Debtors Brief Third Modified Joint Consolidated Chapter 11 ......A chapter 11 plan of reorganization can may only be confirmed if the applicable requirements outlined under section

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION – BAY CITY

In re: BOYCE HYDRO, LLC, et al. Debtors.1

) ) ) ) ) ) )

Case No. 20-21214 (Jointly Administered) Chapter 11 Honorable Daniel S. Opperman

MEMORANDUM (A) IN SUPPORT OF CONFIRMATION OF DEBTORS’

THIRD AMENDED CHAPTER 11 PLAN OF LIQUIDATION; (B) IN SUPPORT OF APPROVING THE ASSOCIATED INSURANCE

SETTLEMENT AGREEMENT; AND (C) IN RESPONSE TO OBJECTIONS

The above-captioned debtors and debtors-in-possession (collectively, the

“Debtors”), by and through their undersigned counsel, hereby submit this

memorandum (this “Brief”): (a) in support of confirmation of the Debtor’s Third

Modified Joint Consolidated Chapter 11 Plan of Liquidation [Docket No. 454] (as

it may be further amended or modified, the “Plan”);2 (b) in support of the Debtors’

Motion to (I) Approve Compromise and Settlement Agreement; (II) Authorize and

Direct the Debtor to Enter into and Perform Under Settlement Agreement; (III)

1 The debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal taxpayer-identification number, are: (i) Boyce Hydro, LLC (6694), Case No. 20-21214 and (ii) Boyce Hydro Power, LLC (3034), Case No. 20-21215.

2 Capitalized terms not otherwise defined herein shall have the meanings given to them in the Plan.

20-21214-dob Doc 460 Filed 02/11/21 Entered 02/11/21 21:43:29 Page 1 of 30

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Enjoin Certain Third-Party Claims as Needed to Effectuate the Settlement; and

(IV) Grant Related Relief [Docket No. 32] (the “Settlement Motion”) which seeks,

inter alia, approval of a settlement agreement (the “Settlement Agreement”) with

the Debtors’ liability insurance carriers (the “Insurer Parties”); and (c) in response

to objections to the Plan and/or Settlement Motion filed by (i) certain insurance

companies that are holders of Covered Subrogation Claims (collectively, the

“Subrogation Insurers”) (see Docket No. 440 and associated joinders at Docket

Nos. 442 and 449) (the “Subrogation Objections”) and (ii) the Office of the United

States Trustee (the “UST”) filed at Docket No. 453 (the “UST Objection”). The

Debtors will also be filing a Declaration of Lee W. Mueller in Support of Debtors’

Second Amended Plan of Reorganization (the “Declaration”) in support of this

Brief and confirmation of the Plan.

PRELIMINARY STATEMENT

This Chapter 11 Cases arise from the tragic breach of a hydroelectric dam

historically owned and operated by the Debtors, and the resultant overtopping and

breach of a second dam on May 19, 2020 (the “Dam Breaches”). The Dam

Breaches contributed to already catastrophic flooding in the Sanford and Midland

areas of Michigan, which flooding caused severe property damage. The Debtors

were quickly faced with, among many other problems: (a) numerous class action

and mass tort lawsuits seeking damages as a result of the Dam Breaches;


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(b) governmental entities seeking to condemn the Dam properties (which the

Debtors leased and managed) for virtually no consideration (threatening the

position of Byline Bank, the Debtors’ senior secured creditor whose claims were

secured by such properties); and (c) quickly depleted cash given the costs of

dealing with the Dam Breaches and the loss of all revenue as a result of the Dam

Breaches and subsequent regulatory actions. The Debtors filed for bankruptcy

protection in hopes of maximizing creditor recoveries and achieving the best

possible resolution for the community and stakeholders under incredibly

unfortunate and challenging circumstances.

Since commencing the Chapter 11 Cases, the Debtors have worked

diligently toward accomplishing the foregoing objectives and have negotiated a

Plan that they believe achieves the best possible outcome under the circumstances.

The Plan and the Settlement Agreement, which is vital to the Plan, have been

negotiated with all of the major stakeholders in the case, including numerous

affiliated entities (many of whom have been convinced to contribute all of their

assets in support of the Plan and Settlement Agreement); Four Lakes Task Force

(“FTLF”); Byline Bank, the Debtors’ secured lender (“Byline”); the Michigan

Department of Environment, Great Lakes, and Energy (“EGLE”); the Federal

Energy Regulatory Commission (“FERC”); Mark Shapiro, the subchapter V

trustee (the “Trustee”); and counsel (collectively, “Tort Claimants’ Counsel”) for


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the various groups of direct flooding damage claimants included in Class V under

the Plan (“Tort Claimants”). The Debtors and all of the foregoing parties have

made significant sacrifices and compromises aimed at avoiding protracted

litigation and instead working together to maximize outcomes. Based on all of the

interconnected settlement agreements and commitments contained in the Plan, the

Debtors understand and believe that it is or will be supported by all groups other

than the Class 6 holders of Covered Subrogation Claims and the UST. The Debtors

respectfully submit that for the reasons discussed herein this Court should overrule

the Subrogation and UST Objections and confirm the Plan and approve the

Settlement Agreement.

DISCUSSION

I. The plan complies with Section 1129 of the Bankruptcy Code and should be confirmed

A. The Plan complies with the Requirements of Section 1129

A chapter 11 plan of reorganization can may only be confirmed if the

applicable requirements outlined under section 1129(a) of the Bankruptcy Code are

met. 11 U.S.C. § 1129(a). As more fully discussed below, those requirements are

altered in several ways in these Chapter 11 Cases since they are filed under

Subchapter V of the Bankruptcy Code. Compare 11 U.S.C. § 1129(a) and (b) with

11 U.S.C. § 1191(a)-(c). As discussed herein, the Plan should be confirmed as it

complies with such applicable requirements.


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i. Sections 1129(a)(1)-(3)

The Debtors submit that upon information and belief: (1) the Plan complies

with all applicable provisions of the Bankruptcy Code; (2) the Debtors’ proposal

and solicitation of the Plan complied with all applicable provisions of the

Bankruptcy Code and this Court’s orders (not really applicable here);3 and (3) that

the Plan has been proposed in good faith and not by any means forbidden by law.

Therefore, this Court should find that the Plan meets the requirements of sections

1129(a)(1)-(3) of the Bankruptcy Code.

ii. Section 1129(a)(4)

The Debtors are not aware of any payments for the rendering of any services

for costs and expenses in connection with the Plan or these Chapter 11 Cases for

which Court approval (e.g., via cash collateral orders, fee approval orders, etc.) has

not been obtained or will be sought prior to any such payment being made. The

Court should find that the Plan meets the requirements of section 1129(a)(4) of the

Bankruptcy Code.

iii. Section 1129(a)(5)

The Plan proposes that Scott Wolfson, of Wolfson Bolton PLLC, shall be

appointed as the trustee (the “Liquidating Trustee”) of the Liquidating Trust

3 Only Class 2 (Byline Bank) is a voting class under the Plan, and the Debtors understand that Byline supports confirmation.


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created pursuant to the Plan. The Liquidating Trustee’s appointment was the

product of good faith and arms-length negotiations with Tort Claimants’ Counsel,

who suggested Mr. Wolfson’s appointment. Further, Mr. Wolfson and Tort

Claimants’ Counsel participated in the drafting of the Liquidating Trust Agreement.

The Court should therefore find that the Plan meets the requirements of section

1129(a)(5) of the Bankruptcy Code.

iv. Section 1129(a)(6)

The Dams were historically regulated by FERC and the Debtors continue to

have three FERC licenses which they have asked FERC to terminate. For purposes

of Section 1129(a)(6), however, the Court will recall (and can take judicial notice

of the fact) that the Dam properties were transferred to FLTF pursuant to earlier

order of this Court. See Docket No. 436. Accordingly, the Plan does not

contemplate any rate changes, as that term is used in section 1129(a)(6), and such

requirement is therefore not applicable in these Chapter 11 Cases.

v. Sections 1129(a)(7), (8), (10)

Under the Plan, Class 1 claims (employee priority claims) and Class 3

Claims (other secured claims) are unimpaired and are deemed to accept the plan.

Class 2 (Byline Bank) is impaired (projected to receive less than 33% of its claim

amount) and is entitled to vote on the Plan. The Debtors understand that Byline is


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and will be supportive of the Plan being confirmed. Accordingly, the Debtors do

have one impaired accepting Class as contemplated by Section 1129(a)(10).

As evidenced by the Debtors’ liquidation analysis (see Doc. No. 432-B), in a

chapter 7 liquidation (i.e., absent the Settlement Agreement and Plan being

approved), holders of claims in classes 4, 5, 6,4 7, and 8 (collectively, the

“Rejecting Classes” since the Plan deems them to reject) would not be expected to

receive any recovery. Accordingly, section 1129(a)(7) is satisfied since each Class

is either (a) accepting the Plan or (b) receiving at least as much as in a liquidation

(and in the case of several Classes, materially more).

Although 1129(a)(8) is not satisfied, Section 1191(b), which again applies

because these are Subchapter V cases, provides that a Subchapter V plan “shall” be

confirmed if all requirements of 1129(a) other than (a)(8), (a)(10),5 and (a)(15) (not

applicable) are satisfied, and the Plan does not discriminate unfairly and is fair and

equitable with respect to each impaired class that is not accepting the Plan. The

4 As further discussed below, if the Settlement Agreement is approved, holders of Class 5 claims (direct holders of Covered Claims, including Dam Breach Damage Claims) will receive a material recovery under the Plan. Class 6 claims (Subrogation Insurer claims) would receive a pro-rata share of proceeds only if Covered Claims in Class 5 are paid in full. The Debtors do not expect Class 5 Claims to be paid in full, so they assume holders of Class 6 claims will receive no recovery under the Plan even if the Settlement Agreement is approved.

5 Notably, the Debtors will have an impaired accepting class (Class 2), even though they are not required to have one for the Plan to be confirmed. See 11 U.S.C. § 1191(b).


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only impaired Class that is opposing confirmation is Class 6 (Subrogation Insurer

Claims), and for the reasons separately discussed below, the Debtors do not believe

that the Plan unfairly discriminates against Class 6 and believe that the Plan is fair

and equitable with respect to Class 6.

Therefore, the Court should find that the Plan meets the requirements of

sections 1129(a)(7), (8), and (10) of the Bankruptcy Code.

vi. Section 1129(a)(9)

The Plan proposes to pay all claims under section 507(a)(2) or section

507(a)(3) of the Bankruptcy Code in full on the Effective Date of the Plan, except

where holders of such claims have separately agreed to alternate treatment.

Moreover, the Debtors’ Chapter 11 Cases does not involve any claims described in

section 1129(a)(9)(B). Therefore, the Court should find that the Plan meets the

requirements of section 1129(a)(9) of the Bankruptcy Code.

vii. Section 1129(a)(11)

The Plan proposes to wind up the Debtors’ affairs and result in a complete

liquidation via the Liquidating Trust (so the Plan contemplates a liquidation, and

the Plan provides for funding of the Liquidating Trust to ensure that the liquidation

will be feasible). Therefore, the Court should find that the Plan is feasible and

complies with section 1129(a)(11) of the Bankruptcy Code.


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viii. Section 1129(a)(12)

The Plan provides that all fees payable under 28 U.S.C. § 1930 will either be

paid (i) by the Debtors prior to the Effective Date; or (ii) by the Liquidating

Trustee if not paid prior to the Effective Date. Therefore, the Court should find that

the Plan meets the requirements of section 1129(a)(12) of the Bankruptcy Code.

ix. Sections 1129(a)(13)-(16)

The Court should find that sections 1129(a)(13)-(16) are not applicable to

the Chapter 11 Cases because: (i) the Debtors are not obliged to provide any retiree

benefits under section 1114 of the Bankruptcy Code; (ii) the Debtors are not

required to pay any domestic support obligations; (iii) the Debtors are not

individual debtors; and (iv) the Debtors are for-profit entities.

B. The Plan does not unfairly discriminate against, and is fair and equitable with respect to, the Subrogation Insurers

The Subrogation Insurers argue that the Plan allegedly unfairly discriminates

against Class 6 Creditors (them) in favor of Class 5 Creditors (Tort Claimants) and

is not fair and equitable as a result. As explained below, however, the disparate

treatment of Subrogation Insurers does not constitute unfair discrimination and

their treatment is indeed fair and equitable.

i. The Plan does not unfairly discriminate against Class 6


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“Unfair discrimination” under 1129(b)(1)6 is not simply discrimination of

any kind, but only discrimination without “a rational or legitimate basis.” See, e.g.,

In re Dow Corning Corp., 244 B.R. 696, 701 (Bankr. E.D. Mich. 1999).

Discriminatory treatment can be reasonable if premised on the basis of the claims

in question. In re Graphic Commc'ns, Inc., 200 B.R. 143, 148 (Bankr. E.D. Mich.

1996).

“Every plan proponent creates its classification scheme with the goal of

maximizing the probability that its plan will be confirmed.” In re Draiman, 450

B.R. 777, 790 (Bankr. N.D. Ill. 2011) (citing In re Bloomingdale Partners, 170

B.R. 984, 996 (Bankr. N.D. Ill. 1994). While a debtor may not separately classify

claims solely in order to “gerrymander an affirmative vote on reorganization,”

claims may be classified separately if “significant disparities exist between the

legal rights of the holder[s] [of the different claims] which render the two claims

not substantially similar.” Id. at 318. Claims may also be separately classified if

there are “good business reasons” to do so or if the claimants have sufficiently

different interests in the plan. See In re U.S. Truck Co., 800 F.2d 581, 583–87 (6th

6 The Debtors note that the “does not discriminate unfairly” requirement actually arises from Section 1191(b). However, while caselaw is limited, it appears the standard for unfair discrimination is the same as under Section 1191(b). See, e.g., In re Fall Line Tree Serv., Inc., No. 20-21548-C-11, 2020 WL 7082416, at *6 (Bankr. E.D. Cal. Dec. 3, 2020). As discussed below, this differs from the “fair and equitable” requirement where Section 1191 expressly provides different requirements for small business debtors to meet that standard.


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Cir. 1986); Heartland Fed. Sav. & Loan Ass'n v. Briscoe Enters. (In re Briscoe

Enters.), 994 F.2d 1160, 1166–67 (5th Cir. 1993), cert. denied, 114 S. Ct. 550

(1993).

Here, there are significant disparities between the rights of the Class 5 Tort

Claimants and the Class 6 Subrogation Insurers. Most basically, the Tort Claimants

have direct claims against the Debtors, while the Subrogation Insurers do not.

Rather, the Subrogation Insurers merely have a right to subrogation, and any

claims they have would be based principles of equity (not direct claims such as

those held by the Tort Claimants). See Eller v. Metro Indus. Contracting, Inc., 61

Mich. App. 569, 573, 683 N.W.2d 242, 245 (2004) (describing equitable

subrogation as “a legal fiction”). Moreover, any claims or interests asserted by the

Subrogation Insurers are governed separately under Section 509(c) of the

Bankruptcy Code, which provides that a subrogee’s claims and rights are

subordinate to the claims and rights of the creditor holding the claim “until such

creditor’s claim is paid in full, either through payments [through the bankruptcy] or

otherwise.” 11 U.S.C. § 509(c). Thus, the Code itself provides a legal distinction

between and different legal rights for the Subrogation Insurers’ claims and those of

the Tort Claimants, which in turn provides a rational basis for separately

classifying the claims. In re Chateaugay, 155 B.R. 625, 633 (Bankr. S.D.N.Y.

1993), aff’d, 89 F.3d 942 (2d Cir. 1996) (“Section 509(c) provides a basis to


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distinguish the claims of the [legal claimants] from the [subrogee’s] claims . . .

because [the subrogee’s] entitlement to receive payment on its claims is subject to

a condition not applicable to the [legal claimants].”).

In fact, courts have previously approved plans that separately classify

subrogation claims, including in similar “natural disaster” situations. See, e.g., In re

PGE, 617 B.R. 671, 685 (Bankr. N.D. Cal. 2020) (holding that the debtors’ plan,

which separately classified fire victim claims from subrogation wildfire claims,

was appropriate since the claims were based on different legal theories of liability);

see also Chateaugay, 155 B.R. at 635 (plan appropriately separately classified and

treated differently workers’ compensation claims and insurance subrogation claims

for payment of prior workers’ compensation claims).

Not only is there thus good cause for the separate classification based on the

legal disparities between the two types of claims, separate classification is also

important for confirmation as it was part of what allowed the Debtors to reach

agreement with the Tort Claimants and gained their support for the Plan and

Settlement Agreement. See In re Draiman, 450 B.R. at 790 (appropriate to create a

classification scheme that maximizes the chances the Plan will be confirmed). If

the Tort Claimants were not supporting the Settlement Agreement, the Settlement

Agreement would likely not be approved, the Plan would not be confirmed as


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drafted. In that scenario there would be no recovery for any creditor in Class 5 and

no chance of even a possible distribution to Class 6.

Given the foregoing, the Plan does not unfairly discriminate with respect to

Class 6 Subrogation Insurer Claims.

ii. The Plan is fair and equitable

The Subrogation insurers incorrectly argue that their Plan treatment is not

fair and equitable under Section 1129(b)(2)(B). Although the Debtors disagree,7

that is not the standard in these Subchapter V Cases.

Rather, the “fair and equitable” requirement here arises from Section

1191(b) of the Bankruptcy Code, which provides that the court “shall” confirm the

plan if it “is fair and equitable” to impaired dissenting classes. 11 U.S.C. § 1191(b).

However, unlike Section 1129(b), Section 1191(c) “does not state a ‘fair and

equitable’ rule specifically for unsecured claims.” In re Pearl Res. LLC, 622 B.R.

7 Under Section 1129(b)(2)(B) “[t]o be fair and equitable” to a class of unsecured claims, the requirements are that (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 . . . .” In re Griswold Bldg., LLC, 420 B.R. 666, 705 (Bankr. E.D. Mich. 2009) (citing 11 U.S.C. § 1129(b)(2)(B)) (internal quotations omitted). Generally, a plan is fair and equitable if either subsection is satisfied. In re Dow Corning Corp., 244 B.R. 705, 711 (Bankr. E.D. Mich. 1999), aff'd, 280 F.3d 648 (6th Cir. 2002). Here, no class of creditors junior to the Class 6 Subrogation Insurers are expected to receive a distribution, so the 1129(b)(2)(B) standard would be satisfied if it were applicable.


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236, 265 (Bankr. S.D. Tex. 2020).8 Specifically, Section 1191(c) provides that a

plan proposed under a Subchapter V case is “fair and equitable” with respect to an

impaired dissenting class of unsecured claims so long as (a) the requirements of

either of Section 1191(c)(2)(A) or 1191(c)(2)(B) (requiring the value of property to

be distributed under the Plan to be more than the projected disposable income of

the debtor during a 3-5 year period) are satisfied and (b) the debtor is reasonably

likely to be able to make all plan payments.

Here, both are of course satisfied given the liquidating nature of the Plan.

The Debtors are unlikely to have any future income, but any and all future income

(not just “disposable income” for a set period) will of course be going to the

Liquidating Trust and will be distributed to creditors via the Plan. Moreover, as a

result of the Insurance Settlement, millions of dollars in funds in excess of the

Debtors projected future disposable income will be distributed to creditors via the

Plan. All of these Plan payments are reasonably likely to be made, as third parties

are obligated to make the transfers and payments, and the Court will have

jurisdiction to enforce the Plan if any substantial contributions, FLTF settlement

payments, or other payments or transfers are not made to the Liquidating Trust

8 Section 1129(b)(2)(C) provides that a plan fairly and equitably treats an impaired dissenting class of unsecured creditors if (i) it pays in full the allowed amounts of claims in such class or (ii) adheres to the absolute priority rule. 11 U.S.C. § 1129(b)(2)(B).


4848-4580-9432, v. 3 15

when due. In sum, the Plan plainly meets the “fair and equitable” requirements of

Section 1191.

II. The Settlement Agreement and Plan satisfy the Dow Corning standard for third party releases and are the product of good faith and arms-length negotiations

The Debtors believe that the Insurance Settlement provides a far better

outcome for creditors. The alternative would be years of complex mass tort

litigation against the Insurer Parties and the three individual released parties (all of

whose liability was far from certain). In such a litigated scenario, there is no

assurance that creditors would succeed on their disputed and contingent litigation

claims. Moreover, all of the parties making substantial contributions would be

burning through the very assets they are now contributing to fund defense costs. To

the contrary, if the Settlement Motion is approved, the Liquidating Trust will be

funded with over $5 million in assets and will have the ability to pursue litigation

claims to increase the “pot.” See chat of substantial contributions (the “Substantial

Contribution Chart”) attached as Exhibit A.9 This will ensure a material recovery

for at least Class 5 creditors and a better outcome for Byline Bank (Class 2).

9 Values in the chart are best estimates and / or appraisals values where available but should not be relied upon. Values may have changed since the dates reflected, and actual proceeds may differ for any number of reasons. Moreover, the chart does not include most intangible assets (e.g., causes of action) and less material assets that may be included in contributions / owned by entities subject to the Non-Debtor Substantive Consolidation. It is merely intended to give the Court


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Moreover, approval of the Settlement Motion and the Settlement Agreement

are pre-requisites for the Plan to be confirmed and for creditors other than Byline

Bank to receive a recovery in the Chapter 11 Cases. If it is not approved, the Plan

cannot be confirmed as drafted and no creditor other than Byline Bank will receive

a distribution. See Liquidation Analysis. These tremendous benefits are coming at

little “cost” – the Plan and Settlement Agreement only give releases to (a) three

individuals (all of whom are making substantial contributions that have been

deemed by creditors to be reasonable after an extensive vetting process, as

discussed below) and (b) the Insurer Parties (who are contributing more than the

Policy Limits in exchange for their releases). Tort claimants are free to pursue any

other parties to increase their recoveries. The Debtors submit that for these reasons

and those set forth in the Settlement Motion, the Insurance Settlement is reasonable

and falls well above the lowest point in the range of reasonableness as required by

Rule 9019 of the Federal Rules of Bankruptcy Procedure and applicable law.

To be clear, however, this Brief does not attempt to reiterate every argument

in the Settlement Motion for why the Insurance Settlement is appropriate (but

rather incorporates those arguments by reference). Rather, this Brief focuses on the

“Dow Corning” factors relevant to third party releases, walks the Court through

and parties a rough sense of the materiality of the contributions that are expected to be made if the Insurance Settlement Motion is approved.


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why the Debtors believe the factors are satisfied, and in doing so responds to the

arguments of the Subrogation Insurers and UST that they are not. See Class Five

Nevada Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648

(6th Cir. 2002).

As the Court is aware, the Sixth Circuit’s Dow Corning decision set forth the

following seven factors that courts should consider in determining whether non-

consensual third-party releases are permitted in a chapter 11 plan.:

(1) There is an identity of interests between the debtor and the third party, usually an indemnity relationship, such that a suit against the non-debtor is, in essence, a suit against the debtor or will deplete the assets of the estate; (2) The non-debtor has contributed substantial assets to the reorganization; (3) The injunction is essential to reorganization, namely, the reorganization hinges on the debtor being free from indirect suits against parties who would have indemnity or contribution claims against the debtor; (4) The impacted class, or classes, has overwhelmingly voted to accept the plan; (5) The plan provides a mechanism to pay for all, or substantially all, of the class or classes affected by the injunction; (6) The plan provides an opportunity for those claimants who choose not to settle to recover in full and; (7) The bankruptcy court made a record of specific factual findings that support its conclusions.

Dow Corning, 280 F.3d at 658. The Dow Corning factors, however, do not

compromise a conjunctive test, and this Court has previously stated that all seven

factors need not be met in order to approve releases. See In re City of Detroit, 524

B.R. 147, 174 (Bankr. E.D. Mich. 2014) (“[C]ourts have . . . tailored the seven

Dow Corning elements to suit the needs of the case and have not required

satisfaction of all seven factors”); see also Nat’l Heritage Found., Inc. v.


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Highbourne Found., 2014 WL 2900933, at *6 (4th Cir. June 27, 2014) (“A debtor

need not demonstrate that every Dow Corning factor weighs in its favor to obtain

approval of a non-debtor release.”), aff’d on reh’g, 760 F.3d 344 (4th Cir. 2014).

In the present cases, as explained below, all or almost all of the relevant

factors strongly support approval of the Settlement Agreement:

A. There is an identity of interest between the Debtors and the Released Parties

There is a strong identity of interest between the Debtors and the Insurer

Parties and the three released individuals (together, the “Released Parties”) who

will be receiving releases under the Settlement Agreement and Plan.

First, the three individual Released Parties have been named along with the

Debtors in numerous (in some cases dozens) of lawsuits arising out of the Dam

Breaches.

Second, they have been named in those lawsuits as a direct result of their

involvement with the Debtors (e.g., as a former Trustee of the Boyce Trusts

(Michel d’Avenas), a Co-Managing Member of the Debtors and Trustee of the

Boyce Trusts (Stephen Hultberg), and a bookkeeper for the Debtors (Michele

Mueller)).

Third, the three individual Released Parties are all “insured parties” under

the Insurance Policies issued by the Insurer Parties Accordingly, like the Debtors,

they have the right to insist on the Insurer Parties providing them with a defense.


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In negotiating the Settlement Agreement, the Debtors understood that the

Insurer Parties were not willing to pay a policy limits plus settlement to the

Debtors unless they received a release of their obligation to defend other insured

parties. The Insurer Parties have indicated (including to the Court at prior hearings)

that this is the case not just as a practical monetary matter, but also because they

need to satisfy their obligations to insured parties in connection with any

settlement (insurance law issues that counsel to the Insurer Parties have explained

to the Court).

In fact, as the Court likely recalls, the Insurer Parties initially insisted on all

insured parties – dozens of people and entities and entire categories of parties –

being released in order for them to agree to the over policy limits settlement. The

Debtors, Subchapter V Trustee, and the Tort Claimants’ Counsel have worked hard

to pare back the required releases. This has been accomplished by acquiring

affirmative opt-outs (including from entities that have agreed to contribute their

assets to the Liquidating Trust and thus no longer need releases) and by the Settling

Insurers agreeing not to require certain releases. For the three remaining individual

Released Parties, however: (a) these individuals have not opted out of coverage

and (b) the Insurer Parties are requiring them to be released as a condition of the

Settlement Agreement.


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Moreover, as discussed below, the releases of the three individuals are

supported by substantial contributions that far outweigh the value of the releases

they are receiving, and those contributions would not be provided if the individuals

do not receive the releases. See In re Firstenergy Solns. Corp., 606 B.R. 720, 735–

36 (Bankr. N.D. Ohio 2019) (“in order to obtain confirmation, the debtors were

required to resolve a multitude of claims in an orderly way and obtain those

creditors’ approval . . . [by] obtaining contributions from other parties who were

secondarily liable, or at least allegedly so, for the claims . . . .”).

Accordingly, there is an “identity of interest” between the Debtors and the

Released Parties at multiple levels, including that: (a) they are all being sued over

the same events; (b) the suits against the individuals arise from their involvement

with the Debtors; (c) all are insured parties (or insurers) under the Insurance

Policies; (d) all need to be released as a condition precedent to the Settlement

Agreement being approved; and (e) the very material substantial contributions

being provided by the Released Parties and affiliated parties are dependent on the

releases being approved. Without the releases, no creditor other than Byline Bank

will see a recovery and an approximately $5 million settlement fund for Tort

Claimants will disappear. Under these unique circumstances, the “identity of

interest” factor weighs especially strongly in favor the Releases being approved.


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B. The Released Parties have contributed substantial assets to the reorganization

The Insurer Parties are contributing not only the entire Policy Limits of $3

million, but another $150,000 to defray administrative expenses.

With respect to the three individual Released Parties, the Court is aware and

can take judicial notice of the fact that the Tort Claimants’ Counsel and the

Subchapter V Trustee have done a detailed analysis of their potential liability and

financial affairs (including via information provided in a data room per Court order

and ultimately via depositions).

The parties then engaged in arms-length negotiations to agree on appropriate

substantial contribution amounts. The result is agreed contributions totaling

$90,000, and Ms. Mueller “carving out” a potentially valuable insurance policy for

the benefit of tort creditors. As those resolutions were reached via an arms-length

and open process and were negotiated by an independent trustee and counsel to the

creditors most impacted by the contributions and the releases, the Court should be

easily able to determine that those amounts represent fair “substantial

contributions” in each instance.

That is only the beginning of the story, however. Specifically, the releases

being provided to the Released Parties are also backed by extremely substantial

contributions not only from the Released Parties themselves, but also from

numerous Debtor-affiliated entities, including the following affiliated entities that


4848-4580-9432, v. 3 22

have contributed all of their assets in support of the releases without receiving

releases themselves: the three Boyce Trusts, the HoldCos, BM, and Smallwood

Properties.

The Substantial Contribution Chart attached as Exhibit A reflects the most

material tangible contributions being made in support of the releases –

approximately $5 million in the aggregate. And it actually does not reflect all of the

funds that will be flowing to the Liquidating Trust for the benefit of Class 2 /

Byline Bank as a result of the HoldCo contribution and the FLTF settlement. All of

these contributions are conditioned on the Insurance Settlement and releases being

approved.10

In sum, the releases for the three Released Parties could be approved based

on their direct contribution of $90,000, but they are in fact backed by more than $2

million in contributions being offered by them and affiliated entities. As with the

first factor, this one very strongly supports approval of the releases.

C. The releases are essential

For the reasons already discussed, the releases are plainly essential. With

them, Tort Claimants will quickly benefit from an almost $4.7 million settlement

10 It is worth remembering that the Debtors have very few assets themselves – their most material assets are likely vehicles and equipment worth an estimated $200,000 in the Liquidation Analysis. Almost all of the funds that will be flowing through the Liquidating Trust to creditors result from the Insurance Settlement and associated contributions in support of the releases.


4848-4580-9432, v. 3 23

fund (and perhaps materially more if litigation claims are successfully pursued by

the Liquidating Trust). Without them, the Settlement Agreement cannot be

approved, the Plan fails as drafted, and if the Debtors could even confirm a plan, it

would be a plan where only Byline would see a recovery, and even Byline’s

recovery would be worse since it benefits from approval of the Settlement

Agreement also.

The UST and Subrogation Insurers argue that this factor is not satisfied

because this is a liquidating chapter 11 and not a “reorganization” as referenced in

the language of the Dow Corning test. The Subrogation Insurers cite to In re SL

Liquidating, Inc., 428 B.R. 799, 802 (Bankr. S.D. Ohio 2010) wherein the court

pondered whether non-consensual third-party releases can be approved under a

liquidating plan. However, the SL Liquidating court’s inquiry was mere dicta, as it

had already found that the debtor only satisfied at best one out of seven of the Dow

Corning elements. See id.

That is not even comparable to the present case, where all or almost all other

factors weigh strongly in favor of approval. Moreover, as discussed in connection

with the first element (identity of interest), this case involves a unique situation

where notwithstanding the liquidating nature of the case, the releases are

absolutely necessary to the Plan and to creditor recoveries. Adopting such a

strained and limited interpretation of the “necessity” factor under these


4848-4580-9432, v. 3 24

circumstances would be inconsistent with the fact that courts have regularly

“tailored the seven Dow Corning elements to suit the needs of the case and have

not required satisfaction of all seven factors.” City of Detroit, 524 B.R. at 174.

D. Overwhelming Support from Impacted Creditors

Three Classes are primarily impacted by approval of the Settlement, and by

the associated releases:

Class 2 – Byline: Byline Bank is both burdened and benefitted by the

Insurance Settlement. Specifically, it gives up the ability to pursue the Boyce

Trusts on guaranty claims (with most of the assets of the Boyce Trusts benefitting

Class 5), but it receives a materially better recovery under the Plan / Insurance

Settlement than it would in a liquidation (and it avoids the need to pursue the

guarantees and the associated cost and time value of money). See Liquidation

Analysis. Byline supports the Plan.

Class 5 – Tort Claimants: Tort Claimants are burdened by the releases

(though again, only the Insurer Parties and three individuals are being released),

but of course receive the much larger benefit of receiving a material recovery from

a multi-million dollar settlement fund in a case where they would otherwise see no

recovery. See discussion supra. The Court can take judicial notice of the fact that

the Tort Claimants have been represented in the Chapter 11 Cases by numerous

attorneys but have coalesced into two “factions”: the “Mass” group (mass tort


4848-4580-9432, v. 3 25

claims) and the “Class” group (class action claims). The Court can also take notice

of the fact that for most of the Chapter 11 Cases these groups vehemently opposed

the Settlement Agreement and Plan and are now supporting or soon will be

supporting both.

What may be less apparent to the Court is the degree to which the support

from the “Mass” and “Class” groups in and of itself will establish overwhelming

support for the Insurance Settlement and releases. Although post-bankruptcy

litigation will be needed to consolidate lawsuits and to address class certification, if

a “class” is certified it would presumably represent all direct tort / flooding victims

within the class (other than creditors that might opt-out). The Mass group

separately already represents thousands of individual claimants as its lead counsel

has apprised the Court at prior hearings.

To think of it another way, 5,514 proofs of claim have been filed to date. The

Debtors’ understand from their claims agent that: (a) at least 3,304 of those are

filed by claimants represented by counsel within the “Mass” group (and this likely

underestimates the number materially because it omits claims filed by at least two

sets of “Mass” group attorneys) and (b) at least 296 of those are filed by claimants

represented by counsel within the “Class” group. Accordingly, approximately 65%

of total proofs of claim filed in the case are known to have been filed by the Mass

and Class groups, and again, that likely understates the actual percentage.


4848-4580-9432, v. 3 26

Moreover, since total proofs of claim include more than just Class 5 claims (e.g.,

unsecured trade creditor claims, etc.), the “Mass” and “Class” claims would of

course constitute an even higher percentage of just Class 5 claims. Finally, the

Court can take notice that no creditors in Class 5 are opposing the Settlement

Agreement and Plan. That is indicative of likely close to unanimous support.

Although Class V creditors are technically not voting because of the

structure of the Plan in these Subchapter V Cases, the Debtors believe the Court

has more than enough facts before it to determine that Class V creditors are

overwhelmingly supportive of the Plan.11

Class 6 – Subrogation Claimants: Subrogation Insurance claims represent,

by definition, a subset of the Class 5 group (i.e., since the claims arise where

insurers paid all or parts of damage claims asserted by holders of direct Tort

Claims in Class 5). They are burdened by the releases, and unless Class 5 Claims

are paid in full – which the Debtors agree is not expected – they will not receive a

11 The UST Objection asserts that “[t]he Rejecting Classes have not overwhelmingly voted to accept the Plan because they are not entitled to vote and are deemed to reject the Plan.” UST Objection at ¶ 5. The term “Rejecting Classes” is defined as Classes 4, 5, and 6. Id. at ¶ 3. There are a few obvious problems with this argument. First, Class 4 is not impacted by the releases since it is comprised of unsecured creditors who do not hold “Covered Claims” (so those creditors have no claims that are being released). More importantly, however, the Debtors respectfully submit that this technical argument places form over substance since for all of the reasons set forth above, the Court should be able to determine that overwhelming support is present.


4848-4580-9432, v. 3 27

recovery under the Plan. They have objected to their treatment (addressed above)

and are thus not supporting the Plan. For purposes of this element, however, the

Court should keep in mind that the releases they are being “burdened” by are only

releases of the three individuals and the Settling Insurers. Nothing prevents them

from pursuing other responsible parties. And as discussed above, the Mass and

Class groups alone represent 65% of creditors, and two out of three impacted

Classes are supporting the Settlement Agreement and Plan.

Under the circumstances described above, the Debtors submit that the Court

should find that there is overwhelming support from impacted creditors.

E. The Plan provides a mechanism to pay all or substantially all of the classes affected by the injunction

As discussed above, without the Settlement, there would be no recovery for

any creditors other than Byline. With the Insurance Settlement, holder of disputed,

contingent, and unliquidated flooding damage claims (i.e., the Tort Claimants) get

the benefit of the full value of the Policy Limits and most of the substantial

contributions – assets they might never see if they “rolled the dice” on litigation,

and certainly would not see until after many months or years of litigation that

would likely drain the very assets that instead are being made immediately

available under the Insurance Settlement / substantial contributions. Byline –

which is also impacted by the contributions and Insurance Settlement – also

benefits.


4848-4580-9432, v. 3 28

The Plan provides a mechanism for the roughly $5 million settlement fund

to be distributed to creditors in Classes 2 and 5 via the Liquidating Trust. Although

Class 6 will not see a recovery, this factor does not require that every impacted

class benefit from the settlement. Here two out of three do so, and the overall

benefits far outweigh the burden of the three releases.12 The Debtors respectfully

submit that this factor is met.

F. The plan provides an opportunity for those claimants who choose not to settle to recover in full

Creditors are only being enjoined from pursuing claims against the three

Released Parties and the Settling Insurers. They will be free to pursue other parties

that have liability for the Dam Breaches. They thus retain the ability to be paid in

full – just not from the few parties being released here.

The Debtors do concede, however, that the Plan and Settlement Agreement

does not contain an “opt-out” from the releases (something the UST Objection

points out at paragraph 5). Given the nature of the mass tort actions at issue, and

12 The UST Objection asserts that “The Plan and Settlement Agreement do not pay “all, or substantially all, of the . . . classes affected by the injunction” because the Rejecting Classes are not expected to receive a distribution. As noted above, however, the term “Rejecting Classes” is defined as Classes 4, 5, and 6. Id. at ¶ 3. And Class 4 creditors are not impacted by the releases (see prior footnote) so there is no basis for them sharing in the Insurance Settlement proceeds. Moreover, Class 5 certainly will receive a distribution if (and only if) the Insurance Settlement is approved, and actually Class 2 is also impacted by the Insurance Settlement and also receives an enhanced recovery as a result. Only Class 6 does not, as noted above.


4848-4580-9432, v. 3 29

the need for the Settling Insurers and Released Parties to receive a full release for

the Insurance Settlement to work (as discussed above), providing for an opt-out

under these circumstances is not practicable.

In City of Detroit, the court faced this exact type of situation, and approved

third party releases contained in the plan despite finding that the opportunity to

recover in full factor was not satisfied. In re City of Detroit, 524 B.R. 147, 174

(Bankr. E.D. Mich. 2014). The court recognized that a chapter 11 case involving a

debtor “beset by mass tort claims” is distinguishable from other types of cases

where an “opt-out” provision might be workable, and just as here, critical funding

from several sources was not possible without the releases. Id. at 175. Here, for the

exact same reasons, the Insurance Settlement would simply not be workable if

mass tort claimants could simply choose to opt out.

G. The bankruptcy court made a record of specific factual findings that support its conclusions

The Court has been living with these cases for over six months and is

intimately familiar with many of the facts discussed herein (as noted, it can take

judicial notice of many of the facts needed). Moreover, the Mueller Declaration

will contain additional facts in support of confirmation, and the Debtors anticipate

either introducing the Declaration into evidence or having Mr. Mueller testify as to

the same topics.


4848-4580-9432, v. 3 30

CONCLUSION

For the foregoing reasons, the Debtors respectfully submits that the Plan

should be confirmed, and the Settlement Agreement should be approved.

February 11, 2021 Respectfully submitted,

BOYCE HYDRO, LLC & BOYCE HYDRO POWER, LLC By: /s/ Matthew E. McClintock

GOLDSTEIN & MCCLINTOCK LLLP Matthew E. McClintock, Esq. Daniel C. Curth, Esq. 111 W Washington St, Ste. 1221 Chicago, Illinois 60602 Telephone: (312) 337-7700 Facsimile: (312) 277-2305 [email protected] [email protected]

Counsel for the Debtors


EXHIBIT A

20-21214-dob Doc 460-1 Filed 02/11/21 Entered 02/11/21 21:43:29 Page 1 of 2

Property PIN Number(s) Market Value Source

BM Smallwood Property 1,100,000.00$ 2020 Burgoyne Appraisal ‐‐ completeBM Secord Property 180,000.00$ 2020 Burgoyne Appraisal ‐‐ completeBM Edenville Property 100,000.00$ 2020 Burgoyne Appraisal ‐‐ completeSmallwood Properties ‐‐ HiLo Road 26110‐015‐300‐001‐00 11,000.00$ Debtors' estimate of market value (Land)Smallwood Properties ‐‐ 745 Wolverine2 26110‐015‐300‐005‐10 125,000.00$ Debtors' estimate of market value (SFH)Smallwood Properties ‐‐ 755 Wolverine2 26110‐015‐304‐001‐52 125,000.00$ Debtors' estimate of market value (SFH)BM Consumers Condemnation Claim3 ‐$ See Footnote 1 below ‐‐ value uncertainBM ‐‐ Existing Cash 63,500.00$ See Docket No. 398‐1 (10/31 balance)BM ‐‐ FLTF Sale Proceeds 270,000.00$ See Docket No. 398‐1 (expected proceeds)Trusts ‐‐ Existing Cash 93,000.00$ See Docket No. 398‐1 (10/31 balances)Smallwood Properties ‐‐ Existing Cash 12,000.00$ See Docket No. 398‐1 (10/31 balance)Stephen Hultberg 70,000.00$ Agreed contributionMichele Mueller 10,000.00$ Agreed contributionMichel D'avenas 10,000.00$ Agreed contributionInsurance Proceeds ‐‐ Federal & Evanston 3,000,000.00$ Maximum insurance proceeds

TOTAL 5,169,500.00$

Amount Note95,000.00$ See "EGLE Payment" in Plan315,000.00$ See "Byline‐Covered Claim Settlement" in Plan75,000.00$ See Plan Article V(2)

4,684,500.00$ Total contributions less the priority expenses

Substantial Contributions ‐‐ Contributed Assets ‐‐ Plus Insurance Proceeds1

3. Possible condemnation proceeds in Consumers Energy condemnation case (BM asset). Demand is approximately $500,000 but like any litigation claim could be materially less (or nothing) depending on litigation / settlement outcome.

2. EGLE asserts that these properties are encumbered by a lien securing a consent judgment obligation. The Plan encompasses of a setlement of thisissue centered on a $95,000 payment to EGLE.

EGLE Secured Claim2Use of Funds

Class 2 / Byline Bank Share of Substantial ContributionsStretto Claims Reconciliation Fees

Class 5 / Tort Claimants Share of Settlement Proceeds

1. Values in the chart are best estimates and / or appraisals values where available but should not be relied upon. Values may have changed sincethe dates reflected, and actual proceeds may differ for any number of reasons. Moreover, the chart does not include most intangible assets (e.g ., causes of action) or less material assets that may be contributed. It is merely intended to give the Court and parties a rough sense of the materiality of the contributions that are expected to be made if the Insurance Settlement Motion is approved.

20-21214-dob Doc 460-1 Filed 02/11/21 Entered 02/11/21 21:43:29 Page 2 of 2

Documents

Debtors Brief Third Modified Joint Consolidated Chapter 11 ......A chapter 11 plan of reorganization can may only be confirmed if the applicable requirements outlined under section