute a roving commission to do

equity.” In re Dairy Mart Convenience Stores, Inc., 351 F.3d at 92 (quoting United States v.

Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986)).

The Kraus Claimants are unable to cite any provision of the Bankruptcy Code that

supports their request for a continuance. Therefore, the Kraus Claimants have not demonstrated

that the Bankruptcy Court erred in not invoking its equitable powers to grant the Kraus

Claimants’ request for a continuance under section 105(a) of the Bankruptcy Code.

18
 iii. The Kraus Claimants Have Not Demonstrated that the Bankruptcy Court
Erred in Ruling that the Kraus Claimants Could Not, as a Matter of Law,
Reasonably Have Relied on the Alleged Promise to Forgo Timely Objecting
to the Plan.

The Kraus Claimants asserted that they were fraudulently induced into voting in favor of

the Plan and into refraining from timely objecting to confirmation of the Plan. As noted above,

in this appeal the Kraus Claimants do not address the Bankruptcy Court’s independent finding

that they could not, as a matter of law, reasonably have relied on the alleged oral promise to

forgo timely objecting to the Plan when they had in their possession a copy of the Plan and the

TDP months prior to the objection deadline, and the terms of the Plan and the TDP directly

contradict the terms of the alleged oral promise.

Under New York law, in order to establish a claim for fraudulent inducement a plaintiff

must prove by “clear and convincing evidence”: “(1) that the defendant made a representation,

(2) as to a material fact, (3) which was false, (4) and known to be false by the defendant, (5) that

the representation was made for the purpose of inducing the other party to rely upon it, (6) that

the other party rightfully did so rely, (7) in ignorance of its falsity, (8) to his injury.”

4Connections LLC v. Optical Commc’ns Group, Inc., 618 F. Supp. 2d 178, 185 (E.D.N.Y. 2009);

see also, Allen v. J.P. Morgan Chase & Co., No. 06 Civ. 8712 (JGK), 2009 WL 857555, at *14

(S.D.N.Y. Mar. 31, 2009) (identifying five similar factors). In Stone v. Schulz, 647 N.Y.S.2d

822 (N.Y. App. Div. 1996), the plaintiff brought a claim for fraudulent inducement against

defendant based on his reliance on alleged oral promises that were expressly contradicted by the

terms of a written agreement between the plaintiff and defendant. Id. at 822-23. The court held

that “[w]here … there is a ‘meaningful’ conflict between an express provision in a written

contract and a prior alleged oral representation, the conflict negates a claim of a reasonable

reliance upon the oral representation.” Id. (citations omitted); see also, Greenberg v. Chrust, 282

19
F. Supp. 2d 112, 121 (S.D.N.Y. 2003) (reasonable reliance is precluded when “an express

provision in a written contract contradicts a prior alleged oral representation in a meaningful

fashion” (citations omitted)).

Similarly, the Kraus Claimants assert that they were fraudulently induced to vote in favor

of the Plan based upon a prior alleged oral promise by the Debtor and PENAC to provide the

Kraus Claimants with special and preferential treatment enabling them to recover more from the

Asbestos PI Trust than any other asbestos claimant. The express terms of the TDP contradict the

Kraus Claimants’ alleged oral promise. This conflict between the subsequent written text and

the alleged prior agreement “negates a claim of a reasonable reliance upon the oral

representation.” Stone, 647 N.Y.S.2d at 823; Allen, 2009 WL 857555, at *14. Thus, the

Bankruptcy Court correctly denied the Continuance Motion on this basis.

C. Even if this Court Were to Consider the Kraus Claimants’ Other Issues Not
Properly Before this Court on Appeal, the Bankruptcy Court Did Not Err in
Confirming the Debtor’s Plan.

The Kraus Claimants ask this Court to determine whether the Bankruptcy Court erred and

abused its discretion in not allowing them to (1) present evidence that THAN and PENAC

constitute a single business entity and (2) to be classified separately from other asbestos

claimants. (See Appellants’ Brief 1). As stated in IV.A above, these issues were not presented

to, much less ruled on, by the Bankruptcy Court. This Court should not consider arguments that

were not before the Bankruptcy Court and are being introduced for the first time on appeal.

However, even if these issues were properly before this Court, the Kraus Claimants cannot show

that the Bankruptcy Court erred in confirming the Debtor’s Plan.

20
 i. The Plan Is Confirmable Under Section 524(g) of the Bankruptcy Code.

The Kraus Claimants allege that the corporate veil should have been pierced and PENAC

“treated as the true debtor.”14 (Appellants’ Brief 27). The Kraus Claimants then assert that

confirmation of the Plan should have been denied because PENAC, “by not contributing a

majority of its voting shares to the trust, has failed to satisfy the requirements of 524(g) for a

channeling injunction.” (Appellants’ Brief 27).

The Kraus Claimants cite scant legal authority in support of their untimely argument to

pierce the corporate veil and attempt to support this baseless claim with more than 140 pages of

“evidence” that was never presented to the Bankruptcy Court and is not part of the record on

appeal. (See Exhibits A-L attached to Appellants’ Brief). This Court should not review

evidence that was not presented to the Bankruptcy Court. In re Bear Stearns High-Grade

Structured Credit Strategies Master Fund, Ltd., 389 B.R. at 339 (“if an item was not considered

by the [bankruptcy] court, it should be stricken from the record on appeal”).

As previously noted, there is no provision in the Bankruptcy Code that permits an entity

to be “treated as a debtor.” But if PENAC had been a debtor, the Kraus Claimants’ contentions

would still fail because section 524(g) does not require a debtor to contribute a majority of its

shares to the Asbestos PI Trust.

There are two provisions in section 524(g) of the Bankruptcy Code that require

contributions to be made to the Asbestos PI Trust, both of which are satisfied by the Plan. One

requires that the Asbestos PI Trust be funded by “the securities of 1 or more debtors involved in
14
It is unclear what the Kraus Claimants mean by this statement. The Bankruptcy Code does not
contain any provision permitting a person or entity to be “treated as a debtor.” A person or entity
becomes a “debtor,” as that term is used in the Bankruptcy Code, and entitled to the rights and
protections afforded thereunder by filing a voluntary petition under 11 U.S.C. § 301 or by having
an involuntary case commenced against him under 11 U.S.C. § 303.

21
such plan and by the obligation of such debtor or debtors to make future payments, including

dividends.” 11 U.S.C. § 524(g)(2)(B)(i)(II) (emphasis added). Even if PENAC were an

additional debtor, the promissory note that THAN will contribute to the Asbestos PI Trust under

the Plan satisfies this requirement and it would not be necessary for PENAC to contribute

additional securities under this section.

The other provision requires the trust to own or if specified contingencies occur, have the

right to own the majority of the voting shares of either (a) each debtor, (b) the parent corporation

of each debtor, or (c) a subsidiary of each debtor that is also a debtor. 11 U.S.C. §

524(g)(2)(B)(i)(III). Because the entities that will satisfy this requirement are listed in the

disjunctive, the Plan can satisfy the requirement of this section by providing that the Asbestos PI

Trust will have the ability to own a majority of the shares of THAN. Again, if PENAC were a

debtor the Plan would still satisfy the requirements of section 524(g)(2)(B)(i)(III) because if

specified contingencies occur the Asbestos PI Trust will be entitled to own one-hundred percent

of the voting shares in THAN—a subsidiary of PENAC and a debtor in the case.

ii. The Kraus Claimants Have Not Demonstrated that They Are Entitled to
Separate Classification Under the Plan from All Other Asbestos Claimants.

The Kraus Claimants request this Court to “revise” the Plan by separately classifying

their claims and allowing them to obtain better treatment than other asbestos creditors.

(Appellants’ Brief 31). Their sole basis for that request is the Kraus Claimants’ contention that

the law firm representing them has historically obtained higher settlement values in the tort

system against THAN and its claimants are entitled to be treated consistently with those

historical settlement values. (Appellants’ Brief 29). This request demonstrates a disregard for

what the Supreme Court has called “a central policy of the Bankruptcy Code,” namely the

Bankruptcy Code’s requirement of equality of distribution among similarly situated creditors.

22
Begier v. I.R.S., 496 U.S. 53, 58 (1990). In any event, this untimely objection, not properly

before this Court, is easily disposed of since the Kraus Claimants have failed to demonstrate that

separate classification is appropriate under the Bankruptcy Code.

Section 1122 of the Bankruptcy Code governs the classification of claims in chapter 11

plans. This section provides in relevant part that “a plan may place a claim or an interest in a

particular class only if such claim or interest is substantially similar to the other claims or

interests of such class.” 11 U.S.C. § 1122(a). While section 1122 does not explicitly prohibit the

separate classification of similarly situated claims, the courts have derived two fundamental rules

of classification from the language of section 1122(a):

(a) dissimilar claims may not be classified together; and

(b) similar claims may only be separately classified for a legitimate reason.

In re Chateaugay Corp., 89 F.3d 942, 949 (2d Cir. 1996); see also In re Quigley Co., Inc., 377

B.R. 110, 116 (Bankr. S.D.N.Y. 2007). Thus, although Congress has granted plan proponents

substantial flexibility in crafting classes of claims, plan proponents will only be allowed to

separately classify similarly situated claims if the plan proponent can present credible proof of a

legitimate reason for the separate classification. In re Chateaugay, 89 F.3d at 949. Whether

claims are substantially similar in nature depends on the legal nature of the claim and whether

the claimants are entitled to the same right and priority in the debtor’s assets. In re Quigley Co.,

Inc., 377 B.R. at 116.

In a recent asbestos bankruptcy case, the court determined that asbestos-personal injury

claims are substantially similar claims that can and should be classified together. In the case of

In re Quigley Co., Inc., the court held that the fact that some asbestos claimants held prepetition

settlements with the debtor’s parent that entitled them to future payments from the parent did not

23
prevent all asbestos claims from being classified together in a single class. In re Quigley Co.,

Inc., 377 B.R. at 116. Instead, the court held that because all of the asbestos claims were

unsecured claims against the debtor, the claims had the same legal rights against the estate and

were substantially similar claims. Id. Thus, separate classification of the settled and non-settled

asbestos claims was not warranted. Id.

Additionally, separate classification of similarly situated claims for the sole purpose of

allowing certain asbestos claimants to obtain better treatment than others would violate the

Bankruptcy Code’s central policy of equality of distribution among similarly situated creditors

and is inappropriate. See Begier v. I.R.S., 496 U.S. at 58. Contrary to their assertions, the

Asbestos PI Claims held by the Kraus Claimants are no different than Asbestos PI Claims held

by other claimants. All holders of Asbestos PI Claims hold general unsecured claims against the

Debtor and as the court in Quigley noted, it is appropriate to classify such claims together. In re

Quigley Co., Inc., 377 B.R. at 116; see also, In re Armstrong World Indus., Inc., 348 B.R. 136,

159-60 (D. Del. 2006) (finding it appropriate to classify asbestos personal injury claims, whether

arising under tort law or under contract, together in a single class).

Here, the Kraus Claimants are asking the Court to separately classify their claims so that

they may obtain better treatment from the Debtor than other similarly situated asbestos

claimants. The Kraus Claimants’ claims are substantially similar to the claims of other asbestos

claimants and the Kraus Claimants cannot support their request for separate classification. The

Debtor’s Plan achieves the goal of equality of distribution by classifying all asbestos claimants

together and providing that all asbestos claims will be processed and paid by the Asbestos PI

Trust pursuant to the terms of the TDP.

24
 Thus, even if the Kraus Claimants’ confirmation objection based on separate

classification were properly before this Court—which it is not—the Kraus Claimants cannot

show that they were entitled to separate classification under the Debtor’s Plan. Accordingly, the

Kraus Claimants’ cannot demonstrate that the Bankruptcy Court erred in confirming the Debtor’s

Plan.

V.
CONCLUSION

For the foregoing reasons, the Future Claimants’ Representative respectfully prays that

this Court AFFIRM the Confirmation Order and grant any and all further relief to which the

Future Claimants’ Representative may be justly entitled.

Dated: September 9, 2009 Respectfully submitted,

/s/ Theresa Trzaskoma

Theresa Trzaskoma

BRUNE & RICHARD LLP

Susan E. Brune
80 Broad Street
New York, New York 10004
Telephone: (212) 668-1900
Facsimile: (212) 668-0315
Email: sbrune@bruneandrichard.com
ttrzaskoma@bruneandrichard.com
and
STUTZMAN, BROMBERG, ESSERMAN &
PLIFKA, A Professional Corporation
Sander L. Esserman (Admitted Pro Hac Vice)
Andrea L. Ducayet (Admitted Pro Hac Vice)
2323 Bryan Street, Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900-1900
Facsimile: (214) 969-4999
Email: esserman@sbep-law.com
ducayet@sbep-law.com
ATTORNEYS FOR THE
FUTURE CLAIMANTS’ REPRESENATIVE

25