Delaware Federal Judge Grants Debtor Access To Asbestos Claimant Information

Delaware Federal Judge Grants Debtor Access To Asbestos Claimant Information

WILMINGTON, Del. - (Mealey's) A Delaware federal judge on March 1 ruled that Chapter 11 debtor Garlock Sealing Technologies LLC can obtain documents filed by asbestos claimants' attorneys in nine other asbestos-related bankruptcy cases, finding that a bankruptcy judge erred and abused her discretion in denying Garlock access to the exhibits (In Re: Motions for Access of Garlock Sealing Technologies LLC, No. 11-1130, D. Del.; 2013 U.S. Dist. LEXIS 28283).

Rule 2019 Exhibits

Facing an estimated 100,000 asbestos personal injury claims, Garlock and affiliates filed Chapter 11 petitions in 2010 in the U.S. Bankruptcy Court for the Western District of North Carolina (In re: Garlock Sealing Technologies LLC, et al., No. 10-31607, W.D. N.C. Bkcy.). Garlock's proposed reorganization plan seeks to establish a trust to resolve current and future asbestos claims, and the Bankruptcy Court has scheduled a trial to estimate Garlock's liability for mesothelioma claims.

In preparation for its estimation proceeding, Garlock filed motions in 12 bankruptcy cases - nine in the District of Delaware and three in the Western District of Pennsylvania - for access to exhibits to Federal Rule of Bankruptcy Procedure 2019 statements. Pursuant to Bankruptcy Judge Judith K. Fitzgerald's orders in all of the cases, the Rule 2019 statements, containing only information about the law firms filing asbestos personal injury claims, were filed electronically and were public, while the exhibits to the statements, containing personal information about the claimants themselves, their disease and how and when they contracted it, were filed with the clerks of courts and were not public records.

The District of Delaware cases are: In re: The Flintkote Co., et al., No. 04-11300; In re: Kaiser Aluminum Corp., et al., No. 02-10429; In re: W.R. Grace & Co., et al., No. 01-1139; In re: AcandS, Inc., No. 02-12687; In re: Armstrong World Industries, Inc., No. 00-4471; In re: Combustion Engineering, Inc., No. 03-10495; In re: Owens Corning, No. 00-3837; In re: United States Mineral Products Company, No. 01-2471; and In re: USG Corp., et al., No. 01-2094. The Western District of Pennsylvania cases are: In re: Pittsburgh Corning Corporation, No. 00-22876, In re: North American Refractories Company, No. 02-20198, and In re: Mid-Valley, Inc., et al., No. 03-35592.

Garlock argued that it needed the information in the Rule 2019 exhibits to prove that asbestos plaintiffs' law firms were concealing clients' exposure to the asbestos products of other bankruptcy debtors for the purpose of inflating settlement values against Garlock in the tort system. Garlock also sought the statements so it could consider whether to file Racketeer Influenced and Corrupt Organizations Act and other causes of action against plaintiffs' law firms and their clients.

Access Denied

In October 2011, Bankruptcy Judge Fitzgerald, who presides over all 12 cases, denied Garlock's motions, finding that the debtor did not have standing to intervene because it was not a party in interest and had not been injured. The bankruptcy judge further held that allowing Garlock to reopen the closed cases would have "enormous" consequences for the companies involved, some of which emerged from bankruptcy after nearly 10 years. Bankruptcy Judge Fitzgerald held that Garlock was not entitled to access the Rule 2019 exhibits because it had not shown a required purpose.

Garlock appealed the rulings to the District of Delaware and the Western District of Pennsylvania. In June 2012, Judge Nora Barry Fischer of the Western District of Pennsylvania stayed the three appeals in that court pending the disposition of the appeals in the District of Delaware.

The appellees in the cases include two groups of law firms that filed the Rule 2019 exhibits at issue. The first group consists of Kazan, McClain, Lyons, Greenwood & Harley; Water & Kraus; Simmons Browder Gianaris Angelides & Barnerd; Bergman, Draper & Frockt; Gori, Julian & Associates; Early, Lucarelli, Sweeney & Strauss; Cooney & Conway; Lipsitz & Ponterio; Bifferato LLC; and Montgomery, McCracken, Walker & Rhoads. The other group comprises The Law Offices of Peter G. Angelos; Baron & Budd; Brayton Purcell; Hissey Kientz; The Lipman Law Firm; Reaud, Morgan & Quinn; Thornton & Naumes; Waters & Kraus; Weitz & Luxenberg; and Williams Kherkher Hart Boundas.

The asbestos claimants' committees (ACCs) in the Flintkote and W.R. Grace bankruptcies, various reorganized debtors in the closed bankruptcy cases, asbestos claimants represented by Motley Rice and U.S. Trustee Roberta A. Deangelis also were appellees.

Standing; Right To Access

In reversing the bankruptcy judge's decisions in the nine District of Delaware cases, Judge Leonard P. Stark first found that, based on the ruling in Pansy v. Borough of Stroudsburg (23 F.3d 772, 777 [3d Cir. 1994]), Garlock has standing to seek access to the Rule 2019 exhibits because the bankruptcy judge's orders establishing the Rule 2019 statement guidelines create an "obstacle" to access of judicial records.

"The Third Circuit has 'routinely found, as have other courts, that third parties have standing to challenge protective orders and confidentiality orders in an effort to obtain access to information or judicial proceedings,'" Judge Stark said, quoting Pansy. "Because Garlock is a member of the public and faces an obstacle to obtaining access to 2019 Exhibits, Garlock has standing."

The judge then found that Garlock should be granted access to the Rule 2019 exhibits pursuant to the common-law right of public access to judicial records and that, under Pansy, the exhibits are defined as "judicial records."

"The 2019 Orders require that the 2019 Statements be 'filed' with the Bankruptcy Court," Judge Stark pointed out. "The 2019 Statements were available to the parties and could be used to monitor the propriety of the plan confirmation voting process. Thus, the 2019 Statements, including the Exhibits, were 'filed with' the Bankruptcy Court. They are, therefore, 'judicial records.'"

Presumptive Right

The judge further held that because the Rule 2019 exhibits are judicial records that were filed with the Bankruptcy Court, there is a presumptive right of public access to them, pursuant to Goldstein v. Forbes (In re Cendant Corp.) (260 F .3d 183 [3d Cir. 2001]).

"The filing of a document with a court 'clearly establishes' it is subject to the right of access," Judge Stark said. "As the Third Circuit has explained, public access 'promotes public confidence in the judicial system by enhancing testimonial trustworthiness and the quality of justice dispensed by the court;' 'diminishes possibilities for injustice, incompetence, perjury, and fraud;' 'provide[s] the public with a more complete understanding of the judicial system and a better perception of its fairness;' and 'helps assure that judges perform their duties in an honest and informed manner.'"

The judge added that the presumption of access has not been rebutted by the appellees because their numerous arguments against disclosure do not show that the interest in secrecy outweighs the presumption of public access.

"For instance, while appellees are concerned about the possibility of misuse of potential asbestos claimants' personal information, leading to identity theft or other abuses, they fail to show any clearly defined and serious injury, particularly given the restrictions the Court will place on Garlock's use of the 2019 Exhibits," Judge Stark said. "While it is undoubtedly true that Rule 2019 is not intended for the purpose to which Garlock seeks to put it, this fact does not rebut the presumption of public access to judicial records."

Limits To Access, Use

The judge found that, based on the factors and the balancing test described in Pansy, there is good cause to modify the Rule 2019 orders and permit Garlock access to the Rule 2019 exhibits.

"Garlock's purpose in seeking access to the 2019 Exhibits - to permit its expert in its own bankruptcy to develop or rebut an opinion as to an estimate of Garlock's aggregate liability for asbestos claims - is a proper purpose for seeking access," Judge Stark said. "Another Pansy factor favoring granting Garlock access to 2019 Exhibits is that the sharing of information among litigants may help promote fairness and efficiency. Garlock may be able to use the information in the 2019 Exhibits to help the North Carolina Bankruptcy Court to estimate Garlock's liability more accurately. Also favoring access is that the issues involved here - going to liabilities arising from a mass tort - are important to the public."

However, the judge said that in exercising his discretion, it is appropriate to impose limitations on Garlock's access and use of the Rule 2019 exhibits. Among the limitations are: Garlock's access to the exhibits is only for the purpose of using them in connection with the estimation proceeding in its bankruptcy; Garlock cannot publicly disclose information in the exhibits except in an aggregate format that does not identify any individual; before there is any disclosure of the information from the exhibits, Garlock must first propose to the North Carolina Bankruptcy Court a protective order for that court to consider; and Garlock will not be granted access to retention agreements between lawyers and clients.

"These limitations should largely (if not entirely) prevent identity theft and the other harms the Bankruptcy Court envisioned might follow from granting Garlock the access it seeks," Judge Stark said.

Counsel

Garlock is represented by Garland S. Cassada and Richard C. Worf Jr. of Robinson, Bradshaw & Hinson in Charlotte, N.C., and Gregory W. Werkheiser and Matthew B. Harvey of Morris, Nichols, Arsht & Tunnell in Wilmington.

AcandS and United States Mineral are represented by Kevin E. Irwin, Jennifer Morales and Bethany P. Recht of Keating Muething & Klekamp in Cincinnati and Scott J. Leonhardt and Frederick B. Rosner of The Rosner Law Group in Wilmington.

Armstrong is represented by Stephen Karotkin, Debra A. Dandeneau and Abigail L. Zigman of Weil, Gotshal & Manges in New York and Mark D. Collins, Jason M. Madron and Lee E. Kaufman of Richards, Layton & Finger in Wilmington.

Combustion Engineering is represented by Jeffrey N. Rich of K&L Gates in New York, Adam Paul of Kirkland & Ellis in Chicago and Laura Davis Jones and Curtis A. Hehn of Pachulski Stang Ziehl & Jones in Wilmington.

Flintkote is represented by Kevin T. Lantry, Sally S. Neely, Christina M. Craige and Jeffrey E. Bjork of Sidley Austin in Los Angeles and Laura Davis Jones and Curtis A. Hehn of Pachulski Stang Ziehl & Jones in Wilmington.

Kaiser Aluminum is represented by Gregory M. Gordon and Daniel P. Winikka of Jones Day in Dallas and Daniel J. DeFranceschi and Jason M. Madron of Richards, Layton & Finger in Wilmington.

Owens Corning is represented by Adam H. Isenberg and MaryJo Bellew of Saul Ewing in Philadelphia and Mark Minuti of Saul Ewing in Wilmington.

USG is represented by David G. Heiman of Jones Day in Cleveland, Brad B. Erens of Jones Day in Chicago and Daniel J. DeFranceschi and Paul N. Heath of Richards, Layton & Finger in Wilmington.

W.R. Grace is represented by John Donley and Adam Paul of Kirkland & Ellis in Chicago and Laura Davis Jones and James E. O'Neill of Pachulski Stang Ziehl & Jones in Wilmington.

The Kazan, McClain law firms are represented by Ellen C. Brotman of Montgomery, McCracken, Walker & Rhoads in Philadelphia and Natalie D. Ramsey, Laurie A. Krepto and Davis Lee Wright of Montgomery, Mccracken, Walker & Rhoads in Wilmington.

The Peter G. Angelos law firms are represented by Sander L. Esserman, David A. Klingler, David J. Parsons and Cliff I. Taylor of Stutzman, Bromberg, Esserman & Plifka in Dallas and Daniel K. Hogan of The Hogan Firm in Wilmington.

The Motley Rice claimants are represented by Joseph F. Rice, Jeanette Gilbert and John Baden of Motley Rice in Mount Pleasant, S.C., and Daniel K. Hogan of The Hogan Firm in Wilmington.

The ACCs are represented by Elihu Inselbuch of Caplin & Drysdale in New York; Peter Van N. Lockwood, Trevor W. Swett and Kevin C. Maclay of Caplin & Drysdale in Washington, D.C.; Philip E. Milch and David B. Salzman of Campbell & Levine in Pittsburgh; and Marla R. Eskin and Mark T. Hurford of Campbell & Levine in Wilmington.

The U.S. trustee is represented by Ramona D. Elliott, Nan R. Eitel and Paul W. Bridenhagen of the Department of Justice in Washington and Richard L. Schepacarter and David M. Klauder of the Department of Justice in Wilmington. 

For all of your legal news needs, please visit www.lexisnexis.com/mealeys.

Lexis.com subscribers may search all Mealey Publications.

Non-subscribers may search for Mealey Publications stories and documents at www.mealeysonline.com or visit www.Mealeys.com.

Mealey's is now available in eBook format!

For more information about LexisNexis products and solutions, connect with us through our corporate site.