Jan 20 2006 FMP Hearing Transcript

1 UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW JERSEY

2
- - - - - - - - - - - - - - x
3 IN THE MATTER OF: :
: CASE NO: 01-10578(RTL)
4 FEDERAL MOGUL GLOBAL, INC., :
T&N LIMITED, ET AL : January 20, 2006
5 Debtor :
:
6 - - - - - - - - - - - - - - x
7 TRANSCRIPT OF MOTIONS
BEFORE THE HONORABLE RAYMOND T. LYONS
8 UNITED STATES BANKRUPTCY JUDGE
9 A P P E A R A N C E S:
10
For the Debtor: PACHULSKI STANG ZIEHL YOUNG
11 JONES & WEINTRAUB
BY: JAMES E. O'NEILL, ESQ.
12 919 N. Market Street
Wilmington, DE 19801
13
For the Debtor: SIDLEY AUSTIN BROWN & WOOD
14 BY: KEVIN LANTRY, ESQ.,
JEFFREY BJORK,ESQ.
15 Bank One Plaza
10 South Dearborn Street
16 Chicago, ILL 60603
17 Counsel for Official SONNENSCHEIN NATH & ROSENTHAL

Committee for Unsecured BY: TOM LABUDA, ESQ.
18 Creditors: 8000 Sears Tower
Chicago, Ill 60606
19
United States Trustee: RICHARD SCHEPACARTER, ESQ.
20 844 King Street
21
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23 Operator: Betty Akin

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24 TERRY GRIBBEN'S TRANSCRIPTION SERVICE
27 BEACH ROAD, UNIT 4
25 MONMOUTH BEACH, NEW JERSEY 07750
(732) 263-0044 FAX (263) 263-0075
1 ADDITIONAL APPEARANCES:
2
Claimant ROBERT CLEMENTS (Telephonically)
3
For Asbestos Creditors: CAPLIN & DRYSDALE
4 BY: PETER LOCKWOOD, ESQ.
399 Park Avenue
5 New York, NY 10022
6 Counsel for Futures YOUNG CONAWAY STARGATE & TAYLOR

Representatives: BY: JAMES PATTON, JR., ESQ.
7 1000 West Street 17th Floor
Brandywine Building
8 Wilmington, DE 19801
9 Counsel for asbestos SEITZ VAN OGTROP & GREEN

plaintiffs law firms: BY: ROBERT KARL HILL, ESQ.
10 222 Deleware Avenue
11
For cancer claimants: SIMMONS COOPER, LLC
12 BY: ROBERT W. PHILLIPS, ESQ.
707 Berkshire Boulevard
13 East Alton, IL 62024
14 For cancer claimants: GEBHARDT & SMITH, LLP

BY: LOUIS EBERT, ESQ.
15 9 World Trade Center
New York, NY
16
For claimants: DAVID M. LIPMAN, P.A.
17 BY: JONATHAN RUCKDESCHOL, ESQ.
5901 S.W. 74th Street
18 Miami, FL 33131
19 For claimants: STANLEY LEVEY, ESQ.
20 For CNA Insurance: McDERMOTT WILL & EMERY

BY: DAVID CHRISTIAN, ESQ.
21 227 West Monroe
Chicago, IL 60606
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1 ADDITIONAL APPEARANCES:
2
For Pepsi Americas: MORGAN LEWIS & BOCKIUS
3 BY: HARVEY BARTLE, ESQ.
1111 Pennsylvania Avenue
4 Washington, DC 20004
5 For Grover Alexander: TIMOTHY HOGAN, ESQ.
6 For Cooper Industries: SWIDLER BERLIN

BY: ROGER FRANKEL, ESQ.
7 3000 K Street NW
Washington, DC 20007
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1 I N D E X
2
MOTION (statute of limitations) PAGE
3
4 BY MR. BJORK 10
5 BY MR. CLEMENTS 16
6 DECISION 19
7
MOTION (Sonnenschein)
8
BY MR. LABUDA 22
9
BY MR. SCHEPACARTER 39
10
DECISION 47
11
12 MOTION (Prelminary Injunction)
13 BY MR. LANTRY 54
14 BY MR. LOCKWOOD 86
15 BY MR. PATTON 93
16 BY MR. HILL 96
17 BY MR. PHILLIPS 98
18 BY MR. EBERT 107
19 BY MR. RUCKDESCHOL 107
20 BY MR. LEVEY 116
21 BY MR. CHRISTIAN 119
22 BY MR. BARTLE 119
23 BY MR. HOGAN 120
24 BY MR. FRANKEL 120
25 DECISION 123
Colloquy 5
1 THE CLERK: All rise, the United States Bankruptcy
2 Court, the Honorable Raymond C. Lyons presiding.
3 THE COURT: Good morning, thank you. Please be
4 seated. We don't have anybody appearing by phone this
5 morning, Mr. O'Neill?
6 MR. O'NEILL: Yes, there is. There are people
7 appearing by phone.
8 THE COURT: Okay. Just a moment.
9 MR. O'NEILL: Your Honor, we do have a couple of
10 people who are having train problems this morning as well.
11 So we're going to get started when the Court is ready, just
12 because we have a number of things to get to today. But we
13 might move things around based on people's availability and
14 their travel.
15 THE COURT: Mr. Clements?
16 MR. CLEMENTS: Yeah.
17 THE COURT: Good morning.
18 MR. CLEMENTS: Hello, is this Judge --
19 THE COURT: This is Judge Lyons speaking.
20 MR CLEMENTS: Nice to meet you.
21 THE COURT: Good morning. I guess other people
22 will be joining you on the telephone. We're in court here.
23 Mr. O'Neill, would you just enter your appearance, and we'll
24 see if Mr. Clements and the other people on the phone can
25 hear you.
Colloquy 6
1 MR. O'NEILL: Certainly, Your Honor. This is
2 James O'Neill, Pachulski Stang Ziehl Young Jones and
3 Weintraub, appearing today on behalf of the debtors Federal
4 Mogul. With me in the courtroom are my co-counsel from the
5 firm of Sidley and Austin, Kevin Lantry and Jeffrey Bjork.
6 THE COURT: All right. Were you able to hear
7 that?
8 MR. CLEMENTS: Yeah, that was great. Thank you.
9 THE COURT: All right. Mr. O'Neill?
10 MR. O'NEILL: Your Honor, I just wanted to see if
11 there were other parties who are also on the telephone. I
12 expect that there should be a number of parties appearing
13 today.
14 THE COURT: Well, let's proceed. We don't need to
15 take appearances from everybody.
16 MR. O'NEILL: Okay. Your Honor, as I mentioned
17 briefly before we got started, the trains coming out of New
18 York have been delayed, so I expect that several counsel
19 will be coming into the courtroom as soon as their trains
20 get down here. One of the things on the agenda for today
21 are the fee applications which is the last part of the
22 agenda, starting on page 9. And I just wanted to check, is
23 Mr. Smith on the telephone?
24 MR. SMITH: Yes. Your Honor, this is Warren Smith
25 the fee auditor.

Colloquy 7
1 THE COURT: Good morning, Mr. Smith.
2 MR. SMITH: Good morning, Your Honor.
3 MR. O'NEILL: Thank you, Mr. Smith. Your Honor,
4 on the fee applications, most of the fee applications are
5 uncontested. And it's my understanding, and the fee auditor
6 can confirm that the uncontested fee applications, the
7 applicants have all accepted the recommendation of the fee
8 auditor. There is one contested application today, and that
9 is the application filed by the Sonnenschein firm. The
10 Sonnenschein firm are part of the group that's delayed
11 coming in today.
12 But because I expect there are a number of parties
13 who are on the phone just for purposes of the fee hearing,
14 what I would propose to do, if it is acceptable to the
15 Court, is just ask whether the Court had any questions
16 regarding the uncontested fee applications, those
17 applications other than the Sonnenschein application, to see
18 whether we can deal with questions the Court may have on
19 those now. And then we could come back to the Sonnenschein
20 contested application when the parties are available.
21 THE COURT: That sounds like a good suggestion. I
22 don't have any questions. Mr. Smith, do you agree that all
23 of the applicants have accepted your recommendations?
24 MR. SMITH: Yes, Your Honor. We have recommended
25 a number of reductions in both fees and expenses. But the

Colloquy 8
1 only response that has been filed is the only objection that
2 has been filed, is the response of Sonnenschein. And again,
3 Your Honor, that's pretty much a separate and discrete
4 issue.
5 THE COURT: Right. All right, we'll deal with
6 Sonnenschein later. But if no one has anything else to add
7 with regard to the other fee applications, I'll approve them
8 in the amounts recommended by Mr. Smith. All right?
9 MR. O'NEILL: Thank you, Your Honor.
10 THE COURT: So anyone who is either here in court
11 today or on the telephone, who is only interested in the fee
12 application, you're welcome to sign off now. And we'll just
13 pause for a few seconds to make sure that, in the process of
14 hanging up, we don't get interference.
15 MR. O'NEILL: Your Honor, I just ask that Mr.
16 Smith remain on the phone to address the Sonnenschein matter
17 when it does come up.
18 THE COURT: It's not necessary for Mr. Smith to do
19 that. That's a legal issue.
20 MR. O'NEILL: Very well.
21 MR. SMITH: Thank you, Your Honor. There is a
22 reference in the Sonnenschein response regarding what we had
23 to say about Sonnenschein. And Your Honor, I'll be
24 perfectly willing to hang up, and I will do so after this
25 short speech. But our recommendations to Sonnenschein had

Colloquy 9
1 to do with what we saw as the scope of our authority, which
2 was go through and make recommendations regarding what are
3 reasonable and necessary. We did not intent to opine as to
4 the legal issue that the Court identified is the outstanding
5 issue.
6 THE COURT: Okay. Thank you very much, Mr. Smith.
7 MR. SMITH: And Your Honor, I may be excused now?
8 THE COURT: Yes, sir.
9 MR. SMITH: Thank you, Your Honor.
10 THE COURT: All right.
11 MR. O'NEILL: Your Honor, I just wanted to report
12 to the Court that the Sonnenschein firm is here. The trains
13 have gotten through. So if it's acceptable to the Court,
14 we'll go forward with that, the Sonnenschein matter now.
15 THE COURT: Well, let's see if we can perhaps take
16 care of some of those people who might be interested only in
17 the objection to claims dealing with the statute of
18 limitations and statute of repose.
19 MR. O'NEILL: Very well, Your Honor.
20 THE COURT: All right.
21 MR. O'NEILL: Mr. Bjork is going to be handling
22 the objection to claims.
23 THE COURT: Good morning.
24 MR. BJORK: Good morning, Your Honor. Jeff Bjork
25 from Sidley Austin on behalf of the debtors. The debtors

Bjork/Argument 10
1 filed their seventeenth omnibus objection to claims. These
2 were asbestos property damage claims. In that objection the
3 debtors objected to 362 claims on the basis that those
4 claims were time barred by applicable statutes of repose or
5 limitation in various jurisdiction. In connection with the
6 objection we submitted the declaration of Clinton Fisher.
7 He is special asbestos property damage litigation counsel to
8 the debtors. And in his declaration he testifies that the
9 debtors terminated their involvement in the manufacturing of
10 asbestos containing products for use in North America in the
11 early 1970s at the latest.
12 We received three responses to the objection which
13 cover 47 claims that are otherwise subject to the objection.
14 I'll address each of those responses in turn, and I
15 understand that Mr. Clements, one of the responding parties,
16 is on the phone. In addition, Your Honor, we have reached a
17 stipulation with the Spites (phonetic) and Runyon firm that
18 go to 196 claims that were subject to the objection, and
19 I'll address the terms of that stipulation as well.
20 The first response was filed by Grover Nicholson
21 who purports to be a consultant on behalf of about holders
22 of 51 claims. Six of the claims which are covered in his
23 response are not subject to our objection, so we're not
24 seeking disallowance with respect to those claims.
25 THE COURT: Those are the Alabama claims?

Bjork/Argument 11
1 MR. BJORK: Those are the Alabama claims. The
2 balance of claims --
3 THE COURT: Let me just see if Mr. Nicholson is
4 here. Mr. Nicholson? Not in court and not on the
5 telephone, I take it? All right.
6 MR. BJORK: Your Honor, the balance of the claims
7 were filed on behalf of claimants who reside in Mississippi.
8 As we indicated in our papers, Mississippi has a statute of
9 repose which has a six year time bar on these types of
10 claims. As Mr. Nicholson pointed out in his response, there
11 is a limited exception to the statute of repose for property
12 owners who are in actual possession and control of the
13 property at the time of the installation of the asbestos
14 containing product.
15 THE COURT: But does that exception apply to
16 property owners who are claimants or who are defendants?
17 MR. BJORK: Your Honor, we take the position it
18 applies to property owners who are claimants. This is the
19 context in which the claims are being filed.
20 THE COURT: No, that's not -- I don't think so.
21 But go ahead, continue with your presentation.
22 MR. BJORK: 26, Your Honor, of those claims, of
23 the claims that are, of the 45 that are subject to Mr.
24 Nicholson's response, admit on the face of the proof of
25 claim that their property was acquired after the debtor

Bjork/Argument 12
1 ceased the manufacturing of asbestos containing products in
2 the early 1970s. Those claims on their face acknowledge and
3 admit that the properties were purchased between 1980 and
4 1999. And as such we assert that the claims are time barred
5 and not subject to the exception cited by Mr. Nicholson in
6 his response, on their face.
7 The balance of the claims, 19 of them, either
8 assert on the face of the claim that the property in
9 question was acquired in 1973 or before, or they don't give
10 an actual date of acquisition for the property. We are
11 proposing to continue the hearing with respect to these
12 claims, because they may be covered by the exception in the
13 Mississippi statute of repose.
14 THE COURT: How would they be covered by the
15 exception?
16 MR. BJORK: To the extent that they produce
17 evidence that the property was acquired and was in actual
18 possession and control at the time of the installation of
19 the product, we would submit that they are covered by the
20 exception, Your Honor.
21 THE COURT: I don't think so. If you read the
22 exception, and you read the Mississippi cases that interpret
23 it, the statute of repose is meant to protect builders,
24 architects and others from claims relating to improvements
25 to real property. And it sets forth a six year statute of

Bjork/Argument 13
1 repose. And as the Mississippi courts have made clear, and
2 of course it's a common statute in other states as well, the
3 purpose of the statute is to protect people who have worked
4 on real estate and are no longer in control of it. And so
5 that after the period of repose, anyone who has a claim
6 relating to the improvements of the real property is barred.
7 The exception is for people who are in control of
8 the property at the time of the claim. That means that the
9 statute of repose doesn't protect an owner against a claim
10 by someone who is injured on the owner's property. So it's
11 not the claim by the owner that is excepted from the statute
12 of repose, it's a claim against the owner. The people that
13 you're talking about here are claimants who are owners.
14 They don't get an extended period of claim against suppliers
15 of material to their property just because they owned it 20
16 years ago, 30 years ago.
17 What would happen is, if for example a property
18 was constructed with a defective stairwell, the builder
19 would be off the hook six years after he finished
20 construction. Same with the architect, same with the people
21 who might have supplied defective materials for the
22 construction of the stairway. But if somebody came onto the
23 property yesterday and fell through the stairs, that person
24 could sue the owner. And the owner couldn't take advantage
25 of the statute and say, well my stairs were built 30 years

Bjork/Argument 14
1 ago.
2 So, these people who are making claims are
3 claiming that they suffered damage because there's asbestos
4 shingles on their property that they have to pay to remove.
5 And if the shingles were installed more than six years ago,
6 their claims are barred, whether they were owners at the
7 time of the installation or not. All right, so --
8 MR. BJORK: Well, I like your interpretation
9 better.
10 THE COURT: -- I'm not ruling against you. What
11 I'm doing is I'm telling you that there's no reason to put
12 off the motion with regard to these other folks.
13 MR. BJORK: Your Honor, I will certainly take your
14 suggestion over that of our special counsel and others who
15 have reviewed this, and ask that the Court disallow all of
16 the claims that are subject to the Nicholson objection on
17 the basis that they are time barred.
18 THE COURT: All right. If you look at, there's a
19 couple of cases that talk about this, one is WEST END COURT
20 versus ROYALS, 450 South 2nd 420. It's from 1984 Supreme
21 Court of Mississippi. The Court explains the purpose of the
22 legislation and specifically says that the statute of repose
23 does apply in a suit by an owner against the builder, and
24 explains that the limitation applies to a suit by an injured
25 party against the owner. All right?

Bjork/Argument 15
1 And there's another case FELL versus RIVER CITY
2 ROOFING, 912 South 2nd 448, it was decided just in August of
3 2005. So it's very current, and explains that the
4 legislative purpose is clear that the exception is meant so
5 that persons who are in control of their property and might
6 have an opportunity to repair it or correct any defects,
7 don't get the benefit of the statute of repose. It's only
8 those who are no longer in control; the builder, the
9 architect, the suppliers, et cetera. So I see no reason not
10 to grant the debtor's objection to the claims of people who
11 had improvements done to their property more than six years
12 ago, or whatever the time -- Is it six years under the
13 Mississippi law?
14 MR. BJORK: Six years under Mississippi, Your
15 Honor.
16 THE COURT: Six years? Okay. And the same goes
17 for the other states where there are statutes of repose. I
18 guess it's Florida only has a statute of limitations, but --
19 MR. BJORK: Georgia has a statute of limitations.
20 THE COURT: I'm sorry, Georgia has a statute of
21 limitations. But you claim that the discovery rule doesn't
22 apply to property damage, only to personal injury.
23 MR. BJORK: That is correct.
24 THE COURT: Okay. So I'm going to grant the
25 debtor's motion, objections to --

Clements/Argument 16
1 MR. CLEMENTS: This is Robert Clements.
2 THE COURT: Mr. Clements?
3 MR. CLEMENTS: Yes.
4 THE COURT: I'm sorry, I didn't -- Let me hear
5 from you. Go ahead, Mr. Clements.
6 MR. CLEMENTS: Yes, they talk about this four year
7 rule, but there are many, there are several rules that were,
8 there were eight year rules, statute of repose. There were
9 a 1990 rule 9-3-30.1 action against people for asbestos.
10 That commenced in July 1990, so that was much later than the
11 four year rule. So the four year rule wasn't the only
12 thing.
13 THE COURT: Where do you live, Mr. Clements?
14 MR. CLEMENTS: I live in Athens, Georgia.
15 THE COURT: Georgia, okay. And what type of
16 asbestos product do you have on your home?
17 MR. CLEMENTS: It is approximately three
18 sixteenths of an inch thick and it's hard surfaced with a
19 pebbly finish, a white plastic finish over top of the
20 asbestos flooring. And it was put on in 1973. I put on
21 some of it myself. And I'm seeking $22,000 to glue
22 something on top of it to partially remediate the damage. I
23 suspect it's probably damaged -- my house $150,000.
24 THE COURT: And have you spent money to remedy the
25 situation?
1 MR. CLEMENTS: I have not spent money to remedy
2 the situation. I didn't want to disturb it. I do not want
3 to disturb it. They say it's worse when it's disturbed.
4 THE COURT: When did you find out that you had
5 asbestos in your house?
6 MR. CLEMENTS: I guess I knew I was putting
7 asbestos on at the time. It was called some sort of
8 asbestos board. Apparently in one of these proceedings I
9 had always said it was an unknown manufacturer, but they
10 said that the proper debtor was T&N Incorporated. But I did
11 not know about the dangers of it, of course. And it was not
12 advertised as being dangerous. And this CENTER versus
13 PARZINI (phonetic) suit said that the manufacturer is
14 supposed to -- CENTER CHEMICAL versus, 233 Georgia 5783,
15 manufacturer of plastic. I think it was not merchantable or
16 reasonably suited to the use intended.
17 THE COURT: Okay. When did you find out that
18 having asbestos on your house affected its value?
19 MR. CLEMENTS: As I appealed for, I haven't tried
20 to sell the house, but when I would apply for tax relief
21 because of the diminished value. Not just the asbestos but
22 also the aluminum wiring in the house.
23 THE COURT: And when did you file tax appeals?
24 MR. CLEMENTS: Approximately the last maybe eight
25 years.
1 THE COURT: Okay. All right, so you've known for
2 at least eight years that having asbestos on your house
3 affects its value.
4 MR. CLEMENTS: Yes.
5 THE COURT: All right. Mr. Bjork, do you want to
6 address the Georgia law?
7 MR. BJORK: Your Honor, Georgia law is clear that
8 there is a four year statute of limitations that applies.
9 It's also clear that there is no discovery rule that tolls
10 the statute of limitations with respect to property damage
11 claims. We cited two cases in our objection. Page 20, the
12 HANNAH versus WILLIAMS case as well as the CORPORATION OF
13 MERCER UNIVERSITY versus NATIONAL GYPSUM, which we think
14 goes directly to the issue of this notion of tolling until
15 the damage has been or should have been discovered. So we
16 would submit that the claim is time barred.
17 THE COURT: All right. And Mr. Clements, you
18 never sued Turner and Newall or any of the Federal Mogul
19 companies, did you?
20 MR. CLEMENTS: No.
21 THE COURT: No, okay.
22 MR. CLEMENTS: This is my first venture into this.
23 As I understand the discovery rules for Georgia for civil
24 practice are in OCCA Section 911-26-11. And they're to be
25 roughly in line with those of the federal courts.

Decision 19
1 THE COURT: Okay. All right, well I'm satisfied,
2 having reviewed the moving papers, the objection filed by
3 Mr. Clements as well as the response by the debtors, that
4 Georgia law has a statute of limitations that would bar the
5 claim by Mr. Clements as a matter of state law as of the
6 date the debtors filed their petition in October of 2001.
7 The product was put onto Mr. Clements' home in 1973, as he
8 testified, some of it by himself. So the purchase and
9 installation of the product took place at that time. The
10 decisions of the Courts of Georgia have held that the cause
11 of action accrues at the time the product is installed, and
12 it would expire four years after the date of installation.
13 So, if the claim wasn't brought by 1977 it would
14 be barred. In any event, even if the discovery rule, which
15 is an exception to the statute of limitations crafted by
16 courts for personal injury cases where the harm isn't known
17 until it manifests itself in a personal injury, even if that
18 discovery rule applied here it's apparent that Mr. Clements
19 knew more than four years prior to 2001 that he had asbestos
20 on his home and that it affected the value of the home. And
21 in order to cure it he might have to spend money to, as he
22 says, install some covering over the top of it. So, I find
23 that Mr. Clements' claim is time barred and I'm going to
24 grant the motion of the debtors to disallow Mr. Clements'
25 claim.
Colloquy 20
1 MR. BJORK: Thank you, Your Honor. There is a
2 stipulation with the Spites And Runyon firm. I just wanted
3 to describe the terms of it and how we're handling those
4 claims.
5 MR. CLEMENTS: So I guess I'll just hang up.
6 Okay?
7 THE COURT: Bye, Mr. Clements. Thank you.
8 MR. CLEMENTS: Thank you.
9 MR. BJORK: We have signed, the parties have
10 signed a stipulation with the Spites and Runyon firm. The
11 stipulation does a couple of things. It results in the
12 withdrawal with prejudice of 191 claims and it deems void
13 any votes cast, you know, on account of those claims in
14 respect of plan or amended plan. The debtors have agreed to
15 withdraw their objection without prejudice to raising
16 further objections with respect to five claims that were
17 filed on behalf of the Women's Club. Spites and Runyon has
18 agreed to file an amended 2019 statement with respect to all
19 claimants it purports to represent to the extent their
20 claims have not been previously withdrawn. And it has
21 agreed to file that statement by January 26, '06.
22 There is one factual issue that the parties are
23 still trying to sort out. That goes to the number of
24 holders of claims with respect to the 191 claims that have
25 been withdrawn. We have a number from Spites and Runyon

Colloquy 21
1 which is 43 holders, but they have asked us to give them
2 seven to 10 days to finalize that number. And we have
3 agreed to hold off from filing the stipulation until they
4 give us their final number in that regard. So, we would
5 propose to submit the stipulation in the next seven to 10
6 days.
7 THE COURT: All right, fine. Otherwise the
8 objection is sustained.
9 MR. BJORK: Thank you, Your Honor.
10 THE COURT: Thank you. Mr. O'Neill?
11 MR. O'NEILL: And Your Honor, we'll submit a
12 revised form of order consistent with the Court's ruling on
13 the balance of the claims objections. Your Honor, would you
14 like to proceed with the Sonnenschein matter?
15 THE COURT: I guess we might as well do that.
16 Yes.
17 MR. O'NEILL: Okay, thank you.
18 THE COURT: Is someone here from the US Trustees
19 Office?
20 MR. SCHEPACARTER: I am, Your Honor.
21 THE COURT: Good morning. May I have your
22 appearance?
23 MR. SCHEPACARTER: Good morning, Your Honor. If
24 it may please the Court, Richard Schepacarter for the United
25 States Trustee.
Labuda/Argument 22
1 THE COURT: And for Sonnenschein?
2 MR. LABUDA: Good morning, Your Honor. Tom Labuda
3 on behalf of Sonnenschein Nath and Rosenthal, official
4 counsel for the Official Committee of Unsecured Creditors.
5 THE COURT: All right. Mr. Labuda, it's your
6 application so I guess you should go first.
7 MR. LABUDA: Thank you, Your Honor. And I
8 apologize for the delay this morning. The normally reliable
9 trains had some problems this morning.
10 THE COURT: I heard on the radio as I was driving
11 in that New Jersey Transit had suspended service
12 temporarily.
13 MR. LABUDA: As I think was mentioned to the Court
14 as I was stepping in, we have agreed to the fee auditor's
15 recommendations, albeit they have a different focus. The
16 United States Trustee's objection to the FAIR Act related
17 work, notably does not question or address the necessity of
18 the work, the benefits if any, which we think were
19 substantial, and the estate for the work or the
20 reasonableness of the fees. Indeed all the plan proponents
21 agree that this work was absolutely necessary, as we set
22 forth in our brief, and I can go into detail today, and that
23 there have been substantial benefits conferred upon the
24 estate.
25 And as the fee auditor noted, there has been no

Labuda/Argument 23
1 dispute as to the reasonableness of the fees except to the
2 extent the fee auditor has made recommended reductions to
3 which we've agreed. The sole objection really is a legal
4 issue. The United States Trustee in their objection argues
5 that lobbying work is work that is almost exclusively
6 performed outside of the case and is independent of the
7 bankruptcy proceedings, and thus not a permissible activity
8 for an official committee to engage in under 1103, the
9 Bankruptcy Code.
10 We think that's wrong in this case, both as a
11 matter of law and fact. First, we would submit that there
12 is no per se rule on this. In 1103 it mentions nothing
13 about this whatsoever. And we don't think that the case law
14 that is out there, and there's not much, establishes any per
15 se rule either. In the language of the DOW CORNING case,
16 which is the principle case relied upon by the UST, we think
17 they actually describe the permissible activities right, in
18 saying that when you look at 1103, what the committee is
19 supposed to be involved in are matters that really go to the
20 core of the reorganization process. And that really is the
21 appropriate test. And the issue would be whether or not the
22 work is somehow unrelated to that process, independent of
23 that process, or tied to that process.
24 Applying that test to our facts, Your Honor, we
25 don't think there really is much dispute that this work

Labuda/Argument 24
1 relates to the core of the reorganization process, the very
2 reason why the debtors commenced these cases, and is
3 inextricably tied to the plan or reorganization that is on
4 file in this case. Indeed, their sole focus of this work
5 has been to protect the plan and to preserve the ability of
6 the plan proponents to confirm the plan.
7 By way of background, Congress began to seriously
8 debate and propose to move forward on the FAIR Act in April
9 2003. At that time the principle terms of the plan had
10 already been negotiated and indeed drafts of the plan had
11 been agreed to by the principle creditor constituencies
12 formed at that time. Indeed, one of the unique aspects of
13 this case which has been noted several times, is that the
14 commercial and asbestos creditors came to a very quick
15 realization in this case, perhaps as quick as six months
16 after the filing of the case, looking at all the difficult
17 and disputed issues regarding the disputes between the
18 parties that it was much better to try to reach a fast
19 compromise of those issues and then work together on the
20 remaining issues to get the company out of bankruptcy as
21 quickly as possible. It has taken longer than anyone
22 anticipated, of course, but we do think that makes this case
23 quite unique and avoided significant litigation that
24 otherwise would have occurred.
25 When the FAIR Act was announced in its form in

Labuda/Argument 25
1 2003 all the plan proponents reached a fairly quick and
2 unanimous conclusion; the FAIR Act was very bad for these
3 debtors. It proposed a solution that simply didn't work,
4 and on top of that we already had a solution to the debtor's
5 asbestos problems and it was set forth in the plan. In our
6 brief we go through in detail the problems with the FAIR
7 Act, but I would only briefly raise them here unless the
8 Court wants to get deeper into that. First and foremost,
9 the FAIR Act makes Federal Mogul the largest payer of all
10 the asbestos defendants.
11 THE COURT: How do you know that?
12 MR. LABUDA: It was determined according to a
13 formula in the FAIR Act based upon revenues of the company
14 at a particular point in time as well as discussions with
15 the asbestos corporations that had really been formulating
16 this and going with Congress. So we had calculated --
17 THE COURT: I remember reading that congressmen,
18 senators were trying to find out who was going to have to
19 pay how much into this fund, and they couldn't find out.
20 But somehow you learned it.
21 MR. LABUDA: Well, we don't know everybody, but we
22 can tell by the formula and by the revenues that we were
23 indeed the largest. And indeed the corporations that were
24 the most intimately involved with the formulation of this,
25 including many debtors that are currently in bankruptcy that

Labuda/Argument 26
1 came up with it, did it according to a formula that indeed
2 made us the largest payer. And our discussions with
3 appropriate congressman, including Judge Becker who was
4 leading mediation on this, agreed and noted with us that
5 indeed we were the larger. And we were able to actually
6 negotiate, as noted in here, a slight reduction in that.
7 But that was the first problem.
8 The second and more important problem was that the
9 FAIR Act really didn't address all of our problems. Because
10 of the cross border nature of these cases, a significant if
11 not a majority of the asbestos liabilities here arise as a
12 result of T&N and UK debtors. The FAIR Act would not do
13 anything to protect these debtors in the United Kingdom. We
14 would have to rely upon seeking comity be given to this,
15 which we had serious doubts would protect T&N and the UK.
16 On top of that, this came up at a time when we had no
17 agreement with the administrators, as Your Honor is aware.
18 And the administrators were threatening to liquidate the
19 debtors, the UK debtors.
20 In that event, we would have found ourselves
21 paying on account of Federal Mogul and T&N, on account of
22 their FAIR Act share, but not had the very companies that
23 gave rise to these obligations. And indeed, we would have
24 lost a substantial part of the assets that generated the
25 revenue that led to the total dollar amount. So we would

Labuda/Argument 27
1 have found ourselves in a position of facing a financial
2 burden that perhaps would have been unsustainable, even if
3 the company as a whole stayed together. But particularly if
4 the UK administrators do not go through and did not have a
5 deal with us, we would have been paying on behalf of
6 companies we no longer owned.
7 On top of that it jeopardized various insurance
8 assets that we had. Because the FAIR Act as proposed was
9 proposing to as well take insurance assets into the fund to
10 satisfy these claims. Well, we would have been left with
11 the position again, facing these claims in the UK and around
12 the world, yet having lost insurance assets that may have
13 been available for those. The bottom line, all the plan
14 proponents agree that the plan was a far better solution to
15 the debtor's asbestos problems. The FAIR Act not only would
16 preclude confirmation of the plan, but would cause serious
17 problems over the formulation of another plan. At a minimum
18 it would have taken us back to the beginning of this case,
19 granted without some of the asbestos issues. We still would
20 have had the foreign asbestos claims, but we would have had
21 to go back to square-one on the financial issues in this
22 case, which hadn't been resolved.
23 So, it was the consensus of the plan proponents
24 that we needed to continue to push to confirm our plan and
25 do whatever was necessary to protect the party's ability to

Labuda/Argument 28
1 confirm the plan. Following Judge Newsome's advice at
2 various hearings early in the case to coordinate efforts, we
3 did that from the very start. We worked together, closely
4 with the debtor, the other plan proponents. And it was
5 determined at a certain point in time that Sonnenschein had
6 the particular expertise, the best expertise to actually
7 handle this and take the lead on this. So we did do that.
8 Although, make no doubt, as the debtor notes in their
9 joinder, it was a process that was lockstep with the debtor
10 every step of the way, including joint press releases,
11 including joint meetings with Judge Becker, congressmen, et
12 cetera.
13 The specific strategy was really three-fold. One
14 was to seek an exemption in the FAIR Act for the plan. One
15 particular entity had already had an exemption, and our
16 first goal was to present to Senator Spector and Judge
17 Becker, our plan, present our case that this plan really
18 worked for us. This wasn't a case where the asbestos
19 creditors were trying to cram down the commercial creditors
20 or the commercial creditors were trying to cram down the
21 asbestos creditors. This was a joint effort where really
22 all of the economic constituents in the case decided on a
23 solution to this problem. And to also try to explain to
24 them the problems with the solution that they were trying to
25 force upon us.

Labuda/Argument 29
1 The second step was if we could not get an
2 exemption, and to date we have not been able to do that, was
3 to delay, seek a delay from passage of the FAIR Act until we
4 could confirm the plan. And while we certainly don't take
5 credit for that, we do think that we have contributed and
6 provided a benefit to the estate by assisting the other
7 constituencies in this Country that have opposed it in
8 delaying it.
9 And then finally, to the extent it couldn't be
10 delayed, to try to obtain concessions and modifications to
11 the FAIR Act that would mitigate its harmful effect on the
12 debtors. And as set forth in the papers, we've done a
13 couple things there. One, we've been able to reduce the
14 contributions that would have been required by us by what's,
15 we believe, to be about $90 million. And furthermore, we
16 were able to negotiate and convince Senator Spector to put
17 into the FAIR Act, and this was put in, a right of
18 contribution that dealt specifically with our situation,
19 where to the extent the revenues reflected a revenue of both
20 a US entity and foreign subsidiaries.
21 And if for any reason the foreign subsidiaries
22 were taken away, we would have a right of contribution by
23 statute against the foreign entities to go to those
24 administration proceedings in the United Kingdom and say
25 that we're paying the FAIR Act this much, T&N's share is X.
Labuda/Argument 30
1 And we would have a claim in those proceedings for that, to
2 try to mitigate that. Based on all these facts, we think
3 it's clear that this work was intimately involved in the
4 core of the reorganization process in the language of the
5 DOW CORNING case. And that everything we have done has been
6 tied to the plan process.
7 Again, we don't think there is any per se rule
8 here. We think what the Court needs to do is really examine
9 what was done and to determine whether or not this is
10 related to the reorganization process or whether it relates
11 to issues that are independent of these cases. And I think,
12 looking at the facts of the three principle cases that the
13 United States Trustee cites is instructive. In DOW CORNING
14 they wanted to lobby Congress on whether or not a moratorium
15 on the sale of breast implants should be lifted or not. The
16 DOW CORNING case, the DOW CORNING Court recognized that that
17 has nothing to do with these bankruptcy proceedings. That
18 is an issue, a dispute you have with the debtors that's
19 independent, that you would have whether or not this case
20 had ever been filed.
21 Furthermore, it is strictly in the parochial
22 interest of your constituency, and indeed the debtor was
23 opposing it. So in that case it had nothing to do with the
24 reorganization process. Similarly, JOHNS MANVILLE dealt
25 with a situation where there was a dispute over the holding

Labuda/Argument 31
1 of a shareholder's meeting to determine whether or not new
2 officers perhaps, or directors should be elected that
3 perhaps could take control of the case. Again, it had
4 nothing to do with any plan of reorganization, or any of the
5 reorganization issues in the case at all.
6 And finally, EAGLE PITRY (phonetic) dealt with the
7 delisting of the debtor's stock. And the equity committee
8 wanted to participate in those proceedings outside of the
9 case. In each of those cases that work really was unrelated
10 to anything going on in the bankruptcy case, and it would
11 have occurred and there would have been issues that those
12 constituencies would have been interested in and focused on
13 had the bankruptcy never been commenced. That's different
14 from our case.
15 If you ask would we have engaged in this work if
16 the debtor hadn't filed, or more importantly if the plan
17 hadn't been filed, the answer is no. There would have been
18 no reason to seek an exemption for our plan if the plan had
19 never been filed. If we had never come up with the solution
20 that we all agreed was better than the FAIR Act, there would
21 have been no need to do this. Indeed, our particular
22 constituency's interests have nothing to do and is not
23 impacted directly by the FAIR Act at all. This was really
24 done on behalf of all the plan proponents, and on behalf of
25 the plan.
Labuda/Argument 32
1 We also think, we recognize that this work
2 naturally does occur outside the physical presence in this
3 courtroom. There's papers, there's submissions, there's
4 arguments, there's work that's done outside this courtroom.
5 But that doesn't mean it's not related to the plan. We note
6 in our papers just one example, but an important one, the UK
7 proceedings. We have met and negotiated with foreign
8 officials, the administrators, even the UK pension
9 authorities on UK pension law. We've appeared in that
10 court, we've been represented through barristers. All the
11 plan proponents have done that.
12 All of that is taking place outside of this
13 courtroom, but it is still focused entirely on confirming
14 the plan that's been filed and that's been put before this
15 Court. We'd also add, assuming the Court agrees that
16 there's no per se test here, which we don't think there's
17 any support for, and the Court is looking at whether or not
18 this falls under the issue of the reorganization process or
19 not, there are a couple of other facts that we think do
20 warrant attention and support the allowance of these fees.
21 First and foremost, all the parties with economic
22 interests in this case have no objection to these fees. And
23 indeed, all the plan proponents wanted this work to be done
24 and support the allowance of the fees because it has been
25 beneficial. Two, we did talk to the debtor about what Judge

Labuda/Argument 33
1 Newsome had said in the past and trying to coordinate
2 efforts and conserve estate resources and really be
3 streamlined. And we've done this in other instances, Your
4 Honor.
5 Your Honor has approved the Committee's financial
6 advisors, for instance, to handle certain asset sales on
7 behalf of the debtors. They've also been involved
8 intimately and led the process on the exit financing. The
9 latter particularly, much like the FAIR Act work, deals with
10 the confirmation of the plan. And even though the exit
11 financing work is something that was typically done by the
12 debtor and its investment bankers, the plan proponents have
13 worked together on this and used Jefferies, our financial
14 advisor, as the lead entity to handle this work.
15 Lastly, I do think it's worth noting on the
16 timeliness issue. United Trustee would correctly argue that
17 these were interim applications, objections can be raised at
18 the final fee app of course, and laches, as they would point
19 out, would not apply to them. That said, we would note that
20 these applications had been filed for two years, Your Honor.
21 We had discussed the FAIR Act when it came up, specifically
22 with Judge Newsome in in-chambers conferences, made very
23 clear that we were engaged in this work. There's a
24 discussion in the disclosure statement.
25 To raise it at this point we do believe is

Labuda/Argument 34
1 prejudicial and unfair, especially if there is no per se
2 rule. If there is discretion here, and we think the facts
3 certainly support saying this falls under 1103, but if
4 there's any doubt about it we think those latter facts would
5 weigh heavily in allowing these fees.
6 THE COURT: All right. Let me ask you something.
7 Besides the argument that lobbying is beyond the scope of
8 the Committee's authority under 1103, what about the scope
9 of the order authorizing the Committee to retain counsel.
10 Isn't there an argument that lobbying exceeds the scope of
11 that order?
12 MR. LABUDA: You know, the order did not
13 specifically mention that, Your Honor. Because at the time
14 we started this case there was no discussion of the FAIR Act
15 and it was not on the table. When this came up, and the UST
16 has mentioned this to us separately, could we have filed a
17 separate motion? Yes, we could have. But Your Honor, we
18 did view this as work on the plan. The plan proponents all
19 viewed this as plan related work. And we really did not
20 think that there was any doubt, given that we did believe it
21 was related to the plan, that we did discuss it in chambers,
22 that there was any doubt that this was covered under the
23 original intension which clearly covered work with respect
24 to the plan, such as formulating the plan, negotiating the
25 plan, responding to objections to the plan.

Labuda/Argument 35
1 And indeed, many of us view the FAIR Act as an
2 objection to the plan. It is an obstacle which needs to be
3 beaten and overcome. So, I would say that that probably
4 explains why there's not something specific in that order.
5 THE COURT: All right. What's the status of the
6 FAIR Act?
7 MR. LABUDA: The Congress, as you know, became
8 very busy in the fall and it was delayed until this January.
9 We have been, since July, continuing to do this work but we
10 have not passed it through in our bills from the date the
11 United States Trustee filed this. We have been recording
12 time and we have been able to do it on a very streamline
13 basis because Congress has put it on a burner which we
14 think, in the recent reports that we've gotten from our
15 people on this matter, is that it will be taken up probably
16 the first week in February. But as soon as the Supreme
17 Court nomination vote is taken.
18 So we do think it will come up again, and we do
19 think that there is some further work to do here. That
20 said, we think we are much closer to confirmation of this
21 plan than we were last summer. We've solved and reached a
22 settlement with UK administrators. As Your Honor will hear
23 a little bit further today, there's been an agreement with
24 Cooper Industries to go forward with that. And we believe
25 things are falling in place where we can confirm, hopefully

Labuda/Argument 36
1 sooner rather than later. And with that said, while we do
2 think there's still additional work to be done, we think the
3 end is near for that work.
4 THE COURT: All right. Tell me something about
5 the composition of the Committee and where the
6 constituencies that are represented by the Committee would
7 end up if the plan similar to the one that was proposed gets
8 confirmed.
9 MR. LABUDA: The Committee currently is composed
10 of six members; three trade creditors and three
11 institutional note holders. As I said before, the FAIR Act
12 doesn't deal with their interests against the debtor
13 whatsoever, unlike the DOW CORNING case. They have, as I
14 said, trade and note holder claims against the debtor.
15 Under the current plan the note holders are to receive 50
16 percent of the equity in the debtors. So they would get
17 their pro rata share of them. The trade is proposed to get
18 35 cents on the dollar, subject to a cap that could alter
19 that amount.
20 If the FAIR Act were to pass, that plan obviously
21 would go off the table. We would then go back to
22 negotiations with the UK administrators, the foreign
23 asbestos claimants, the banks, the equity committee again,
24 all of that. And it's unclear what we would get. It's a
25 possibility that perhaps they would have to share the equity

Labuda/Argument 37
1 with the banks. It's a possibility they would have to share
2 the equity with the trade. What is clear is that the debt
3 burden that would have been placed upon the debtors by the
4 FAIR Act would be a substantial obstacle for us to address.
5 And the plan proponents were all in unison that
6 that financial burden, 1) would be unfair, but 2) could
7 bring this case back to square-one and leave us seven more
8 years of sort of traditional financial bankruptcy
9 litigation.
10 THE COURT: All right. And the 50 percent equity
11 that's going to the note holders under the plan, is it just
12 for the note holders?
13 MR. LABUDA: It's just for the note holders, Your
14 Honor.
15 THE COURT: Don't those parties also have rights
16 to acquire the balance of the equity in the debtor that's
17 going to the asbestos trust?
18 MR. LABUDA: No, Your Honor. That is not
19 available to the note holders. There is one constituency,
20 the largest note holder who is not on the Committee, Mr.
21 Carl Icon (phonetic) that has been in separate negotiations
22 with the Asbestos Committee, and he did negotiate an option
23 to acquire those shares.
24 THE COURT: Outside the plan?
25 MR. LABUDA: Outside of the plan. Although, as

Labuda/Argument 38
1 was reported to the Court at the last hearing, as a term and
2 condition of that we did require and negotiate with Mr. Icon
3 some minority shareholder protections. Because the note
4 holders, absent Mr. Icon, who were once going to share the
5 company with asbestos and Mr. Icon, found themselves
6 asbestos may be gone, and they would have different issues
7 facing where they would just be a minority shareholder, Mr.
8 Icon. But that's outside of the plan, not currently in the
9 plan, and indeed came up long after this work had been done.
10 Indeed that was all after the July stop of our services, at
11 least the billing of these services.
12 THE COURT: So my point, what I'm trying to get at
13 is that the people who hired your firm not only have an
14 interest in confirmation in a plan where, let's say in a
15 typical case trade creditors would be getting a percentage
16 on their dollar paid to them either at confirmation or over
17 time, but this plan calls for the constituents that you
18 represent to have a major stake in the equity of the company
19 post petition and possibly have a, because of some
20 negotiations not inside the plan, have a controlling
21 interest in the debtor, so that --
22 MR. LABUDA: That's actually right, Your Honor --
23 THE COURT: -- post confirmation, if it ever
24 happens, these people are looking down the road to what's
25 going to happen to their interest in this debtor, which is

Schepacarter/Argument 39
1 primarily a stock interest that depends on the future
2 viability of this company.
3 MR. LABUDA: That's right, Your Honor. And I
4 would add that we really have been treated, as has asbestos
5 by the debtors, as the future shareholders of this company
6 and we've worked together under that presumption in trying
7 to complete these cases.
8 THE COURT: Okay, thank you. Mr. Schepacarter?
9 MR. SCHEPACARTER: Good morning, Your Honor.
10 Richard Schepacarter for the United States Trustee. Your
11 Honor, what I would like to do, and hopefully the Court can
12 hear me, I'm not too close to this microphone. But what I
13 would like to do is answer some of Mr. Labuda's Sonnenschein
14 arguments that were made today, and then highlight some of
15 the other things that we had brought up in our objection and
16 that were brought up in their response. One of the things
17 that Mr. Labuda had indicated was that we had no issue with
18 respect to the reasonableness of the fees or the substantial
19 benefit that was conferred. And the reason that that
20 portion is not set forth in our objection is because that
21 there's sort of another gate that they had to get through
22 before they even get to the 3:30 analysis which is whether
23 the Committee has the authority to do these type of
24 services. And I think that's where our objections lies.
25 To a certain extent it is mainly a legal issue,

1 and I think that their response and their argument today
2 changes a little bit of the analysis with respect to the way
3 that they are proceeding as the way that, under the statute
4 as opposed to what the cases indicate. What they have
5 basically stated is that they're not seeking under 1103-C5,
6 which is sort of the catchall provision under the authority
7 that's granted to committees to do basically anything in the
8 context of the case. But they're sort of saying, wait a
9 minute, this is really sort of plan related. And some of
10 the things I want to highlight are with respect to that, and
11 then I'll get into some other things.
12 To a certain extent they have basically boiled
13 down three things that they have done with respect to what
14 they call the plan related issues. And two of them really
15 have little or nothing to do with the plan. What Mr. Labuda
16 had stated was Sonnenschein had sought an exemption in the
17 FAIR Act, and I'm not sure how that interrelates with
18 respect to the plan of reorganization. Also obtaining
19 concessions in the FAIR Act, again it's a statute that
20 hasn't been enacted yet. So we don't even know what the
21 final outcome will be of this statute, or the final outcome
22 of how it's going to play upon Federal Mogul or any of the
23 other asbestos debtors, or any of the other creditors who
24 they represent.
25 There are six members of the Committee, but you've

1 got to remember that the Committee represents all of the
2 creditor body. So there are, there may be other creditors
3 under that umbrella who may do better under the FAIR Act and
4 we don't know that because we don't, the FAIR Act has not
5 been enacted yet. The other thing that they did was to
6 delay passage of the FAIR Act.
7 THE COURT: Other -- Let me just, I'm trying to
8 digest that last statement. Other creditors may do better
9 if the FAIR Act is passed?
10 MR. SCHEPACARTER: I'm not sure. That's something
11 that I don't think anybody can -- Well, I don't know if
12 that's something that anybody can determine today. I don't
13 know if that analysis was done by Sonnenschein. It seems
14 like they've done quite a bit of work with respect to the
15 lobbying issue, or the FAIR Act analysis. But that's
16 something that I think has to be taken into consideration.
17 One of the other things that Mr. Labuda had
18 indicated was that, and there was a question that Your Honor
19 had brought up, which is that there is no specific court
20 approval or authority granted, either in an order or some
21 other document, that said that they could engage in the
22 lobbying services. The cases that they cited, and they put
23 them in sort of a compendium of unreported decisions, and
24 they really weren't unreported decisions. Basically it was
25 a compendium of pleadings in the NEXT WAVE (phonetic) case

1 that ended up as a Supreme Court opinion, but it really
2 didn't deal with the lobbying issue. And in those cases it
3 was obvious that there were motions that were filed with
4 respect to hiring a lobbyist or a firm to do the lobbying
5 work.
6 Our office objected. In their response they
7 indicated that our office's objection was overruled, but it
8 was never overruled on these grounds. It was overruled on
9 other grounds, namely some retention issues and some fee
10 issues with respect to retaining the fees. But in this case
11 there was never, if you look at the pleadings, the retention
12 papers that were filed, the subsequent affidavits that were
13 filed, there was never any express grant by the Court of any
14 authority to engage in the lobbying services.
15 To a certain extent, and it gets back to the same
16 thing with respect to the C3 issue that I'm dealing with, is
17 that C3 again deals with in the context of the bankruptcy
18 case of basically the Committee assisting the debtor or
19 coming up with its own plan of reorganization. And it
20 really deals with drafting a plan and formulating a plan.
21 For example, Mr. Labuda referred to the exit financing.
22 Exit financing is more plan related than probably anything
23 else that you could think of, because exit financing is, the
24 checkbook is the thing that allows for the plan to go
25 forward financially. So I could see that even though that

1 somebody could say, well the debtor should be doing the exit
2 financing, I think the Committee could do the exit financing
3 as well.
4 THE COURT: How does CYBERGENICS play into this?
5 MR. SCHEPACARTER: Well, I was just about to bring
6 that up. CYBERGENICS I think plays into this in this
7 context. The Third Circuit basically said there are certain
8 things that a committee can do in the context of a
9 bankruptcy case if the debtor is unwilling to do it. Mainly
10 avoidance actions.
11 THE COURT: Avoidance, yes.
12 MR. SCHEPACARTER: And I can see that with respect
13 to the financing as well. But those are things that are
14 done within the context of the bankruptcy case. An
15 avoidance action is something that's bankruptcy created, as
16 is a creditor's committee. It's bankruptcy created. If
17 Federal Mogul never filed a bankruptcy petition there would
18 never ever be a creditor's committee, despite whether we
19 appoint one or not.
20 THE COURT: Well, if Federal Mogul in bankruptcy
21 decided to hire a lobbyist, would they need court approval
22 to do that?
23 MR. SCHEPACARTER: With respect to the debtor
24 itself?
25 THE COURT: Yes.

1 MR. SCHEPACARTER: It would probably be an
2 ordinary course.
3 THE COURT: So they wouldn't even have to come in
4 here.
5 MR. SCHEPACARTER: Probably wouldn't even have to
6 come in. And these cases are pretty much, a lot of things
7 are ordinary course with these cases because these are
8 financial companies that are still operating. They're not
9 in dire straits, except for with respect to the asbestos
10 liability. Most of these cases are growing concerns,
11 they're viable companies for the most part, and their stock
12 is trading and they're able to do ordinary course
13 transactions, come up in front of this Court and other
14 courts every day with respect to real estate transactions
15 and the like. So that's -- Those are things that are
16 basically, getting back to CYBERGENICS, they're the things
17 that are basically done within the context of the bankruptcy
18 case.
19 With respect to this issue, it's sort of, most of
20 it's done outside, not just outside the courtroom but
21 outside the whole purview of what goes on with respect to
22 the bankruptcy case. The meetings with senators, the things
23 that are done, whatever goes on at Capital Hill. I don't
24 know what goes on, I'm not -- I have no idea what lobbyists
25 do, nor should I.

1 With respect to the fairness issue, I just want to
2 address that briefly. We didn't put that in our response
3 and we can brief that. We've briefed it before in other
4 context in Third Circuit opinions and papers that we
5 submitted, basically that laches does not lie against the
6 government. I think that that's fairly well settled law.
7 Also with respect to the fee applications. In
8 this case there was an administrative order. Administrative
9 order which I had some part in drafting because I handled
10 the MARINER (phonetic) case which basically grew, and out of
11 that grew this administrative order. The administrative
12 order allows for fee applications to be interim until
13 they're basically final. And that the failure to object at
14 any point in time is not prejudicial to any party including
15 the United States Trustee.
16 That being said, these applications come up on a
17 fairly regular basis and it takes some time for them to come
18 before the Court. If you notice, our objection was filed in
19 July and it's now January '06, and this is the first time
20 we've had an opportunity of a hearing, and the hearing date
21 had never been adjourned. So there really shouldn't be an
22 unfairness issue from the standpoint that these fee
23 applications come before the Court. There are deadlines set
24 for objections. They are reviewed by the fee auditor, and
25 until they're final they're --

1 THE COURT: The whole idea of prejudice or laches
2 doesn't apply in fee applications. You have, for example,
3 the ENGLE case where the Court approved the retention of
4 counsel in a criminal case. And then when they came back
5 for the fee application the Court said well, what did you do
6 for the estate, and found nothing. And it went up on appeal
7 and the Third Circuit upheld it. The fact that the
8 Bankruptcy Court had approved the retention of the criminal
9 defense firm didn't mean that anybody was precluded from
10 objecting.
11 And then you also have FIRST JERSEY where the
12 Bankruptcy Court overruled an objection to the retention of
13 counsel based upon an alleged preference. Counsel went
14 ahead and did work, relying on the Bankruptcy Court's
15 decision. And when it got up to the Third Circuit, the
16 Third Circuit said well, the Bankruptcy Court was wrong, so
17 they had to give back the money. So there's no, nobody can
18 rely on it. Even if I overruled your objection now, doesn't
19 mean that the Third Circuit wouldn't disagree if you decided
20 to appeal.
21 MR. SCHEPACARTER: Correct. And one of the other
22 things I wanted to --
23 THE COURT: Or the district court.
24 MR. SCHEPACARTER: I agree with Your Honor. One
25 of the other things I wanted to bring up was that this is an

Decision 47
1 objection. This is a hearing solely on the Fourteenth
2 objection. I know that Sonnenschein's response was to the
3 Fourteenth and Fifteenth to another fee application which
4 we've objected to. But that is not set for hearing today.
5 The only hearing that's going forward today is on the
6 Fourteenth interim objection.
7 THE COURT: All right. Thank you very much.
8 MR. SCHEPACARTER: Thank you, Your Honor.
9 THE COURT: This is a fee application by counsel
10 to the Official Committee of Unsecured Creditors. There's
11 been an objection lodged by the United States Trustee that
12 part of the work done by the attorneys for the Committee is
13 beyond the scope of the authority of committees under 1103
14 of the Bankruptcy Code. And it's also beyond the scope of
15 the order that authorized the Committee to retain counsel.
16 The Third Circuit in the BUSY BEAVER case has made
17 it clear that the Bankruptcy Court has a duty to review all
18 professional fee applications in bankruptcy cases. And the
19 reason is that there's a public understanding that the
20 integrity of the process is important and that the public
21 needs to know that someone is looking out to make sure that
22 professionals don't run roughshod over debtors and creditors
23 and the fees that they charge. And there's also the code of
24 silence among professionals who are reluctant to object to
25 other professional fees and the prospect that creditors who

Decision 48
1 are only going to get a percentage on their claims don't
2 have the economic incentive to spend the resources to object
3 to claims.
4 Those considerations don't apply in a case like
5 this. The parties who have the economic incentive coming
6 out of this case to hold down the fees are the ones who
7 hired counsel, and if the plan is confirmed, are the ones
8 that will end up with the equity, the major share of equity
9 in this case. And so it really is the people who have the
10 most financial stake who are in support of hiring these
11 professionals to do the work.
12 Not only that, the other constituents here, the
13 debtors whoever that is, we're not sure who the debtors are
14 particularly with regard to the UK debtors, or let's say the
15 management of the debtors, the committee of asbestos
16 personal injury claimants and the futures representative,
17 the equity committee, have all not only not objected to the
18 Sonnenschein fee application but have submitted responses in
19 which they say they support the work that was done by the
20 Sonnenschein firm and think that it was not only worthwhile
21 but good value.
22 So the premise underlying the BUSY BEAVER
23 assignment of duty to the Court to review fee applications,
24 I don't think really applies in full in this case.
25 Nevertheless, the Third Circuit has said we have a duty to

Decision 49
1 do that, and I accept that. As far as the US Trustee goes,
2 the Third Circuit said that the Court could not defer to the
3 US Trustee, that the US Trustee has limited resources and
4 can decide where to allocate those resources. And if it
5 doesn't take a position in a case, it doesn't mean that the
6 Court can overlook fee applications.
7 What motivates the US Trustee to file an objection
8 in a case like this where all of the people with financial
9 interests support the expenditure of their funds is and
10 probably will remain a mystery to me. To me, if
11 sophisticated people want to spend their money to hire
12 professionals, their decision should be honored and
13 shouldn't be second-guessed by a court. And the courts rule
14 in all those cases where creditors are really unprotected by
15 professionals or where this code of silence prevents it
16 warrant monitoring by the Court. But this is far from a
17 case like that.
18 The second most important criteria, I think, is
19 what's the results of the professional's work? And we don't
20 know what the final result is here. The FAIR Act is still
21 pending before Congress, as Mr. Labuda indicated, and
22 they're likely to take it up next month. I guess it's
23 before the Senate Judiciary Committee and right now they're
24 kind of occupied with the Supreme Court nomination of Judge
25 Alito. But once they finish that, I guess this may pop up
Decision 50
1 on their agenda.
2 So what I'm going to do, because the final result
3 isn't known, I'm going to postpone consideration of this
4 objection until the final fee application by the
5 Sonnenschein firm. In the interim I'm going to hold back
6 the 20 percent, which I take it has not been paid under the
7 administrative order. If I understand it, Mr. Labuda, your
8 firm has received 80 percent of the unobjectionable services
9 that you've provided.
10 MR. LABUDA: We've received 80 percent of the
11 total bill.
12 THE COURT: Right. And so your total bill is
13 about a million six?
14 MR. LABUDA: Yes.
15 THE COURT: So 20 percent would be about $320,000
16 that's held back. All right. I'm going to order that that
17 hold back stay in place until the final consideration of
18 your fee application. And I want to caution you because of
19 what happened in cases like FIRST JERSEY SECURITIES, it
20 really doesn't protect you if I agree with you and the issue
21 goes up to another court that doesn't agree with you, a
22 higher court.
23 So, I take it that since the US Trustee has
24 objected to this fee application, you've been circumspect in
25 the lobbying services that your firm has done. And I would
Colloquy 51
1 suggest that you use caution. As I say, it may be at the
2 end of the day, if I agree with you and I overrule the
3 objection of the US Trustee, that nevertheless you might
4 have to give some money back. And you want to guard against
5 the prospect that even if I were to overrule the objection
6 today, that you're not home free. Okay? So, I'm going to
7 preserve the objection as an open objection to the final fee
8 application of your firm with regard to any lobbying
9 activities. All right? Mr. Lantry.
10 MR. LANTRY: Thank you, Your Honor. Your Honor,
11 Kevin Lantry on behalf of the debtors. Your ruling creates
12 a problem for the debtors. We do anticipate that the Senate
13 may get very active and that we the debtors may need
14 lobbying. We had been using our own lobbyists for some
15 time, found that Belacourt (phonetic) was doing so good on
16 behalf of all of us plan proponents that we terminated that.
17 It would be tempting of course for us to engage the
18 Sonnenschein firm on an ordinary course basis, but we know
19 that the US Trustee also has antipathy toward a 327
20 professional ever being an ordinary course professional at
21 the same time. So we are in a quandary in terms of an
22 efficient use of estate resources to capitalize on who we've
23 been using. And your ruling does create a problem for us.
24 THE COURT: Even if I overrule the objection you'd
25 be in the same quandary. Okay? Because the US Trustee, you

Colloquy 52
1 have to assume that they'll appeal. All right? That's why
2 I say, if I overrule the objection it doesn't insulate
3 anybody from problems. So, you'll have to solve that --
4 MR. LABUDA: Your Honor, I would add though, I
5 think an overruling of the objection by Your Honor would
6 give us greater comfort that we could continue to do the
7 work that needed to be done. Because we are being asked to
8 continue this work. And with the objection still hanging
9 out there, there is great hesitancy to do it. Overruling
10 it, notwithstanding the subject of a final fee application
11 ruling or an appeal, would give us a greater comfort and put
12 us in a better position to actually continue to do this work
13 and take that risk.
14 THE COURT: I don't see why. I wouldn't take any
15 comfort from my own ruling. Okay? So, I'm going to
16 postpone the consideration of the objection.
17 MR. LANTRY: All right, thank you.
18 THE COURT: And the other thing is, you know, if
19 the case comes out and gets confirmed, the US Trustee may be
20 less inclined to appeal.
21 MR. LABUDA: That is yet another problem that if
22 we are successful we will confirm this plan before the FAIR
23 Act will be approved. And I'm not certain the Court will be
24 in any different position to judge. You know, what at least
25 the UST is talking about, is what was accomplished in the

Colloquy 53
1 FAIR Act. Because the very point of this was to not be
2 subject to the FAIR Act. And I would just note, as a final
3 --
4 THE COURT: Whereas if the FAIR Act gets passed
5 before confirmation then we have a different result.
6 MR. LABUDA: We have a very different result. The
7 only thing --
8 THE COURT: And that will affect my decision on
9 the value of the services.
10 MR. LABUDA: Sure. The only last thing I would
11 add, and then I will sit down, Your Honor, is that we do
12 think this is very different, take for example, the UST case
13 where I know Judge Fitzgerald has been concerned at times
14 that the debtor has been engaged in FAIR Act related
15 activities because it is trying to find a solution to its
16 problems outside of the plan. It's completely different
17 from this case. We're involved in it because we do want to
18 solve the problems --
19 THE COURT: I understand.
20 MR. LABUDA: -- in the bankruptcy case.
21 THE COURT: And you may prevail.
22 MR. LABUDA: Thank you, Your Honor.
23 THE COURT: And hopefully -- Nothing further, Mr.
24 Schepacarter.
25 MR. SCHEPACARTER: I just had a question.

Lantry/Motion 54
1 THE COURT: I need to take up other matters. A
2 quick question?
3 MR. SCHEPACARTER: A quick question. It's
4 actually a very quick question. Since that concludes all of
5 my matters today, may I be excused?
6 THE COURT: Certainly.
7 MR. SCHEPACARTER: Thank you.
8 THE COURT: Mr. O'Neill?
9 MR. O'NEILL: Yes, Your Honor. Next we're going
10 to move to matter number nine on the agenda, which is the
11 plaintiff's motion for preliminary injunction. And Mr.
12 Lantry is going to make that presentation.
13 THE COURT: Mr. Lantry.
14 MR. LANTRY: Good morning, Your Honor. Kevin
15 Lantry of Sidley Austin on behalf of the debtors. Your
16 Honor, the Cooper Pneumo Abex deal is very very good news
17 for these Chapter 11 proceedings. This is the last
18 settlement that the plan proponents needed to reach before
19 we turn quickly to incorporating this and other settlements
20 such as the UK settlement into a revised plan and submitting
21 whatever disclosure document is necessary to reflect those
22 revisions for purposes of any further solicitation.
23 In short, the plan proponents believe that if you
24 approve the injunction requested today that we will be able
25 to have, on file by the end of March, a plan and disclosure

Lantry/Motion 55
1 document ready to run to the finish line. And as you know,
2 that's been awhile in coming.
3 THE COURT: Do you anticipate any further
4 objections to that?
5 MR. LANTRY: Your Honor, there are a few parties
6 hanging out. As you know, you've scheduled for March 15th a
7 bit of a determination with regard to insurers who threaten
8 to object. And we haven't yet gotten the property damage
9 committee to fully come into the fold, as you can anticipate
10 by some of the objections to the property damage committee.
11 Those two are the only entities that we know of that might
12 be objecting the confirmation of any significance.
13 THE COURT: And if you put in a 524(g) injunction
14 for the Pneumo protected parties, how about the people who
15 have personal injury claims against Pneumo?
16 MR. LANTRY: We certainly heard from some firms
17 that seem to be suggesting some confirmation objections that
18 we might anticipate. Again, I can't predict because we
19 haven't seen that contingency before in this case as many of
20 the other cases have seen.
21 THE COURT: Okay.
22 MR. LANTRY: Your Honor, a little bit of
23 background fact before we turn to the relief, I think could
24 be useful, because the Cooper Pneumo Abex deal has been a
25 full four years in coming. We have been working on this

Lantry/Motion 56
1 from the commencement of the case. What a debtor in
2 possession, or what a debtor contemplating Chapter 11 filing
3 of asbestos liability considers, among other things, is two
4 potential assets. One of them are the contributions that a
5 parent or former parent that won't be going into Chapter 11
6 might be willing to contribute that would be fair and
7 equitable and get 524(g) protection.
8 So you look at the prospective parent or former
9 parent companies, talk to them to see if they have a
10 willingness to make such a contribution. If they do, it's
11 typical in probably more than 50 percent of the Chapter 11
12 asbestos cases that are pending to seek an injunction on the
13 very first day because that parent or former parent that's
14 not filing is willing to deal. And you get the injunction
15 so that they can be motivated to work with asbestos and
16 futures rep to determine the amount of the fair and
17 equitable contribution.
18 Secondly, you look at the potential shared
19 insurance that might exist with that former or existing
20 parent company that's not going in, to see if the debtor's
21 rights to that shared insurance is going to be impacted by
22 the injunction or lack of injunction, vis-a-vis the parent
23 company. And obviously, if the parent or former parent
24 that's not going in is solvent, and there's a huge plethora
25 of insurance that's available, you may end up saying let's

Lantry/Motion 57
1 just let it be, because it will take care of the asbestos
2 liability on its own in the tort system. But if the parent
3 isn't that solvent, the ex-parent perhaps isn't that
4 solvent, or if there are problems in the insurance, you may
5 want to stay it so that the limited asset of the insurance,
6 the shared insurance isn't dissipated.
7 With those things in mind, Your Honor, we turn to
8 thinking about Pneumo and Cooper before the filing. And we
9 recognize that both of them were former parents that might
10 be interested in making a contribution. And we also
11 recognize that there was some shared insurance. What we
12 knew from our experience in the tort system defending
13 Pneumo's asbestos liability which Federal Mogul had
14 undertaken in 1998, was that there were gaps in the
15 insurance. And that in fact over those three years we spent
16 about 55 million out of insurance in defending the Federal
17 Mogul Products lines of asbestos liability, the two lines
18 that we described in our pleadings; the Pneumo line and the
19 Wagner line.
20 So we knew that it would cost Cooper, who had to
21 step into our shoes, some money in the tort system to have
22 to defend Pneumo Abex. We also knew that there was this
23 shared insurance that we might want to tap into. When we
24 acquired, when Federal Mogul acquired Wagner in '98 there
25 was about 1.2 billion in insurance available. We also knew

Lantry/Motion 58
1 something else, Your Honor. Cooper had been a rival in the
2 friction business with Federal Mogul before we acquired
3 Wagner. And we knew that that rivalry was significant. We
4 also knew that --
5 THE COURT: Can I just interrupt you?
6 MR. LANTRY: Certainly.
7 THE COURT: Can you point me to the pleading that
8 sets forth these facts you're talking about with regard to
9 insurance and the experience of Federal Mogul.
10 MR. LANTRY: Your Honor, the pleading that
11 describes it is probably best the memorandum of points and
12 authorities in support of the preliminary injunction. And
13 it describes the various history of the purchase agreement.
14 The actual recitation of the 55 million that we expended
15 comes from the SEC filings, and we did not put that fact in
16 those papers.
17 THE COURT: And the insurance coverage? The 1.2
18 billion and so forth, where is that?
19 MR. LANTRY: That's in our disclosure statement,
20 Your Honor. Let me just back up for a minute and describe a
21 little bit more of the facts. What occurred in terms of the
22 primary history of Federal Mogul Products, is it came from
23 the origins of Wagner brake business which was created in
24 the 1920s and put asbestos in brake linings. Wagner was
25 ultimately acquired by Federal Mogul Products in a stock

Lantry/Motion 59
1 acquisition in '98 from Cooper. And so, Federal Mogul
2 Products changed the name from Wagner to Federal Mogul
3 Products and stepped directly into that liability.
4 Before the acquisition by Federal Mogul Products
5 in 1994 Wagner, which was at the time owned by Cooper,
6 acquired a separate line of friction business which was
7 Pneumo Abex, which had also been putting, for many years,
8 asbestos in the brake linings. And so there are two streams
9 of asbestos liability, two streams of business operations
10 that come into Federal Mogul Products that for many years
11 put asbestos in the brake linings. So you have the friction
12 division of Pneumo Abex. At one point Pneumo Abex thus was
13 a predecessor in interest to what is now Federal Mogul
14 Products. You also have Wagner, which at one point was a
15 predecessor of the actual debtor, who was also doing that.
16 What occurred in '94 was that Wagner entered into
17 a deal with Pneumo Abex that says we will indemnify you for
18 your asbestos liability in exchange for you giving us rights
19 to your insurance to pay for that. In addition, Wagner said
20 I will assume, in the contract, we will assume your
21 liability. This was an asset purchase agreement which had
22 all the trappings, it was lock, stock and barrel, all the
23 trappings of successor liability.
24 What then happened in '98 when Federal Mogul
25 purchased Wagner, is that again there was, this was a stock

Lantry/Motion 60
1 purchase agreement. Federal Mogul Corporation guaranteed
2 Cooper's, rather indemnified Cooper for its asbestos
3 liability from the brake business while it owned Wagner, and
4 then stepped directly into the shoes of Cooper's
5 indemnification of Pneumo Abex for that liability, but also
6 stepped into the benefit of the shared insurance. So when
7 Federal Mogul stepped in in '98 to defend Pneumo Abex and to
8 defend Cooper for these two separate lines of asbestos
9 liability, it had rights to about 1.2 million, as we set
10 forth in our disclosure statement, to the shared insurance.
11 To date, at the present time rolling forward,
12 there's about 800 million left of that shared insurance. At
13 any rate, going back in time now to the petition date, as we
14 were looking at these facts we knew that we had been in
15 quite a few disputes with Cooper over the --
16 THE COURT: Let me interrupt you.
17 MR. LANTRY: Certainly.
18 THE COURT: Why don't you tell me something more
19 about this shared insurance. How did that work? You said
20 that when Wagner acquired the friction products division of
21 Pneumo Abex it also acquired rights and its insurance. How
22 did that work?
23 MR. LANTRY: There's a separate insurance
24 contract, and we can give it to you, it's part of the proof
25 of claim that Cooper filed. And we have here, if you'd like

Lantry/Motion 61
1 a copy. But there's a separate insurance agreement in the
2 '94 asset purchase agreement that basically assigns the
3 rights to, whenever there is this indemnification by Wagner
4 of Pneumo Abex, it can draw on and be reimbursed from the
5 insurers for that claim. And obviously Pneumo's --
6 THE COURT: Are the insurance companies part of
7 that?
8 MR. LANTRY: I don't know that they were, but I
9 believe that they have not objected to it. All I can say is
10 I know during the period of Federal Mogul indemnifying
11 Pneumo Abex and Cooper we readily drew on and worked with
12 the insurers and didn't find them objecting aside from, you
13 know, the usual objections you run into on insurers paying
14 on any asbestos claim. They were not resisting, this is not
15 a fair arrangement. So when we filed the petition, based on
16 our experience with Cooper in terms of any number of fights
17 over the 1998 stock purchase agreement, we knew a couple of
18 things.
19 We knew that a deal with Cooper wasn't going to be
20 easy to get. We also knew that Cooper was a very solvent
21 company. And we also knew that they were sitting out there
22 in the tort system with their contractual indemnity that
23 they now had to perform, because we were stopping to perform
24 on behalf of Pneumo Abex. So we knew that they were going
25 to be motivated to come back and talk to us, if they didn't

Lantry/Motion 62
1 talk to us at the beginning, about a fair and equitable
2 contribution so that they could step into the protections of
3 524(g) as a former parent with liability for what is the
4 Federal Mogul Products asbestos liability. At the very
5 commencement of the case --
6 THE COURT: Has anybody sued Cooper?
7 MR. LANTRY: Your Honor, we have two witnesses
8 here today; Diane Schumacher, general counsel, who can
9 undoubtedly testify. But in our discussions, they have said
10 that they have been sued in the tort system directly on
11 behalf of Pneumo Abex. But we can, we'll proffer the
12 witnesses later on if you'd like, or any confirmation at
13 this point.
14 THE COURT: Ms. Schumacher.
15 MS. SCHUMACHER: Yes.
16 THE COURT: You are the general counsel for --
17 MS. SCHUMACHER: General counsel of Cooper
18 Industries.
19 THE COURT: -- for Cooper. Has your employer been
20 sued by any injured parties claiming that Cooper had some
21 derivative liability for the asbestos products of Pneumo
22 Abex?
23 MS. SCHUMACHER: We have been sued under an
24 allegation of a successor to Pneumo Abex. Yes.
25 THE COURT: And do you know how many times or how

Lantry/Motion 63
1 many of these existing claims fall into that category?
2 MS. SCHUMACHER: I don't know how many times. I
3 will tell you there have been many cases where they have
4 named Cooper separately from Pneumo Abex under a theory that
5 we are liable, and also under the theory that we are a
6 guarantor, Cooper's liability as guarantor.
7 THE COURT: As guarantor --
8 MS. SCHUMACHER: To Pneumo Abex.
9 THE COURT: -- to Pneumo Abex.
10 MS. SCHUMACHER: Yes.
11 MR. PHILLIPS: Your Honor, we would ask, if she's
12 going to testify as a witness could we have her sworn?
13 THE COURT: Can I have your appearances?
14 MR. PHILLIPS: Robert Phillips for Simmons Cooper,
15 Your Honor. The cancer claimants. We don't object to
16 counsel's offer of proof and discussion. But if we're going
17 to get into actual testimony of what's been happening and
18 what the facts are we would ask -- She has been proffered as
19 a witness. We ask she actually be sworn.
20 THE COURT: Okay. Well, I'm just taking a
21 representation at this point. I don't know if we're going
22 to get into testimony today. Thank you very much.
23 MR. LANTRY: At any rate, Your Honor, the point of
24 the matter in terms of background information is that we
25 immediately, upon filing the case, knowing that Cooper and

Lantry/Motion 64
1 Pneumo Abex were potential sources of assets to contribute
2 to the trust, and knowing that they could be dissipating our
3 shared insurance, and that their claim would be exceeding
4 given the gaps of the insurance, their claim would be
5 growing every single day in the tort system because they
6 were defending Pneumo Abex and Federal Mogul had directly
7 indemnified them, we contacted them. And we contacted them
8 regularly, methodically, probably on a monthly basis, Cooper
9 and their counsel. Do you want to make a deal, can we talk,
10 what can we do on this? And that happened for pretty much
11 the first two years of the case. Little talks, but not too
12 much development.
13 When we struck our main deal, as you're aware in,
14 you know, 2000, late 2000, early 2004 and started filing a
15 plan, things became very active. The asbestos committee and
16 futures rep began to negotiate directly with Cooper.
17 Debtors were also involved. But what was going on is what
18 we suspected from the very beginning, knowing our
19 relationship with Cooper. We needed a deal with Cooper, but
20 we also were very likely to be litigating with Cooper. It
21 was going to be one or the other. And they progressed on
22 two tracks.
23 As we got close to the disclosure statement,
24 Cooper filed a very vigorous objection to the disclosure
25 statement, raising a number of confirmation objections. Of

Lantry/Motion 65
1 the 25 or so objections you may recall, Your Honor, we gave
2 Cooper the best objection award. It also filed objections
3 to the voting procedures.
4 On the courthouse steps a deal was struck, as you
5 may recall, where the skeleton, the template of the deal
6 we're here telling you about today was agreed to. And so
7 we, after the Court approved the disclosure statement on the
8 hearing on May 13th, it took us about three weeks to
9 incorporate that. We basically took the skeleton of this
10 deal, put it into our plan and disclosure statement. And
11 the missing piece was the amount of the fair and equitable
12 contribution.
13 In exchange for that, Cooper basically withdrew
14 its objection to the disclosure statement, said it would not
15 object to confirmation of that plan, and we negotiated. The
16 bad news is that the negotiations with the futures rep and
17 the asbestos committee and Cooper fell apart, and the amount
18 of that fair and equitable consideration for 524(g)
19 protection did not get achieved. And we went back into
20 litigation mode and Cooper proceeded to file objections, or
21 sorry, file additional proofs of claim.
22 It originally filed a 17 million proof of claim
23 for its indemnification obligation. That went up to 102 and
24 then 132 by the time we got to the voting deadline. You
25 will recall, Your Honor, they objected to the voting and

Lantry/Motion 66
1 asked for special permission to vote 47,000 asbestos claims
2 that they had settled in the tort system so that they could
3 block, essentially, confirmation of the Federal Mogul
4 Products plan. And Your Honor ruled that they could only
5 have one vote rather than 47,000.
6 They proceeded in the litigation mode, appealing
7 that to Judge Rodriguez and then to the Third Circuit during
8 most of 2005. And we continued to negotiate off and on
9 through the Asbestos Committee, futures rep and some on our
10 own with Cooper. What finally happened once again, as we
11 neared the sign of a plan and they continued to take some
12 pain in the tort system, and in the fall of 2005 the FAIR
13 Act was fading once again, negotiations really heated up.
14 And ultimately we achieved the deal that we have today in
15 light of the fact that there was a deal when the
16 administrators and Cooper realized that we were getting once
17 again close to the finish line.
18 As we were struggling with should we reach this
19 deal, we were all considering, the plan proponents, what it
20 would take to get to confirmation in light of Cooper's
21 positions. As you may recall, they had two legal entities
22 where they got the rejecting votes of a class, and so we
23 would have to cram down two debtors. We also heard the
24 Cooper objections to the plan which basically said that
25 although the Cooper claims, which as of today are about 150

Lantry/Motion 67
1 million during those four years, but as you expect the
2 indemnification to continue in the tort system for the next
3 40 years will be multiples of that, their claim, big claim
4 is channeled to the trust like all of their indirect
5 asbestos claims and all of these 524(g) cases.
6 But they observed that the plan doesn't make a
7 provision for that payment. So, they knew and we knew that
8 there was going to need to be some changes in the plan in
9 order to handle their claim, or there was going to be
10 ferocious litigation over the nature of their claim. And we
11 have been, as we've talked about either the deal or the
12 litigation with Cooper, contemplating what it would take to
13 overcome their objections and what nuclear warheads we could
14 shoot their way. And I'm not going to reveal our hands at
15 this point, but we know, the plan proponents know that it
16 would take a lot of work, we could be successful but it
17 would take a lot of work and a lot of expense and a lot of
18 delay given their position with claims against many many
19 debtors for the large amount. In addition --
20 THE COURT: Let me just understand one thing in
21 the history here. At the time of the hearing on the
22 disclosure statement, and the third amended joint plan, the
23 disclosure statement described in the third amended joint
24 claim, if I understood you correctly, you resolved, the
25 debtor resolved the objections by Cooper and revised the

Lantry/Motion 68
1 plan to have a provision where Cooper would be one of the
2 parties protected by the 524(g) injunction.
3 MR. LANTRY: That's correct, Your Honor.
4 THE COURT: But there's no funding for that. But
5 you also said that Cooper's claims would be treated under
6 the plan as well. Does that --
7 MR. LANTRY: Let me divide the two. Cooper,
8 making the fair and equitable contribution addition to the
9 plan that was part of that skeleton at the disclosure
10 statement time, was on the premise that they would make a
11 fair and equitable contribution and essentially reach the
12 settlement that they have today, walking away from their
13 claim, making a fair and equitable contribution and having
14 our shared lines of asbestos liability channeled to the
15 trust. And in light of their fair and equitable
16 contribution they would get the protection. That didn't
17 work.
18 THE COURT: So now they're back to having an
19 indirect claim.
20 MR. LANTRY: Right. And we know that --
21 THE COURT: And how is that indirect treated?
22 MR. LANTRY: -- if that add-on of the Cooper deal
23 that was in the disclosure statement wasn't there and we had
24 to treat their claim, we're going to have to redo the plan
25 to treat that claim, or else we're going to have to disallow

Lantry/Motion 69
1 that claim.
2 THE COURT: Okay. I thought there was --
3 MR. LANTRY: And we're going to have to recut the
4 whole pie amongst the various constituencies. And I can't
5 tell you now which creditors would be hurt, but let's
6 suppose the Cooper claim was multiples of 150 million and it
7 had to be treated, somebody is going to have to lose because
8 there's a finite corpus. The bottom line is the existing
9 creditors of Federal Mogul would be hurt, both by having to
10 treat that claim and by the delay it would take to recut
11 this plan.
12 I think at this point, Your Honor, that's
13 sufficient background in terms of why we're here and why
14 this is a very good thing. And we need to talk about the
15 merits of the motion. I know Your Honor has a habit of
16 reading the pleadings, so I don't want to spend too much
17 time on what undoubtedly you've already read.
18 THE COURT: Well, don't assume. Because I got the
19 binders about 24 hours ago, and I think there are about two
20 and a half binders that deal with this motion. So, I may
21 have missed something in there.
22 MR. LANTRY: Your Honor, I think the beginning
23 premise is a factual one. And that's the claims that are
24 being enjoined are the claims of the debtor. As we talked
25 about the streams of liability, Federal Mogul Products

Lantry/Motion 70
1 either by theories of successor liability or its factual
2 contractual assumption of the liability that is through
3 Wagner's assumption of the Pneumo Abex line, or Wagner being
4 directly as the same legal entity that is now Federal Mogul
5 Products, put asbestos into the stream of commerce. Both of
6 the two streams that we are trying to enjoin are Federal
7 Mogul Products liabilities.
8 We have been sued in the tort system, prepetition,
9 unsuccessor liabilities for the Pneumo stream as well as the
10 Wagner stream. It would be imprudent for Federal Mogul
11 Products to emerge as a reorganized company without having
12 the Pneumo Abex claims channeled to the Trust. I make this
13 point because this is not at all like COMBUSTION ENGINEERING
14 in which Basic and Lummus were basically trying to get their
15 own independent stream of asbestos liability, which was not
16 a liability of the debtor, channeled to the Trust. That's
17 not what we're doing here.
18 I think the second critical point, and this goes
19 to subject matter jurisdiction for Your Honor to enter the
20 injunction, is the fact that the liability of Cooper and
21 Pneumo Abex for the asbestos liability is inextricably tied
22 up with these Chapter 11 proceedings on account of the
23 contractual indemnity that we stepped into, that Federal
24 Mogul Products stepped into when it acquired Wagner, which
25 had in turn indemnified Pneumo Abex. And so each time there

Lantry/Motion 71
1 is a liability that Cooper incurs in indemnifying and
2 protecting Pneumo, they in turn have a claim back against
3 Federal Mogul Products. We've seen this by their proofs of
4 claim filed and by their testimony now that they've incurred
5 150 million during the post petition period.
6 As a result, there is an immediate outcome that is
7 directly impacting on the size of the debtor's liabilities
8 every time a Pneumo Abex claim goes forward. There is also
9 an immediate impact on the shared insurance because Cooper
10 is going to immediately draw on that shared insurance. So
11 it is inextricably tied to these Chapter 11 proceedings for
12 those claims to be going forward. As I say, we would have
13 sought to stay this long ago, Your Honor, save for the
14 tactical card of the fact that we suspected, based on all
15 that I described to you, that Cooper and Pneumo Abex would
16 soon come to the deal that they struck, because they were
17 going to take it in the tort system. And we were ultimately
18 right in terms of the deal that they have offered to put the
19 700 million into a trust to pay Pneumo Abex claims.
20 What we submit, Your Honor, is that that is going
21 to be something that could be beneficial as we have, you
22 know, heard from the Asbestos Committee and futures rep,
23 that could be net net beneficial for the greatest number of
24 the Pneumo asbestos claimants who are being enjoined. We'd
25 like to put it to the vote and let them see. In addition,

Lantry/Motion 72
1 we will get the benefit of the waiver of the Cooper claim.
2 That's a large claim. We would have to recut the plan, as I
3 described, to deal with that.
4 In addition, there is some additional shared
5 insurance that I haven't talked about, that comes from the
6 history of Wagner. Wagner was ultimately owned, before
7 Cooper acquired Wagner it was owned by Studebaker and
8 Worthington, and then McGraw Edison which was acquired by
9 Cooper. And they have their own streams of insurance which
10 we've described again in our disclosure statement, and which
11 is the funding vehicle under our plan in the trust
12 distribution procedures for the Wagner stream of asbestos
13 liability. Under Cooper's rights to that insurance and the
14 deal with Dresser (phonetic) that Your Honor approved back
15 in December of 2004, Cooper and Federal Mogul Products share
16 a split in the balance of that insurance that didn't go to
17 Dresser.
18 But in order to access that and make any
19 commutation deals with insurers we have to have their
20 agreement. Under this deal we've worked that out. And so
21 this is beneficial for the existing Wagner stream of
22 asbestos liability as well in terms of how our plan will
23 work. Again, I'm going to the related to jurisdiction why
24 all of this is tied up and really impacts on the debtor.
25 Your Honor, in almost all of the other Chapter 11

Lantry/Motion 73
1 cases that are currently pending, and it's worth citing them
2 so that you have a sense of the number, this type of relief
3 has been sought and granted. It's in WR GRACE, it's in
4 BABCOCK, it's in GI HOLDINGS, PITTSBURGH CORNING, HARBORSON
5 (phonetic) WALKER, REFRACTORY AMERICAN, sorry, NORTH
6 AMERICAN REFRACTORY COMPANY. It has been a regular process
7 for the Courts to grant an injunction staying claims against
8 a third party when there is contractual shared insurance and
9 when it is the debtor's liability that is also being
10 derivatively sought against these other third parties. This
11 is not unusual relief that we're asking for.
12 What is critical to note however, is that this is
13 unlike some of those scenarios that the Third Circuit in
14 COMBUSTION ENGINEERING or in PACOR says is not appropriate
15 because it is not so inextricably interrelated, such as --
16 And which occurred at the very commencement of these cases
17 when all the OE manufacturers tried to enjoin actions
18 against them on contribution claims that were not
19 contractual. And what the Third Circuit has told us in
20 PACOR and in COMBUSTION ENGINEERING is that it needs to be
21 an express contractual indemnity for which the debtor would
22 be liable. When it's like that there is this jurisdiction
23 that has been rightfully granted by these other courts.
24 So with you having jurisdiction, Your Honor, to
25 issue this injunction, we turn to the usual requirements of

Lantry/Motion 74
1 the injunction. And the first is, are we likely to succeed
2 on the merits? And the Courts looking at this, in terms of
3 the bankruptcy courts issuing preliminary injunctions, will
4 look to are we likely to confirm a plan? So the real
5 question is, does 524(g) permit this type of relief that is
6 the channeling injunction to these former parent companies;
7 Cooper and Pneumo Abex and some of their related parties, in
8 consideration for a fair and equitable contribution.
9 And I think the critical thing is the exact
10 language of 524(g)(4)(A)2 where it says that these
11 obligations need to be alleged to be directly or, the third
12 parties who are being protected, the claims against them
13 need to be alleged to be directly or indirectly liable for
14 the conduct, claims against or demands on the debtor. And
15 once again, Cooper and Pneumo Abex have been alleged to be
16 liable, as we've described, in the tort system for these
17 Pneumo Abex claims that are the claims of the debtor to the
18 extent that that liability arises by reason of those third
19 party's ownership or financial interest in the debtor or
20 predecessor in interest of the debtor.
21 And once again, Pneumo Abex owned the friction
22 products division, Cooper owned Wagner. They have this
23 liability by virtue of their prior ownership of predecessors
24 in interest to the debtor. We think --
25 THE COURT: But that's nowhere in the pleadings

Lantry/Motion 75
1 that you filed, that I read.
2 MR. LANTRY: They're in our reply briefs, Your
3 Honor.
4 THE COURT: No, it's not. You talk about the
5 indemnity obligations of Cooper.
6 MR. LANTRY: The indemnity obligations of Cooper?
7 THE COURT: Indemnity obligation of Cooper, and
8 then the subsequent indemnity obligation of the debtor to
9 Cooper.
10 MR. LANTRY: Your Honor, I can point you to where
11 in the pleadings we put that. Or if it would be easier, we
12 can offer into evidence right now copies of the actual
13 contracts or the excerpts from the contracts that show you
14 that indemnity, that contractual indemnity.
15 THE COURT: But I'm saying, now you're arguing
16 indemnity and that's not what you just said when you're
17 referring to 524(g)(4).
18 MR. LANTRY: Right. What I'm describing in terms
19 of 524(g)(4) --
20 THE COURT: This has to be by the reason of the
21 third party's ownership of the present or past affiliate of
22 the debtor.
23 MR. LANTRY: And your question is where do we have
24 into evidence that these, that Pneumo Abex and Cooper owned
25 these prior divisions?

Lantry/Motion 76
1 THE COURT: No. No, that people are suing them by
2 reason of their ownership of a financial interest in the
3 debtor or a past or present affiliate of the debtor.
4 MR. LANTRY: Your Honor, I can submit to you a
5 number of complaints that were filed both prepetition and
6 post petition.
7 THE COURT: Well, today is the day.
8 MR. LANTRY: We have them here. We have our
9 general counsel who is willing to put them into evidence.
10 They're here right now and we would like to proffer them.
11 Complaints by which Federal Mogul Products has been sued for
12 the obligations of Pneumo Abex for the asbestos history of
13 Pneumo Abex under explicit successor liability theories.
14 THE COURT: That's Federal Mogul Products.
15 MR. LANTRY: That's right, Your Honor.
16 THE COURT: Right. But what about Cooper?
17 MR. LANTRY: Your Honor, I will, you know, leave
18 it to Cooper's counsel to put Diane Schumacher on the stand
19 who will also proffer that evidence. It's in her
20 declaration and I think she's quite willing to testify.
21 That is the --
22 THE COURT: Where is it in her declaration?
23 MR. LANTRY: Your Honor, if it isn't, we have her
24 here and I'd like to defer to her counsel to put her on the
25 stand --
Lantry/Motion 77
1 THE COURT: That's not fair --
2 MR. LANTRY: -- in terms of that liability.
3 THE COURT: Well, that's not fair to the
4 defendants to come up with this evidence now --
5 MR. LANTRY: Again, Your Honor, let me give a
6 context --
7 THE COURT: All right. I'm going to take a break
8 now.
9 MR. LANTRY: The legal --
10 THE COURT: Hold on a second. I want to
11 interrupt now because I've been discourteous to Ms. Akin.
12 Let's take a break and let her have a little time. We'll
13 come back at 12 o'clock. All right?
14 (Court stands in recess)
15 (Court resumes in session)
16 MR. LANTRY: Thank you, Your Honor. I want to go
17 back to where we were when we stopped, and just make sure I
18 clarify what Your Honor was showing a furrowed brow over.
19 Where we were, I think, was the issue of in order to issue
20 an injunction the Court needs to find that we're likely to
21 succeed on the merits of a plan that could channel the
22 liability, the Pneumo asbestos liabilities to the Trust and
23 protect Pneumo Abex and Cooper, these third parties who at
24 one time were owners of the business that ultimately came to
25 be Federal Mogul Products. And the question I'm wanting --

Lantry/Motion 78
1 This is a confirmation issue that, you know, I'm sure we
2 will address again. Right now it's are we likely to
3 succeed. That's the issue. But I wanted to understand, was
4 Your Honor focusing on the legal issue, and would it be
5 useful to walk carefully through the 524(g)(4) language?
6 THE COURT: Yes, I think so. Because I'd like to
7 know how you --
8 MR. LANTRY: Absolutely.
9 THE COURT: -- how you propose to confirm a plan
10 that has an injunction that protects Cooper under 524(g).
11 MR. LANTRY: Your Honor, do you have the code
12 there? I made copies of 524(g) -- Perfect.
13 THE COURT: Disregard the red underline.
14 MR. LANTRY: You're focusing on Cooper, so let's
15 speak of Cooper?
16 THE COURT: Yes.
17 MR. LANTRY: The language, again it's (4)(A)2, is
18 this third party Cooper is alleged to be directly or
19 indirectly liable for the conduct or claims against the
20 debtor by virtue of its, now I'm going to one, third party's
21 ownership of a financial interest in the debtor. Cooper
22 owned Wagner, and during the period in which it owned
23 Wagner, Wagner incurred asbestos liability, did things that
24 gave rise to asbestos liabilities. And it is alleged, and
25 all we have to find for 524(g) to apply is has Cooper been

Lantry/Motion 79
1 alleged to be directly liable or indirectly liable for what
2 Wagner did during that period of ownership. That's the
3 issue.
4 THE COURT: By reason of its ownership.
5 MR. LANTRY: By reason of its ownership. And what
6 typically happens in the tort system is if a parent company
7 is managing and controlling that subsidiary that ultimately
8 became the debtor, it is regularly and often alleged to be
9 liable for it. And that's what they need to get the
10 protection from, so that they're not continued to be sued in
11 the tort system, and why they're willing to make the fair
12 and equitable contribution.
13 THE COURT: See, that fact I couldn't find in the
14 record that was submitted in support of this motion.
15 MR. LANTRY: That is the fact that Cooper has --
16 THE COURT: That Cooper has been sued by reason of
17 its ownership of Wagner or the Pneumo friction products
18 division.
19 MR. LANTRY: Okay. So let me put aside then,
20 perhaps --
21 THE COURT: What I've been told in the record is
22 that Cooper has been sued because it indemnified Pneumo.
23 And Pneumo has been sued, so they've had to pay on these
24 indemnity claims. And I don't see, I guess, --
25 MR. LANTRY: Let me be practical --

Lantry/Motion 80
1 THE COURT: -- one could argue that that's
2 indirect liability.
3 MR. LANTRY: Let me be practical in the tort
4 system. The overwhelming majority of all of these claims
5 have been sue Pneumo Abex. The reason is because it's
6 easiest to prove that it was Pneumo Abex and because Cooper
7 is going to contractually step up and pay for that. But
8 let's suppose Pneumo Abex is no longer around and they need
9 to sue somebody else. Cooper is quite sure that they will
10 sue it. And again, it's this alleged liability that
11 motivates anybody in the chain of ownership of a division or
12 a corporation that put asbestos in the stream of commerce
13 that's subject to attack in the tort system, and who are
14 motived to want to come and pay fair and equitable
15 consideration to get the protection. So that's where it's
16 coming from, and I certainly hold that you need to have a
17 little bit of evidence in that. So let's put that aside for
18 a moment. Do you have any concerns about Pneumo fitting
19 into 524(g)? Should we walk that through?
20 THE COURT: Let's see. Well, Pneumo is, the
21 assets of Pneumo were acquired by Federal Mogul. Federal
22 Mogul Products.
23 MR. LANTRY: It seems to us that that is the
24 predecessor in interest of the debtor.
25 THE COURT: Yes, right. I don't think I have a

Lantry/Motion 81
1 problem with that.
2 MR. LANTRY: Thank you, Your Honor. Again,
3 focusing on the big picture, we'll certainly want to provide
4 some evidence that can get you more comfortable with Cooper.
5 But again, in perspective, watching what's happened in some
6 of the other cases --
7 THE COURT: Well, wait a minute. Let me just --
8 MR. LANTRY: -- this is certain something that --
9 THE COURT: Hold on a second. Let me just read
10 this again. I'm not sure that Pneumo fits in the language
11 of 524(g)(4) either.
12 MR. LANTRY: It goes to the issue of how we, I
13 think, define predecessor in interest.
14 THE COURT: No, I understand they're a predecessor
15 in interest. But it's that predecessor is alleged to be
16 directly or indirectly liable for the conduct of, claims
17 against, or demands on the debtor by reason of such third
18 party's ownership in the debtor or predecessor in interest
19 of the debtor.
20 MR. LANTRY: The way we get there, Your Honor, is
21 the Pneumo Abex friction products division, just the
22 division, put the asbestos in the stream of commerce. And
23 that has migrated down to be the debtor, that division. So
24 the debtor caused that conduct that gives rise to the
25 liability that is shared with Pneumo Abex, because Pneumo

Lantry/Motion 82
1 Abex once owned that friction products division.
2 THE COURT: Yes, okay.
3 MR. LANTRY: There are other ways, Your Honor, we
4 look to section 4, the third party's involvement in a
5 transaction changing the corporate structure. Once again,
6 Pneumo Abex sold that division, changed its corporate
7 structure. Once again, Cooper could easily come into there
8 in terms of it was also in a transaction that was changing
9 the corporate structure. There are a variety of other ways.
10 What I would point to Your Honor is there are two
11 cases out there where injunctions have been issued in very
12 very factual similar situations, and that's HARBORSON WALKER
13 and NARCO (phonetic), where we had prior third party, prior
14 owners that are third parties who once owned a division that
15 had been then spun off, that ultimately became the debtor.
16 And the injunction protects that parent that one time owned
17 some of that division.
18 So courts have looked at a very parallel structure
19 and found, at least for purposes of the injunction, one of
20 them has had a confirmation hearing and one the confirmation
21 hearing is yet to happen, but the point is other courts have
22 looked at similar factual situations. So I think there is a
23 basis, both in the reading of the code and the precedent for
24 you to at least find that there is a likely chance that we
25 could get to confirmation on this structure.

Lantry/Motion 83
1 Again, the other, the likelihood of the merits.
2 The other thing we point to, Your Honor, is a lot of this is
3 again the will of the people. And if the Pneumo asbestos
4 claimants, when the vote is put to them, when they look at
5 this 700 million and the certainty of getting it, and what
6 the trust distribution procedures will pay for them, they'll
7 vote it up or down. They'll say we like it, we think this
8 is good for us, or they won't. And that is the success on
9 the merits. We won't get to confirmation unless we get that
10 vote. You won't even have to agonize about the 524(g)
11 language until we get that vote.
12 And so there is a way where the real parties who
13 are being enjoined can rather quickly say, we think this is
14 good for us, or we don't. We've heard from, you know, two
15 percent or less of them that don't like it, which to me
16 suggests that 98 percent of them do like it. And the
17 Asbestos Committee represented by Caplin and Drysdale who's
18 been very good at predicting how the votes come in in these
19 other Chapter 11 cases where they almost always represent
20 the committee, thinks that we'll get the vote. So we think
21 that there is a likelihood that we'll get the vote that we
22 can proceed to successful confirmation. And I think that's
23 what you need to think about in terms of what you need to
24 struggle with for an injunction.
25 Your Honor, there's been the issue of the

Lantry/Motion 84
1 balancing of harms. Certainly we've described the harm that
2 would come from Cooper walking away from this deal because
3 they don't get the injunction. This deal, without this deal
4 confirmation will be slowed down. It will be harmful for
5 the larger constituency of creditors in Federal Mogul,
6 recutting the deal, all the time it takes to figure out how
7 to get a plan to go forward over their objection. But there
8 are similarly situated asbestos claimants. 500,000 of them
9 is the current estimate in existence today in the whole
10 Federal Mogul family who are waiting to get paid, and have
11 been waiting for four years.
12 And when you balance the harms, I think it
13 suggests strongly that this is a quickly way to payment for
14 a hugely larger number of people who have so far voted in
15 favor or this, and who we think this additional subset, when
16 they appreciate the 700 million that's certain to go to
17 them, will also vote the Pneumo asbestos claimants who would
18 be enjoined.
19 Your Honor, there's the public interest. And once
20 again, I think this is the ratable, fair efficient
21 bankruptcy code being the only model that has yet been
22 created in this Country to solve asbestos liability as
23 opposed to the tort system. And undoubtedly, there are some
24 people who will roll the dice and do better in the tort
25 system. But when you think of the greater good of the

Lantry/Motion 85
1 whole, that is all of the asbestos claimants, the best way
2 to test that is put it to the vote. And that's why we think
3 the public interest would suggest giving the injunction so
4 that we can put the disclosure together and the modified
5 plan and get this out to a vote and see if the Pneumo
6 asbestos claimants like this as a better treatment than what
7 they've got.
8 Your Honor, there is an issue that has been
9 raised, and I'll quickly go over it, and that's a procedural
10 issue in terms of serving the 38,000 Pneumo asbestos
11 claimants with the summons.
12 THE COURT: You don't have to address that.
13 MR. LANTRY: Okay, Your Honor. Thank you.
14 THE COURT: I think Judge Stern addressed it in
15 the MORALO (phonetic) case.
16 MR. LANTRY: Thank you, Your Honor. Beyond that,
17 Your Honor, I would simply note something of significant
18 import. We have completely exempted, through what we
19 predicted was a deal in our reply papers, the Mallia
20 claimant. The Mallia claimant is unique, they have won a
21 judgment, they have had a supersedeas bond posted by Pneumo
22 Abex. And we think that under those unique facts that it is
23 appropriate for them not to be subject to the injunction.
24 And we have shared with them a modification of the
25 preliminary injunction order that would exempt them so that

Lantry/Motion 86
1 they can go forward to a nonappealable judgment, and if need
2 be enforce on the supersedeas bond while reserving our right
3 to come back to you if we want to and join the action on the
4 bond. But we have agreed that that's the best way to deal
5 with their unique circumstances and some of the facts that
6 they've presented, and we've agreed on the form of that
7 order.
8 Your Honor, other than that I would say again, we
9 have John Gasparovic, our general counsel, and Diane
10 Schumacher, Cooper's general counsel. And I think you
11 probably will want to briefly inquire of Diane on this legal
12 issue in terms of some evidence you'd like to have in. But
13 we also are joined by the Asbestos Committee and futures rep
14 who represent this very constituency and who are at the
15 heart of the negotiations. And I think they should be
16 heard.
17 THE COURT: Thank you.
18 MR. LOCKWOOD: Good morning, Your Honor. Peter
19 Lockwood for the Asbestos Claimant's Committee.
20 THE COURT: Good afternoon.
21 MR. LOCKWOOD: I guess you're right. It's
22 afternoon. Thank you. I have one slightly different take
23 on one issue that I'd like to present to the Court, which
24 has to do with the related to jurisdiction question. I
25 believe actually that this is not related to jurisdiction,

Lockwood/Argument 87
1 it's core. And the reason that I would argue that it's core
2 is that 524(g) is a statute. It's part of the Bankruptcy
3 Code. And the definition of core is arising under or
4 arising in. So a 524(g) injunction is clearly a core
5 injunction. You can't get it outside of bankruptcy.
6 THE COURT: You can't get it outside of a plan.
7 MR. LOCKWOOD: You can't get it outside of a plan.
8 However, 105 is, as we learned from the case law, an
9 ancillary mechanism to protect the Court's jurisdiction to
10 do things that it has core jurisdiction to do. It is not in
11 and of itself a jurisdictional creating device, and it
12 doesn't create substantive rights. But it does give the
13 bankruptcy court the power to protect things.
14 The evidence here today is that this injunction is
15 needed in order to protect the plan proponents' stated
16 intention and agreement to propose a 524(g) plan that will
17 in fact issue the very same permanent 524(g) injunction
18 that's sought to be entered as a preliminary injunction now.
19 And therefore, it seems to me that the issue of whether or
20 not the Court can issue a preliminary injunction to protect
21 the 524(g) opportunity to issue a permanent injunction --
22 Remember, the permanent injunction, we've been told by
23 COMBUSTION ENGINEERING that you can only issue a 524(g)
24 injunction at the plan stage for asbestos. You can't issue
25 a 105 injunction. But the courts have uniformly taken the

1 position that you can issue a 105 injunction in order to
2 protect the court's power to issue the 524(g) injunction.
3 So I would argue that it's core. If you compare
4 it with the cases relied on by the objectors, PACOR and the
5 earlier FEDERAL MOGUL decision, neither one of those cases
6 involve protecting the plan proponents' stated intention to
7 propose a 524(g) injunction. PACOR was before 524(g),
8 didn't involve it at all, and FEDERAL MOGUL you had
9 interlopers, three automakers who came in here and said
10 remove all our claims to the Federal Mogul bankruptcy
11 because we'd like to talk to people about maybe having
12 either -- What they really wanted to do was commandeer Your
13 Honor to make DALBERT rulings that they didn't have any
14 claims against them. It has nothing to do with 524(g). So
15 those cases are totally dissimilar in terms of the related
16 to function here.
17 With respect to the merits, I would like to -- It
18 seems to me the issue boils down to do we have a reasonable
19 prospect of ultimately getting a 524(g) injunction. And
20 Your Honor has exhibited some concern about whether there's
21 a technical qualification here. And at the risk of perhaps
22 repeating something that you went through with Mr. Lantry, I
23 would like to just emphasize a couple of points here. The
24 issue here is whether the third party is directly or
25 indirectly liable for claims against the debtor. It doesn't

1 say claims, it says indirectly.
2 Now, let's look at Cooper and let's look at
3 Federal Mogul Products. We're talking about Pneumo Abex
4 claims. Pneumo Abex was an unincorporated division, excuse
5 me, the friction division was an unincorporated division and
6 you had an asset sale, in effect, to Wagner. Wagner,
7 through Moog Automotive which was a rename of Wagner through
8 which, and Moog Automotive is the name changed to Federal
9 Mogul Products. So the Wagner business with the Pneumo Abex
10 assets is now in Federal Mogul. Federal Mogul Product is
11 alleged, for example by Cooper, to be indirectly liable for
12 claims against Pneumo Abex's friction division because it's
13 indemnified.
14 THE COURT: We don't care about what Cooper
15 alleges, because Cooper is the one that's seeking to be
16 protected by the 524(g).
17 MR. LOCKWOOD: I understand. But the
18 qualification here talks about how the liability arises.
19 And what Cooper is saying in effect, is these --
20 THE COURT: And it's not the direct or indirect
21 liability of Federal Mogul Products, it's the direct or
22 indirect liability of Cooper.
23 MR. LOCKWOOD: Well, Cooper is indirectly liable
24 for the Pneumo Abex claims because it indemnified Pneumo
25 Abex when it acquired the, when Wagner acquired these

1 liabilities and then Cooper acquired Wagner. And so its
2 indirectly liable for the Pneumo Abex liabilities as well.
3 And those liabilities are created by plaintiffs.
4 THE COURT: And is that by reason of its
5 ownership?
6 MR. LOCKWOOD: Its ownership. It gave the
7 indemnity because it became an owner. That was -- I mean,
8 ask yourself why are the plaintiffs here objecting to this
9 injunction protecting Cooper. If Cooper isn't liable for
10 the Pneumo Abex claims why do they care? They're here
11 because their position is Cooper is in fact liable for the
12 Pneumo Abex claims because when it became an owner it
13 indemnified Pneumo Abex for those claims. And that's a form
14 of indirect liability, if you will, of Cooper for those
15 claims. And those claims are claims against the business
16 which is now owned by Federal Mogul Products and which
17 Federal Mogul Products has also indemnified both Pneumo Abex
18 and Cooper, and therefore is liable for those claims.
19 All these entities, Pneumo, Cooper and Federal
20 Mogul Products are either directly or indirectly or possibly
21 even both directly and indirectly liable for the claims
22 against the Pneumo Abex unincorporated division. And
23 predecessor in interest, which is where you start here, is
24 not a corporate definition. You can have an unincorporated
25 business that's a predecessor in interest. If somebody goes

1 out and buys an unincorporated business and puts it in a
2 corporation, the unincorporated business is the predecessor
3 in interest of the incorporated business.
4 And otherwise, and successor liability, whether
5 through an asset sale or a merger, is a common forum whereby
6 the successor becomes liable for the claims against the
7 predecessor in interest. So it's my submission, Your Honor,
8 that both Cooper and Pneumo Abex will do and will be shown
9 to be, at confirmation, to be eligible either under
10 Subsection 1, or as Mr. Lantry pointed out, under Subsection
11 4 where you talk about changing the corporate structure.
12 Because there you had assets being sold and subsidiaries
13 being purchased and sold, and that changes the corporate
14 structure of the entities that own them.
15 The final point I'd like to make has to do with
16 why my committee is a co-plaintiff. This committee, like
17 the committees that we represent in many other cases, is not
18 in the business of going out and looking to find ways to do
19 favors to nondebtors. We're not interested in that, and we
20 haven't been paid anything to do that. The problem we've
21 got here is that the Cooper Pneumo Abex claims against
22 Federal Mogul Products are potentially extraordinarily
23 difficult to resolve in this bankruptcy case, absent this
24 deal, as Mr. Lantry explained.
25 And we believe that most of the Pneumo Abex

1 claimants are not only -- Well, we believe that all of the
2 Pneumo Abex claimants could, if they wanted to, assert a
3 Federal Mogul claim against Federal Mogul Products. Apart
4 from that however, they are also, large numbers of them have
5 claims against multiple defendants of who Pneumo Abex is
6 only one. And included within the numerous defendants that
7 they frequently have claims against are Turner and Newall,
8 Flexitalic (phonetic), Ferodo, Wagner, and the Valuemoid
9 (phonetic) claims against Federal Mogul itself. And
10 Fel-Pro. There are six different sets of entities in this
11 Federal Mogul family that have liabilities to claimants.
12 And they're not going to -- And you know, I agree
13 these situations of dying claimants, it's a big problem.
14 And it's terrible that people have to not get their
15 compensation when they should. But you know, bankruptcy
16 happens. It's kind of like the adage that stuff happens.
17 It's bad stuff. And we've got six companies, or six sets of
18 liability streams here that are similarly situated. People,
19 sick and dying claimants, and they're not getting any money
20 until this plan is confirmed.
21 And while there may be a few Pneumo Abex claimants
22 that don't have claims against anybody else, I don't know
23 how one would go about really determining how many of them,
24 it is the belief, and I couldn't prove it because I can't, I
25 don't know who are all the Pneumo Abex claimants and we
1 couldn't possibly bring in 38,000 of them and then cross
2 examine them. But it is the common experience of
3 plaintiff's lawyers, and therefore of bankruptcy lawyers
4 that represent their clients and these committees, that
5 they, generally speaking, have claims against multiple
6 defendants.
7 And it is the belief that those people and their
8 lawyers, when they see the plan that we're going to propose
9 here, and they think to themselves would I rather have seven
10 potential sets of claims paying or am I really only going to
11 focus on one, namely Pneumo Abex and let the others go hang,
12 that the requisite majority of the Pneumo Abex claimants who
13 will be canvassed separately will decide to vote in favor of
14 that plan.
15 THE COURT: All right, thank you.
16 MR. LOCKWOOD: Thank you, Your Honor.
17 MR. PATTON: Good afternoon, Your Honor. Jim
18 Patton on behalf of Professor Eric Green and the future
19 claimants representative. We too are supportive of the
20 application before Your Honor today, the complaint. And we
21 were integrally involved in the negotiations that led to the
22 ultimate resolution with Cooper. It was a very tough
23 negotiation. In fact the negotiations first began years ago
24 in a conversation down in Florida between representatives of
25 Cooper and Eric Green and myself. And it's been a long road
Patton/Argument 94
1 to get us to the point where we have resolved the overall
2 dispute with Cooper and the problems that Cooper represents
3 in this bankruptcy case.
4 The only thing I want to add to everything you've
5 heard so far, is that a fundamental premise to our
6 negotiation with Cooper with respect to resolving its
7 disputes with Federal Mogul and creating a process for which
8 it could get 524(g) injunction, is that at the end of this
9 negotiation we wanted to be assured that we would put
10 together a claims matrix using the funds that would be
11 provided by Cooper, that would enable claimants that are
12 processed into that matrix to receive 100 cents on the
13 dollar as the value of their claim is established by that
14 matrix.
15 We felt the only way that this could be considered
16 fair in our minds, would be if that was a reasonable
17 prospect at the outcome of this negotiation. We can't
18 guarantee any percentage under these procedures over the
19 long haul, but our goal was to assure ourselves and to be
20 able to assure the other constituents that when we were done
21 we had created a claims matrix and received sufficient funds
22 that we would be able to stand before Your Honor at
23 confirmation and say that we have the ability to pay allowed
24 claims, 100 cents on the dollar.
25 THE COURT: What would the --

Patton/Argument 95
1 MR. PATTON: And from our point of view --
2 THE COURT: -- Gallias (phonetic) get under that
3 --
4 MR. PATTON: I'm sorry, I couldn't --
5 THE COURT: Would would the Gallias get under that
6 claims matrix? Do you know?
7 MR. PATTON: I don't know. I don't know enough
8 about any particular claim to be able to analyze that. But
9 it could be relatively easily answered in the near future.
10 The process with respect to the claims matrix though
11 involves the presentation of a claim and, you know,
12 evaluation of the claim under the rules of the matrix and a
13 decision by the claims handling facility whether the claim
14 satisfies the rules of the matrix. And then the claim is
15 paid if it does. So you have to do an individual claim by
16 claim analysis and look at the facts.
17 THE COURT: He's a mesothelioma victim I think.
18 MR. PATTON: You mean in terms of what the value
19 is for a mesothelioma claim?
20 THE COURT: Yes, what's the value of a
21 mesothelioma claim? You haven't come up with a matrix yet.
22 MR. PATTON: We have not yet disclosed what the
23 actual values are with respect to the matrix because it's
24 going to become part of the disclosure statement. And Your
25 Honor, we probably should not, until that is something

Hill/Argument 96
1 that's able to be shared broadly to the public as a whole.
2 THE COURT: Okay, thank you. All right, in
3 opposition?
4 MR. HILL: Good afternoon, Your Honor. I'm Karl
5 Hill, I'm a local counsel from Wilmington, Deleware, Seitz
6 Van Ogtrop and Green. My firm actually represents three
7 sets of asbestos plaintiff's law firms around the Country.
8 And in a moment I'm going to yield the podium to Mr. Robert
9 Phillips of the Simmons Cooper firm who will take the lead
10 today on behalf of the objectors. I'll just put that in
11 quotations. But as to the other two firms, Your Honor, that
12 my firm is local counsel for, they are actually preparing
13 for trial next week because one of the 737 asbestos
14 plaintiffs represented by the Goldenburg Miller firm in
15 Edwardsville Illinois and the Richardson Patrick firm which
16 is a spin off from the Ness Motley firm in Charleston South
17 Carolina, is the estate of Mr. Carey who died of meso back
18 in, I think April or actually March 9 of 2005. That trial
19 is scheduled in Illinois State Court for Monday of next
20 week.
21 And before I yield the podium, again Mr. Phillips
22 will be taking the lead for the objectors, my background
23 candidly Your Honor, is in State court litigation and I
24 appear before the Deleware Court of Chancery very often.
25 And I know, Your Honor, that Section 105 gives you the
Hill/Argument 97
1 traditional injunctive powers that a court of equity will
2 have. And I've listened to the plaintiff's presentation
3 today very carefully, and I can tell you without fail that
4 what I've seen today is nothing that I've ever seen before
5 in a preliminary injunction hearing.
6 In Deleware, and again I'm just going by my
7 experience, Your Honor, that is a complaint is filed, it's
8 served, it's answered, usually expedited. You have
9 discovery to test facts. And I underscore facts because I
10 don't see a presentation here that gives you enough factual
11 record to enter a preliminary injunction. And if you
12 listened carefully, which I know you did, the plaintiffs in
13 this case always say the word injunction. They don't focus
14 on the fact that what they're really seeking by this
15 adversary and the motion for this preliminary injunction is
16 a preliminary injunction. A preliminary injunction is
17 designed to maintain the status quo. The status quo really,
18 Your Honor, I submit, is to allow the State court cases,
19 including Mr. Casey's estate's case on Monday, to proceed
20 forward.
21 On behalf of all of the defendants, it's hard to
22 call them defendants, but the defendants that I represent
23 through these three firms, we strongly object to the entry
24 of a preliminary injunction and instead would implore Your
25 Honor to force this side of the room, the plaintiffs, the

Phillips/Argument 98
1 debtors and plan proponents, to get on with it and to seek
2 the channeling injunction through Section 524 in conjunction
3 with an amended plan, so that as the plan proponents
4 described in their reply on page 17, the "democratic
5 process" may proceed. What they've done here is
6 inconsistent with due process by any stretch of proper
7 procedure under preliminary injunction hearing.
8 THE COURT: Thank you, Mr. Hill. Mr. Phillips?
9 MR. PHILLIPS: First I'll warn you, Your Honor,
10 that I may indeed try to parse 524(g) again, and I apologize
11 for the sixth time today. But I think our brief was fairly
12 thorough in terms of the overall objections we had, is so we
13 could glean the request, relief being requested by the
14 plaintiffs. But what I've heard today is really, there's
15 two levels at work here. One is whether a preliminary
16 injunction is proper right now. The other level, and this
17 is mostly what's been discussed, is whether down the road,
18 we're not sure when, we're not sure what it will say, we're
19 not sure of all the details of who's going to vote on what,
20 we're going to have a plan that's going to issue an
21 injunction under 524(g).
22 And so we spent a lot of time here today,
23 relatively speaking, trying to parse the language of 524(g)
24 because there seems to be some concern by the Court, and
25 certainly we have a lot of concern that Pneumo Abex and

1 Cooper for instance don't fit within the confines of 524(g)
2 as it's written. At least not to the full extent of their
3 liabilities. So, we have a problem with the plaintiff's
4 presentation of whether they can actually confirm a plan.
5 But if we come back to why we're actually here
6 today, to address whether a preliminary injunction should
7 issue, I don't really understand what we're going forward
8 on. The debtors in their reply, because of the objections
9 of our parties as well as the primary insurers, aren't going
10 forward on the automatic stay applying. I know that the
11 chief counsel for the debtors made some comments in opening
12 his presentation about the automatic stay, but they've
13 expressly withdrawn that argument.
14 So what we're left with is Count 3 of the
15 complaint, which says 524(g), 105, you know, we've got this
16 great, you know, wonderful settlement that's not been
17 approved by anybody yet, and that will get us an injunction
18 down the line. Therefore this Court should put on its
19 equity hat and issue a preliminary injunction and stay all
20 proceedings, even though they've tried to put us under the
21 carpet, it's four years later.
22 The last time I checked, 524(g) wasn't a cause of
23 action. I mean, 524(g), and to the extent they want to use
24 105(a) to implement 524(g), is a plan issue. I mean, as Mr.
25 Patton alluded here today, we don't even have a set of trust

1 distribution procedures, we don't have an amended plan, we
2 don't even have a definitive agreement with Cooper. Because
3 if you read the term sheet, the only operative provisions
4 binding on the parties right now are the litigation state
5 provision. They seek it, not that they get it, but that
6 they seek it. The withdrawal provisions, provisions about
7 cooperating with insurance, and a couple of other ancillary
8 things you would expect in a preliminary term sheet.
9 So to my knowledge we don't even have a definitive
10 agreement that's actually going to result in this wonderful
11 amended plan that we're all going to vote yes on. And if we
12 were to move ahead, and I'm just going to jump real quick
13 because I want to get this in, earlier there was an attempt
14 to put the counsel for Cooper on here and talk about whether
15 Cooper and Pneumo Abex have been sued in such a way as to
16 invoke the protections of 524(g)(4)(A).
17 And I think while everyone who's gotten up here
18 has looked at different language in the subsection, to me
19 some of the key language is in the last line of IIi; demands
20 on the debtor to the extent such alleged liability of such
21 third party arises by reason of. No one really wanted to
22 focus on to the extent of language. And this kind of goes
23 to the whole problem we have conceptually with what's being
24 requested here today, which is the primary liability and
25 through all of the presentations of factual background,

1 what's being lost is Pneumo Abex is the tort-feasor.
2 Prior, long prior to Wagner's acquisition in an
3 asset sale of the friction products business they were the
4 ones that produced asbestos containing products, put it out
5 on the market, failed to warn, and are now being sued for
6 that reason, and have been sued since, I don't know, late
7 '70s perhaps. And sued all the way through, you know, last
8 week. Then Cooper, through Wagner, bought some of the
9 assets. They agree contractually to defend the claims, part
10 of the consideration. Hey, we'll give you less money if you
11 agree to pay these claims, because everyone knew there were
12 gaps in coverage, I assume, by that point. And so on down
13 the line, we end up with debtor FM Products, which is a
14 successor to the company that acquired the assets.
15 THE COURT: We end up with whom?
16 MR. PHILLIPS: With debtor FM Products, which is
17 the debtor that they claim is primarily liable. That just
18 seems to stand all sense of what 524(g) and what these sorts
19 of guarantor co-obligor rules in bankruptcy are actually
20 designed to implement. The liability is Pneumo Abex.
21 They're the tort-feasor. And the fact that certain parties,
22 one of whom ended up being a debtor in this case, assumed
23 liability long after the fact, long after the tort, can't be
24 used as a justification to go back and wipe the slate clean
25 with the primary tort-feasor just because they wrote a check

1 big enough to have everyone realize that suddenly there's
2 jurisdiction, that the equities support doing this and so
3 forth.
4 THE COURT: What about if people who were injured
5 by Pneumo Abex Products sue Cooper because Cooper was the
6 parent of Wagner that acquired the business line, and you
7 have the successor interest --
8 MR. PHILLIPS: Well, and that's my whole reason
9 for focusing on the to the extent language. People sue
10 under varying theories. Pneumo Abex is the primary
11 tort-feasor. Normally what would happen is, Pneumo Abex
12 apparently would tender the case to originally FM Products,
13 later to Cooper, they would pay the claim, gain rights to
14 get some of the monies paid back by insurance. If one, two,
15 5,000 plaintiffs chose to add account, or add Cooper as
16 defendant and also alleged liabilities for successor
17 liability, for alter ego, for meddling in the corporate
18 affairs of the subsidiary, whatever, that's great.
19 And I would agree that 524(g) can be used to
20 enjoin those claims against Cooper and against the debtors
21 that arise from these four Roman numeral enumerated grounds.
22 But that's not the same thing as saying 524(g) allows you to
23 enjoin the actual tort. If people are suing the third party
24 for the third party's own conduct, it's my reading of
25 524(g)(4)(A), Your Honor, that that's not what this statute

1 is talking about. This statute is talking about getting rid
2 of the liability for the lender to the debtor. Getting rid
3 of the liability to an extra parent or grandparent in the
4 chain of the debtor's corporate structure that's been
5 alleged under, some would say, cockamamie theories of
6 liability and what have you.
7 But that's not the same thing as saying oh, we can
8 also use that because they were sued by a couple of people.
9 And I don't know how many, maybe it was 5,000, maybe it was
10 500. But just because certain people sued Cooper Pneumo
11 Abex under these extra theories that are enumerated in
12 (4)(A), doesn't mean that that creates jurisdiction to
13 extinguish all the liability that that third party has. And
14 that's our fundamental problem.
15 And going back to this whole point about whether
16 they're going to succeed on the merits, Your Honor, you know
17 it's an argument we intend to raise. And if not us, I would
18 imagine there are other people in this case who intend to
19 raise.
20 THE COURT: You mean object to confirmation on
21 524(g) --
22 MR. PHILLIPS: Object to confirmation to the
23 extent that, you know, this is trying to be done.
24 THE COURT: Okay.
25 MR. PHILLIPS: And I think that, you know, if

1 we're going to take everyone's representations on faith at
2 the podium of what's going to happen, I think Your Honor has
3 to take into account what could happen. And one of the
4 things that could happen is us, others, other people not
5 here and so forth, may raise objections that could delay or
6 completely derail the process.
7 THE COURT: All right. Mr. Phillips, who do you
8 represent? Remind me please.
9 MR. PHILLIPS: We represent the -- We have about
10 100 and some-odd clients listed on addendum 1 to the
11 complaint. We have approximately 150 mesothelioma cases
12 pending in State Court, either in Illinois or in Deleware.
13 We're co-counsel with other firms on additional cases. But
14 those firms are listed as primary counsel on the list. As,
15 you know, counsel for the ACC would say, I mean it's a
16 floating target. We've said we have 26 cases set for trial
17 in the next 60 days. 16 of those cases are of living mesos.
18 People who, as I say in our brief, have little chance of
19 making it through confirmation of this plan.
20 And we believe the balance of hardships, to go
21 back to the other prong I was talking about, whether
22 preliminary injunction should issue today, given that we
23 don't have a plan, that we don't know what the votes are
24 going to be despite the arguments that maybe some
25 preliminary nose counting has been done. And I'll say on

1 that point, my nose counting suggests that they're being
2 unduly optimistic about whether the people are going to
3 vote. That the balance of hardships weighs against here, in
4 year four, coming in here with a complaint, two counts of
5 which they've taken back since the day of the filing only
6 two or three weeks ago --
7 THE COURT: Well, they haven't withdrawn them,
8 they just said for today's purposes they're not seeking a
9 preliminary injunction based on 362.
10 MR. PHILLIPS: Right. Before I sit down, Your
11 Honor, there's one other thing and this kind of goes to an
12 emerging problem we have with this whole deal. I focus on
13 Section 3AI of the term sheet itself. That provision
14 provides that Cooper, on the effective date, can use $35
15 million of the $100 million cash contribution it makes as
16 part of the 700 million to pay certain of the pending Pneumo
17 asbestos claims, PAC, that were pending as of September
18 15th. Section 6C of the term sheet goes on to say, anyone
19 who is going to be paid by Cooper pursuant to that provision
20 can't vote.
21 And one question we have in addition to the issue
22 I've already raised of where's the plan, where's the matrix,
23 where's the medical evidence et cetera, is who are those
24 people? I mean, because there's two reasons. One --
25 THE COURT: Why aren't they being given sub plans?

1 MR. PHILLIPS: Your Honor, I mean, there are
2 certain issues that have been addressed, in COMBUSTION
3 ENGINEERING and elsewhere, there's also just the plain
4 voting issue. If that 35 million is divvied up $1,000 each
5 to 35,000 claimants, because a lot of the 38,000 are
6 nonmalignant claims which are worth significantly less in
7 the system on average then the malignancies, we really have
8 a viable voting issue. Because we represent substantially
9 more than 1,000 people, from my understanding. There's
10 another counsel who will come up here. We have perhaps not
11 25 percent in the courtroom, but we've got more than the
12 debtor wants to admit we have.
13 And if a huge number of claims are going to be
14 extinguished, and not be able to vote because of this
15 agreement by Cooper to pay them, then for all I know we're
16 the only people standing. You know? And the minimum for
17 terms of an evidentiary perspective, for the Court to enter
18 the injunction, we need to know who those people are. Who's
19 voting, who's not? And as Your Honor first seized upon,
20 that does raise an issue of who's getting the money. You
21 know, certain of us were taken surprise by the course of
22 these negotiations, and perhaps some other people weren't
23 taken by surprise. And you know, if we're going to count
24 noses, counting the clients and the members of the Committee
25 might not be the best place to start for that reason.

Ebert/Argument 107
1 THE COURT: Thank you very much. Anybody else in
2 opposition who wants to say something different? Good
3 afternoon.
4 MR. EBERT: Good afternoon, Your Honor. Louis
5 Ebert of the law firm of Gebhardt and Smith. We entered our
6 appearance in connection with the opposition of the Mallias
7 to the motion. And that, as you heard, has been resolved.
8 I also filed last night an amended motion for the pro hac
9 vice admission of Jonathan Ruckdeschol, and attached to that
10 was a list of approximately 700 to 750 persons who are on
11 Exhibit I, who Mr. Ruckdeschol and his firm represent. And
12 Your Honor, I would like to turn the podium over to him. He
13 has all the information about this. I would ask that my
14 motion be approved. The fee has been paid.
15 THE COURT: All right. Well, the motion will be
16 handled in due course through the clerk's office. But
17 you're welcome to speak to today, Mr. Ruckdeschol.
18 MR. RUCKDESCHOL: Yes. Thank you, Your Honor.
19 Good afternoon. My name is Jonathan Ruckdeschol. I'm a
20 trial lawyer, I'm practicing in Miami, Florida with the law
21 offices of David Lipman. We were counsel for Joseph Mallia
22 in the Mallia case, and I'm pleased that we've reached a
23 resolution with that, with the movant, with regard to the
24 Mallia case before today's proceedings.
25 Our firm directly or as co-counsel with the law

Ruckdeschol/Argument 108
1 firms of Anania Bandklayer in Miami, McKenna Keoto
2 (phonetic) in Pittsburg, and the Colon law firm in
3 Mississippi represent collectively approximately 1,500
4 claimants with tort claims filed against Pneumo Abex
5 Corporation. And amongst those are many individuals
6 suffering from malignancies. And I'm not sure of the exact
7 number, but it would be at least 60.
8 I think that what I'd like to emphasize to Your
9 Honor first is that these are claims against Pneumo Abex
10 Corporation for the actions of Pneumo Abex Corporation.
11 They're not for the actions of the unincorporated operating
12 division of Pneumo Abex that made friction products. My
13 first year corporations instructor told me that if you have
14 a company you can have a subsidiary or you can have a
15 division. A subsidiary is a separate legal entity and a
16 division is not.
17 Pneumo Abex's business was making asbestos brakes.
18 That's why we sued them. The fact that they sold off the
19 assets for that portion of their business is not a
20 transaction that affects the corporate structure. It does
21 not. The corporation remains a corporation, they just sold
22 off some assets. It's no different than a corporation
23 selling a truck. It doesn't affect the corporate structure.
24 And so to the extent that there's a suggestion
25 that any jurisdiction of this Court arises from a

1 transaction that affects the corporate structure of Pneumo
2 Abex, that is incorrect. Pneumo Abex continued along as a
3 corporation and it's had some name changes since then. But
4 the corporate entity that we sue is the corporate entity
5 that injured our clients. The conduct that we sue on all
6 arises prior to 1988 when Pneumo Abex Corporation stopped
7 manufacturing brakes that contained asbestos.
8 So the claims here do not arise from conducts of
9 the debtor, conduct of the debtor under 524(g). They are
10 not claims against the debtor. We don't sue Federal Mogul,
11 we don't sue Cooper. We've sued Pneumo Abex Corporation.
12 And they are not demands on the debtor. We have made no
13 demand on any of the debtors in this case. In fact, we've
14 made no demand on Cooper. We have sued Pneumo Abex
15 Corporation.
16 Now, Pneumo Abex Corporation is listed however as
17 one of the Pneumo protected parties in this case. Pneumo
18 Abex Corporation is the defendant in our case, it does not
19 fall within 524(g) as we've looked at the categories there.
20 There is a question about, and this was raised earlier on,
21 that the 700 million is somehow a guaranteed contribution.
22 It is my understanding there is a significant dispute with
23 the insurance companies regarding how much insurance is
24 there.
25 But if we take the representations of Cooper with

1 regard to their cash reserve set aside for asbestos
2 liabilities, and we take the representation that there's at
3 least 800 million left in the policy limits of the insurance
4 policies, we have a pool of one billion, 52 million and the
5 $252 million comes from the 2004 10K filed at the end of the
6 year by Cooper regarding their cash reserves. If I've
7 gotten the precise document wrong, it's from one of the SEC
8 filings recently.
9 It is difficult for me to imagine, and since we
10 don't have any information before us as to what the payments
11 are going to be, I can't tell you what our recommendation to
12 our clients would be with regard to voting. But it is
13 difficult for me to imagine a situation where we would
14 recommend to our clients that they should accept a plan that
15 divvies up a contribution of 700 million over time when
16 there is currently a pool of assets of at least one billion,
17 52 million if we take the representations that are made to
18 the Court.
19 Right now Pneumo Abex claims are paid in the tort
20 system. I don't care who pays them. I don't care if, in
21 the shell game of passing this truck along, that everybody
22 down the road from the tort-feasor has said, you know, we'll
23 pay for you if you're held liable, and I will pay for you if
24 you're held liable. That's irrelevant to me. What's
25 relevant to me is that my clients right now are entitled to

1 payment of their liabilities from Pneumo Abex Corporation.
2 And the code, as it's set up, talks about indirect
3 liability for claims on the debtor. And again, these are
4 not claims on the debtor. No matter how many times you pass
5 the truck along, if I drive my truck into Your Honor and I
6 break your leg, I can sell the truck to whoever I want but
7 I'm on the hook. And no matter how many people promise to
8 indemnify me, I'm still on the hook. And the claim, when
9 you sue me, is a claim against me and not against the people
10 that have subsequently assumed the liability.
11 There was some discussion early on about shared
12 insurance. It is my understanding from reading the filings
13 of Cooper in the SEC, which were submitted in respect to
14 some of the papers that were filed with the Court, and it's
15 my understanding from reviewing the papers that have been
16 filed with the Court that there is no dispute, the insurance
17 policies are owned by Pneumo Abex.
18 There have been various transactions along the way
19 where in essence there have been agreements, if you honor
20 your indemnity agreement we'll assign to you the right to
21 receive the proceeds from the insurance policies. And it is
22 my understanding that that is how Federal Mogul came to be
23 allowed to receive the proceeds from the insurance policies
24 when it was honoring its down the road indemnification
25 agreement. When that honoring stopped, Cooper stepped up,

1 started honoring the indemnification and claimed the right
2 to receive the insurance proceeds.
3 All of that being said, there is no shared
4 insurance in this case. Pneumo Abex owns the insurance,
5 period. That they may have assigned the right to other
6 people that they can receive the proceeds if those other
7 people do certain things does not create shared insurance.
8 It's Pneumo Abex's insurance. And what happens with the
9 proceeds after they're paid by the insurance company, which
10 is what these assignments do in my understanding, is
11 irrelevant to the question of whether this is shared
12 insurance. It is not.
13 Many of these points have been covered, and I'm
14 trying to move quickly, Your Honor. The last thing -- Oh,
15 I'm sorry. There's this issue of, there was discussion
16 about there's a former parent of -- And Pneumo Abex was
17 referred to as a parent of the business that now resides
18 with Federal Mogul, or wherever it resides, the assets.
19 It's not. It's not a parent, it is the company. These are
20 just assets, it's just a truck.
21 The last thing I'd like to address, Your Honor, is
22 an issue relating to the effect of any preliminary
23 injunction on cases that are currently set for trial. I was
24 supposed to begin a trial on Tuesday, the 17th of this
25 month, four days ago in Miami against Pneumo Abex and

1 General Electric. When this hearing was set, the parties
2 agreed that we would continue the case until February 20th
3 because we didn't want to pick a jury Tuesday, Wednesday,
4 open on Thursday, come up here and potentially be stayed and
5 have a mistrial.
6 My clients in that case, that's the Modley
7 (phonetic) case that my client is, technically is Glen and
8 Bruno the personal representative of the estate of Mr.
9 Modley, have already had their trial delayed repeatedly.
10 Further delay to them in liquidating their claim and getting
11 on with their life is of great prejudice to them. We have
12 other cases that are set for trial this year; the Wright
13 case, the Hurst case where these cases all have the same
14 concern. And it's my understanding that there's another
15 individual who will come up and talk to you about some of
16 the cases that they have that are set for trial.
17 And I know Simmons Cooper has cases set for trial,
18 and Levy Phillips and Konigsberg who have also filed papers,
19 have cases set for trial. If a stay is entered here the
20 effect on the Modley's case in State Court is uncertain.
21 General Electric is likely to approach the Court, because
22 Florida is a State where liability is apportioned to all
23 people whether parties are not in the courtroom, and say we
24 can't proceed without Pneumo Abex here. Alternatively,
25 General Electric can say let's proceed to trial and we're

1 going to try to apportion fault to Pneumo Abex, even though
2 they're not in the courtroom.
3 Well, if this plan is not approved and a stay or a
4 discharge is not granted to Pneumo Abex in the context of
5 this proceeding, we end up in a situation where we've tried
6 the case against General Electric, we get a verdict that
7 apportions 15 percent of the fault to Pneumo Abex, and then
8 we have to try the case again against Pneumo Abex once the
9 stay is lifted. Or my clients are left in the position
10 where their claim is delayed yet again.
11 Mr. Modley brought suit during the end of his
12 life, when his condition was grave. And we were unable to
13 get the case to trial in time before he passed. His
14 children have been living with this for years, and they want
15 to move on with their lives. And any injunction that this
16 Court considers entering in this case should exempt cases
17 that are set for trial. There is no irreparable harm to
18 Pneumo Abex, to Cooper, to this estate, to anything else
19 from allowing these people to liquidate their claims. In
20 fact --
21 THE COURT: Well, the irreparable harm is the deal
22 is off the table.
23 MR. RUCKDESCHOL: Well, the deal may be off the
24 table, and that's something I wanted to address. Cooper is
25 not required to withdraw if a preliminary injunction is not

1 entered. And the statement in the affidavit from counsel
2 for Cooper is that in her opinion she believes that Cooper
3 will withdraw. And that's not a statement that Cooper will
4 withdraw. And they may well prevail in the Modley trial.
5 There are defenses in the Modley trial to our claim. It may
6 be beneficial to the estate to proceed through trial on
7 this, because it may make a mesothelioma case go away.
8 And Cooper doesn't have to do this. They don't
9 have to have this emergency. This is an emergency of the
10 creation of the drafters of the term sheet. They got
11 together and they said, well you know, it's four and a half
12 years down the road and we've been going along. And Cooper
13 said over and over, we have the money to pay our liabilities
14 on this, and there's all this insurance out there, and we
15 think we're going to pay pretty much the same in or out of
16 the tort system, in the bankruptcy or in the tort system.
17 Those are public statements that have been filed by Cooper
18 or made by Cooper in public proceedings.
19 What the irreparable harm is, what the emergency
20 is that requires during the holiday season, a preliminary
21 injunction pleading to be filed that creates an arbitrary
22 cutoff date, if we don't act by January 29 we're going to
23 take our ball and go home. If this is a good deal, and it's
24 a good deal for Cooper and it's a good deal for the
25 claimants, nobody is going home just because Your Honor

Levey/Argument 116
1 doesn't issue a preliminary injunction. Thank you, Your
2 Honor.
3 THE COURT: Thank you. Anyone else?
4 MR. LEVEY: Your Honor, Stanley Levey, I'll be
5 very short.
6 THE COURT: Mr. Levey, good afternoon.
7 MR. LEVEY: We represent presently eight claimants
8 who have cases set for trial against Pneumo Abex, and only
9 against Pneumo Abex. And all of them are based on Pneumo
10 Abex's manufacture and sale of the product back in the early
11 '80s. The cases are set for trial and the disruption is
12 obvious, and I'm not going to repeat it. The only thing
13 that I do think is worth bringing to the Court's attention
14 is what the impact of even the proceeding we're going
15 through now that's had. We've sued Pneumo Abex numerous
16 times over the years. We've never gone to trial against
17 them because the cases always have been settled as the cases
18 have come up for trial.
19 What has happened in this case now, because of
20 this proceeding, is that Pneumo Abex has suddenly said to
21 plaintiffs we are not prepared to talk about settlement,
22 period. We're gambling that we're going to get our
23 preliminary injunction and therefore we have no further
24 interest in trying to resolve cases with you. And that's a
25 fact of life, and it's a fact that is significant to the

Levey/Argument 117
1 plaintiffs because we only represent living mesothelioma and
2 lung cancer victims.
3 The only other comment I would make, Your Honor,
4 is you asked what the matrix looked like. I don't know what
5 the matrix looks like. The only thing I know is that the
6 defendant's papers said there's 38,000 claims potential in
7 the papers and about $700 million. I count that to be about
8 $15,000 a claimant. I can tell you, based on our
9 experience, that is woefully inadequate, it is woefully
10 below what cases against Pneumo Abex have been settling for
11 in New York.
12 And I think Your Honor should be aware that we're
13 being asked, you're being asked to take claims on faith.
14 None of us know what we're talking about in terms of what
15 the realities of the numbers are. But I do know that those
16 numbers are inadequate on that basis, and that the ability
17 to resolve cases, an ability that has existed for years, has
18 been dried up because of this proceeding.
19 THE COURT: Thank you very much. Anyone else?
20 Yes, sir.
21 MR. CHRISTIAN: Thank you, Your Honor. Good
22 afternoon. David Christian of McDermott Will and Emery,
23 LLP. My clients include Continental Casualty Company,
24 Continental Insurance Company, Columbia Casualty Company and
25 Harbor Insurance Company. We're often referred to as CNA.

Christian/Argument 118
1 We filed a response to the motion for preliminary injunction
2 and I rise here today, Your Honor, to make the point that we
3 disagree with the debtor's characterization and argument
4 here today that there is shared insurance. My client issued
5 certain insurance policies to IC Industries, Inc., and
6 Illinois Central Industries, Inc. We resolved issues with
7 respect to certain of those policies through two settlement
8 agreements, one in 1999, one in 2003 which were subject to
9 confidentiality restrictions.
10 Pursuant to those agreements we have been paying
11 Pneumo Abex for Pneumo Abex claims. There was some
12 suggestion in the record that payments might have gone to
13 others, and that's certainly not the case with respect to
14 CNA. Accordingly, we disagree with the suggestion in the
15 original motion and in the complaint that the automatic stay
16 might apply to those policies or those payments. We
17 understand the debtor intends to resolve, and the plaintiffs
18 I guess, intend to resolve that point by modifying the
19 preliminary injunction order.
20 If this Court decides to enter a preliminary
21 injunction, we would ask to see the preliminary injunction
22 order that they propose, to ensure ourselves that it
23 actually does resolve our objection if this Court decides to
24 enter a preliminary injunction. And we appreciate the
25 debtors and the other plaintiffs meeting us on that issue.

Christian/Argument 119
1 That having been said, we do not oppose the entry
2 of a preliminary injunction under Section 105(a) if that's
3 the Court's desire. I don't, I'm sure that I don't
4 understand everything in the term sheet that's been proposed
5 by Cooper and the other plan proponents in this case. I'm
6 sure that I don't know everything that will make its way
7 into an amended plan implementing the term sheet. It has
8 been represented to CNA that the plan proponents intend to
9 honor the obligations under the settlement agreements with
10 CNA covering Pneumo Abex liabilities. Of course we want to
11 assure ourselves that that's the case.
12 And so we must of course reserve our rights to
13 object and conduct whatever discovery may be necessary to
14 assure ourselves of that. That having been said, we have
15 begun and intend to continue informal discussions and
16 discovery with the plan proponents to, you know, determine
17 the impact of the term sheet and any amended plan on our
18 settlement agreements. Thank you, Your Honor.
20 MR. BARTLE: Good afternoon, Your Honor. Harvey
21 Bartle from Morgan Lewis and Bockins, I represent Pepsi
22 Americas, also formerly known as IC Industries. I've been
23 mentioned, you know, for the last speaker, Your Honor, Pepsi
24 Americas, IC Industries is the owner and named insured under
25 almost all the policies issued between 1971 and 1975 which
Bartle/Argument 120
1 have been discussed here today as shared insurance. Neither
2 Federal Mogul Products nor Cooper is insured under those
3 policies at all. And we disagree with the characterization
4 today about that insurance being shared. We did not receive
5 timely notice of this hearing, Your Honor, nor have we had
6 the opportunity to fully go through the pleadings from the
7 plaintiffs, and we'd like to have a chance to review the
8 transcript here today. And we would just request that the
9 Court make no decision about the preliminary injunction
10 until we have had the opportunity to discuss and review the
11 characterizations about our insurance. Thank you.
13 MR. HOGAN: Very very briefly, Your Honor.
14 THE COURT: Good afternoon.
15 MR. HOGAN: Timothy Hogan in behalf of Grover
16 Alexander and the other plaintiff, defendants here noted as
17 the Nicholl objectors. Since I filed an objection I wanted
18 to make my presence known. I have nothing else to add, Your
19 Honor.
20 THE COURT: Thank you. Okay.
21 MR. FRANKEL: Good afternoon, Your Honor. Roger
22 Frankel on behalf of Cooper Industries. Your Honor, I just
23 want to respond to a couple of the things that have been
24 said this afternoon. First of all, the timing of the
25 preliminary injunction is provided for in the term sheet.

Frankel/Argument 121
1 It's not arbitrary. The economics that were set forth in
2 the term sheet were based on Cooper no longer paying claims
3 in the tort system.
4 The economics are the critical element that was
5 driving this for Cooper, obviously. And if the preliminary
6 injunction is not entered then Cooper has the right to
7 terminate the term sheet. I can represent to this Court,
8 based on discussion with senior management, that that is
9 what Cooper's intent is. Not because they don't want the
10 deal, but because the economics would no longer be the same.
11 Any time a preliminary injunction like this is
12 entered there's going to be trials set the following week,
13 the week after, the week after. So there is no good time
14 for the plaintiffs for something like this to be entered.
15 But it's not arbitrary. It was set because the economics
16 drove it to be set that way.
17 The other thing I want to mention Your Honor, is
18 the $35 million of the PA settled claims, as they're called
19 in the term sheet, that is not just claims that Cooper
20 decides to settle. That is claims that are settled with the
21 consent of the ACC, the FCR and Cooper. There may not be
22 any. But if there are any that are settled in that way, the
23 term sheet suggests that those claims would be unimpaired
24 because presumably they would be paid in full on the
25 effective date. Nothing nefarious in there, that was an

Frankel/Argument 122
1 option that was available to the parties that did the term
2 sheet. It may or may not be utilized, but that's why it was
3 put in there and it's not a Cooper only option. Thank you
4 very much, Your Honor.
5 THE COURT: All right, thank you. I don't want to
6 hear anything further, Mr. O'Neill, other than this, is
7 there anything else that we need to talk about on the
8 agenda?
9 MR. O'NEILL: No, Your Honor.
10 THE COURT: All right. Then let's take a short
11 recess. Rather than recessing for lunch let me just gather
12 my notes together and I'll come back and give you a decision
13 very shortly. Okay? And is there anyone still on the
14 phone?
15 MR. PARSONS: Your Honor, my name is David Parsons
16 of the law firm of Stutzman and Bromberg. We represent
17 Provost Humphrey, Brintkin (phonetic) and Associates and
18 Herb Robin Cloud and Lubell (phonetic), they're personal
19 injury law firms. We've recently just been engaged in this
20 matter. We haven't filed any objections. There's one minor
21 point that I wanted to bring to Your Honor's attention
22 before he considers his decision, if I may do that.
23 THE COURT: I'm sorry, I'm having difficulty
24 hearing you. And I don't think I will take anything
25 further. You're welcome to stay on the phone. I should be

Decision 123
1 back in about 10 minutes or so.
2 MR. PARSONS: Okay. Thank you, Your Honor.
3 (Court stands in recess)
4 (Court resumes in session)
5 THE CLERK: All rise.
6 THE COURT: Thank you. Please be seated. All
7 right. This is an adversary proceeding that was commenced
8 by plaintiffs, the debtor in possession, the Official
9 Committee representing the asbestos personal injury
10 claimants and the futures representative on behalf of
11 parties with future personal injury claims relating to
12 asbestos exposure. The defendants are individuals who have
13 sued a company by the name of Pneumo Abex, I'll refer to as
14 Pneumo, in State Court and Federal Court outside of the
15 Bankruptcy Court.
16 The relief that's sought in the complaint is a
17 declaratory judgment action that, proceeding in the State
18 and Federal forums, would be a violation of the automatic
19 stay of Section 362(a)1 and (a)6 having to do with claims
20 against the debtor, and also a violation of 362(a)3 in
21 attempting to assert control over property of the estate
22 which is alleged to be shared insurance policies. Also the
23 relief sought in the complaint was a temporary injunction to
24 enjoin suits versus parties referred to as the Pneumo
25 protected parties pending confirmation of a plan of

Decision 124
1 reorganization.
2 The background behind this is that prior to 1994
3 the company known as Pneumo Abex had a division called a
4 friction products division, and that division sold products
5 that contained asbestos to persons who were injured,
6 claiming that their injuries were caused by exposure to
7 asbestos from products that were manufactured by the
8 friction products division of Pneumo Abex.
9 In 1994 there was an asset purchase agreement by a
10 company by the name of Warner, or excuse me, Wagner that was
11 a subsidiary of Cooper Industries. Wagner acquired the
12 assets of the friction products division. In that asset
13 purchase agreement Wagner agreed to indemnify Pneumo for
14 asbestos claims arising out of Pneumo's operation of this
15 friction products division. Cooper, the parent company,
16 agreed to guarantee Wagner's indemnity obligation to Pneumo.
17 And it may be, although it's unclear, that Wagner also
18 assumed Pneumo's obligation to parties who may have been
19 injured by exposure to asbestos from these products.
20 In addition, Wagner had its own business that
21 manufactured products containing asbestos. In 1997 Wagner
22 merged into another subsidiary of Cooper by the name of Moog
23 Automotive. And then in 1998 Federal Mogul, one of the
24 debtors in this bankruptcy case, bought the stock of Moog
25 Automotive and then changed its name to Federal Mogul

Decision 125
1 Products. In connection with that stock purchase agreement,
2 Federal Mogul, the parent company, agreed to indemnify the
3 seller, Cooper, for its liabilities to Pneumo regarding the
4 claims against Pneumo, and also agreed to indemnify Cooper
5 for any claims asserted against Wagner for its product line.
6 I believe that's correct.
7 From the time of the acquisition in 1998 through
8 October of 2001 whenever Pneumo was sued by someone claiming
9 to be injured by exposure to asbestos from their products,
10 the defense was undertaken by Federal Mogul and any claims
11 that weren't covered by insurance were paid for by Federal
12 Mogul. In October of 2001 Federal Mogul filed a petition in
13 this Court and got the benefit of the automatic stay. At
14 that time it advised Cooper Industries that it would no
15 longer honor Federal Mogul's indemnity obligation or
16 guarantee, I guess it's an indemnity obligation.
17 And from that point on Cooper stepped into the
18 shoes of the party that took over the defense and paid any
19 claims that were uninsured against Pneumo. To date Cooper
20 says that it is out of pocket for defense costs, and claims
21 payment of $150 million and expects to continue to incur
22 costs and liability in the future.
23 In this bankruptcy case, the debtor filed a third
24 plan of reorganization in the first part of 2004, even
25 though it had been in bankruptcy since October of 2001. The

Decision 126
1 disclosure statement filed in connection with that plan was
2 approved by the Court in June 2004. As part of the
3 disclosure statement process, apparently Cooper objected to
4 the disclosure statement. And then through negotiations
5 before the disclosure statement was approved, the debtor
6 agreed to, or I should say the plan proponents, because it's
7 not just the debtor, agreed to amend the plan to provide
8 that Cooper's exposure to asbestos claimants relating to
9 either the Pneumo line of products or the Wagner line of
10 products would be protected by an injunction to be issued
11 under Section 524(g) of the Bankruptcy Code.
12 If Cooper was not granted the injunction the
13 debtors proposed to treat Cooper's indemnification claim as
14 an indirect asbestos claim and channel that to a trust that
15 would protect the debtor. That deal didn't materialize in
16 time for balloting on this proposed plan, and the time to
17 file objections to confirmation. Because the negotiations
18 remained outstanding Cooper voted to reject the plan and
19 also filed objections to confirmation.
20 As a result of Cooper's negative vote, certain
21 class or classes of claimants in the plan have voted to
22 reject the plan. And if the plan were to be confirmed it
23 would require confirmation over the objection of the
24 rejecting class or classes, the so-called cram down
25 provisions.
Decision 127
1 Now, since the time that the disclosure statement
2 was approved 18 months ago the debtors focused on other
3 major problems in the case. The primary focus was on the
4 fact that some 130 some-odd of these debtors are English
5 companies or UK companies that are also in solvency
6 proceedings in the United Kingdom. The debtors attempted to
7 get the administrators of the UK companies to go along with
8 their plan of reorganization and propose a companion type of
9 plan in the proceedings in the UK. That did not happen.
10 But nevertheless, in this 18 month time period an
11 accommodation was reached with the administrators of the UK
12 plans that would allow the debtors to proceed in this Court
13 with plans of reorganization here.
14 That was undoubtedly a large hurdle that was
15 overcome, if these cases are ever to reorganize. And the
16 parties are to be congratulated and are understandably proud
17 of their work in reaching that resolution. Although, as
18 with any compromise, neither side is particularly happy with
19 the outcome.
20 The plan or the concept that these companies can
21 reorganize is not only supported by the management of the
22 debtors, it's also supported by the Official Committee of
23 Unsecured Creditors, the Committee of Personal Injury
24 Asbestos Claimants, the Futures Representative, the banks
25 that were prepetition lenders to these debtors having

Decision 128
1 substantial monetary claims, the equity holders who are not
2 promised a lot in this proceeding, and the UK administrators
3 as well as the trustees of the pension fund for the UK
4 employees of the affiliate companies.
5 Prior to the recent negotiations there were
6 several parties that still opposed confirmation, Cooper
7 Industries being one, the Committee representing asbestos
8 property damage claimants, and a number of insurance
9 carriers that are alleged to provide insurance coverage to
10 the debtor and whose policies are the primary focus of
11 funding to pay personal injury claimants if the plan were
12 confirmed and the trust established under Section 524(g).
13 Recently the debtor concluded negotiations with
14 Cooper and its affiliates to come up with a deal that's
15 represented in the term sheet. To put it in its most simple
16 terms, which is to really reduce it way beyond simplicity,
17 but for our purposes essentially the plan calls for Cooper
18 to put money into a trust for the benefit of personal injury
19 asbestos claimants, also to have whatever insurance is
20 available to cover their exposure available to the trust,
21 and perhaps put other assets in.
22 In exchange for that, Cooper is to be covered by
23 the injunction issued under Section 524(g) of the Code. And
24 in addition, Cooper is promised to get a litigation
25 injunction effective now until the time of confirmation. If

Decision 129
1 Cooper does not get the litigation injunction that's being
2 sought today, Cooper has the right to back out of the deal
3 and says that it expects to do so.
4 In terms of the plan, it's clear that the plan
5 that was proposed in the disclosure statement that was
6 approved in June of 2004 will have to be modified. Whether
7 the plan will have to, whether a revised disclosure
8 statement will have to be prepared is not known. Whether
9 the disclosure statement will have to go out on notice to
10 creditors is not known. Whether there will have to be
11 another round of balloting is not known. And the time,
12 expected time table to bring that plan to confirmation is
13 not know. And whether the parties who so far haven't
14 indicated their agreement to the plan will continue to
15 object to the modified plan is not known.
16 The plaintiffs in this adversary proceeding filed
17 a motion for preliminary injunction asking initially for all
18 the relief that was sought in the complaint. After
19 opposition was filed the moving party withdrew any request
20 for a preliminary injunction based upon the alleged
21 applicability of the automatic stay to the proceedings by
22 these personal injury claimants in State and Federal Court,
23 because of the potential for negative consequences that were
24 pointed out by some of the objectors, in particular some of
25 the insurance carriers involved in the Pneumo cases.

Decision 130
1 Nevertheless, the counts of the complaint that relate to the
2 automatic stay are preserved by the moving parties for later
3 treatment.
4 In order to succeed in getting a preliminary
5 injunction all parties agree that there's a four part test.
6 The first part is that there must be a reasonable
7 probability of success on the merits. Secondly, there must
8 be irreparable harm to the moving party if an injunction is
9 not issued. Third, any harm that may occur to the enjoined
10 party must not outweigh the harm to the moving party. And
11 four, the injunction should be in the public interest or at
12 least not against the public interest.
13 In this circuit the plaintiff, the law is not
14 clear. But I think the law, as I've gleaned it, is that the
15 plaintiff need not meet all four parts of the test, but only
16 show that certain parts have been satisfied and that the
17 other parts that it can't meet are not sufficient to
18 overcome the fact that it has satisfied one or more of the
19 elements. It's clear that the burden of proof is on the
20 party seeking the injunction to establish that it has met
21 one or more if not the preponderance or all of the elements
22 of the four part test.
23 Let me focus first of all upon irreparable harm.
24 And one of the opponents here has characterized this as a
25 self created irreparable harm. And this really reminds me

Decision 131
1 of the scene from the movie Blazing Saddles where the
2 sheriff played by Clevon Little is being hassled by a crowd
3 and he's being threatened with physical violence. And he
4 pulls out a gun and he holds it to his head. And he says,
5 stand back or I'll shoot the sheriff. The debtor in this
6 case has agreed to a deal in which they've undertaken to get
7 a preliminary injunction and the other party to the deal has
8 said, if I don't get this preliminary injunction I'm going
9 to withdraw from the deal. This to me is a totally self
10 created scenario for irreparable harm.
11 As to the balance of the harm, we have injured
12 parties who are ready to go to trial. It's represented that
13 up until now, up until a week before this, every injured
14 party who successfully prosecuted a claim has been paid in
15 full, and that many of the injured parties were able to
16 reach settlements with Cooper Industries in which the
17 settlement has been paid in full.
18 Many of the injured parties are suffering from
19 fatal diseases caused by exposure to asbestos; mesothelioma,
20 other types of fatal diseases. That some of the claimants
21 have died already and their claims are being pursued by
22 their related parties or the executor of their estate.
23 Others are projected to die very soon. Numerous matters are
24 scheduled for trial in the coming days, weeks and months.
25 The prospect that these injured parties are

Decision 132
1 offered is to wait, have their claims stayed until the
2 debtor can attempt to reorganize, in which case their claims
3 would be channeled to a trust. The trust would have a
4 matrix for paying the claims, and it's projected that the
5 funds in the trust would be sufficient to pay 100 percent of
6 the matrix value of the claims.
7 Now, what the matrix value of the claims is,
8 nobody knows. But it is, where there's a history in the
9 past of injured parties recovering millions of dollars for
10 these claims if the -- It seems unlikely to me that the
11 matrix would be sufficient to offer millions of dollars to
12 these claimants. And it's projected to be 38,000 claimants
13 at this point, to grow some to about 50,000 claimants. Some
14 of them may be very minor claims but others are obviously
15 very serious claims.
16 The harm to the debtor is that if the injunction
17 isn't issued they're going to have a difficult problem in
18 trying to confirm the plan over Cooper's objection. Of
19 course there are still other objections out there, so
20 confirmation is hardly a forgone conclusion. The other harm
21 is that there are projected to be 500,000 other personal
22 injury claimants not related to Pneumo Abex that have been
23 delayed for four years and three months so far by this
24 bankruptcy, and they will be delayed further in getting any
25 payment for their claims.

Decision 133
1 It is a continuing concern that these folks have
2 been delayed in getting payment for their serious injuries
3 while this claim, this case has dragged along here in
4 Bankruptcy Court. Not to say that there haven't been many
5 many complex issues that needed to be resolved before
6 anybody could get paid.
7 As to success on the merits, in the context of a
8 bankruptcy reorganization case where the injunction is
9 sought so that the debtor plan proponent can attempt to
10 reorganize, success on the merits is determined by whether
11 or not it is likely that the debtor can propose, confirm and
12 implement a plan. The circumstance that we have now is that
13 the plan that's on file can't be confirmed as is, no new
14 plan has yet been proposed. The history of this case shows
15 that in four years and three months the debtor has been
16 unable to get confirmation of a plan.
17 There are still significant interests with
18 opposition to a plan, not the least of which is the
19 insurance carriers. There's also the personal damage
20 committee. And it's projected by counsel who have appeared
21 here today, that if the plan proposed is a 524(g) injunction
22 against parties who have claims against Pneumo, that they
23 are likely to oppose confirmation.
24 I would note in passing that in the COMBUSTION
25 ENGINEERING case the parties that carried the ball to the

Decision 134
1 Third Circuit on the appeal were the insurance carriers and
2 certain cancer claimants who were not satisfied with the
3 plan, even though there was a requisite voting in the class
4 put into the 524(g) trust to get approval there.
5 Whether the debtor can propose a plan that would
6 provide the so-called Pneumo protected parties with 524(g)
7 protection, to me is dubious at this point. The statute,
8 let's see, has a lot of conditions or a description as to
9 parties who would be entitled to 524(g) protection, other
10 than the debtor. The statute requires that the party to be
11 covered by the injunction must be alleged to be directly or
12 indirectly liable for conduct, claims against or demands on
13 the debtor to the extent that such liability of the third
14 party arises by reason of the third party's ownership of a
15 financial interest in the debtor, a past or present
16 affiliate of the debtor, or predecessor in interest to the
17 debtor.
18 That's the primary provision of 524(g)(4)(A)2
19 that's relied on by the moving party. The moving party says
20 that these Pneumo protected parties could also be covered
21 under II because they were involved in the management of the
22 debtor or a predecessor of the debtor, because some of them
23 provided insurance to the debtor. And fourth, because these
24 parties were involved in a transaction that changed the
25 corporate structure, including acquiring or selling a

Decision 135
1 financial interest in an entity as part of such transaction.
2 It is not clear to me that one of the Pneumo
3 protected parties; Cooper, would fall into the category of
4 parties protected to the extent that Cooper's liability is
5 only on account of its indemnity or guarantee of indemnity
6 of Pneumo at the time that Wagner acquired the friction
7 products division. At least one of the objectors, if not
8 more, says that they haven't, the people that they represent
9 haven't sued Cooper. They've sued Pneumo. And the fact
10 that Pneumo is indemnified by Cooper and that Pneumo has
11 insurance doesn't impact them, and that 524(g) was not meant
12 to cover parties who have agreed to indemnify defendants in
13 asbestos personal liability cases.
14 The facts presented in this application for a
15 preliminary injunction or motion for a preliminary
16 injunction are woefully inadequate to describe how claims
17 are asserted against Cooper that could result in a 524(g)
18 injunction. Now, the Court is authorized under Rule 52E to
19 hear motions on affidavits without taking testimony. But
20 the affidavits in this case all refer to the indemnity
21 obligation of Cooper and the related indemnity obligation of
22 Federal Mogul to Cooper. It doesn't relate to this third
23 party's direct or indirect liability for claims or demands
24 against the debtor, again, that arise by reason of the
25 ownership of a predecessor in interest of the debtor.

Decision 136
1 And I'm confident that the plain language doctrine
2 that the Supreme Court advocates in statutory construction
3 and the Third Circuit's reading of 524(g) in the COMBUSTION
4 ENGINEERING case would require that it be clear that a party
5 is entitled to an injunction under 524(g) before a plan
6 could be confirmed giving them that injunction. And the
7 Third Circuit has made clear that if 524(g) doesn't provide
8 for an injunction the Bankruptcy Court has no power to issue
9 an injunction outside of 524(g).
10 So I find that the moving parties have failed to
11 prove irreparable harm, have failed to prove that the
12 balance of the harm to them outweighs any harm to the
13 defendants, and have failed to prove a reasonable
14 probability of success on the merits for the purpose of
15 getting a preliminary injunction. Now, this is, whether we
16 characterize this as a preliminary injunction or a temporary
17 restraining order, at this stage in the proceedings without
18 discovery having been taken, it's essentially seeking a
19 temporary restraining order.
20 And temporary restraining orders are generally put
21 in place to preserve the status quo. And the status quo is
22 that Cooper and its insurance carriers have been paying
23 people with asbestos personal injury claims. And without
24 more, I think that status quo should be preserved. So the
25 plaintiff's motion for a preliminary injunction is denied.

137
1 All right? Thank you all. See you again.
2 * * *
3 CERTIFICATION
4 I, SUSAN WALSH, Certified Agency Transcriber, do
5 hereby certify that the foregoing transcript of proceedings
6 on copied disk is prepared in full compliance with the
7 current Transcript Format for Judicial Proceedings and is a
8 true and accurate transcript of the motion as recorded in
9 the matter of FEDERAL MOGUL heard by the US Bankruptcy Court
10 of New Jersey, on January 20, 2006.
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12 _________________________________ _____________
SUSAN WALSH AOC No.
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14 TERRY GRIBBEN'S TRANSCRIPTION SERVICE _____________
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Jan 20 2006 FMP Hearing Transcript

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Jan 20 2006 FMP Hearing Transcript

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1 UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW JERSEY

17 Counsel for Official SONNENSCHEIN NATH & ROSENTHAL

23 Operator: Betty Akin

6 Counsel for Futures YOUNG CONAWAY STARGATE & TAYLOR

9 Counsel for asbestos SEITZ VAN OGTROP & GREEN

14 For cancer claimants: GEBHARDT & SMITH, LLP

19 For claimants: STANLEY LEVEY, ESQ.

20 For CNA Insurance: McDERMOTT WILL & EMERY

5 For Grover Alexander: TIMOTHY HOGAN, ESQ.

6 For Cooper Industries: SWIDLER BERLIN

12 MOTION (Prelminary Injunction)

18 BY MR. EBERT 107

19 BY MR. RUCKDESCHOL 107

20 BY MR. LEVEY 116

21 BY MR. CHRISTIAN 119

22 BY MR. BARTLE 119

23 BY MR. HOGAN 120

24 BY MR. FRANKEL 120

1 THE CLERK: All rise, the United States Bankruptcy

2 Court, the Honorable Raymond C. Lyons presiding.

3 THE COURT: Good morning, thank you. Please be

4 seated. We don't have anybody appearing by phone this

5 morning, Mr. O'Neill?

6 MR. O'NEILL: Yes, there is. There are people

8 THE COURT: Okay. Just a moment.

9 MR. O'NEILL: Your Honor, we do have a couple of

10 people who are having train problems this morning as well.

11 So we're going to get started when the Court is ready, just

12 because we have a number of things to get to today. But we

13 might move things around based on people's availability and

15 THE COURT: Mr. Clements?

16 MR. CLEMENTS: Yeah.

17 THE COURT: Good morning.

18 MR. CLEMENTS: Hello, is this Judge --

19 THE COURT: This is Judge Lyons speaking.

20 MR CLEMENTS: Nice to meet you.

21 THE COURT: Good morning. I guess other people

22 will be joining you on the telephone. We're in court here.

1 MR. O'NEILL: Certainly, Your Honor. This is

2 James O'Neill, Pachulski Stang Ziehl Young Jones and

3 Weintraub, appearing today on behalf of the debtors Federal

4 Mogul. With me in the courtroom are my co-counsel from the

5 firm of Sidley and Austin, Kevin Lantry and Jeffrey Bjork.

6 THE COURT: All right. Were you able to hear

8 MR. CLEMENTS: Yeah, that was great. Thank you.

9 THE COURT: All right. Mr. O'Neill?

10 MR. O'NEILL: Your Honor, I just wanted to see if

11 there were other parties who are also on the telephone. I

12 expect that there should be a number of parties appearing

14 THE COURT: Well, let's proceed. We don't need to

15 take appearances from everybody.

16 MR. O'NEILL: Okay. Your Honor, as I mentioned

17 briefly before we got started, the trains coming out of New

18 York have been delayed, so I expect that several counsel

19 will be coming into the courtroom as soon as their trains

21 are the fee applications which is the last part of the

22 agenda, starting on page 9. And I just wanted to check, is

23 Mr. Smith on the telephone?

24 MR. SMITH: Yes. Your Honor, this is Warren Smith

25 the fee auditor.

1 THE COURT: Good morning, Mr. Smith.

2 MR. SMITH: Good morning, Your Honor.

3 MR. O'NEILL: Thank you, Mr. Smith. Your Honor,