FISHER, Circuit Judge.
Anderson Memorial Hospital ("AMH") first filed suit against W.R. Grace and its affiliates ("Grace")
AMH appeals from the orders confirming Grace's Chapter 11 Plan and approving the trust and channeling injunction. AMH argues that (A) the Plan does not meet the requirements of § 524(g), which provides a mechanism for handling over-whelming asbestos-related liabilities in the Chapter 11 process, (B) the Plan fails to provide equal treatment pursuant to § 1123(a)(4), (C) Grace has not shown that the Plan was proposed in good faith pursuant to § 1129(a)(3), and (D) Grace has not shown that the Plan is feasible pursuant to § 1129(a)(11). On each of these issues, we will affirm the judgment of the District Court.
One aspect of Grace's business is extracting natural resources, refining them, and converting them into manufactured materials used for building construction and insulation. Since the 1980s, Grace has defended itself against hundreds of asbestos-related lawsuits filed by building owners seeking redress for the costs involved in removing Grace products.
AMH owns a hospital complex in Anderson, South Carolina, that used Grace products in its construction. In 1992, AMH filed a class action lawsuit against Grace seeking compensation for asbestos-related property damage in South Carolina state court. The South Carolina court struck out-of-state class members from the AMH complaint — a decision that was not immediately appealable under South Carolina law. Anderson Memorial Hosp. v. W.R. Grace & Co., 1994 WL 1744074 (S.C.Ct.Com.Pl. Aug. 8, 1994). AMH amended its complaint to exclude non-South Carolina buildings and to include damage caused by all kinds of asbestos-containing surfacing material produced by Grace. The South Carolina Circuit Court conditionally certified this class in February 2001. AMH Appendix ("AMHA") at 700193. Grace sought Chapter 11 protection two months later on April 2, 2001,
Early in the Chapter 11 proceedings, Grace sought to establish a bar date for property damage claims and a process for handling related litigation. In April 2001, personal injury ("PI") and property damage ("PD") committees were appointed. The Bankruptcy Court requested proposals in May 2001 for case management plans and the scheduling of the asbestos-related claims.
After the March 31, 2003 deadline for filing claims was established, more than 4,000 traditional PD claims were filed.
Grace filed a Notice of Intent to Object to the PD claims, and some claimants then came forward to object that AMH's counsel had filed claims in their names without authorization. Grace asked S & R to withdraw these claims. The number of PD claims was ultimately reduced from more than 4,000 to 1,670, in part because S & R withdrew 586 claims improperly filed on behalf of class claimants and 1,500 claims that lacked an evidentiary basis. S & R also withdrew approximately 550 additional claims for various other reasons. The parties litigated some additional claims in which S & R's authority was questioned; the Bankruptcy Court disallowed those claims, a ruling that the District Court and this Court later affirmed. In re W.R. Grace & Co., 366 B.R. 302 (Bankr.D.Del. 2007), aff'd, Mission Towers v. W.R. Grace, 2007 WL 4333817 (D.Del. Dec. 6, 2007), aff'd, In re W.R. Grace & Co., 316 Fed.Appx. 134 (3d Cir.2009). In response to these objections, AMH moved for class certification. That motion was denied on May 29, 2008, and the District Court declined to give leave to appeal — a ruling we declined to review on an interlocutory basis. In re W.R. Grace & Co., 389 B.R. 373, 380 (Bankr.D.Del.2008), leave to appeal denied, In re W.R. Grace & Co., 2008 WL 4234339, *2 (D.Del. Sept. 4, 2008), interlocutory appeal denied, In re W.R. Grace & Co., No. 08-4829 (3d Cir. Dec. 14, 2009).
Throughout the Chapter 11 process, various parties engaged in settlement negotiations. In fall 2004, an initial settlement effort including S & R failed. In 2006, the late District Judge Samuel Pointer led a mediation including S & R, but the parties did not reach a settlement.
In fall 2006, Grace began to litigate the remaining PD claims. All but 90 of these claims had been withdrawn, disallowed, or settled (contingent on the confirmation of a § 524(g) plan) by February 2009. By the time the District Court issued its opinion in 2012, Grace had settled a total of 407 PD claims (including 119 PD claims S & R
With the consent of the committee of asbestos PD claimants, Plan Proponents obtained the appointment of Judge Alexander Sanders as a representative of future PD claimants. Plan Proponents negotiated with Judge Sanders and came to an agreement regarding the Plan's treatment of traditional PD claims. Successive drafts of the Plan were circulated to all counsel, and comments were invited. AMH did not provide comments. AMH, for its part, asserts that the Plan was actually the result of a deal negotiated in April 2008 by Grace, the Equity Committee, the PI Committee, the PI future claims representative, and the PI lead negotiator — all without PD participation.
The Plan was filed on February 27, 2009 and subsequently amended several times. With respect to the present and future traditional (non-ZAI) asbestos PD claims making up Class 7A, it provides:
Joint Appendix ("JA") at 200078-79.
Following the Plan's effective date, the PD trust will be funded with the amount of cash specified in the Plan to pay allowed PD claims. Reorganized Grace will have an ongoing obligation to fund the PD Trust for all traditional PD claims allowed in the future.
Approximately 98.99 percent of Class 7A voted to accept the Plan. JA at 201376. AMH challenged the confirmation of the Plan. At the confirmation hearing, the Bankruptcy Court heard evidence on, among other things, the issue of good
The Bankruptcy Court also heard evidence on the Plan's compliance with the statutory requirements for channeling asbestos claims to a trust. A § 524(g) injunction is only appropriate where the debtor is likely to be subject to significant future demands. Plan Proponents offered the testimony of economist Dr. Denise Martin on this issue. Dr. Martin analyzed future events that might trigger additional property damage demands. She testified that Grace was likely to be subject to substantial future demands, but that the amount and timing of those demands could not be determined. The Bankruptcy Court credited her testimony.
Additionally, investment banker Pamela Zilly testified as an expert on the feasibility of the Plan, concluding that the Plan is feasible "in light of Grace's historical performance, reasonable projections, management initiatives, and proposed exit financing." Grace Br. at 17; see also JA at 201747. Although Grace's internal projections valued future PD liabilities at $37.3 million,
Over AMH's objections, the Plan was confirmed. The District Court affirmed the Confirmation Orders on appeal. In re Grace & Co., 475 B.R. 34 (D.Del.2012), superseding In re W.R. Grace & Co., 468 B.R. 81 (D.Del.2012). In light of our decision in Wright v. Owens Corning, 679 F.3d 101 (3d Cir.2012), AMH asked the District Court to reconsider its opinion. The District Court declined on July 23, 2012. In re W.R. Grace & Co., 476 B.R. 114 (D.Del. 2012). AMH's timely appeal of the District Court's affirmance of the Confirmation Orders and of its denial of its motion for relief followed.
The Bankruptcy Court had jurisdiction over this case pursuant to 28 U.S.C. §§ 157(a) and 1334(b), and the District Court had appellate jurisdiction over the Bankruptcy Court decision under 28 U.S.C. §§ 158(a) and 1334(b). We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. "We review the District Court's conclusions of law de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof." In re Combustion Eng'g, Inc., 391 F.3d 190, 214 n. 19 (3d Cir.2004).
AMH appeals from the District Court's affirmance of the Bankruptcy Court orders confirming Grace's Chapter 11 Plan of reorganization and approving a trust and channeling injunction under 11 U.S.C.
Section 524(g) provides a mechanism that allows companies to handle overwhelming present and future asbestos liability through a trust created in conjunction with a Chapter 11 bankruptcy plan. See Katherine M. Anand, Note, Demanding Due Process: The Constitutionality of the § 524 Channeling Injunction and Trust Mechanisms That Effectively Discharge Asbestos Claims in Chapter 11 Reorganization, 80 Notre Dame L.Rev. 1187, 1192 (2005). AMH argues that the reorganization plan does not comply with the statutory requirements for a § 524(g) injunction and trust because (1) Grace did not demonstrate that it was likely to be subject to future PD demands, (2) Grace did not demonstrate that the plan's procedures were necessary to deal equitably with claims and future demands, and (3) the procedures treat similar claims differently. For the reasons discussed below, none of these arguments succeeds.
An asbestos manufacturer may be entitled to use § 524(g)'s trust mechanism if it "is likely to be subject to substantial future demands for payment arising out of the same or similar conduct or events that gave rise to the claims that are addressed by the injunction." § 524(g)(2)(B)(ii)(I). AMH contends that Grace faces no future property damage demands.
"Claim," as described elsewhere in the Bankruptcy Code, means a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 101(5). Section 524(g)(5) defines "demand" as a "demand for payment, present or future, that —
§ 524(g)(5) (emphasis added).
In AMH's reading of the statute, claims and demands are mutually exclusive because a demand "was not a claim during the proceedings leading to the confirmation of a plan of reorganization" and could be either dealt with in the ordinary course of the bankruptcy or not discharged at all. AMH contends that, although future demands are easily cognizable in the personal injury context, PD claims cannot result in future demands, because any buildings that contain asbestos already contain the material.
AMH concedes that future PD demands existed under the definition of "claim" set out in Matter of M. Frenville Co., 744 F.2d 332 (3d Cir.1984). There, we held that a claim arises when the underlying state-law cause of action accrues. Future PD claims could have existed if any potential claim from already-installed asbestos products had not, under various state laws, met the accrual requirements at the time potential claimants were notified of the bankruptcy. Under the "mutual exclusivity" theory
First, AMH argues that In re Grossman's Inc., 607 F.3d 114, 125 (3d Cir.2010) (en banc), supersedes Frenville on this issue by holding that "a `claim' arises when an individual is exposed pre-petition to a product or other conduct giving rise to an injury, which underlies a `right to payment' under the Bankruptcy Code." Grossman's explicitly overrules Frenville.
Second, AMH sees no basis in the evidence for the required finding that Grace is likely to be subject to substantial future demands, particularly when, in AMH's view, the testimony of Dr. Martin, Grace's sole witness for the idea that Grace was likely to be subject to substantial future PD demands, is best understood as using the term "demand" in the colloquial sense, as she explicitly stated she was not offering an opinion about the technical difference between a claim and a demand within the meaning of § 524(g).
Each of these objections fails. First, we find no clear error that would justify disturbing the factual conclusion that there are property damage claimants who will seek redress in the future. Dr. Martin testified, "The claims will be made. Yes, it's my opinion that there will be substantial — substantial claims will be made." JA at 201784-85. Expert testimony sufficiently supported the claim that Grace will be subject to future demands and that AMH failed to provide evidence to the contrary, though it had the opportunity to do so. The Bankruptcy Court credited this expert testimony, noting the distinction
Second, we conclude that property damage future claims can exist as a matter of law. We reject AMH's assertion that Grossman's eliminated the category of future holders of demands, as Grossman's concerned the definition of claims and expressly stated that the plan at issue was not a § 524(g) plan. Congressional intent to allow a debtor to "emerge free and clear of the entire universe of asbestos liabilities," as evidenced by the statute's reference to present and future demands, underscores this point. Grace Br. at 24 (citing 140 Cong. Rec. at 14461, S514462 (October 6, 1994) (Sen. Heflin)).
The Bankruptcy Court handled a similar statutory construction argument in In re Flintkote Co., 486 B.R. 99, 124 (Bankr. D.Del.2012). The Flintkote court concluded that the reference to demands in § 524(g) was ambiguous and that a literal application of the term would produce results at odds with the legislature's intent. Responding to the suggestion that claim and demand are mutually exclusive, the court stated that
Flintkote, 486 B.R. at 124 (citation omitted). Additionally, Flintkote concluded that the position the creditor advanced there (which parallels AMH's) would produce a result that contravened congressional intent. In the Bankruptcy Court's description, because asbestos-related illnesses have a long latency period, Congress created the § 524(g) trust mechanism in order to protect the due process rights of people who had been exposed but not yet affected, and who might not manifest injury until a time when all available compensation had been paid out to people who got sick faster. Section 524, therefore, improves equality of treatment among claimants. Id. at 124-25.
The Bankruptcy Court explained that, "because asbestos production in this country largely ceased many decades ago," id. at 125, it may be difficult, if not impossible, for a debtor to demonstrate it will "likely be subject to substantial future demands" under the creditor's proposed interpretation of "claim" and "demand." That interpretation would therefore prevent many debtors from qualifying for the protection of § 524(g), which would "defeat[ ] the purpose of the statute by removing the protections for `exposed yet unimpaired' asbestos creditors and depriving them of just compensation for their future injuries and illnesses." Id. at 123. Thus, the Bankruptcy Court affirmed in Flintkote its earlier conclusion in this case that "future demand holders are those who have been
AMH's argument that there is no such thing as a future PD demand has some intuitive appeal. After all, asbestos installation has long-since ceased, so every building that will be damaged by asbestos already contains it. As a policy matter, the rationale for the § 524(g) trust mechanism is less clear here than in the personal injury context; if all property damage has occurred and those harmed can be notified, the ordinary claims process could arguably meet Congress's objectives of promoting equal treatment of claimants and allowing manufacturers to handle asbestos liability in an orderly and streamlined process.
Ultimately, however, AMH's arguments must fail. Section 524(g) explicitly states that the asbestos trusts can cover property damage, so an interpretation that makes such trusts impossible cannot be consistent with congressional intent. Furthermore, as the Bankruptcy Court demonstrated, AMH's "mutual exclusivity" theory would effectively read the category of present demands out of the statute. For these reasons, we affirm the District Court's conclusion that because "[i]t still remains unknown (and may never be ascertained) how many entities and individuals were affected by these products, the precise quantity of asbestos-laden products that were sold, which buildings the products were used in and how much was used per building, or the percentage of these entities that have successfully removed the asbestos products from their buildings," "there remains a significant chance that future property damage claims will be asserted against Grace by property damage claimants." In re W.R. Grace Co., 475 B.R. 34, 101 (D.Del.2012).
Next, AMH argues that a trust under § 524(g) is unnecessary to equitably handle claims and future demands. See § 524(g)(2)(B)(ii)(III) ("pursuit of such demands outside the procedures prescribed by such plan [must be] likely to threaten the plan's purpose to deal equitably with claims and future demands"). According to AMH, § 524(g)'s procedures were not required because the "trust" is "simply a conduit for the payment of funds by reorganized Grace, inserted primarily if not exclusively to obtain the benefits of the § 524(g) injunction." AMH Br. at 38. Under the Plan, the PD Trust will be funded on the Plan's effective date with sufficient funds to pay the settled PD claims; if additional PD claims are later
Furthermore, AMH finds a "fundamental illogic" in "extending § 524(g) to claims that are supposedly `unimpaired' under the Plan" because there is no purpose to a trust, in AMH's view, if claims are to be paid at 100 percent of their value. AMH Br. at 39 (citing Barliant, Karcazes & Sherry, From Free-Fall to Free-For-All: The Rise of Pre Packaged Asbestos Bankruptcies, 12 Am. Bankr.Inst. L.Rev. 441, 453 (Winter 2004)). AMH contends that Grace provided no evidence that the pursuit of PD claims outside the Plan procedures would threaten the Plan when Grace has stated its intention to pay 100 percent of PD claims as they are resolved.
AMH's argument underestimates the importance of creating a mechanism to resolve all of Grace's present and future asbestos liabilities. Outstanding, unresolved asbestos liability can make it extremely difficult for certain entities to amass operating capital, which can hinder a debtor's chances of long-term survival and, in turn, prevent equitable resolution of future asbestos claims. For that reason, both the PI trust and the PD trust are necessary to protect the interests of future asbestos claimants, as together they provide a level of certainty calculated to position Grace to compensate future claimants. See Combustion Eng'g, 391 F.3d at 234 (explaining that § 524(g) seeks to provide "an `evergreen' source of funding to pay future claims" by allowing a debtor to emerge from Chapter 11 "cleansed of asbestos liability").
Finally, AMH argues that the trust procedures are not fair and equitable because similar present claims and future demands will not be paid "in substantially the same manner." § 524(g)(2)(B)(ii)(V), (g)(4)(B)(ii). Because this argument duplicates AMH's broader claims of unequal treatment under both § 524(g) and § 1123(a)(4), these arguments are considered together in the following Part, which concludes that the equality requirement has been satisfied. We conclude, therefore, that the plan meets the requirements of § 524(g).
"Equality of distribution among creditors is a central policy of the Bankruptcy Code." Begier v. IRS, 496 U.S. 53, 58, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990). Two Code provisions relevant in this case mandate some form of equality. Section 1123(a)(4) requires a plan to "provide the same treatment" for each claim or interest in a class "unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest." Section 524(g)(2)(B)(ii)(V) requires the adoption of procedures that "provide reasonable assurance that the trust will value, and be in a financial position to pay, present claims and future demands that involve similar claims in substantially the same manner." AMH argues that the Plan should not have been confirmed because it treats AMH substantially differently than other similarly situated creditors by denying AMH the opportunity to litigate in its chosen state forum, outside the jurisdiction of the Bankruptcy Court. Considering the Plan as an "integrated whole," the District Court found that the Bankruptcy Court had properly concluded that the Plan met these equality requirements. In re W.R. Grace & Co., 475 B.R. 34, 124 (D.Del.2012).
In Combustion Engineering, 391 F.3d at 239, we remanded for further record development where a two-trust structure could have potentially favored claimants to one trust over claimants to the other. The record then before us raised concerns about certain pre-petition settlements that led to the creation of a $400 million trust for the payment of claims. Id. at 240-42. Creditors who drew on the trust retained a "stub claim" that allowed them to vote on the bankruptcy plan, which included a § 524(g) injunction. Id. at 201. We concluded that the creation of stub claims may have the result of artificially gerrymandering classes called upon to vote on a plan, adding claimants to the class who have already received more than they would have under the plan and thus have little incentive to scrutinize it before voting. Id. at 243-44.
AMH urges us to follow In re Dow Corning Corp., 280 F.3d 648, 660 (6th Cir. 2002), for the proposition that § 1123(a)(4) requires equality in procedural treatment. There, the plan put governmental subrogation claims together into a class and would pay those claims in full in order to satisfy § 1129(b)(2)(B)'s "cram down" requirements. Id. at 659. Different procedural protections applied to different government units; the Canadian government entered into a settlement that allowed it to gain notice before payments were made to beneficiaries so that Canada could determine if a subrogation claim existed. Id. at 660. The Sixth Circuit held that this procedural guarantee, given only to Canada, meant that the United States did not receive equal treatment. Id.
Here, the District Court found that the Plan satisfied both prongs of the equal treatment test outlined in Quigley and AOV. W.R. Grace & Co., 475 B.R. at 140. The District Court concluded that AMH's assertion that it was giving up more than other class members by losing its forum option was incorrect, because everyone who filed a proof of claim submitted to the Bankruptcy Court's jurisdiction — a necessity in order to maintain uniformity in treatment of claims in this highly technical area of law. Id. Even if litigating before the Bankruptcy Court were a true disadvantage, AMH voluntarily submitted to it. See Langenkamp v. Culp, 498 U.S. 42, 45, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (holding that Creditors submit themselves to the Bankruptcy Court's jurisdiction by submitting a proof of claim).
Here, AMH argues that the Joint Plan disadvantages it as compared to other
AMH suggests that the District Court erred because there are no similarly situated creditors left,
No claims under Class 7A will be handled via alternative dispute resolution or lower proof thresholds; if AMH is comparing itself to the U.S. ZAI claimants, the distinction is immaterial because those claimants are part of Class 7B. Regarding the other members of Class 7A, the future PD claimants represented by Judge Sanders, any difference between AMH and future claimants as to forum is meant to allay Seventh Amendment concerns and is not prejudicial.
Ultimately, the only relevant comparison here is between AMH and other members of Class 7A, the future PD claimants represented by Judge Sanders.
Future PD claimants cannot be bound to the jurisdiction of the Bankruptcy Court in this way because they have not submitted proofs of claim granting the Bankruptcy Court jurisdiction and have not necessarily surrendered their rights to a jury trial. AMH insinuates that it is a matter of convenience (i.e., future claimants can choose a district court that is closer to the property and witnesses needed), but the most reasonable inference from their persistence on this issue is that it believes it is likely to recover more from a South Carolina state jury. AMH has not explained how being bound by the decision of the Bankruptcy Court leads directly to disadvantage in recovery, because to do so would lay bare assumptions about the fairness and adequacy of the Bankruptcy Court's proceedings that it cannot support. We conclude, therefore, that the Plan treats AMH sufficiently equally to other members of the same class to meet the requirements of §§ 524(g) and 1123(a)(4). Even if we were to conclude that binding AMH to the jurisdiction of the Bankruptcy Court represented "less favorable" treatment of its claim, AMH "agree[d] to a less favorable treatment of such particular claim or interest" by submitting itself to the Bankruptcy Court's jurisdiction via its proof of claim.
Under § 1129(a)(3), courts may only confirm reorganization plans proposed in good faith. "[T]he important point of inquiry is the plan itself and whether such a plan will fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code." In re Am. Capital Equip., LLC, 688 F.3d 145, 156 (3d Cir.2012) (quoting In re Combustion Eng'g, 391 F.3d at 247) (internal quotation marks omitted). Those objectives and purposes include "preserving going concerns and maximizing property available to satisfy creditors," "giving debtors a fresh start in life," "discourag[ing] debtor misconduct," "the expeditious liquidation and distribution of the bankruptcy estate to its creditors," and "achieving fundamental fairness and justice." Am. Capital Equip., LLC, 688 F.3d at 156-57 (internal citations and quotation marks omitted). Good faith presents mixed questions of law and fact; we review legal determinations de novo and factual determinations for clear error. In re PWS Holding Corp., 228 F.3d 224, 242-43 (3d Cir.2000).
In the view of the District Court, a good faith plan "(1) fosters a result consistent with the [Bankruptcy] Code's objectives; (2) has been proposed with honesty and good intentions and with a basis for expecting that reorganization can be effected; and (3) [exhibited] a fundamental fairness in dealing with the creditors." W.R. Grace & Co., 475 B.R. at 88 (citing Genesis Health Ventures, Inc., 266 B.R. 591, 609 (Bankr.D.Del.2001)). The District Court concluded that the first factor had been satisfied because the Plan preserved Grace as a going concern in the face of overwhelming asbestos liability and, given the probability of forthcoming future claimants, gave Grace a better chance of being able to satisfy those claims. W.R. Grace & Co., 475 B.R. at 87-88. Second, the District
AMH asserts that the Plan fails to meet the good faith requirement for procedural and substantive reasons. First, AMH implies that Grace had the burden of proof in demonstrating "good faith negotiations with AMH with respect to the procedures imposed on the holders of unresolved PD claims." AMH Br. at 50. Second, AMH asserts substantive unfairness because the Plan provides preferential treatment to certain "favored" constituencies. According to AMH, Judge Sanders's testimony that he was able to secure a "better deal" for the future PD claimants shows that AMH is suffering from the kind of disparity that raised questions meriting remand in Combustion Engineering.
We reject AMH's arguments for several reasons. First, we find no support for the idea that the District Court clearly erred in its factual conclusion that the Plan resulted from "years of litigation and extensive arms-length negotiations." W.R. Grace & Co., 475 B.R. at 89. The settlements of virtually all of the non-AMH PD claims and the overwhelming vote by creditors in favor of the plan bolster this conclusion. We reject AMH's implication that Grace's failure to negotiate directly with AMH undercuts the overall Plan's fundamental fairness, particularly when AMH declined to provide comments on drafts of the Plan when they were circulated during the negotiation process. See, e.g., PPA Furthermore, as the District Court emphasized, the Bankruptcy Court participated extensively in the settlement process and had an opportunity to observe the parties' conduct. W.R. Grace & Co., 475 B.R. at 90.
Second, we repeat our conclusion that AMH did not suffer from unfair inequality and note that a creditor's disagreement about the handling of its claim does not necessarily evince bad faith by the Plan's proponents. See, e.g., In re Barnes, 309 B.R. 888, 893 (Bankr.N.D.Tex. 2004) ("[T]he fact that a plan proposed by a debtor is not the one that the creditors would have proposed does not make the plan one that has not been filed in good faith.") (citations omitted). On the contrary, Chapter 11 reorganizations rest on majority rule and routinely leave a minority
Third, we reject AMH's contention that direct testimony from Grace's negotiators was required to demonstrate Grace's honesty and good intentions in proposing the Plan. Subjective intent, to the extent that it is one factor in determining that a Plan is not being used for purposes contrary to the Code's objectives, is routinely established by circumstantial evidence. A negative inference should not be drawn against Grace merely because it chose to protect the privacy of attorney-client communications. For a variety of privilege and evidentiary reasons, divining the subjective intent of a corporate actor through the testimony of the negotiators and other key people will often prove problematic and less than enlightening. In any event, it would be an extraordinary circumstance where an objectively fair plan must be set aside because of mere suspicions concerning the subjective intent of the parties.
Furthermore, the Plan has little in common with reorganization schemes that have been rejected for want of good faith. In In re ACandS, Inc., 311 B.R. 36, 43 (Bankr.D.Del.2004), the bankruptcy court adopted the view that good faith means the plan was "proposed with honesty, good intentions and a basis for expecting that a reorganization can be effected with results consistent with the objectives and purposes of the Bankruptcy Code.... with the most important feature being an inquiry into the fundamental fairness of the plan." There, the bankruptcy court found that the plan had not been proposed in good faith because it had been drafted primarily for the benefit of a pre-petition committee and memorialized a pre-petition settlement to the detriment of other claimants. Id.
Similarly, in Combustion Engineering we concluded that the use of stub claims potentially constituted "artificial impairment" under § 1129(a)(10) leading to serious doubt about whether the plan fulfilled the good faith requirement. 391 F.3d at 243. We remanded for further consideration of the issue in light of good faith. Id. at 261. Again, in In re Am. Capital Equip., LLC, applying the aforementioned good faith standard, we held that the plan lacked good faith because the proposed plan created an incentive for the debtor, a defunct business, to sabotage its own defense; severely limited insurers' procedural rights; and unlike a § 524(g) trust, created a fund in which the debtor made no contribution — instead withdrawing money from it. 688 F.3d at 159-61.
In this case, Grace has demonstrated that the Plan is fair, and AMH has provided no real argument that the Plan was not "proposed with honesty and good intentions and with a basis for expecting that reorganization can be effected." W.R. Grace & Co., 475 B.R. at 87-88. For these reasons, we affirm the District Court's conclusion that the Plan was proposed in good faith.
Grace had the burden of demonstrating that "[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan." § 1129(a)(11). Success need not be guaranteed, but must be reasonably likely. Am. Capital Equip., LLC, 688 F.3d at 156; see also Quigley, 437 B.R. at 142 (holding plan was not feasible where funding source was "speculative at best and visionary at worst"). We consider feasibility in the context of ongoing litigation
AMH contends that Grace cannot meet its burden without establishing the amount of liability the Plan will need to satisfy in the future. According to AMH, Grace's feasibility expert relied only on Grace's creation of a $37.7 million reserve for PD liabilities and performed no independent analysis of the liabilities of the PD trust.
None of these arguments leads us to conclude that the District Court clearly erred in affirming the Bankruptcy Court's factual conclusion that the Plan would likely succeed. As the District Court noted, Grace needed only to demonstrate a reasonable likelihood of success, not an absolute certainty. Grace's evidence, including Zilly's testimony, remains uncontradicted. AMH has produced no evidence supportive of its objection.
We acknowledge that Grace has offered us little insight into the methodology used to arrive at the conclusion that $37.3 million provides an adequate reserve for the PD liability payments. But the scale of related claims
For the reasons discussed above, AMH has failed to demonstrate that the Plan should not have been confirmed. We will affirm the District Court's holding.