Bloomberg News

Ford Seeks Garlock Transcripts From January Trial: Bankruptcy

March 19, 2014

Ford Motor Co. (F:US) joined the U.S. Chamber of Commerce (0392381D:US) in seeking transcripts of a trial in which a bankruptcy judge ruled the “impropriety of some law firms” representing asbestos personal-injury plaintiffs led to “unfairly inflating recoveries against” Garlock Sealing Technologies LLC, a unit of EnPro Industries Inc. (NPO:US)

The Chamber of Commerce’s Legal Newsline filed papers early this month asking U.S. Bankruptcy Judge George R. Hodges in Charlotte, North Carolina, to unseal the January trial transcript. Before the trial, Hodges ruled that the proceeding would be closed to the public.

Ford joined the fray on March 14, saying it “may have been induced into inflated settlement in some of the same cases” that Hodges reviewed in his opinion. For possible use in cases where Ford paid asbestos settlements, the automaker wants Hodges to unseal the transcript, trial exhibits and disclosures by the asbestos plaintiffs’ lawyers about their clients.

Aetna Inc., the insurance company, filed last month for lists of the lawyers’ asbestos clients.

Hodges said in his January decision that claimants’ lawyers previously withheld evidence about the comparative degree of exposure to Garlock’s products. Legal Newsline said Hodges’s opinion made “misconduct by asbestos plaintiffs and their lawyers the focus of national debate.”

The official committee of Garlock asbestos claimants last week asked Hodges to throw out Legal Newsline’s March filing. According to the committee, the publication already has an appeal pending from the judge’s decision to close the trial to the public and that should bar the publication from seeking the same relief.

Hodges said in his January opinion that $125 million was the “reasonable and reliable” estimate of present and future liability for mesothelioma claims. The asbestos claimants sought almost $1.3 billion. For details, click here for the Jan. 13 Bloomberg bankruptcy report.

Garlock, based in Palmyra, New York, filed for Chapter 11 protection in June 2010 and later submitted a reorganization plan for full payment of present and future asbestos personal-injury claims. The plan addresses 100,000 asbestos claims. For details, click here for the Nov. 30, 2011, Bloomberg bankruptcy report.

EnPro stock has climbed since Hodges issued his ruling. The shares, which closed at $58.78 the day before his opinion, rose 46 cents to $72.47 yesterday in New York trading.

EnPro had assets of $1.39 billion and liabilities of $779.3 million on its Dec. 31 balance sheet. Net income last year was $27 million on revenue of $1.144 billion.

EnPro makes engineered products, including diesel and natural-gas engines. It has operations in the U.S. and 10 other countries.

The Garlock case is In re Garlock Sealing Technologies LLC, 10-bk-31607, U.S. Bankruptcy Court, Western District North Carolina (Charlotte).

Updates

FGIC Joins Banks to Stop Detroit From Voiding Debt

Financial Guaranty Insurance Co. and six banks, including Deutsche Bank AG, asked to take part in the lawsuit Detroit filed in January to void $1.45 billion in obligations that were incurred in 2005 and 2006 to fund municipal pensions.

The banks said in court papers this week that they hold $1 billion of the debt. New York-based FGIC said it will bear the loss if the city’s obligation to pay is abrogated, and they all claim the right to join the lawsuit and try to stop Detroit from voiding the debt.

If they are permitted to join, FGIC and the banks said, they will file counterclaims against the city and the pension funds based on theories including unjust enrichment.

FGIC accused Detroit of engaging in “opportunism and revisionist history.” Although selling the debt relieved the city of an immediate obligation to pay hundreds of millions into the underfunded pension systems, FGIC said, the city “now seeks to turn a crooked eye to history” by claiming it was “the innocent victim of fraud perpetrated on a grand scale.”

According to its complaint, Detroit said the two pension systems were underfunded by $1.7 billion 2004. The city couldn’t borrow more to replenish the funds because of state caps on municipal debt. Detroit said the loan transactions were a “sham” designed to evade those restrictions. For details, click here for the Feb. 3 Bloomberg bankruptcy report.

Detroit filed a debt-adjustment plan last month. The plan provides full payment for holders of secured general obligation bonds and a 20 percent recovery from receipt of new bonds for holders of what Detroit said are unsecured general obligation bonds. Retired city workers are to have pensions cut 4 percent to 26 percent, if they accept the compromise contained in the plan. For details, click here for the Feb. 24 Bloomberg bankruptcy report.

A hearing is set for April 4 to present arguments over whether the plan can affect city workers’ pensions. The hearing for approval of disclosure materials is slated for April 14.

The current schedule calls for the last phase in the plan-approval process, dealing with disputed facts, to run from July 16 to Aug. 1.

Detroit began the largest-ever Chapter 9 municipal bankruptcy in July with $18 billion in debt, including $5.85 billion in special revenue obligations, $6.4 billion in post-employment benefits, $3.5 billion for underfunded pensions, $1.13 billion on secured and unsecured general obligations and $1.43 billion on pension-related debt, according to a court filing. Debt service consumes 42.5 percent of revenue.

The city of 700,000 has 100,000 creditors and 20,000 retirees.

The lawsuit is City of Detroit, Michigan v. General Retirement System Corp. (In re City of Detroit, Michigan), 14-04112, U.S. Bankruptcy Court, Eastern District Michigan (Detroit).

The Chapter 9 case is City of Detroit, Michigan, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

Syncora Objecting to New Detroit Swap Settlement

Bond insurer Syncora Guarantee Inc. made good on its threat and filed papers this week objecting to the revised settlement that would cost Detroit $85 million to end liability under a swap agreement, compared with the $165 million cost under a prior settlement the bankruptcy judge refused to approve.

Syncora isn’t alone in objecting. About 10 other objections were filed. There will be a hearing on April 3 where the bankruptcy judge in Detroit will consider approving the settlement.

The proposed settlement is with the Merrill Lynch Capital Services Inc. unit of Bank of America Corp (BAC:US). and UBS AG. (UBSN) They are the other side to swap agreements intended to protect Detroit from rising interest rates on floating-rate loans taken down to fund the pension systems.

Syncora faults the new settlement because, unlike the prior version, it doesn’t terminate the swap agreement and thus can’t properly terminate the security interest in casino revenue. Unlike the prior disapproved settlement, the new one does not terminate Syncora’s insurance on the swap agreement.

The bankruptcy court, according to Syncora, cannot simply “vaporize” liens on casino revenue.

Several foreign banks, including Hypothekenbank Frankfurt AG, believe the settlement shouldn’t be approved because it’s “outside the lowest range of reasonableness.”

The banks believe the city is “certain” to invalidate the security interest in casino revenue providing collateral for the swap obligation.

Detroit will respond to the objections on March 21.

Savient’s Liquidating Chapter 11 Plan Out for Vote

Savient Pharmaceuticals Inc. (SVNTQ:US), a developer of a treatment for gout, sold the business in January for $120.4 million and scheduled a hearing on May 19 for approval of a liquidating Chapter 11 plan implementing a settlement between secured noteholders and unsecured creditors.

Crealta Pharmaceuticals LLC bought the business. The settlement resulted from the official creditors’ committee’s challenge to the validity of the secured noteholders’ $147.5 million claim.

The settlement carved out $2.525 million, including $1.925 million for unsecured creditors and $575,000 for the committee’s lawyers. In addition, $100,000 was earmarked for the indenture trustee for convertible noteholders owed $122.4 million.

According to the disclosure statement approved yesterday, noteholders should have an 87.5 percent recovery, while general unsecured creditors see 1.3 percent.

Bridgewater, New Jersey-based Savient filed for Chapter 11 protection in October. The petition listed assets of $73.8 million against liabilities totaling $260.4 million.

The case is In re Savient Pharmaceuticals, 13-12680, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Green Field Noteholders Take TPT Unit in Debt Swap

Green Field Energy Services Inc., an oil-field services provider, wants to sell its Turbine Powered Technology LLC unit to noteholders in exchange for a $17.5 million reduction in secured debt.

Last week, the bankruptcy court in Delaware authorized Green Field to hire liquidator Gordon Brothers Group LLC to sell assets as the company’s agent. The liquidators guaranteed that Lafayette, Louisiana-based Green Field will recover $50 million and as much as $17.5 million more depending on the outcome of the sale.

There was an auction to determine if anyone would bid against Gordon Brothers for the assets. Although no one made a competing bid for everything, the secured noteholders submitted a bid for TPT, a maker of motors and generators.

Green Field wanted the sale of TPT approved last week along with the Gordon Brothers liquidation agreement. The judge required the company to submit a new set of papers for the TPT sale. Tentatively, the hearing for approval of the TPT sale will occur March 25.

As the result of an examiner’s report, the unsecured creditors’ committee negotiated a settlement changing opposition into support for Green Field’s liquidating Chapter 11 plan at an April 23 confirmation hearing.

As revised, senior noteholders are expecting a 25 percent recovery on $255.9 million in claims. General unsecured creditors, with $264.5 million in claims, are projected for a 13 percent recovery from a liquidating trust. Holders of subordinated claims get nothing. For details on the revised plan, click here for the March 18 Bloomberg bankruptcy report.

Green Field listed assets of $306.9 million and debt totaling $447.2 million, including $345.1 million in secured claims. Secured debt includes the $255.9 million in 13 percent senior secured notes.

The company originally listed unsecured debt of $102.1 million. The balance sheet had assets of $352.1 million on June 30 against liabilities totaling $412.1 million.

Green Field provided hydraulic fracturing and well services. Revenue for the first eight months of 2013 was $183 million, resulting in a net loss of $81.4 million.

The case is In re Green Field Energy Services Inc., 13-bk-12783, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Advance Sheets

Stern Case Can’t Be Used to Vacate Prior Judgments

Attacking a judgment by claiming that the bankruptcy court lacked power to make a final order won’t succeed where the time for appeal has long passed, according to a March 12 decision from the U.S. Court of Appeals in Chicago.

An individual filed in Chapter 7, to be met by a lawsuit where a creditor successfully contended that a $45,000 debt was procured by fraud. The bankruptcy judge entered judgment for the debt and declared the debt non-dischargeable.

Long after the time for appeal lapsed, the U.S. Supreme Court handed down the Stern v. Marshall opinion declaring that bankruptcy courts can’t make final rulings on some types of state-law claims against creditors.

In the reopened bankruptcy, the bankrupt contended that Stern deprived the bankruptcy judge of the ability to enter judgment against him. He lost in the bankruptcy court and on a first appeal in federal district court.

In an unsigned opinion, a three-judge panel on the Seventh Circuit Court of Appeals in Chicago upheld the lower courts. The circuit court didn’t reach the question of whether Stern deprives bankruptcy courts of the traditional power to enter judgment in the process of deciding if a debt is dischargeable.

Instead, the circuit court based its decision on familiar principles under Rule 60(b) of the Federal Rules of Civil Procedure dealing with reopening judgments for mistake. The court said that voiding a judgment for jurisdictional defect is possible only if the court “lacked even an ‘arguable basis’ for jurisdiction.”

Perhaps of more significance, the appeals court said that Rule 60(b) applies retroactively “only under extraordinary circumstances.” The opinion said that a legal development like Stern that comes after entry of a judgment is not “extraordinary.”

Near the end, the opinion says that the bankruptcy court’s exercise of jurisdiction “was correct at the time of its issuance.”

The case is Lee v. Christenson, 13-3256, U.S. Seventh Circuit Court of Appeals (Chicago).

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net Charles Carter, David Glovin


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