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					 Case 10-31607      Doc 451    Filed 08/30/10 Entered 08/30/10 20:47:14     Desc Main
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                     UNITED STATES BANKRUPTCY COURT
               FOR THE WESTERN DISTRICT OF NORTH CAROLINA
                              Charlotte Division

__________________________________________
                                          )
In Re:                                    )          Chapter 11
                                          )
GARLOCK SEALING TECHNOLOGIES              )          Case No. 10-31607
LLC, et al.                               )
                                          )
Debtors.                                  )          Jointly Administered
__________________________________________)


                    MOTION OF THE OFFICIAL COMMITTEE OF
                    ASBESTOS PERSONAL INJURY CLAIMANTS
                     FOR ENTRY OF A SCHEDULING ORDER
                      FOR PLAN FORMULATION PURPOSES




HAMILTON MOON STEPHENS                      CAPLIN & DRYSDALE, CHARTERED
STEEL & MARTIN, PLLC
                                            Elihu Inselbuch
Travis W. Moon (Bar No. 1067)               375 Park Avenue, 35th Floor
Adrianne H. Chillemi (Bar No. 30714)        New York, NY 10152-3500
201 South College Street                    Telephone: (212) 319-7125
Charlotte Plaza, Suite 2020
Charlotte, NC 28244-2020                    Trevor W. Swett III
Telephone: (704) 344-1117                   Kevin C. Maclay
                                            Jeanna Rickards Koski
Co-Counsel for the Official Committee       One Thomas Circle, N.W.
of Asbestos Claimants                       Suite 1100
                                            Washington, D.C. 20005
                                            Telephone: (202) 862-5000

                                            Co-Counsel for the Official Committee
                                            of Asbestos Claimants




357852
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       The Official Committee of Asbestos Personal Injury Claimants (the “Asbestos Claimants

Committee” or the “ACC”), respectfully requests that this Court enter a scheduling order setting

forth a schedule and process for formulating a confirmable plan of reorganization in this case. A

proposed form of order (the “ACC’s Proposed Scheduling Order”) is attached hereto as

Exhibit A.    The ACC’s Proposed Scheduling Order provides a conceptual framework and

deadlines for completing steps necessary to formulate a confirmable plan in an expeditious

manner that would conserve the resources of the Court and interested parties.

                                PRELIMINARY STATEMENT

       On June 5, 2010 (the “Petition Date”), Garlock Sealing Technologies, Inc. and its Debtor

affiliates (collectively, “Garlock”) filed a petition to reorganize under Chapter 11 of the

Bankruptcy Code. Two days after the Petition Date, Garlock filed the “Information Brief of

Garlock Sealing Technologies LLC” (the “Garlock Information Brief,” cited as “Garlock

Info. Br.”) [Dkt. No. 24]. While the stated purpose of the Garlock Information Brief is to tell

“the story of how Garlock has been forced to make . . . staggeringly large payments [to resolve

its asbestos liabilities], despite manufacturing a safe product” (Garlock Info. Br. at 2), it distorts

both fact and law beyond recognition, in an effort to pre-dispose this Court to Garlock’s

positions in these Chapter 11 bankruptcy cases.

       The ACC sets forth its response to the Garlock Information Brief in the Information Brief

of the Official Committee of Asbestos Personal Injury Claimants (the “ACC Information

Brief”), which is being filed concurrently with this Motion. As the ACC Information Brief

demonstrates, the cause of Garlock’s current financial situation is not (as Garlock has alleged) a

“broken” or malfunctioning tort system, but Garlock’s own reasoned decision to pay the type of

valid claim that is supported by science and has been affirmed by judges and juries. Put simply,
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exposure to Garlock’s asbestos-containing products can and do cause asbestos-related diseases

and have subjected it to overwhelming liability for personal injury and wrongful death.

        The ACC Information Brief also sets forth the general principles that must guide this

case. It (1) demonstrates that the elaborate “allowance-then-estimation” procedure proposed by

Garlock is contrary to law and would result in unacceptable delay and enormous cost to the

estates; (2) explains the historical and legal context in which Garlock’s bankruptcy should be

viewed; and (3) discusses the reasons why this Court must reject Garlock’s invitation to rewrite

history, law and medicine. The ACC now seeks entry of a scheduling order geared toward

efficient confirmation of a plan of reorganization and preventing wasteful and protracted

litigation.

        Garlock has represented that it intends to reorganize within the framework of 11 U.S.C.

524(g), a provision that Congress enacted specifically to deal with the complex and unique issues

raised by asbestos-driven bankruptcies. Under a Section 524(g) plan, all asbestos-related claims

against Garlock, both present and future, would be channeled to a post-confirmation trust.

Garlock would fund the trust in exchange for being relieved of liability for the claims. The post-

confirmation trust would resolve the claims pursuant to trust distribution procedures to be

approved by the Court as part of the plan.

        Over the nearly thirty years of asbestos-related bankruptcies, many Section 524(g) plans

have been negotiated by interested parties. The ACC is optimistic that a consensual plan can be

achieved here, and its Proposed Scheduling Order is intended to facilitate the formulation of a

confirmable plan within a reasonable period of time.




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                                           ARGUMENT

       The Proposed Scheduling Order would focus the central question for plan formulation in

this case: Does Garlock’s aggregate asbestos liability exceed the value of Garlock’s assets? To

answer that question, two main issues must be determined: (1) the extent of Garlock’s asbestos

liabilities and (2) the value of the estates’ assets available to satisfy those liabilities. A related

matter requiring investigation is whether Garlock engaged in avoidable pre-petition transfers that

should be unwound for the benefit of the estates and their creditors.         The ACC’s Proposed

Scheduling Order would allow the parties adequate but not excessive time to conduct discovery

on the value of Garlock’s assets and liabilities and to carry out a preliminary investigation of

potential avoidance actions.

       A.      The Extent of Garlock’s Asbestos Liabilities.            As numerous courts have

recognized, the primary objective of a valuation of a debtor’s aggregate asbestos-related liability

is to approximate how the claims “would have been valued in the state court system had the

debtor never entered bankruptcy.” In re Armstrong World Indus., Inc., 348 B.R. 111, 123 (D.

Del. 2006) (citing Owens Corning, 322 B.R. at 722)). Accordingly, the parties should be

allowed discovery within the scope of that narrow issue. Fortunately for the parties and the

Court, Garlock’s many years of litigation in the tort system have created a rich source of

information as to the value of the claims against it. The ACC expects that, like other mass tort

defendants, Garlock has accumulated in electronic form the key data concerning its claims

resolution history which encompasses the thousands of asbestos tort and wrongful death claims

that Garlock has settled, reduced to judgment or otherwise disposed of in state and federal courts.

No other source of information provides a comparable window into the similar claims now




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pending against Garlock and those that will arise in the future, and how those claims fared in the

tort system.

       Any estimate of Garlock’s remaining asbestos liability must be informed by its actual

history in receiving and resolving asbestos claims. The pending unresolved claims and those that

will be asserted in the future grow out of that real-world context. Garlock is not entitled to use

bankruptcy to invent new, more favorable liability rules in order to ratchet down the liabilities

that have emerged in the tort litigation or to escape the trends in the tort-system that shape the

value of the future asbestos claims it will inevitably face. The issue, rather, is what it would cost

Garlock to resolve its pending and future asbestos claims if there were no bankruptcy, and the

abundant data already in Garlock’s hands will enable the parties and the Court to arrive at a

reasonable estimate.

       B.      Assets of the Estate and Avoidance Actions. In addition to determining the

extent of the asbestos-related liability, the parties must also assess the value of assets in the

estates. Asset valuation is, of course, a familiar subject of expert testimony. Once again,

Garlock’s own history provides the essential resource for such valuation, in the form of its

financial results for relevant periods and the business plans that shape any projection of results

achievable in the foreseeable future.

       As noted in the ACC’s Information Brief, present-day Garlock is the product of a series

of corporate restructurings carried out in the face of its looming asbestos liabilities. The ACC

intends to investigate these transactions carefully to determine whether they had the purpose or

effect of prejudicing the rights of Garlock’s asbestos creditors. It may be that investigation will

uncover opportunities to enhance the estates through the prosecution of avoidance actions. Such




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actions need not delay proceedings on a plan of reorganization, however, since a plan may pass

such avoidance claims through to a trust or other entity emerging from a reorganization.

        C.     The Proposed Schedule. The ACC’s Proposed Scheduling Order provides a

timeframe within which interested parties can complete discovery on the valuation of assets and

asbestos liabilities and exchange expert reports on those issues, thereby enabling the Debtors to

negotiate an informed and consensual plan with the ACC and the legal representative to be

appointed by the Court to represent the interests of unknown future asbestos claimants (the

“Future Claims Representative” or “FCR”).1 As Garlock’s pre-petition commercial debts are

minimal, present and future asbestos claimants constitute the only significant creditor

constituency in these cases.

        If, however, the parties fail to reach consensus on a confirmable plan of reorganization

within the exclusivity period, as recently extended until April 1, 2011,2 the ACC reserves the

right to file its own plan of reorganization. The information gained through the processes set

forth in the ACC’s Proposed Scheduling Order would also inform any plan to be propounded by

the ACC.

        As the ACC notes in its Information Brief, although Garlock’s asbestos-driven

bankruptcy presents complex issues, this Court has the benefit of the twenty-eight-year history of

asbestos bankruptcies since the Johns-Manville Corporation bankruptcy, and the lessons learned


1
    Garlock has nominated Joseph Grier to serve as the FCR. The ACC fully endorses this
nomination, has so informed the Debtors and Mr. Grier, and believes that Mr. Grier can and
should be so appointed without the need for further briefing.
2
     The ACC did not object to Garlock’s motion to extend the exclusivity period until April 1,
2011. However, the Debtors must take all steps necessary to negotiate a consensual plan during
the extended period. If negotiations fail, the ACC intends to propose a plan of its own and
expects to be in a position to do so not later than April 2011, and will proceed to a contested
confirmation hearing if necessary.


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from dozens of other Section 524(g) cases. By setting firm guidelines for this initial stage of

plan formulation and charting a course focused sharply on the key issues, the Court can move

these cases forward to a speedy and efficient reorganization.

       The ACC’s Proposed Scheduling Order maps out such a course. It would:

       (1)     establish a fair and reasonably expeditious schedule for the parties to approximate

the value of Garlock’s aggregate remaining asbestos-related liability;

       (2)     provide for prompt appointment of the FCR to represent the interests of future

asbestos claimants in any discovery and plan negotiations;

       (3)     give the ACC and the FCR access to the Claims Database, the primary source of

information the parties’ experts will use to estimate Garlock’s aggregate asbestos liability;

       (4)     limit the scope of permissible discovery, focusing on the essential tasks for plan

formulation, namely, valuing the assets and principal liabilities of the estates;

       (5)     allow for a preliminary investigation into potential avoidance actions that may

enhance creditors’ recoveries; and

       (6)     set this case on a clear course toward confirmation of a plan of reorganization, in

keeping with the Bankruptcy Code’s goals of speed and efficiency.




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                                        CONCLUSION

       For the foregoing reasons, this Court should enter the ACC’s Proposed Scheduling Order

and grant such other relief as may be just and proper.


Dated: August 30, 2010


                                             HAMILTON MOON STEPHENS STEELE &
                                             MARTIN, PLLC

                                             By: /s/ Travis W. Moon
                                             Travis W. Moon (Bar No. 3067)
                                             Adrianne H. Chillemi (Bar No. 30714)
                                             201 South College Street
                                             Suite 2020
                                             Charlotte, NC 28244
                                             Telephone: (704) 344-1117
                                             TeleFax: (704) 344-1483

                                              CAPLIN & DRYSDALE, CHARTERED

                                              By: /s/ Trevor W. Swett III
                                              Trevor W. Swett III
                                              (tws@capdale.com)
                                              Kevin C. Maclay
                                              (kcm@capdale.com)
                                              Jeanna Rickards Koski
                                              (jmr@capdale.com)
                                              One Thomas Circle, N.W.
                                              Washington, D.C. 20005
                                              Telephone: (202) 862-5000

                                              Elihu Inselbuch
                                              (ei@capdale.com)
                                              CAPLIN & DRYSDALE, CHARTERED
                                              375 Park Avenue, 35th Floor
                                              New York, NY 10152-3500

                                              Attorneys for the Official Committee of Asbestos
                                              Personal Injury Claimants




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                              Proposed Order Page 1 of 5




                     IN THE UNITED STATES BANKRUPTCY COURT
                   FOR THE WESTERN DISTRICT OF NORTH CAROLINA
                                  (Charlotte Division)

In re:                                                         )   Case No. 10-31607
                                                               )
GARLOCK SEALING TECHNOLOGIES LLC, et al.,1                     )
                                                                   CHAPTER 11
                                                               )
                       Debtor.                                 )   Jointly Administered

             SCHEDULING ORDER FOR PLAN FORMULATION PURPOSES


         WHEREAS, on June 5, 2010, Garlock Sealing Technologies, Inc. and its Debtor

subsidiaries (collectively with their predecessors in interest, “Garlock”), filed a voluntary

petition for relief under Chapter 11 of the Bankruptcy Code;

         WHEREAS, the Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334;

         WHEREAS, this matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2); and



1
 The Debtors include Garlock Sealing Technologies LLC, Garrison Litigation Management
Group, Ltd. and The Anchor Packing Company.



357874
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       WHEREAS, venue of this proceeding is proper in this District pursuant to 28 U.S.C.

§§ 1408 and 1409,

       IT IS HEREBY:

            1. ORDERED that the parties shall complete any briefing regarding the appointment

of a representative for the future asbestos claimants (the “FCR”) sufficiently in advance of the

September 16, 2010 hearings in this matter, so that this Court may appoint the FCR at that

hearing or earlier;

            2. ORDERED that the Official Committee of Asbestos Personal Injury Claimants

(the “ACC”) and the FCR may commence Rule 2004 investigations of pre-petition transfers and

restructuring transactions at any time after entry of an order appointing the FCR, and such

discovery is hereby authorized without the need for a further application to this Court, with any

deadlines applicable to those investigations to be set by further order of this Court;

            3. ORDERED that Garlock shall furnish its complete database of asbestos-related

claims information to the ACC and the FCR, and supply a database dictionary or guide sufficient

to enable the parties to understand the information collected in the database, on or before

September 23, 2010;

            4. ORDERED that written fact discovery regarding the value of the assets in the

estates may commence on September 17, 2010 and must be completed by December 21, 2010;

            5. ORDERED that depositions of non-expert witnesses regarding the value of the

assets in the estates may commence on September 23, 2010 and must be completed by December

21, 2010;
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                             Proposed Order Page 3 of 5


           6. ORDERED that written fact discovery regarding Garlock’s aggregate asbestos-

related liability may commence on September 17, 2010 and must be completed by November 15,

2010;

           7. ORDERED that depositions of non-expert witnesses regarding Garlock’s

aggregate asbestos-related liability may commence on September 30, 2010 and must be

completed by November 15, 2010;

           8. ORDERED that all expert reports referenced herein shall comply with the

requirements of Federal Rule of Civil Procedure 26(a)(2)(B), as made applicable to these

proceedings by Rule 7026 of the Federal Rules of Bankruptcy Procedure;

           9. ORDERED that expert reports regarding Garlock’s aggregate asbestos-related

liability shall be served by December 21, 2010. Rebuttal expert reports shall be served by

January 24, 2011;

           10. ORDERED that expert reports regarding the value of the assets in the estates shall

be served by January 14, 2011. Rebuttal expert reports shall be served by February 11, 2011;

           11. ORDERED that depositions of the experts regarding Garlock’s aggregate

asbestos-related liability must be completed by February 28, 2011; and

           12. ORDERED that depositions of experts regarding the value of the assets in the

estates must be completed by February 28, 2011.
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                               Proposed Order Page 4 of 5


        A chart listing the dates applicable to discovery of Garlock’s aggregate asbestos-related

liability and the value of the assets in the estates follows:

FCR appointment                                      September 16, 2010 or before

Parties may commence written fact discovery          September 17, 2010
regarding Garlock’s aggregate asbestos-related
liability

Parties may commence written fact discovery          September 17, 2010
regarding the value of the assets in the estates

Deadline for production of Garlock’s database        September 23, 2010
of asbestos-related claims information

Parties may commence depositions of non-             September 23, 2010
expert witnesses regarding the value of the
assets in the estates

Parties may commence depositions of non-       September 30, 2010
expert witnesses regarding Garlock’s aggregate
asbestos-related liability

Deadline for completion of written fact              November 15, 2010
discovery and depositions of non-expert
witnesses regarding Garlock’s aggregate
asbestos-related liability

Deadline for service of expert reports regarding December 21, 2010
Garlock’s aggregate asbestos-related liability

Deadline for completion of written fact              December 21, 2010
discovery and depositions of non-expert
witnesses regarding the value of the assets in
the estates

Deadline for service of expert reports regarding January 14, 2011
the value of the assets in the estates

Deadline for service of expert rebuttal reports      January 24, 2011
regarding Garlock’s aggregate asbestos-related
liability

Deadline for service of expert rebuttal reports      February 11, 2011
regarding the value of the assets in the estates
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                                     Proposed Order Page 5 of 5




Deadline for depositions of experts regarding      February 28, 2011
the value of the assets in the estates

Deadline for depositions of experts regarding      February 28, 2011
Garlock’s aggregate asbestos-related liability




This Order has been signed electronically.                              United States Bankruptcy Court
The Judge's signature and Court's seal                                 Western District of North Carolina
appear at the top of this Order.
Case 10-31607          Doc 451-2 Filed 08/30/10 Entered 08/30/10 20:47:14                    Desc Notice
                                   of Hearing Page 1 of 1
                        IN THE UNITED STATES BANKRUPTCY COURT
                      FOR THE WESTERN DISTRICT OF NORTH CAROLINA
                                      (Charlotte Division)

In re:                                                             )    Case No. 10-31607
                                                                   )
GARLOCK SEALING TECHNOLOGIES LLC, et al., 1                        )    Chapter 11
                                                                   )
                           Debtors.                                )    Jointly Administered

                                       NOTICE OF HEARING

      PLEASE TAKE NOTICE that The Official Committee of Asbestos Personal Injury
Claimants asserting claims against Garlock Sealing Technologies LLC, et al., has filed a
MOTION FOR ENTRY OF A SCHEDULING ORDER FOR PLAN FORUMULATION
PURPOSES.

        PLEASE TAKE FURTHER NOTICE that your rights may be affected by this Motion.
You should read the Motion carefully and discuss it with your attorney. If you do not have an
attorney, you may wish to consult with one.

       If you do not want the court to grant the relief requested or if you want the court to
consider your views on this Motion, then you or your attorney should attend the hearing at 9:30
a.m. on THURSDAY, SEPTEMBER 16, 2010 before the Honorable George R. Hodges in the
Bankruptcy Courtroom 126, 401 West Trade Street, Charlotte, North Carolina.

        If you or your attorney do not take these steps, the Court may decide that you do not
oppose the relief sought in the Motion and may enter an Order granting the relief requested. No
further notice of the hearing will be given.

Dated: Charlotte, North Carolina
       August 30, 2010
                                         HAMILTON MOON STEPHENS STEELE
                                         & MARTIN, PLLC

                                                /s/ Travis W. Moon
                                         Travis W. Moon (Bar No. 3067)
                                         201 South College Street
                                         Charlotte Plaza, Suite 2020
                                         Charlotte, North Carolina 28244-2020
                                         Telephone: (704) 344-1117
                                         Co-Counsel for the Official Committee of Asbestos
                                         Personal Injury Claimants




1
 The Debtors include Garlock Sealing Technologies LLC, Garrison Litigation Management Group, Ltd. and The
Anchor Packing Company.

{00230726.DOC V. A162.018038;}

				
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