The district court in Hartford Accident & Indemnity Company, et al. v. American Capital Equipment, et al., No. 06-0891 (U.S. Dist. Ct. W.D. Pa. May 11, 2007), affirmed that Skinner Engine Company's insurers have standing to move to dismiss Skinner's chapter 11 bankruptcy case and to challenge its bankruptcy plan. However, the court also affirmed the bankruptcy court's denial of the insurers' motion to dismiss the bankruptcy case.
First, the disrict court found that the insurers met the minimum constitutional requirements of standing because they alleged an injury in fact that was traceable to the actions of the debtors and could be redressed by the bankruptcy court's dismissing the case or requiring amendment of the plan. Next, the court considered the following issue:
Did the bankruptcy court commit an abuse of discretion in refusing to dismiss a chapter 11 bankruptcy case, originally filed in good faith, and pending before the bankruptcy court for several years, in which the Debtors were not a going concern and held only insurance contracts and an insurance coverage action related thereto, and in which the Debtors proposed a plan that relied exclusively on insurance proceed surcharges paid by opt-in personal injury claimants for funding?
In analyzing this issue, the district court asked: "(1) does the case serve a valid bankruptcy purpose; and (2) is the bankruptcy being used to merely obtain a tactical litigation advantage?" The court determined that the plan had a valid bankruptcy purpose because it sought to maximize value to creditors. The court acknowledged the insurers' argument that the plan was "crafted by the Asbestos Claimants' attorneys so that they could avoid the MDL proceeding and realize a large, and nearly effortless payout at the expense of the Insurers," and further that the insurers "might be right." However, the court stated that this was "another question for another day," limiting its conclusion to a determination that the plan "maximized the property available to satisfy creditors." The court also recognized that "all debtors gain advantages against adverse parties through bankruptcy," but found that the insurers showed no evidence that "such advantages were the sole purpose" of the plan.