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The Third Circuit’s recent opinion overturning confirmation of a plan of reorganization in the
Combustion Engineering (“CE”) bankruptcy case has significant consequences for mass tort
bankruptcies, and specifically for asbestos “pre-pack” cases. While circuit courts have
traditionally given mass tort debtors some leeway and flexibility in interpreting the Bankruptcy
Code, this court was clearly troubled by the novel design of the CE case. In a lengthy and farreaching
opinion that discussed several important aspects of asbestos bankruptcy cases, the Third
Circuit’s rulings may have fundamentally changed the strategy, negotiation dynamic, and
structure of a pre-packaged asbestos bankruptcy case.
The Combustion Engineering Approach
In a pre-packaged case the debtor has already solicited the votes of all creditors prior to filing the
case. Outside of the mass tort context, the advantage of a “pre-pack” is speed and less volatility:
because the debtor has already obtained the votes for approval of a plan of reorganization, it can
file its disclosure statement and plan as a “first-day” pleading and expect to move swiftly
towards confirmation of its plan and exiting bankruptcy.
Facing tremendous asbestos liability, CE, a subsidiary of European conglomerate ABB
Ltd., filed a precedent-setting pre-packaged chapter 11 bankruptcy case in February, 2003.
Prior to the filing, CE had negotiated a settlement with the leading asbestos plaintiffs
lawyers and created a pre-petition trust to make payments under the settlement (the “Pre-Petition
Trust”). CE’s ultimate parent, ABB Ltd., also paid a $20 million “success fee” to a single,
prominent asbestos lawyer whose job was to garner support for the CE plan among other
asbestos lawyers. The Pre-Petition Trust would be funded by the insurance policies of CE and a
contribution by ABB. The majority of asbestos claimants that settled with CE prior to the
bankruptcy case would receive a 100% recovery: 95% to be paid out from the Prepetition Trust
and a 5% stub claim (the “Stub Claims”) to be paid out post-petition under the chapter 11 plan.
The settling claimants were primarily individuals who purported to have been exposed to
asbestos but had no evidence of illness or incapacity. The non-settling claimants were those who
were actually suffering from cancer and other diseases, who viewed the settlement offer as
inadequate.
These Stub Claims were the lynchpin of CE’s pre-pack strategy. By leaving 5% to be
paid to holders of Stub Claims under the chapter 11 plan, those claimants would technically still
be creditors under the Bankruptcy Code and were therefore entitled to vote on the plan. These
settling claimants without any recognizable injury outnumbered those claimants who were
actually sick. By lumping the two groups of claimants in one class for voting on the CE plan, the
larger group of claimants who were not sick outvoted those who were.
Finally, CE had two affiliates, Lummus and Basic, that were also facing asbestos liability
but did not file for bankruptcy. Some of this liability derived from legal connections between the
affiliates and CE (derivative liability) but the majority of lawsuits concerned the affiliates’ direct
liability (non-derivative liability). An important aspect of CE’s bankruptcy plan was to enter
court-approved releases for Lummus and Basic.
CE’s own asbestos liability would be channeled to a post-petition trust (the “Post-Petition
Trust”) created under section 524(g) of the Bankruptcy Code. CE’s plan also provided that
asbestos liability threatening Lummus and Basic, both derivative and non-derivative, would be
channeled to post-petition trusts. While third-party releases for non-debtors is not uncommon in
bankruptcy cases, the breadth of the releases for Lummus and Basic could be considered
unusual.
The Third Circuit’s Analysis
The CE plan was confirmed by the bankruptcy court and affirmed by the district court. Certain
non-settling asbestos claimants who had contracted cancer from asbestos exposure, as well as a
number of ABB’s insurance companies who feared their rights were improperly compromised by
the plan, took the case to the Third Circuit Court of Appeals. The Third Circuit overturned the
lower courts and found that the CE plan did not satisfy the jurisdictional and legal requirements
for confirmation.
First, the Third Circuit held that insurance companies did have limited standing to
challenge certain aspects of the plan. The standard to be applied in order to determine whether a
party has a right to appeal in a bankruptcy case (bankruptcy appellate standing) is not the usual
“party in interest” standard but the more restrictive “persons aggrieved” standard: a party has
appellate bankruptcy standing if its rights or interests are directly and adversely affected
pecuniarily by an order or decree of the bankruptcy court. As such, insurance companies could
challenge a “super-preemptory” provision in the plan. The original plan provision was designed
to make sure that insurance companies’ rights were not altered by the plan. However, in
approving confirmation of the plan, the district court had modified this provision to be less
advantageous to the insurance companies. The Third Circuit concluded that because this change
“diminishes their property, increases their burdens, or impairs their rights,” the insurers had the
right to appeal. The practical consequence of this holding may be to give insurance companies
more leverage during negotiation and formulation of a plan, because previously their rights were
less clear.
Second, the Court held that in this situation, the bankruptcy court had no jurisdiction to
implement releases of non-derivative liability for non-debtor affiliates. Neither mere corporate
affiliation between peer companies, nor significant financial contributions by the affiliates, nor
shared insurance between CE and its affiliates Lummus and Basic could support the “related to”
connection needed to justify the exercise of jurisdiction over these non-debtors and their
creditors by the bankruptcy court.
Additionally, the Third Circuit concluded that the broad power given to bankruptcy
courts by section 105 of the Bankruptcy Code does not go so far as to give the court the power to
release non-derivative liability of non-debtors because section 524(g) of the Bankruptcy Code,
which specifically addresses releases of third-party liability, does not allow release of nonderivative
liability. Section 524(g) was inserted by Congress into the Bankruptcy Code to deal
with releases in asbestos cases. Because section 524(g) specifically addresses the situation while
section 105 generally addresses releases, the court relied on one of the fundamental canons of
statutory interpretation: a specific provision trumps a general provision.
Third, the Court found the practice of creating thousands of stub claims to be “troubling”
and held that CE may have “artificially impaired” the settling asbestos claimants in order to
improperly manipulate the voting process. This violates the bedrock bankruptcy principle of
equality among similarly-situated creditors: “Combustion Engineering made a pre-petition side
arrangement with a privileged group of asbestos claimants, who as a consequence represented a
voting majority…. This type of manipulation is especially problematic in the asbestos context,
where a voting majority can be made to consist of non-malignant claimants [i.e. not sick] whose
interests may be adverse to those claimants with more severe injuries.” As such, the CE plan
could not be approved.
Conclusions
The most interesting aspect of the Third Circuit’s ruling was the tone and strength of the opinion,
written by the chief judge, John Sirica. The court was clearly concerned about how CE had
structured its pre-pack, and used words and phrases like “manipulation,” “problematic,”
“engineering literal compliance,” and “artificial impairment”. The Court called the practice of
creating massive stub claims “troubling.” Generally, circuit courts have provided significant
leeway to mass tort debtors. In the Johns-Manville, Drexel Burnham Lambert Group, A.H.
Robins, and recently, Dow Corning cases, circuit courts have demonstrated great flexibility when
analyzing the Bankruptcy Code such that these cases came to successful, negotiated conclusions.
Thus, the Third Circuit’s almost complete renunciation of the Combustion Engineering paradigm
is notable. This may have been due to some unusual decisions that, taken together, troubled the
court: (1) the use of vast numbers of stub claims; (2) a $20 million “success fee” given to a
single tort lawyer; (3) the lack of a future claims representative for the claims of CE’s affiliates;
(4) the totally disparate treatment of asbestos claimants who settled pre- versus post-petition; (5)
a shell corporation issuing securities for asbestos trusts; (6) a possible $400 million fraudulent
transfer to the Pre-Petition Trust and, of course; (7) the attempt to use section 105 to cleanse nondebtor
affiliates of non-derivative liability. Although the Court did not completely rule out the
possibility of asbestos pre-packaged cases, it called into question the fundamental architecture
used by CE, which has since been used in other asbestos pre-pack cases. It remains to be seen if
this novel form of using the Bankruptcy Code to address mass tort liability will survive.

Leading asbestos lawyers have warned that the Navy must address its moral and economic responsibility for
exposing service personnel to asbestos, a deadly product banned throughout Australia for more than five
years.
Asbestos litigator Margaret Kent from law firm Slater & Gordon has acted over many years for Navy
personnel with asbestos disease, including the terminal cancer mesothelioma.
“The Navy might take comfort from the precautions it takes with asbestos and the low level risk its members
supposedly face, but there is no safe level of asbestos exposure, as the ADF confirms in its own documents.
“Over many years the Navy has been a major source of asbestos claims.
“Slater & Gordon has acted for sailors who have been exposed to asbestos on ships, and for tradespeople
who worked at the notorious Naval dockyards.
“It’s extraordinary that a major Federal Government department should be one of the last in Australia to get
its act together – and now seeks a further extension.”
Military compensation lawyer Ben Mason says it makes economic sense and could save lives in years to
come if the Navy stops procrastinating on its asbestos problem.
“There is no justification – economic or otherwise – for refusing to replace parts containing asbestos.
There has been more than enough time and resources since 2001 but evidently Defence has seen the risk to
its service personnel as acceptable.
“History tells us that when it comes time for someone to be held accountable, those exposed personnel or
their families will be told it was someone else’s fault and they should join a queue to claim treatment and
compensation.”

Mesothelioma is one of the deadliest forms of cancer known today - an incurable disease that claims the lives of thousands of victims in the United States each year.
While medical science continues to develop miraculous technology that prolongs many of the lives ravaged by this insidious condition, a cure for mesothelioma is still out of reach and the prognosis is always fatal. Tragically, there is usually little time left after a mesothelioma diagnosis, and physicians are left with few options except to help alleviate physical suffering and ensure that a victim's final days are as comfortable and pain-free as possible.
Within this site you'll find facts and information about mesothelioma that includes:
• What is Mesothelioma? Facts on Pleural, Peritoneal, and Pericardial mesothelioma.
• What is Asbestos? Asbestos in the home and workplace.
• Mesothelioma Symptoms.
• Mesothelioma Treatment and Treatment Options.
• Lung Cancer - Facts on causes, growth, metastasis, and lung cancer cell types.
• Mesothelioma Diagnosis - methods and tests for mesothelioma.
• Asbestosis - Facts, indications and symptoms of this non-cancer condition.
Proving the link between one's illness and their asbestos exposure is a difficult and time-consuming responsibility. This is why the guidance of an experienced Mesothelioma lawyer is critical in helping victims and their families seek and receive financial compensation for their profound suffering. People can be exposed to asbestos in their home, workplace, many workers in older factories, ore mines, and shipyards were at risk of asbestos exposure.
Other types of workers exposed to asbestos includes:
• US Military and Navy personnel
• Engineers
• Construction workers such as pipefitters and steel workers
• Auto mechanics -working on brakes containing asbestos
• Insulation workers
• Asbestos textile workers
• Demolition workers
Mesothelioma Cancer:
Cancer can attack any system or organ in the body, and very often shows few external symptoms until it is too late. Another lethal aspect of cancer derives from the nature of cancerous cells to spread to healthy surrounding tissues by means of the circulatory or lymphatic systems. This combination of factors has made cancers like mesothelioma the single greatest threat to health around the globe.
Mesothelioma is a particularly destructive cancer, for decades pass between exposure to the asbestos and appearance of cancerous symptoms. Further complicating mesothelioma treatment is the malignant nature of the cancer, for once symptoms surface, current therapeutic treatments are usually no longer effective and post-diagnosis survival rates typically range from four months to a year.
Even though mesothelioma is a rather rare condition, there are a number of professions that exposed people to this deadly and incurable disease. Many people who worked in or around military installations, or in the automotive, construction, or chemical industries now exhibit the first signs of mesothelioma. Asbestos was used for decades as insulation or in building materials, which potentially exposed millions of workers to this deadly cancer. Most doctors and medical experts agree that there will be tens of thousands of new cases of mesothelioma in the years to come.
Facts about Asbestos and Mesothelioma:
There is only one known cause of mesothelioma: exposure to asbestos.
Asbestos is a naturally occurring mineral used for centuries in insulation, clothing, and fire-resistant materials. Ancients praised this versatile material, but also decried the lethal nature of the small fibers easily inhaled by anyone who used it. It was not until the 20th century that X-Rays, computed axial tomography (CAT) scans, and magnetic resonance imagery (MRI) revealed the extensive damage caused by these microscopic fibers. Even though advances are made every day in modern times, medical science is still only beginning to provide adequate treatment for mesothelioma.
Asbestos Exposure Facts.
Responsibility for deadly asbestos exposure is primarily due to the proliferation of asbestos related materials combined with the negligence of the injury to properly warn their employees and consumers about the dangers of their products. For years the asbestos industry concealed or minimized the potential dangers their products posed in the name of profits, fearing lawsuits and diminished demand would ruin their businesses. Ultimately, this deception and negligence virtually destroyed the industry and nearly bankrupted several prominent insurance companies responsible for protecting asbestos companies against potential lawsuits.
If you are suffering from mesothelioma, or have lost a loved one to the disease, you may have the right to receive reparations from the asbestos industry that failed to adequately
warn consumers of the grave risks associated with their product. A knowledgeable and understanding mesothelioma lawyer will help you fight for justice and the financial compensation to offset those spiraling medical expenses and to provide financial security for your family's future. Don't hesitate though, because the law limits how much time you have to file your claim - contact a mesothelioma lawyer today.
Mesothelioma Lawyers Legal Guide
When you are faced with something as devastating as a Mesothelioma diagnosis, you have a right to seek answers about why you weren't forewarned of the dangers of asbestos, and you have the right to seek reparations for you and your family. If you are a grieving family member or executor of the will of a person who has died from asbestos-related disease or mesothelioma, you may be eligible to file a claim as well. Legal details are understandably the last thing that someone wants to confront after the initial shock of an asbestos-related illness. However, taking advantage of your legal rights can create the necessary funds to finance aggressive treatment, pay off huge medical bills incurred during diagnosis, and provide financial security for your family for years to come.
Mesothelioma Litigation Lawsuit
A good Mesothelioma attorney understands the unique complexities involved in this kind of litigation lawsuit, including asbestos product identification, specific asbestos-related medical issues, and specific time constraints that narrow the window of opportunity to file a claim. It's important to find the right Mesothelioma lawyer before your state's statutes of limitations expire, leaving you and your family grieving and empty-handed. There's no time to wait - contact our mesothelioma lawyers today for a free case review.

yourself the following questions:
Has your asbestos lawyer proved to the asbestos companies that he / she is prepared to
take them to court and get a verdict?
Most people want to settle their case quickly and quietly out of court. However, asbestos companies and
insurers do not pay out good money quickly from the goodness of their hearts.
They only pay good money quickly when they have respect for the law firm they are facing – and that sort of
respect is hard earned. It's earned by a specialist asbestos law firm showing year after year that it is
prepared to take cases to verdict when a company is not prepared to pay proper and fair compensation.
Does your asbestos lawyer have that sort of reputation?
Does your asbestos lawyer have experience in cases like yours?
It's not enough these days for your lawyer to say they've previously had an asbestos case. It is a
considerable advantage if that lawyer has previously sued the company you need to sue. This is especially
so if that lawyer has a well-organised system for preserving the evidence obtained in those earlier cases.
Does your asbestos lawyer have a computerised database containing evidence and witness statements from
people who were exposed in the same place and in the same way as you were?
How many lawyers in the firm specialise in asbestos litigation?
If your case is complex or if it has to go to trial, you'll need to be able to match the resources of a big city
insurance law firm when your case goes to court.
Does your law firm have a team of specialist asbestos lawyers who have run trials before?
Does your asbestos lawyer offer No Win No Fee™ arrangements?
Asbestos litigation can get expensive. You need to have an arrangement where the expenses of your case
are borne by your lawyers and paid by you only if and when your case succeeds.
Does your asbestos lawyer show a real commitment to asbestos victims and their families?
Many lawyers claim they are committed to the rights of asbestos victims – it's quite another thing, however,
to prove it. A law firm that claims to have many years of experience acting for asbestos victims ought to have
a track record of providing non-legal support. Money for asbestos research, financial support for victims
groups, advocacy with the government for victims’ rights, pro bono work in the Hardie Commission of Inquiry,
are all ways to show real commitment.

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