IN RE DOW CORNING CORPORATION, (Bankr.E.D.Mich. 1999)

Case No. 95-20512, Chapter 11.United States Bankruptcy Court, E.D. Michigan, Northern Division
December 1, 1999

AMENDED OPINION ON GOOD FAITH
ARTHUR J. SPECTOR, U.S. Bankruptcy Judge.

The Debtor and the Official Committee of Tort Claimants negotiated and on November 9, 1998 filed a Joint Plan of Reorganization. The plan (hereafter referred to simply as the “Plan”) was subsequently amended on February 4, 1999 and modified various times. The hearing on confirmation of the Plan commenced on June 28, 1999 and closing arguments were heard on July 30, 1999. Several post-hearing briefs and other submissions were received and the Court took the matter under advisement.

On this date the Court issued its Findings of Fact and Conclusions of Law on the matter of the confirmation of the Plan. This opinion is one of several which will serve to supplement and explicate some of the findings and conclusions. At least one opinion will follow later.

A general overview of the Plan’s terms is contained in the opinion on classification and treatment issues. When necessary, additional Plan terms are explained here. Except when otherwise stated, all statutory references are to the Bankruptcy Code, 11 U.S.C. § 101 et seq.

A number of parties objected to confirmation of the Plan on the ground that the Proponents failed to satisfy the requirements of § 1129(a)(3). For the reasons which follow, the Court finds that the Plan was filed in good faith and not by any means forbidden by law.

The Bankruptcy Code does not define the term “good faith.” Courts have taken a variety of approaches when applying it. See Tenn-Fla Partners v. First Union National Bank of Florida, 229 B.R. 720, 734 (W.D.Tenn. 1999) (explaining three different approaches). This is not surprising, however, for it is difficult to place precise boundaries around such a fuzzy concept. Laguna Assoc. Ltd. Partnership v. Aetna Cas. Surety Co. (In re Laguna Assoc. Ltd. Partnership), 30 F.3d 734, 738 (6th Cir. 1994) (“[G]ood faith is an amorphous notion, largely defined by factual inquiry.” (quoting In re Okoreeh-Baah, 836 F.2d 1030, 1033 (6th Cir. 1988)).

Several courts borrow the concept of good faith from jurisprudence under §§ 362(d)(1) and 1112(b) of the Bankruptcy Code. Those sections focus primarily on the debtor’s pre-petition conduct. By the time a case reaches the plan confirmation stage, pre-petition behavior is largely irrelevant. Instead, when considering whether a plan satisfies the § 1129(a)(3) requirement, the focus of the court must be on the plan itself. In re Madison Hotel Assoc., 749 F.2d 410, 425 (7th Cir. 1984). This issue is whether the plan “will fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code.” Id. See also Hanson v. First Bank of South Dakota, 828 F.2d 1310, 1315 (8th Cir. 1987) (quoting In re Toy Sports Warehouse, Inc., 37 B.R. 141, 149 (Bankr. S.D.N.Y. 1984)); In re Resorts Int’l, Inc., 145 B.R. 412, 469
(Bankr.D.N.J. 1990); In re Apex Oil Co., 118 B.R. 683, 703
(Bankr.E.D.Mo. 1990); In re White, 41 B.R. 227, 229 (Bankr.M.D.Tenn. 1984); In re Nikron, Inc., 27 B.R. 773, 778 (Bankr.E.D.Mich. 1983) (Brody, J.) (“A plan is proposed in good faith `when there is a reasonable likelihood that the plan will achieve a result consistent with the objectives and purposes of the Bankruptcy Code.'”) (citation omitted).

One court explained the rationale for this standard this way:

[§ 1129(a)(3)] reads as follows: “The court shall confirm a plan only if all of the following requirements are met: (3) The plan has been proposed in good faith and not by any means forbidden by law.” 11 U.S.C. § 1129(a)(3) (emphasis added). Thus, it is the plan’s proposal which must be (a) in good faith and (b) not by a means forbidden by law.
[T]he purpose of 1129(a)(3) was to insure that the proposal of a plan of reorganization was to be done in good faith and not in a way that was forbidden by law. Indeed one commentator, in comparing Section 1129(a)(3) with its predecessor sections under the Bankruptcy Act, has indicated that the focus of 1129(a)(3) is upon the conduct manifested in obtaining the confirmation votes of a plan of reorganization and not necessarily on the substantive nature of the plan.
In re Sovereign Group, 1984-21 Ltd., 88 B.R. 325, 328
(Bankr.D.Colo. 1988) (citing 5 Collier on Bankruptcy ¶ 1129.02 (15th ed. 1984)).

In re Food City, Inc., 110 B.R. 808, 811-12 (Bankr.W.D.Tex. 1990). We believe that the Sixth Circuit concurs in this analysis. See In re Okoreeh-Baah, 836 F.2d at 1033 (“The bankruptcy court must ultimately determine whether the debtor’s plan, given his or her individual circumstances, satisfies the purposes undergirding Chapter 13: a sincerely-intended repayment of pre-petition debt consistent with the debtor’s available resources. The decision should be left simply to the bankruptcy court’s common sense and judgment.”).

Moreover, in our view, placing the amorphous concept of good faith outside the confines of all of the other elements for confirmation of the plan, even outside § 1129(b)’s cramdown requirements, is intended to allow courts to utilize their gut feeling about a plan’s effects:

We have always been reluctant to seize upon “good faith” as an easy way out of confirming a difficult or questionable plan. We believe that a finding of lack of good faith in proposing a plan ought to be extraordinary and should not substitute for careful analysis of other elements necessary for confirmation. Haines, Good Faith: An Idea Whose Time Has Come and Gone, Norton Bankruptcy Law Adviser (April 1988). However, we also believe that a court of equity must use all of its senses to determine whether a proposed course is fair and equitable. A bankruptcy judge is more than a pair of ears to hear the argument and a pair of eyes to read the law. Furthermore, the mind, which may tell us intellectually that there is nothing technically “illegal” in a particular course of action, is not always the final arbiter. Sometimes a bankruptcy judge’s nose tells him/her that something doesn’t smell right and further inquiry is warranted. (Others may call this “common sense.”) As a human being, a bankruptcy judge may allow the heart to influence a decision even though, as a judge, he/she should beware not to let emotions stand in the way of justice. Sometimes, a bankruptcy judge’s stomach may turn, when he/she is preparing to sign a particular judgment or order. This queasiness is reflective of the judge’s sense that for some, perhaps inarticulable, reason, it just isn’t right to grant the relief requested. In the context of plan confirmation in bankruptcy cases, when this is the way the judge feels, it may be because the plan has not “been proposed in good faith.” In short, the reading of the law should be tempered by the judge’s sense of equit — what is just in the circumstances of the case. If there are objective facts to support this feeling, perhaps the plan should not be confirmed.

In re John P. Timko et al., No. 87-09318 (unpublished) (Bankr.E.D.Mich. July 22, 1988). For a plan where this test is put to use see In re Barr, 38 B.R. 323, 325 (Bankr.E.D.Mich. 1984) (Bernstein, J.) (“At this stage the maxim `be just before being generous’ is called to mind. Mr. E. Barr’s generosity to his family members would, if approved by this Court, result in a discharge of close to one million dollars of unsecured debts. That is simply unacceptable when for all practical purposes the Debtors continue to manage their same business. No amount of refined (or strained) analysis can still the moral outrage that the Debtors’ plan triggers. At some point, a court of equity has to say, no, this cannot be. . . . If `good faith’ is to have any moral significance, the Debtors’ plan cannot be found to be deserving of that appellation.”). Thus, courts frequently do and ought to reject sloppy reliance on good faith to cover all sorts of more specific objections covered by specific confirmation standards.

Applying this standard to facts of the instant case after carefully reviewing the Plan and the entire record, the Court finds that the Proponents of the Plan have met their burden of showing that the Plan was proposed and formulated in “good faith” under § 1129(a)(3). The Plan was proposed in a legitimate effort to rehabilitate a solvent but financially-distressed corporation, besieged by massive pending and potential future product liability litigation against it — an articulated policy objective of chapter 11. A plan proposed as a means to resolve tort liability claims does not violate the § 1129(a)(3) “good faith” confirmation requirement. See, e.g., In re Johns-Manville Corp., 68 B.R. 618, 632 (Bankr.S.D.N.Y. 1986). The evidence is clear that the legal costs and logistics of defending the worldwide product liability lawsuits against the Debtor threatened its vitality by depleting its financial resources and preventing its management from focusing on core business matters. See In re Dow Corning Corp., 211 B.R. 545, 552-553 (Bankr.E.D.Mich. 1997). The Debtor “is a real company with real debt, real creditors and a compelling need to reorganize in order to meet these obligations” and is therefore, exactly the type of debtor for which chapter 11 was enacted. See In re Johns-Manville Corp., 36 B.R. 727, 730 (Bankr.S.D.N.Y. 1984). As testified by Tommy Jacks, Arthur B. Newman, Scott Gilbert and Ralph Knowles, the Plan was the result of intense arm’s-length negotiations between parties represented by competent counsel who were guided by an experienced Court-appointed mediator and the findings and recommendations of highly qualified experts. The Plan incorporates procedures to effectively resolve the multitude of tort claims that drove the Debtor into bankruptcy and will allow the Debtor to emerge from bankruptcy as a viable corporation with the ability to pay its creditors the full amount to which they are entitled, to continue providing a return for its stockholders, to pay taxes to the federal government and to innumerable state and local governments, and to provide jobs for its employees. This is exactly the result envisioned by the drafters of chapter 11.

The Official Committee of Unsecured Creditors (“U/S CC”) was among the parties who objected on good-faith grounds. Its arguments are basically no more than attempts to revisit and reargue objections it made to the Plan under other provisions. Its claim that the Plan unjustly enriches the Debtor’s shareholders at the expense of the unsecured commercial creditors by not paying them according to their legal entitlements is just another way of arguing that the commercial creditors are entitled to postpetition interest at their contract rate. This issue has already been disposed of in two other opinions by this Court.[1]

Similarly, the U/S CC’s § 1129(a)(3) objection, based on the allegedly improper so-called “third-party releases” is and will be more appropriately addressed and disposed of in another separate opinion of the Court.

Likewise, the U/S CC’s § 1129(a)(3) objection based on the Plan’s payment of allegedly invalid and unenforceable claims merely reiterated the arguments it made under its § 502(b) objection. That objection was overruled in yet another separate opinion.

Like the other objections, the U/S CC’s fourth and fifth objections, arguing that the process by which the Plan was formulated and proposed was “inequitable, unconscionable and impermissible” and that the Plan “contains inequitable, unconscionable and impermissible terms and conditions” rely on arguments made in support of objections under §§ 1129(a)(1), (2), and (7), as well as other arguments that were separately decided by the Court, and will be discussed in greater detail in an opinion to be released in the future. In essence, the U/S C.C. argues that the Plan as formulated and proposed is inequitable because it treats the unsecured commercial creditors less favorably than a previous plan by not paying them postpetition interest at their contract rate. This objection was sustained in this Court’s opinion on cramdown of Class 4 and is rendered moot by the Plan’s self-correcting mechanism. Moreover, the “good-faith” determination under § 1129(a)(3) is to be made with regard only to the plan proposed to be confirmed and without regard to any prior plans. See In re Sound Radio, Inc., 93 B.R. 849, 854
(Bankr.D.N.J. 1988), aff’d in part and remanded in part on other grounds, 103 B.R. 521 (D.N.J. 1989), aff’d 907 F.2d 964 (3rd Cir. 1990) (“The plain meaning of § 1129(a)(3) has nothing to do with prior plans, but rather with the plan which is presently before the court.”).

Therefore, because the Court has disposed of all the U/S CC’s objections on which its § 1129(a)(3) objection is based, and because the Plan advances the policy objectives of chapter 11, § 1129(a)(3) is satisfied.

AMENDED OPINION REGARDING CRAMDOWN ON CLASS 18
The Debtor and the Official Committee of Tort Claimants negotiated and on November 9, 1998 filed a Joint Plan of Reorganization. The plan (hereafter referred to simply as the “Plan”) was subsequently amended on February 4, 1999 and modified various times. The hearing on confirmation of the Plan commenced on June 28, 1999 and closing arguments were heard on July 30, 1999. Several post-hearing briefs and other submissions were received and the Court took the matter under advisement.

On this date the Court issued its Findings of Fact and Conclusions of Law on the matter of the confirmation of the Plan. This opinion is one of several which will serve to supplement and explicate some of the findings and conclusions. At least one opinion will follow later.

A general overview of the Plan’s terms is contained in the opinion on classification and treatment issues. When necessary, additional Plan terms are explained here. Except when otherwise stated, all statutory references are to the Bankruptcy Code, 11 U.S.C. § 101 et seq.

Pursuant to 11 U.S.C. § 1129(b)(1), the Proponents seek to cram down the Plan on the rejecting Class 18, composed of impaired claims of the Norplant© long term contraceptive implant (“LTCI”) personal injury claimants. The Plan was rejected by Class 18. The Court concludes that the Plan is fair and equitable and does not discriminate unfairly against Class 18, and thus, the requirements for cramdown as to this class are met.

I. Facts
The manufacturers and/or distributors of LTCI products, American Home Products Corporation (“AHP”) and Leiras Oy entered into indemnity contracts and related guaranty agreements with the Debtor under which they agreed to indemnify the Debtor against all LTCI claims asserted against it. See Confirmation Hearing Final Pre-Trial Order (“Final Pre-Trial Order”), Part IV, Uncontested Fact 5, p. 12. The broad definition of “LTCI claims” in these contracts clearly encompasses the LTCI personal injury claims in Class 18. See Plan, § 1.93. The Plan provides that the Debtor, with the consent of AHP and Leiras Oy, will assign its rights under the indemnity and guaranty contracts to the Litigation Facility. See Final Pre-Trial Order, Part IV, Uncontested Fact 6, p. 12; Transcript, July 30, 1999 (statement of Barbara Houser, counsel for Dow Corning Corp.), p. 80. The Plan provides further that all Class 18 “LTCI [p]ersonal injury [c]laims will be channeled to [the] Litigation Facility and treated through enforcement of indemnity agreements assigned by the Debtor to the Litigation Facility.” Amended Joint Disclosure Statement with Respect to Amended Joint Plan of Reorganization of Dow Corning Corporation, p. 19; see also Plan, § 5.14 (“The sole remedy available to Class 18 and 19 Claimants shall be the Litigation Facility’s enforcement of the LTCI Indemnities.”). Class 18 voted to reject the Plan because although the majority of the class voted to accept the Plan, its votes did not equal the “two-thirds in [dollar] amount . . . of the allowed claims of [that] class” required under § 1126(c)[1a] for the Plan to be accepted. No member of Class 18 filed any written objections to the Plan or appeared or voiced any objections at the confirmation hearing.

II. Discussion
If all of the requirements of § 1129(a) are met except subsection (a)(8), the Bankruptcy Code allows confirmation of a debtor’s plan, even though an impaired class of unsecured claims has rejected it, upon a finding that it does not “discriminate unfairly” against the dissenting classes of creditors and is “fair and equitable.”11 U.S.C. § 1129(b)(1); In re Crosscreek Apartments, Ltd., 213 B.R. 521, 531-32 (Bankr.E.D.Tenn. 1997). Section 1129(b)(1) provides:

Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.

11 U.S.C. § 1129(b)(1).[2a] The Proponents have the burden of proving all of the elements of § 1129(b)(1) by a preponderance of the evidence. In re Trevarrow Lanes, Inc., 183 B.R. 475, 479
(Bankr.E.D.Mich. 1995). The Proponents have satisfied this burden.

A. Unfair Discrimination Prong
Under § 1129(b)(1), the Plan can permissibly discriminate against a non-accepting impaired class in distributing the reorganization surplus as long as the discrimination is fair. See Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy, ¶ 1129.04[3], at 1129-70 (15th ed. rev. 1999). The Bankruptcy Code lacks any criteria or standards for determining whether a plan unfairly discriminates. For this reason, courts have formulated various tests to decide this issue. Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy, ¶ 1129.04[3][a], at 1129-70-72.

1. Unfair Discrimination Tests
In In re Aztec Co., 107 B.R. 585, 590
(Bankr.M.D.Tenn. 1989), the court employed a four-part analysis, borrowed from case law interpreting the unfair discrimination prohibition of § 1322(b)(1), to determine whether the purported discrimination in the debtor’s plan was fair under § 1129(b)(1). The factors considered in Aztec, in light of the facts and circumstances presented, were:

(1) whether the discrimination is supported by a reasonable basis;

(2) whether the debtor can confirm and consummate a plan without the discrimination;

(3) whether the discrimination is proposed in good faith; and

(4) the treatment of the classes discriminated against.[3a]

Id. Although many courts have applied the four-factor test in chapter 11 cases to decide the unfair discrimination issue,[4a] some courts, finding its elements redundant, have pared it down to one or two factors.[5a] Other courts have preferred a flexible analysis not tied to any indispensable elements but based on the facts and circumstances in a particular case. See Crosscreek, 213 B.R. at 537 (discussing various approaches courts have used in deciding the § 1129(b)(1) unfair discrimination issue); see also Denise R. Polivy, Unfair Discrimination In Chapter 11: A Comprehensive Compilation of Current Case Law (“Unfair Discrimination in Chapter 11”), 72 Am. Bankr. L.J. 191, 225 n. 102 (1998), supra note 4, at 5 (compiling and analyzing cases discussing the § 1129(b)(1) unfair discrimination issue). However, regardless of the test, the prevailing view is that the minimum requirements for finding a chapter 11 plan does not unfairly discriminate are that it has “a rational or legitimate basis for discrimination and the discrimination must be necessary for the reorganization.” Id.; see also 7 Collier on Bankruptcy, ¶ 1129.04[3][a], at 1129-72; In re 203 North LaSalle St. L.P., 190 B.R. 567,585-86 (Bankr.N.D.Ill. 1995), aff’d sub nom. Bank of America, Illinois v. 203 North LaSalle St. Partnership, 195 B.R. 692
(N.D.Ill. 1996), aff’d sub nom. In re 203 North LaSalle St. Partnership, 126 F.3d 955 (7th Cir. 1997), rev’d on other grounds sub nom. Bank of America National Trust Savings Ass’n v. 203 North LaSalle St. Partnership, ___ U.S. ___, 119 S.Ct. 1411 (1999).

2. A New Approach
In his article, A New Perspective on Unfair Discrimination in Chapter 11, 72 Am. Bankr. L.J. 227 (1998), Professor Bruce A. Markell, who also authored Chapter 1129 in 7 Collier on Bankruptcy (discussing, in part, unfair discrimination under § 1129(b)(1)), rejects these tests “as being both untrue to the historical origins of [§ 1129(b)(1)] and duplicative of other confirmation requirements.” In particular, Markell “consciously rejects the prevailing view that tests the plan to see if it could be confirmed without the proposed discrimination — that is, whether the discrimination is necessary to confirm the plan.” Id. at 228. He argues that tests incorporating the necessity element are “fatally flawed” and “meaningless” because “discrimination is never necessary” in a plan. Id. at 254. He explains that

[a]ny nonindividual Chapter 11 case theoretically is capable of confirmation through plans which do not discriminate. For example, a court could confirm a liquidation plan, or it could confirm a plan that extinguished all claims and interests, created one class of new equity interests, and then distributed those interests pro rata to creditors and equity holders. With such a plan, which could be confirmed in any case, discrimination is wholly absent.

Id.

Markell also rejects the notion that cases discussing unfair discrimination under § 1322(b)(1) can be instructive to courts determining whether a plan unfairly discriminates under § 1129(b)(1) because these unfair discrimination provisions play different procedural roles and serve different purposes in their respective chapters. The chapter 13 unfair discrimination provision must protect all creditors because they do not have voting rights. Under § 1322(b)(1), a plan cannot be confirmed if it is found to unfairly discriminate. On the other hand, under chapter 11, a plan that unfairly discriminates can be confirmed if all classes vote to accept it. The unfair discrimination provision of § 1129(b)(1) protects only dissenting classes of creditors. Id. at 244-45. Because the function served by these provisions in the respective chapters differs, the standard should likewise be different according to Markell. Id.

Markell states that the purpose to be served by the unfair discrimination provision of § 1129(b)(1) is to set “a horizontal limit on nonconsensual confirmation” or to provide for equal treatment for all creditors holding the same priority level,[6a] as opposed to the vertical limit provided by the absolute priority rule under the “fair and equitable” standard, which assures fair treatment between creditors of different priority levels. Id. at 227-228. To achieve this end, Markell proposes a new analysis in which a rebuttable presumption of unfair discrimination would arise where:

there is: (1) a dissenting class; (2) another class of the same priority; and (3) a difference in the plan’s treatment of the two classes that results in either (a) a materially lower percentage recovery for the dissenting class (measured in terms of the net present value of all payments), or (b) regardless of percentage recovery, an allocation under the plan of materially greater risk to the dissenting class in connection with its proposed distribution.

Id. at 228. The plan proponent could rebut the presumption of unfairness established by a significant recovery differential by showing that, outside of bankruptcy, the dissenting class would similarly receive less than the class receiving a greater recovery, or that the alleged preferred class had infused new value into the reorganization which offset its gain. The plan proponent could overcome the presumption of unfair treatment based on different risk allocation by showing that such allocation was consistent with the risk assumed by parties before the bankruptcy. Id.

Markell’s criticism of the prevailing approach to deciding the § 1129(b)(1) unfair discrimination issue is well-founded and his reasoning in formulating the new analysis is sound. The presumption-based analysis he proposes, unlike the four-part test or modifications of it, effectively targets the kind of discrimination or disparate treatment that is commonly understood as being “unfair,” namely that which causes injury or that unjustly favors one creditor over another.[7a] It also provides more concrete limits on the plan proponent’s ability to discriminate among classes than the four-part test, thereby offering a greater assurance that all classes of the same priority level will be treated equally. This test so realistically focuses on and balances those factors that directly impact the equality of treatment between similarly situated creditors that a plan which does not give rise to a presumption under this test must necessarily be fair. It also does not duplicate other confirmation requirements. Having thus reconsidered the propriety of employing Aztec’s four-part test or some modification of it, in light of experience and emerging case law, the Court rejects Aztec and instead adopts the test proposed by Professor Markell. However, we hasten to note that the Court’s holding in this case would be the same regardless of the test employed.

3. Application of the Presumption-Based Standard
Applying the presumption-based standard to the facts of this case, the Proponents have carried their burden that the Plan does not unfairly discriminate against Class 18. Although it is clear that Class 18 is a dissenting class (Markell’s Factor 1), and that there are other classes of unsecured creditors of the same priority level (Markell’s Factor 2), because no member of Class 18 objected to confirmation, the Court has no way of knowing to which other class or classes of unsecured creditors Class 18 would compare itself for the purpose of the unfair discrimination analysis required under the third factor of the Markell test. The Court can only assume that Class 18 would compare itself to classes containing other types of personal injury tort claims, as these classes share not only the same priority status but also the fact that the constituent claims arose in a similar fashion. However, this comparison would be strained in that Class 18 is not similarly situated with any other class of tort claimants or any other class of unsecured creditors because it alone has recourse to funds derived from enforcing the Debtor’s rights under indemnity agreements with AHP and Leiras Oy. The inability to designate with certainty a comparable class is however, not necessary to disposition of the case because any alleged difference in treatment between Class 18 and another class or classes of the same priority would give rise to a presumption of unfairness under the test only if the Plan provided for either a materially lower recovery or a greater allocation of risk for Class 18. This is not the case here as there is no evidence that any other class is receiving more favorable treatment than Class 18 under the Plan.

The Plan calls for payment in full of Class 18 claims through enforcement of the indemnity contracts the Debtor entered into with AHP and Leiras Oy. It is undisputed that AHP and Leiras Oy are solvent and capable of paying all LTCI claims, and intend to honor the indemnity agreements. See Final Pre-Trial Order, Part IV, Uncontested Facts 7 and 8, p. 12 (stating that “AHP’s assets are worth approximately $20 billion . . . [and] AHP’s shareholders’ equity is approximately $8 billion.”); Transcript, July 30, 1999 (statement of Barbara Houser, counsel for Dow Corning Corp.), p. 80 (“AHP has consented to the assignment of the indemnity issue [sic] found that they have substantial equity value and therefore will honor the indemnities that they have agreed to do and therefore [the LTCI claims] if ever allowed against Dow Corning will be paid in full through enforcement of the indemnities.”). No other class of unsecured creditors will receive more than full payment of its claims under the Plan, and therefore, it is impossible for Class 18 to seriously argue that it will recover a materially lower dollar amount on account of its claim than another class of the same priority level. Class 18’s recovery is, in essence, identical to that proposed for other classes of unsecured personal injury creditors. A dollar derived from enforcement of the indemnity contracts is certainly equivalent to a dollar paid out of the Debtor’s other assets.

Furthermore, the Plan does not require Class 18 to assume a materially greater risk in receiving its proposed payment. Although the Plan requires Class 18 to receive its payments from the proceeds of the indemnity and guarantee contracts, which are not available to other classes of unsecured creditors, this requirement in no way prejudices Class 18 and, at least on its face, favors Class 18. Under the Plan, Class 18 will be paid from sources with in excess of $20 billion dollars worth of assets while the other unsecured personal injury claimants will receive payments from a capped fund of $400 million. Under either the presumption-based test, the four-part test or a modification of it, or the prevailing case law, the Court cannot find that the Plan, which treats a dissenting class equally with other classes of the same priority level or favors it, discriminates unfairly against the dissenting class in violation of § 1129(b)(1).

In In re Sacred Heart Hospital of Norristown, 182 B.R. 413
(Bankr.E.D.Pa. 1995) the court faced an analogous fact pattern. There, a creditor objected to confirmation of the debtor’s chapter 11 plan because it classified together “the claims of general unsecured creditors which may be covered by `applicable insurance polic[ies]’ . . . owned by the Debtor,” and required claimants holding these claims to seek payment first through the insurance proceeds, and then, only to the extent of a deficiency, pursue payment from the debtor on a pro rata basis along with other separately classified general unsecured creditors. Id. at 415-16. The objecting creditor calculated a $100,000 potential loss in recovery on its claim if allowed only to receive its percentage of payment to the general unsecured creditors class based on its deficiency amount, rather than on the entire amount of its claim. Id. at 416. It was undisputed that the objecting creditor’s claim would not be paid in full in either case. Id. The objecting creditor argued that the insurance proceeds were not “property of the estate” and that the debtor could not require any creditor to look to a third party for payment. It also argued that the plan violated the § 1129(b)(1) unfair discrimination provision. Id. at 417.

The Sacred Heart court rejected these arguments and held that the insurance proceeds were “property of the estate.” The court pointed out that when

[f]aced with the typical situation in which a debtor corporation’s liability policies provide the debtor and thus the estate with direct coverage against third party claims, virtually every court to have considered the issue has concluded that the policies and clearly the proceeds of those policies are part of the debtor’s bankruptcy estate. . . .

Id. at 420 (quoting In re Vitek, 51 F.3d 530, 534 n. 17 (5th Cir. 1995)). The court, therefore, concluded that the debtor, through its plan, could control and allocate its interest in insurance proceeds just as it did other estate assets to satisfy claims. Sacred Heart, 182 B.R. at 421. Responding more specifically to the unfair discrimination issue raised, the Sacred Heart court opined “that the unsecured claims with access to insurance coverage [were] in fact significantly different from the general unsecured claims,” and thus, it was permissible for the plan to treat these claims differently because “[d]issimilar treatment for dissimilar claims does not run afoul of the unfair discrimination provision [of § 1129(b)(1)]”). Id. at 422 n. 8. Noting that, under the proposed plan, the objecting class would recover more than the class of general unsecured creditors, in spite of the requirement that it look to insurance proceeds for payment of a portion of its claim, the Sacred Heart court held that discrimination which favors a class cannot serve as a ground for an unfair discrimination claim. Id. This holding is consistent with the presumption-based analysis that presumes a plan unfairly discriminates only where different treatment between classes of equal priority leads to either a materially lower recovery (Markell’s Factor 3a) or greater allocation of risk for the dissenting class (Factor 3b).

Here, Class 18, just as the dissenting class in Sacred Heart, has access to an estate asset (proceeds from the indemnity and guarantee contracts) which is not available to other classes of unsecured personal injury claimants. As explained in Sacred Heart, this distinction allows the Plan to require Class 18 to look to the other source for payment of its claim without violating § 1129(b)(1) provided that it does not prejudice the class by causing it to receive less or assume more risk than other classes of an equal priority standing. Therefore, because any difference in treatment under the Plan between Class 18 and the other classes of unsecured creditors is not detrimental but most likely is advantageous to Class 18, the Plan does not unfairly discriminate against this class and comports with the requirements of § 1129(b)(1).

B. Fair and Equitable Prong
The Plan also satisfies the fair and equitable prong of § 1129(b)(1). Section 1129(b)(2) sets forth the standard for determining whether a plan is fair and equitable to a class of unsecured creditor claims. It provides:

For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements: . . .

(B) With respect to a class of unsecured claims —

(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or
(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.

11 U.S.C. § 1129(b)(2)(B). Under this provision, a plan will be deemed “fair and equitable” if either subsection is satisfied. Here, the Plan provides for payment in full of all Class 18 claims once their respective values are established at the Litigation Facility, thereby satisfying § 1129(b)(2)(B)(i). Therefore, the Plan is, by definition, “fair and equitable.”

Conclusion
The Plan, having met the requirements of cramdown under § 1129(b)(1) with respect to Class 18, may be confirmed in spite of the dissenting vote of this class.

AMENDED OPINION REGARDING CRAMDOWN ON CLASS 15
The Debtor and the Official Committee of Tort Claimants negotiated and on November 9, 1998 filed a Joint Plan of Reorganization. The plan (hereafter referred to simply as the “Plan”) was subsequently amended on February 4, 1999 and modified various times. The hearing on confirmation of the Plan commenced on June 28, 1999 and closing arguments were heard on July 30, 1999. Several post-hearing briefs and other submissions were received and the Court took the matter under advisement.

On this date the Court issued its Findings of Fact and Conclusions of Law on the matter of the confirmation of the Plan. This opinion is one of several which will serve to supplement and explicate some of the findings and conclusions. At least one opinion will follow later.

A general overview of the Plan’s terms is contained in the opinion on classification and treatment issues. When necessary, additional Plan terms are explained here. Except where otherwise stated, all statutory references are to the Bankruptcy Code, 11 U.S.C. § 101 et seq.

Class 15 rejected the Plan and the Proponents seek confirmation pursuant to 11 U.S.C. § 1129(b)(1). The Court concludes that the Plan does not unfairly discriminate against and is fair and equitable to Class 15. Accordingly, the requirements of cramdown are satisfied.

I. Overview of Class 15
Class 15 consists of claims filed by governments seeking to recover the costs of medical treatment that they either paid for or provided as a result of injuries allegedly caused by products, including breast implants,[1aa] manufactured by, or containing materials supplied by, the Debtor. There are three claimants in this class, the Canadian Province of Alberta, the Canadian Province of Manitoba and the United States of America. Alberta and Manitoba each filed one claim and both voted to accept the Plan. Class 15 was a rejecting class, however, because the United States, which holds four claims,[2aa] voted to reject the Plan.

With respect to Class 15 claims, the Plan provides:

Unless a different treatment is agreed to by the Proponents and the affected Claimants, the Proponents shall seek to have the Claims in Class 15 . . . estimated for distribution on or before the Confirmation Date. The Estimated Amount of any such Claim will be paid . . . by the Claims Administrator on, or as soon as practicable after, the Effective Date. If not estimated for distribution on or before the Confirmation Date, such Claims will be channeled to the Litigation Facility for purposes of Claim liquidation and paid (subject to the terms of the Settlement Facility Agreement and the Funding Payment Agreement) when Allowed.

Plan § 5.13.5.

Alberta, Manitoba and the Proponents have effectively agreed to different treatment than the channeling of their claims to the Litigation Facility. Alberta and Manitoba will forgo pursuit of their direct claims against the Debtor, at least for the present, in favor of certain treatment that their claims will be afforded pursuant to the British Columbia Class Action Settlement Agreement (“B.C. Agreement”). The B.C. Agreement, which stems from a class action lawsuit brought against the Debtor and its Canadian subsidiary by breast-implant claimants residing in certain Canadian provinces, is implicitly incorporated into the Plan at § 5.7.

The United States, however, has not reached agreement with the Proponents on treatment that is different from that provided under the Plan. And it is apparent that the Proponents will not seek to estimate the United States’ claims prior to the Confirmation Date. Consequently, upon confirmation, the Government’s claims are channeled to the Litigation Facility for resolution. Any Government claim subsequently allowed through the Litigation Facility will be paid in full, with interest, by the Settlement Facility in cash. Amended Joint Disclosure Statement With Respect to Amended Joint Plan of Reorganization (“Disclosure Statement”) § 6.6(G)(4); Settlement Facility Agreement § 3.02(a)(ii).

II. Discussion
A plan of reorganization can be crammed down on a rejecting class if all of the requirements of § 1129(a), save for (a)(8), are satisfied and “the plan does not discriminate unfairly, and is fair and equitable” to the rejecting class. 11 U.S.C. § 1129(b)(1); see also In re Crosscreek Apartments Ltd., 213 B.R. 521, 532-32 (Bankr.E.D.Tenn. 1997). The Proponents have the burden of showing by a preponderance of the evidence that all of the requirements of § 1129(b)(1) have been satisfied with respect to Class 15. In re Trevarrow Lanes, Inc., 183 B.R. 475, 479 (Bankr.E.D.Mich. 1995). For the reasons stated below, the Proponents have satisfied this burden.

A. Unfair Discrimination Test

Section 1129(b)(1) prohibits discrimination against a non-accepting class only when that discrimination is “unfair.” See 11 U.S.C. § 1129(b)(1); Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy ¶ 1129.04[3] (15th ed. rev. 1999). The Bankruptcy Code does not define what constitutes “unfair discrimination.” As a result, courts have developed a number of tests designed to answer this question. See, e.g., In re Aztec Co., 107 B.R. 585, 590 (Bankr.M.D.Tenn. 1989); 7 Collier on Bankruptcy ¶ 1129.04[3][a]. In its basic form, however, the prevailing view is that a plan will not unfairly discriminate if there is “a rational or legitimate basis for discrimination and [if] the discrimination [is] . . . necessary for the reorganization.” Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy ¶ 1129.04[3][a].

In a sister opinion pertaining to the Proponents’ request to cram down Class 18, the Court thoroughly analyzed the various formulations and concluded that the most succinct and logical formulation is stated in an article by Bruce A. Markell, A New Perspective on Unfair Discrimination in Chapter 11 (“A New Perspective”), 72 Am. Bankr. L.J. 227 (1998).

Using this approach, a rebuttable presumption that a plan is unfairly discriminatory will arise when there is: (1) a dissenting class; (2) another class of the same priority; and (3) a difference in the plan’s treatment of the two classes that results in either (a) a materially lower percentage recovery for the dissenting class (measured in terms of the net present value of all payments), or (b) regardless of percentage recovery, an allocation under the plan of materially greater risk to the dissenting class in connection with its proposed distribution. See Markell, A New Perspective, 72 Am. Bankr. L.J. at 228.

The first Markell factor is, of course, established by the fact that Class 15 rejected the proposed Plan. With respect to the second factor, the United States points to Class 14 as providing the proper basis of comparison.[3aa] Memorandum of Law in Support of the United States’ Objection to Joint Plan of Reorganization (“U.S. Memorandum of Law”) at 12. Class 14 is composed of domestic health insurers that seek reimbursement for costs incurred as a result of treatment provided to individuals allegedly injured by breast implants either manufactured by the Debtor or containing materials supplied by the Debtor. Plan §§ 1.55 5.13.3. The treatment extended to Class 14 and Class 15 claimants under the Plan is identical with one exception. Negotiations between the Proponents and certain Class 14 claimants resulted in a lump sum settlement offer from the Debtor. All Class 14 members will be able to choose the settlement option. Id. § 5.13.3. Those who do will then share in the lump sum settlement fund pro rata. Id.

Even assuming Class 14 forms the proper basis of comparison, Class 15 claimants will neither receive a materially lower percentage recovery under the Plan than Class 14 claimants, nor will they suffer a greater risk of non-payment under the Plan than Class 14 claimants. To begin with, Class 15 claimants and Class 14 claimants who opt for litigation will receive identical percentage recoveries under the Plan. And that percentage recovery will be 100% of the allowed amounts of their claims. In contrast, Class 14 claimants who elect to settle will be accepting a payment that is something less than what they believe to be the full value of their claim in order to avoid the risks associated with litigation. The upshot is that Class 15 claimants actually stand to obtain a much higher percentage of recovery than settling Class 14 claimants. In addition, Class 14 and Class 15 claimants share identical risks with respect to the non-payment of their claims. Fortuitously, that risk is effectively zero, for all claimants in both classes will be paid the full amount of their allowed claims in cash from the Settlement Facility. For these reasons, a presumption that the Plan unfairly discriminates against Class 15 does not arise.

Were the Court to apply the more commonly-accepted test of what constitutes unfair discrimination, we would reach the same conclusion. One of the goals of the chapter 11 process is to consensually resolve claims pending against the debtor. Thus, the Proponents have a perfectly legitimate reason for attempting to resolve Class 14 claims through settlement. The fact that the Proponents have tried but failed to reach a settlement with the United States does not change this fact. Thus, there is a rational, legitimate basis for the different treatment extended to Class 14 claimants than Class 15 claimants. Moreover, a plan of reorganization must provide mechanisms for resolving all claims against the debtor. When those claims are disputed, the two possible avenues of resolution are settlement or formal adjudication. Accordingly, the treatment extended to both Class 14 and 15 claimants is necessary for the Debtor’s reorganization. For these reasons, the Proponents have satisfied their burden of showing that the Plan does not unfairly discriminate against Class 15.

B. Fair and Equitable Test

Section 1129(b)(2) list criteria for determining whether a plan is fair and equitable to a rejecting class of unsecured creditors. That section provides:

(2) For purposes of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:

(B) With respect to a class of unsecured claims —

(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or
(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.

11 U.S.C. § 1129(b)(2)(B).

Generally, a plan is fair and equitable if either subsection is satisfied. As previously indicated, unless different treatment is otherwise agreed to, all Class 15 claims are channeled to the Litigation Facility for resolution. Plan § 5.13.5. If a Class 15 claimant prevails at trial, its claim will be allowed for the amount of the judgment. The allowed Class 15 claim will then be paid in full with interest by the Settlement Facility in cash. See Disclosure Statement § 6.6(G)(4); Settlement Facility Agreement ¶ 3.02(a)(ii). Since Class 15 claimants who obtain judgments against the Litigation Facility will be paid in full, the Plan clearly, or so it would seem, satisfies the requirements of the first subsection, § 1129(b)(2)(B)(i).

The United States, however, argues otherwise. It contends that it has numerous and valuable claims against the Settlement Facility that are being eliminated under the Plan for no consideration. The Plan gives women with breast-implant claims against the Debtor the opportunity to either settle or litigate their claims. Those choosing to settle will have their claims channeled to the Settlement Facility. The United States reasons that every time a settling breast-implant claimant for whom it has a potential right of subrogation sits down at the negotiating table with the Settlement Facility, it should have a right to sit down with them. And every time the Settlement Facility reaches a settlement with such a breast-implant claimant, the United States asserts that it should be able to take its cut off the top. The Plan, however, does not overtly grant the United States the ability to do this, and because of this fact the United States argues that its claims against the Debtor are not being paid in full.

There are several significant problems with the United States’ theory. Its claims are founded upon two non-bankruptcy federal statutes. The Federal Medical Care Recovery Act (“FMCRA”), 42 U.S.C. § 2651-2653, forms the basis of the IHS, VA and DoD claims. Forming the basis of the HCFA claim is the Medicare Secondary Payer Act (“MSP”), 42 U.S.C. § 1395y. These statutes give the United States the right to enforce its subrogation claims either through direct action against the responsible third party or by joining an “action or proceeding” commenced by the federal beneficiary against the third party. 42 U.S.C. § 2651(b) (To enforce its right of recovery the United States may “(1) intervene or join in any action or proceeding brought by the injured or diseased person . . . against the third person who is liable. . . .; or (2) . . . institute and prosecute legal proceedings against the third person who is liable [on its own]. . . .”) (emphasis added); 42 U.S.C. § 1395y(b)(2)(B)(ii) (“[T]o recover payment . . ., the United States may bring an action against any entity which is required or responsible . . . to make payment with respect to [the] item or service . . ., and may join or intervene in any action related to the events that gave rise to the need for the item or service.”) (emphasis added). A settlement discussion, however, is not an action or proceeding. Nothing in either statute entitles the United States to barge its way into private settlement negotiations. Of course, both the MSP and the FMCRA put the plaintiffs and defendants on notice that, if they resolve their dispute through settlement without making appropriate arrangements to pay the United States for its subrogation claim, potential liability to the United States will continue post-settlement. But this potential for future liability is an entirely different matter from whether the United States can force its way into the negotiations. The fact is, it can do no such thing.

A second problem with the United States’ theory stems from the fact that it does not possess claims against the Settlement Facility. The Plan channels all unsettled and unestimated Class 15 claims to the Litigation Facility. And once this channeling occurs, the Litigation Facility will assume complete liability for these claims. Litigation Facility Agreement § 2.03(a) (“The Litigation Facility hereby assumes and shall be directly and exclusively liable for any and all liabilities . . . arising in connection with, constituting or relating to . . . any Claim in Class . . . 15 . . . that was not Allowed or estimated for distribution on or before the Confirmation Date. . . .”).

The United States’ theory would improperly lead to the revival of claims against the Debtor that have already been disallowed. As noted, the United States filed four proofs of claim. By the United States’ own admission, its original proofs of claims were insufficient. See Transcript, July 16, 1998 at 85. Both Proponents objected to the United States’ claims. This began a long and complex discovery process that lasted approximately two and one-half years. And it merits noting that during this period, the Court urged the United States to supplement its proofs of claim on more than one occasion. See, e.g., id. at 84-86. The United States thus had ample opportunity to correct the omissions in its proofs of claims. When it failed to do so, the Proponents, on May 28, 1999, filed a motion for summary judgment seeking the disallowance of the Government’s claims. The United States finally amended its proofs of claim in April, May and June of 1999. These amendments named 15,048 federal beneficiaries that, according to the United States, provide the basis for its claims against the Debtor. At the same time, the United States maintained its position that it also had claims against the Debtor for an unspecified number of federal beneficiaries that it had not yet identified.

The FMCRA and the MSP entitle the United States to recover, under certain circumstances, the costs of medical treatment that it provided to an individual. 42 U.S.C. § 2651(a) (Under the FMCRA, when the United States provides medical treatment to a federal beneficiary for injuries that arose under circumstances creating a tort liability upon a third party, it is entitled to recover from that third party the reasonable costs of the treatment.); 42 U.S.C. § 1395y(b)(2)(B)(ii) (The MSP similarly entitles the Government to recover, from the “required or responsible” entity, the costs of medical treatment that it provided to a federal beneficiary). At a minimum, then, the United States’ proofs of claim must identify each of the individuals underlying its claim for damages. If the United States is unable to provide even this basic threshold information, it cannot possibly provide the additional information necessary to prove its claim, such as: the type of medical treatment provided, why the treatment was necessary, the costs of the treatment, etc.

It is black-letter law that a proof of claim that is properly executed and filed constitutes prima facie evidence of the claim’s validity and amount. 11 U.S.C. § 502(a); F.R.Bankr.P. 3001(f); see also In re Durastone Co., 223 B.R. 396, 397 (Bankr.D.R.I. 1998); In re Premo, 116 B.R. 515, 518 (Bankr.E.D.Mich. 1990). As noted, and after years of inexcusable delay, the Government finally perfected its proofs of claim with respect to the 15,048 identified federal beneficiaries. But to the extent that the United States’ proofs of claim failed to identify federal beneficiaries to whom it in fact provided treatment as a result of injuries allegedly caused by the Debtor, they were incomplete. As the Government’s proofs of claim were not properly executed with respect to the unnamed beneficiaries, the Rule 3001(f) presumption of validity never arose. The United States had more than ample opportunity to correct this defect, but did not do so. Therefore, by order entered on October 27, 1999, this Court disallowed this portion of the Government’s claims. Order on Motion to Compel at 2.

The United States also asserted that it has claims stemming from treatment that it might provide to eligible federal beneficiaries at some point post-confirmation. See, e.g., Declaration of Lisa Vriezen U.S. Department of Health and Human Services, Health Care Financing Administration in Support of Proof of Claim at 10 (“The [HCFA] claim includes payments already made, as well as payments for care to be provided in the future.”). The portion of the Government’s claims based upon the furnishing of treatment post-confirmation are subject to disallowance under § 502(e). This section provides:

(e)(1) Notwithstanding subsections (a), (b), and (c) of this section and paragraph (2) of this subsection, the court shall disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on or has secured, the claim of a creditor, to the extent that —

(A) such creditor’s claim against the estate is disallowed;

(B) such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution; or
(C) such entity asserts a right of subrogation to the rights of such creditor under section 509 of this title.
(2) A claim for reimbursement or contribution of such an entity that becomes fixed after the commencement of the case shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) of this section, the same as if such claim had become fixed before the date of the filing of the petition.

11 U.S.C. § 502(e) (emphasis added).

The MSP and the FMCRA entitle the United States to “recover payment” from the responsible third party for the costs of medical care that it provided to a federal beneficiary. 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 U.S.C. § 2651. The Government does not dispute that its claims against the Debtor are for reimbursement. Cf. United States Response to [Debtor’s] First Set of Interrogatories . . ., Interrogatory #6 (“In the event, and to the extent, that 11 U.S.C. § 509 requires HCFA to elect whether its federal statutory rights are in the nature of subrogation or reimbursement as those terms are used in the Bankruptcy Code, HCFA states that its claim is for reimbursement.”); see also Webster’s Ninth Collegiate Dictionary 993 (1985) (defining reimbursement as the act of making restoration or payment); see also U.S. Opposition to Proponents’ Motion for Summary Judgment at 51-58 (“U.S. Opposition to Summary Judgment”) (apparently conceding that its claims are for reimbursement and arguing only that § 502(e) does not serve to disallow its claims because the United States is not co-liable with the Debtor and its claims are not contingent). Consequently, the applicability of § 502(e) to the United States’ claims for medical care not yet provided depends upon whether the claims are contingent and whether the Government is “an entity that is liable with” the Debtor on the breast-implant claims that form the basis of its right of recovery.

The Court previously observed that cases and the relevant facts suggest that the Government is indeed co-liable with the Debtor. See Report and Recommendation on United States’ Motion to Withdraw Reference Pursuant to § 157(d). The Government, however, is not prepared to concede the point. It expressly acknowledges that it is obligated to provide medical care to eligible breast-implant claimants. U.S. Opposition to Summary Judgment at 52; see also United States’ Reply in Support of Motion to Withdraw Reference at 1 (stating that its “claims arise under federal statutes which mandate that [it] provide medical care and/or reimburse the cost of medical care incurred by eligible beneficiaries”) (emphasis added). Yet, it argues that the federal Medicare programs which give rise to these obligations create a duty that is “different than the normal surety or guaranty relationship in that the United States does not share liability with the Debtor.” U.S. Opposition to Summary Judgment at 53-54. And, according to the United States, these unusual obligations do not give rise to the “type of relationship contemplated by . . . § 502(e).” Id. at 52. Citing CCF, Inc. v. First Nat’l Bank Trust Co. (In re Slamans), 69 F.3d 468 (10th Cir. 1995), the Government argues that if Creditor #2’s obligation to Creditor #1 on a certain sum arises from a different (“independent”) source of law than the Debtor’s obligation on this same sum, Creditor #2 is not “liable with the debtor” to Creditor #1. The United States argues that, like the issuer of a letter of credit in Slamans, its obligation to provide medical care to a federal beneficiary is independent of any obligation that a third party, such as the Debtor, might have to that same federal beneficiary. U.S. Opposition to Summary Judgment at 54. And as was the case with the issuer of the letter of credit in Slamans, the Government argues that it should not be deemed to be “an entity that is liable with” the Debtor.

For two reasons, the Government’s argument is unconvincing. Slamans’ rationale that a creditor is not “liable with the debtor” on an obligation to another creditor if the obligations arise from “independent” sources proves too much. In Slamans, Sun Company (Creditor #1) was owed a sum of money from the debtor. If it was unsuccessful in obtaining payment from the debtor, Sun Company had an absolute right to obtain payment on that same claim from First National (Creditor #2), the issuer of the letter of credit. This meant that the debtor and First National were both liable for the same sum to Sun Company. Nonetheless, the court held that the debtor and First National were not co-liable on this amount. The linchpin of the court’s reasoning was that First National had an independent obligation to honor the letter of credit. However, this fact seems to be entirely irrelevant. Every form of guarantee agreement creates an independent obligation on the part of the guarantor. Yet it also makes the guarantor co-liable with the primary obligor on the same underlying debt, even though these obligations arise from different contracts.

More importantly though, Slamans is a Tenth Circuit decision and this Court is bound by the Sixth Circuit. And the Sixth Circuit has defined differently the phrase “an entity that is liable with the debtor.” In the Sixth Circuit, co-liability exists when each party is obligated to pay the same person for the same benefits even if the obligations of each party arise from a different source. In re White Motor Corp., 731 F.2d 372, 374 (6th Cir. 1984); see also In re Baldwin-United Corp., 55 B.R. 885, 890 (Bankr.S.D.Ohio 1985) (“The phrase `an entity that is liable with the debtor’ is broad enough to encompass any type of shared liability with the debtor, whatever its basis.”); 4 Collier on Bankruptcy ¶ 502.06[2][b] (15th ed. rev. 1999) (“Under section 502, codebtor status is broadly interpreted, and a claim for reimbursement has been held to presuppose a codebtor relationship.”).

The Government acknowledges that, pursuant to a mandate in federal law, it is obligated to pay for or provide medical care to federal beneficiaries. As a result, it is ipso facto liable to these federal beneficiaries to pay for or provide such medical treatment. At the same time, if the Debtor is the party that caused the harm necessitating the medical treatment provided or paid for by the United States, it, too, is liable to the federal beneficiary for this same medical treatment. The Debtor and the Government are, therefore, both potentially liable to the federal beneficiaries for the same injuries. Hence, the Government is clearly “an entity that is liable with the [D]ebtor” with respect to the claims of breast-implant claimants.

The claims of the United States that are based on medical treatment not yet provided are plainly contingent. A claim will generally be considered contingent if the debtor’s obligation to pay depends upon the occurrence of an extrinsic event which may or may not occur at some point in the future and that was within the fair contemplation of the parties at the time of the incident giving rise to the claim. See, e.g., In re Mazzeo, 131 F.3d 295, 300 (2d Cir. 1997) (“`Contingent’ denotes a debt for which liability depends upon the occurrence of some future event or condition which may never be fulfilled.”) (citations omitted); Subway Equipment Leasing Corp. v. Sims (In re Sims), 994 F.2d 210, 220 (5th Cir. 1993); In re Fostvedt, 823 F.2d 305, 306 (9th Cir. 1987); 2 Collier on Bankruptcy ¶ 303.03[2][a] (15th ed. rev. 1999).[4aa]

The obligation of the Debtor to reimburse the United States for its costs for medical treatment of federal beneficiaries that it has not yet provided will depend upon the happening of an extrinsic event — the actual furnishing of such benefits. That the Government might, at some point, provide or pay for medical treatment is certainly within the fair contemplation of the parties. But there is no way of knowing whether the Government will do so until it has actually happened. Therefore, the Government’s claims for such treatment are contingent. Accordingly, these contingent claims must be, and on October 27, 1999, were disallowed pursuant to § 502(e)(1)(B).[5aa] beneficiaries identified. That number was taken from the United States’ Opposition to the Summary Judgment Motion at 11-12. Therein, the Government mistakenly stated that it had identified 28 IHS beneficiaries. Review of the amended IHS proof of claim, however, shows that the Government actually identified 27 IHS beneficiaries. The true number of identified federal beneficiaries is 15,048.

Order on Motion to Compel at 2.

Now that there has been a final adjudication disallowing the portion of the United States’ claims pertaining to the unnamed federal beneficiaries, those claims cannot magically revive and become non-disallowed when the Settlement Facility begins to pay allowed breast-implant claims. See 11 U.S.C. § 1141(d) (discharging the debtor, with certain exceptions not relevant to the Government’s claims, from any debt that arose before the date of confirmation).[6aa]

The Government makes a feeble attempt to argue that certain of its MSP-based claims against the Debtor will arise only post-confirmation and, as such, are not subject to discharge. The MSP enables the United States to recover double damages from the responsible third party “if it does not make appropriate arrangements to provide for payment of the United States’ claims.” U.S. Memorandum of Law at 3 (citing to 42 U.S.C. § 1395y(b)(3)(A)). Relying on In re Chateaugay Corp., 112 B.R. 513 (S.D.N.Y. 1990) and In re Food City, Inc., 110 B.R. 808
(Bankr.W.D.Tex 1990), the Government maintains that its right to recover double damages would arise post-confirmation if the Reorganized Debtor pays primary claimants without arranging for the Government’s share.

In Chateaugay, the United States sought declaratory judgment that certain claims arising against the debtor under the Comprehensive Environmental Response Compensation Liability Act (“CERCLA”) were not discharged. A CERCLA claim, such as the one at issue in Chateaugay, can arise only upon the “release, or threatened release, of hazardous waste.” Chateaugay, 112 B.R. at 521. If neither of these events occurs prepetition, a claim for compensation under CERCLA is not dischargeable in bankruptcy. Id. at 521. In Food City, the court observed that if the means for implementing a plan requires the proponent to violate a law post-confirmation, such violation will give rise to a liability of the reorganized debtor, not the estate. Food City, 110 B.R. at 813. The United States reasons that since its MSP claim for double damages can arise only post-confirmation it should not be subject to discharge.

The Government’s argument is not persuasive. All Food City said was that a plan cannot insulate a debtor from violations of law it commits after confirmation of the plan — not exactly a startling proposition. The question here is whether the Debtor would be violating federal law by exercising its right to a bankruptcy discharge as to the claims of the Government — those that are allowed and those that are disallowed. The Chateaugay case, in particular, belies the Government’s position. That court stated that “[a] claim, even a contingent claim, arises under the Bankruptcy Code at the time when the acts giving rise to the alleged liability were performed.” Chateaugay 112 B.R. at 520 (internal quotations omitted). And “[s]o long as there is a pre-petition triggering event, . . . the claim is dischargeable, regardless of when the claim for relief may be in all respects ripe for adjudication.” Id. at 522.

The triggering events which give rise to the Government’s claims against the Debtor arose prepetition. As a result, its claims must be resolved through the bankruptcy process. The MSP’s double payment provision does not change this fact. The applicability of the double payment provision in this case is first dependent on the Debtor being found liable for a prepetition act — causing injury to a breast-implant claimant who received treatment from the United States. The Government must then show that the Debtor paid the claim of a federal beneficiary without making arrangements to resolve its competing claim. However, the Plan does make arrangements to resolve the United States’ claims: They are channeled to the Litigation Facility and if the Government prevails at trial the claims will be paid in full.

To summarize the above discussion, the Government has filed proofs of claim against the Debtor seeking recovery for the costs of treatment provided to 15,048 named federal beneficiaries. Those claims, to the extent they are not resolved through the Proponents’ pending summary judgment motion, will be channeled to the Litigation Facility for resolution. If such claims become allowed through trial or settlement, they will be paid in full with interest by the Settlement Facility. In addition, the United States does not possess claims against the Settlement Facility. Therefore, since all Class 15 claims will be paid in full, the Plan satisfies the requirements of § 1129(b)(2)(B)(i).

III. Conclusion
The Plan does not unfairly discriminate against and is fair and equitable to Class 15. The requirements of cramdown are, therefore, satisfied with respect to this rejecting class.