Case 2:09-cv-00886-GLL Document 85 Filed 03/29/10 Page 1 of 7

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

SKINNER ENGINE COMPANY t

ET AL. t
Appellants t Civil Action No. 09-0886
v.

ALLIANZ GLOBAL RISK U.S. Bankruptcy No. 01-23987

INSURANCE CO. t ET AL.,
Appellees.

MEMORANDUM

Gary L. Lancaster, March 29, 2010

Chief Judge.

The parties are familiar wi th the general background of

this case and it need not be detailed here. We need only note

that the appellants have appealed from an order of the bankruptcy

court, dated May 26 t 2009, in which the bankruptcy court: (1)

found that the Disclosure Statement for the Fifth Plan described

a facially unconfirmable plani and (2) converted the case, filed

under Chapter 11t to a Chapter 7 bankruptcy case. This appeal

followed.

The standard of review on appeal from a bankruptcy

court order is that conclusions of law are subject to

review, while findings of fact may not be set aside unless they

are clearly erroneous. Mellon Bank, N.A. v. Metro

Communications, Inc., 945 F.2d 635, 641-42 (3d Cir. 1991). A

bankruptcy court's determination whether a Chapter 11 Plan is

feasible is "subject to the clearly erroneous standard of

review. /I CoreStates Bank, N. A. v. Uni ted Chemical Technologies,

Case 2:09-cv-00886-GLL Document 85 Filed 03/29/10 Page 2 of 7

Inc., 202 B.R. 33, 45 (B.D. Pa. 1996) (citing cases). We review

the bankruptcy court's decision to convert a Chapter 11 case to

a Chapter 7 case for an abuse of discretion. In re SGL Carbon

Corp., 200 F.3d 154, 159 (3d. Cir. 1999); In re Mazzocone, 180

B.R. 782, 785 (B.D. Pa. 1995) (citing cases) .

Under no standard of review would this court reverse

the bankruptcy court's disposition of this case. We find no

error, let alone a clear error, in the bankruptcy court's

determination that the Fifth Plan was not feasible. And we find

no abuse of discretion in the bankruptcy court's decision to

convert this case to a Chapter 7 liquidation.

As an initial matter, we conclude that the bankruptcy

court, which has presided over the Debtor's bankruptcy case for

nearly nine years, as well as the related insurance coverage

adversary action, was in possession of sufficient evidence, and

had afforded the parties ample opportunity to present their

arguments in order to make the necessary determinations on each

issue decided in the May 26, 2009 memorandum. Therefore, we

reject outright any challenge to the bankruptcy court's order

from a procedural standpoint.

In its May 26, 2009 order, the bankruptcy court found

that the Disclosure Statement for the Fifth Plan described a

facially unconfirmable plan for several reasons. Among these

reasons were that the plan reflected in the disclosure statement:

Case 2:09-cv-00886-GLL Document 85 Filed 03/29/10 Page 3 of 7

(1) if confirmed, would operate to breach the insurance policies;

(2) was not a reasonable and good faith settlement under

Pennsylvania law; and (3) was the result of collusion between

Debtor and the asbestos claimants. Although not necessary to its

decision, the bankruptcy court also identified two additional

defects: (1) that the 20% surcharge constituted an unlawful

assignment; and (2) that the bankruptcy court lacked

jurisdictional authority to finally liquidate asbestos claims.

We find no clear error in any of these decisions, and would reach

the same ultimate conclusion.

In so concluding, we have taken note of the unique

circumstances of this case, which include, among other things,

that: (1) this case has been pending for nine years; (2) the

Debtor sold its assets more than seven years ago to a third

party, which received a release from any successor liability; (3)

the Debtor will not continue in business as a going concern, and

its board of directors would be comprised of one director, who

was to be appointed at the Confirmation Hearing; (4) a judgment

in excess of insurance limits posed no risk to the Debtor's

estate or a reorganized debtor under the circumstances; (5) apart

from approximately $70,000 in cash, the Debtor had no assets,

save insurance policies and legal actions; (6) the only way for

the Debtor's estate to acquire any additional funds was to

convert insurance policies to Surcharge Cash through the relaxed

Case 2:09-cv-00886-GLL Document 85 Filed 03/29/10 Page 4 of 7

standards of the CAPDi (7) asbestos-related litigation was not

listed as a factor leading the Debtor to seek bankruptcy

protectioni and (8) no claimant had ever successfully prosecuted

an asbestos claim against Debtor.

We find, as did the bankruptcy court, that the Debtor

did not, and will never be able to, propose a feasible plan in

good faith in accordance with the requirements set forth in the

Bankruptcy Code. 11 U.S.C. §§ 1129 (a) (3) and (a) (11) . This

result obtains regardless of how the disputed insurance coverage

issues are decided. A unilateral settlement must be reasonable

even under the legal standards proposed by appellants. No such

settlement of the asbestos claims could qualify as reasonable

under the facts of this case set forth above. As such, no plan

based upon that settlement could ever be feasible or proposed in

good faith.

The May 26, 2009 order so converted the Debtor's case

to a Chapter 7 case. According to the bankruptcy court, because

the Debtor would be unable to effectuate a confirmable plan under

the circumstances of this case conversion was proper. We find no

abuse of discretion in the bankruptcy court's dec ion. The

asbestos claimant objects to said conversion on the ground that

the court failed to consider the interest of the creditors. In

an omission that speaks volumes, the Debtor did not object to

conversion in its opening brief. However, regardless of when and

Case 2:09-cv-00886-GLL Document 85 Filed 03/29/10 Page 5 of 7

by whom the objection was raised, we find it to be without merit

because the bankruptcy court did consider the interest of the

creditors. The bankruptcy court explicitly discussed the

unresolvable tension between the inability of creditors to obtain

any recovery in the absence of a surcharge paid by the asbestos

claimants and the fundamental flaws in the Debtor collecting any

such surcharge [doc. no. 1, attachment #5, at 20] .

Regardless, upon independent review, we find conversion

to be in the interest of the creditors. Apart from priority and

priority tax claims, which total $41,000, and asbestos claims,

unsecured creditors hold the largest claim against the Debtor's

estate. Their claims total $5.7 million. However, as a result

of this bankruptcy case, the unsecured creditors are now in line

behind $2 million in super-priority administrative claims. That

category of claims will only increase as the bankruptcy case

proceeds. Given that the Debtor has no assets, nor any intent to

acquire any assets in the future, and that no plan which finances

the Debtor's estate with insurance surcharges will be feasible or

meet the good faith requirement, it is in the creditors' interest

to convert this case to a Chapter 7 liquidation.

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For the foregoing reasons, we affirm the bankruptcy

court/s May 26, 2009 order. The court will file an appropriate

order in accordance with this ruling.

Case 2:09-cv-00886-GLL Document 85 Filed 03/29/10 Page 7 of 7

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

SKINNER ENGINE COMPANY,

ET AL.,
Appellants, Civil Action No. 09-0886
v.

ALLIANZ GLOBAL RISK U.S. Bankruptcy No. 01 23987

INSURANCE CO., ET AL.,
App ellees.

ORDER
AND NOW, this 29 th day of March, 2010, IT IS HEREBY

ORDERED that the order of the bankruptcy court, dated May 26,

2009, is AFFIRMED.

BY THE COURT:

~ __________________________ , C.J.

cc: The Honorable M. Bruce McCullough,

United States Bankruptcy Judge

All Parties of Record