Summary:
This long-running asbestos bankruptcy saga involving Kaiser Gypsum and its affiliate Hanson Permanente Cement returned to the Fourth Circuit following a Supreme Court remand, which held that Truck Insurance Exchange ("Truck") qualified as a “party in interest” under § 1109(b) of the Bankruptcy Code. This opened the door for Truck to assert objections to the proposed § 524(g) reorganization plan, which had previously been rebuffed for lack of standing.
On remand, the Fourth Circuit considered Truck’s two central challenges: (1) that the plan was not proposed in good faith under § 1129(a)(3), and (2) that it failed to meet multiple statutory requirements of § 524(g). Truck, the Debtors’ primary liability insurer, contended that the plan left it exposed to fraudulent asbestos claims because it allowed insured claims to be litigated in the tort system without parallel anti-fraud mechanisms required for uninsured claims processed through the Trust. It also challenged whether the Trust truly “assumed” liabilities, received “future payments,” or could realistically exercise control over the reorganized Debtors as required by § 524(g).
The Fourth Circuit affirmed the district court’s confirmation of the plan, finding no clear error in its good faith determination and concluding that all statutory requirements were met. The court emphasized that the plan was the product of arms-length negotiations, was supported by all claimants except Truck, preserved going-concern value, and maximized estate recovery—core goals of the Code. The panel rejected Truck’s concerns as speculative and unsupported by concrete evidence of fraud. It also held that the Trust’s entitlement to the Debtors’ equity upon default of a secured note satisfied § 524(g)’s control and funding requirements.
Judge Quattlebaum concurred separately, expressing discomfort with the refusal to adopt basic anti-fraud protections for insured claims but agreed that the absence of evidence precluded reversal under the clear error standard.
Commentary:
Although this case arose in the rarefied world of § 524(g) trusts and asbestos litigation, the Fourth Circuit’s clear-eyed approach to evaluating good faith provides helpful reinforcement of long-standing Chapter 13 principles. For consumer debtors, it affirms that using available legal tools (e.g., exemptions, selective surrender, or even aggressive strip-downs) is not “bad faith” if done transparently and for the purpose of reorganization.
When read alongside its recent opinion in Trantham v. Tate (4th Cir. 2002), 301 B.R. 408 (W.D.N.C.), aff’d 52 F. App’x 713 (4th Cir. 2002), the Fourth Circuit’s Truck Insurance decision reinforces a consistent and borrower-protective interpretation of the “good faith” requirement under both § 1325(a)(3) and § 1129(a)(3): namely, that bankruptcy courts must assess good faith under a flexible, case-specific “totality of the circumstances” test, and not rely on categorical rules or creditor-driven narratives of strategic behavior. It also reinforces the burden on objecting parties—whether creditors or trustees—to substantiate allegations of bad faith with facts and actual provisions of the Bankruptcy Code, not just suspicions or wistful glances towards standard practices. In both consumer and corporate contexts, good faith remains a fact-intensive inquiry that must ultimately align with the structure and goals of the Bankruptcy Code: fairness, transparency, and the honest but unfortunate debtor’s fresh start.
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