Pump Manufacturer’s Bankruptcy Case Dismissed Under 11 U.S.C. § 707(a)

U.S. Bankruptcy Court for the District of Connecticut, May 25, 2022

In this bankruptcy action, Judge Manning described The Nash Engineering Company’s (debtor) Chapter 7 case as “anything but ordinary.” Indeed, Judge Manning noted that over 98% of the creditors are contingent, disputed, and unliquidated asbestos personal injury tort claimants. Following two status conferences, the court issued an Order to Show Cause as to why this case should not be dismissed as per 11 U.S.C. §§ 305 or 707(a).

After receiving several responses, the court ultimately dismissed the debtor’s case under 11 U.S.C. § 707(a) for cause. The court cited In re Murray as noting that the term “cause” as per the Bankruptcy Code “includes bad faith or circumstances falling short of bad faith but nevertheless representing an inappropriate use of the Code.” As such, the court set forth that In re Murray “clearly provides that cases filed in bad faith, or in an attempt to inappropriately use the Code, can be dismissed for cause under section 707(a).” While no party in interest had moved to dismiss the debtor’s case, the court itself analyzed the facts and circumstances of the case to determine if cause existed to dismiss.

First, the court cited Section 157(b)(2)(B) for the proposition that “contingent or unliquidated personal injury tort claims cannot be liquidated or estimated for purposes of distribution in any bankruptcy case, including a Chapter 7 case.” Specifically, those claims were removed from the 16 “core” proceeding categories of Section 157(b)(2)(B). Further, the legislative history of the section shows that Congress intended to preclude the liquidated or estimation of asbestos personal injury tort claims in the wake of the Manville bankruptcy and the Northern Pipeline Supreme Court decision. See In re Gawker Media LLC. Thereafter, the court cites the debtor’s Schedules and Statement of Financial Affairs for the “admi[ssion] that every one of the asbestos personal injury tort claims asserted against it are contingent and unliquidated claims.” Further, none of the responses to the Order to Show Cause discussed Section 157(b)(2)(B).

The court also concluded that the debtor and Chapter 7 trustee “are attempting to use the bankruptcy court as a repository for the more than 1,600 contingent and unliquidated asbestos personal injury tort claims.” By doing so, the debtor and Chapter 7 trustee would “drag” the claimants as well as multiple defendants whom contingent and unliquidated asbestos personal injury tort claims have been asserted against into this case. In addition, the Chapter 7 trustee did not set forth a persuasive argument as to why the debtor seeks to administer these contingent and unliquidated asbestos personal injury tort claims as part of a Chapter 7 liquidation case, and not as part of a Chapter 11 reorganization case. Further, these tort claims arose “exclusively under state law, not bankruptcy law, and are properly being administered outside of this Court.”

In addition, the court found that the debtor’s case lacked a legitimate bankruptcy purpose. The court set forth that “when the debtor is a corporation, the only purpose of a Chapter 7 case is to marshal and distribute assets as part of the fair and orderly liquidation of assets for creditors.” In this case, the court cited the debtor’s “admi[ssion] that it filed this case because it recently concluded that it depleted the entirety of insurance coverage.” As such, “[t]ransferring the responsibility to defend the asbestos personal injury tort claims to another party due to the debtor’s depletion of its own insurance coverage is an inappropriate invocation of the bankruptcy system.” The court also set forth that “no purpose [would be] served in keeping the bankruptcy case alive” where “the only assets of a bankruptcy estate are lawsuits.”

Thus, the court dismissed the debtor’s case for cause as per 11 U.S.C. § 707(a). (While holding that the action is dismissed as per 11 U.S.C. § 707(a), the court noted that dismissal under 11 U.S.C. § 305 would have also been appropriate as per In re International Zinc Coatings & Chemical Corp.). All motions and applications were denied as moot, with the exception of the pending Motions to Stay Pending Appeal.

Read the full decision here