Insurance Subrogation Claimants v. United States Brass Corp. (In re United States Brass Corp.)

In May 1994, United States Brass Corporation (Brass) (debtor) filed for bankruptcy. Hundreds of cases arising from defective plumbing supplies were pending against Brass. A global settlement of the plumbing cases was reached. The plumbing plaintiffs (creditors) and other parties to the settlement pursued contributions from Brass. Brass’s reorganization plan (plan) incorporated the plumbing plaintiffs’ settlement agreements and identified the plumbing plaintiffs as Class 5 claimants. The plan also identified certain insurance subrogation claimants (ISCs) (creditors) as Class 5 claimants. Under the plan, the plumbing plaintiffs would get $37.4 million from the Brass Trust, an entity to be created by Brass. Also, the plumbing plaintiffs would get 80 percent of payments expected from Brass’s insurers. Other Class 5 claimants, including the ISCs, would get the remaining 20 percent. In February 1998, the bankruptcy court confirmed the plan. The ISCs appealed and moved to stay the reorganization, but they did not ask for an expedited ruling on the stay. No stay was ever obtained. Many transactions necessary to the reorganization were completed by the end of March 1998. These included distributions to priority claimants, payment of over $30 million by the Brass Trust for distribution to the plumbing plaintiffs, execution of the plumbing plaintiffs’ settlement agreements, and Brass’s assignment of insurance proceeds to the Brass Trust. In January 1999, on appeal, the ISCs again requested a stay. The ISCs argued that the plan violated § 1123(a)(4) of the United States Bankruptcy Code, which required equal treatment of all creditors within a class unless the disfavored creditors assented.