BANGOR, Maine — A federal bankruptcy judge Tuesday shot down, for now, a proposal that would have allowed former U.S. Sen. George J. Mitchell to oversee the distribution of insurance funds in the Montreal, Maine and Atlantic Railway’s bankruptcy case to the estates of 47 victims killed last year in the Lac-Megantic railroad disaster.
U.S. Bankruptcy Judge Louis Kornreich cited specific sections of the proposal that did not conform with the rules that oversee bankruptcy cases. He said the plan was “fatally flawed” in its current form.
“The plan fails to provide for adequate means of implementation under the bankruptcy court,” he said after a hearing that lasted more than four hours.
He also said the plan, as proposed, required him to tell a Canadian judge what to do, which he could not legally do.
A tanker train, owned by MMA, derailed and exploded July 6 in the middle of the small town of Lac-Megantic, Quebec, causing hundreds of millions of dollars in damage as well as 47 deaths, according to previously published reports. It was hauling a more flammable gasoline-like fuel than the crude oil it was supposed to be carrying, according to Canadian media reports.
The Hermon-based railroad filed for bankruptcy in August in Maine and Canada.
Kornreich has been working with his counterpart in a Canadian court, where litigation also is pending, to coordinate the filing of claims by debtors, creditors and victims. The deadline for filing such claims is June 15 in Canada. On Tuesday, Kornreich set June 30 as the date by which proposals outlining how they should be handled by the respective courts must be filed.
The judge also ordered that bankruptcy trustee Robert Keach, a Portland attorney, include lawyers representing the estates in negotiations with other parties to create a plan to distribute insurance proceeds.
Daniel C. Cohn, the Boston attorney representing the Chicago attorneys who filed the wrongful death claims, said after Tuesday’s hearing that he planned to refile the plan in June and address Kornreich’s concerns unless his clients agree to a larger settlement plan, which Keach is trying to negotiate with all parties.
According to court documents, there is $25 million of indemnity coverage under the insurance policies of MMA and its Canadian subsidiary available to allocate to the wrongful death claimants. The original so-called Mitchell proposal called for the attorney and former federal judge to be appointed as “Plan Fiduciary.”
Under the proposal, insurance proceeds would be divvied up with 75 percent going to the wrongful death and personal injury claimants and 25 percent going to the property damage claimants, which would be handled through the Canadian insolvency proceeding of MMA’s Canadian subsidiary. Those percentages later were revised to a 65/35 split.
In addition to filing claims in bankruptcy courts in Canada and the U.S., the Chicago law firm Meyers & Flowers, represented Tuesday by Cohn, filed wrongful death lawsuits in Illinois courts on behalf of the estates of the victims. Last month, those cases were moved to U.S. District Court in Bangor and assigned to U.S. District Court Judge Nancy Torresen. Those cases are pending.
Also pending is the sale of the railroad. MMA’s assets were sold in January for $15.85 million at a bankruptcy auction to New York investment firm Fortress Investment Group. The deal is expected to officially close by April 30, Keach said Tuesday.