SPHC objection to law firm database motion by mmcsx


									                         IN THE UNITED STATES BANKRUPTCY COURT
                              FOR THE DISTRICT OF DELAWARE

    In re:                                               :   Chapter 11
    SPECIALTY PRODUCTS HOLDING                           :   Case No. 10-11780 (JKF)
    CORP., et al.,1                                      :
                                                         :   Jointly Administered
              Debtors.                                   :
                                                         :   Related Document No. 558


             The Committee of Asbestos Personal Injury Claimants (the “Committee”), by and

through its undersigned counsel, hereby submits this objection (the “Objection”) to the Motion of

the Debtors, Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure, Directing

Production By Certain Law Firms That Have Filed Asbestos-Related Lawsuits Against the

Debtors [Document No. 558] (the “Motion”), and in support thereof, represents as follows:


             Before the Court is another in a series of unprecedented, unduly intrusive and ultimately

meritless discovery motions seeking co-defendant and trust settlement values in a misguided

effort to prove their “whole case value” estimation theory. Despite the fact that this Court has

properly ruled that the amounts received by a mesothelioma victim in settlement from solvent

co-defendants or asbestos trusts are irrelevant to a determination of an estimation of the Debtor’s

 The last four digits of the debtors’ taxpayer identification numbers follow in parentheses: Specialty Products
Holding Corp. (0857) and Bondex International, Inc. (4125). The Debtors’ address is 4515 St. Clair Avenue,
Cleveland, Ohio 44103.

asbestos liability, the Debtors persist. In the present motion, the Debtors turn to claimants’

counsel (and indeed, all counsel that have ever represented any claimant who has pursued a

claim against SPHC/Bondex) in an effort to obtain the very same settlement information. In so

doing, Debtors have launched a broad assault on the adversarial system itself and the attorney-

client relationship which lies at its core.

        Debtors seek an order requiring third party law firms who represent mesothelioma

victims to disclose the settlement and claims histories for each and every one of their

mesothelioma clients since 1995. Debtors seek this information without regard to the fact that

the information sought: (1) is not available to the Debtors in the tort system; (2) is universally

regarded as confidential by both the plaintiffs and the parties with whom they settled (including

the Debtors before filing for bankruptcy); (3) requires the firms to disclose confidential

information without proper notice to their clients; (4) cannot be admissible under F.R.E 408; and

even if it were admissible; (5) is wholly unnecessary to the conduct an reliable estimation of the

Debtors’ asbestos liability and ultimately not probative of the novel estimation theory Debtors

have espoused.

        No doubt informed of this Court’s ruling, this very same broadside was recently rejected

by the Bankruptcy Court in In re Garlock Sealing Technologies, LLC, et al., Case No. 10-31607

(Jointly Administered) (Bankr. W.D.N.C. March 4, 2011)[Docket No. 1201]on March 3, 2011. 2

There, the Court found that the propounded discovery would be an “unprecedented intrusion”

into the practices and files of law firms who are not parties to the bankruptcy proceedings or the

proceedings in which they represented the claimants. (Garlock Order, p. 2, ¶1). The Court also

found that the information sought in the law firm 2004 motion was generally and traditionally

        A copy of the Garlock Order is attached hereto as Exhibit A.

held in strict confidence by both plaintiffs and defendants and almost universally protected by

confidentiality agreements, and was not available to parties outside of bankruptcy in the tort

system except in rare circumstances. (Garlock Order, pp. 2-3, ¶¶2-3). Likewise, here, the

discovery requested by the Debtors in the Motion should not be permitted. It is intrusive of the

attorney-client relationship and a burden to law firms who are third parties to these proceedings.

The discovery is also not relevant as to an aggregate claims estimation and duplicative of other

discovery requests made by the Debtors in these proceedings.

        As with their other 2004 motions, the Debtors assert that analysis of settlement data on

mesothelioma recoveries “will allow Bates White to quantify with greater certainty the impact of

trust recoveries on the Debtors’ asbestos indemnity obligations.” (Motion, p. 7, ¶16). As the

Committee has repeatedly argued and this Court has most recently ruled, payments received

from co-defendants and asbestos trusts are not relevant to an estimation of the Debtors’ asbestos

liability and are certainly not relevant to the “whole case value” of any claim. In the estimation

context, there is no such thing as “whole case value.” Estimation concerns only the Debtors’

several liability. 3

        The novel methodology espoused by Bates White is dependent on accessing extensive

and historically shielded information not available in the tort system. As the Committee has

stated previously, the information derived from Debtors’ own rich, historical database – and now

the claimant questionnaire that the parties have agreed to complete - provides the Debtors with

more than ample data to prepare a proper aggregate estimation analysis.

 The issues surrounding the Debtors’ need for this discovery have been the subject of numerous briefs, PowerPoint
presentations, and oral argument and thus are well know to this Court. Despite the clear relevance of many of those
same arguments in opposition to the law firm discovery sought here, particularly as they relate to the Bates White
estimation methodology, the Committee will respectfully not restate many of the arguments previously advanced
and instead incorporates those arguments by reference herein.

       What the Debtors propose to do with the discovery sought is tantamount to an individual-

based estimation. The valuing of individual claims is traditionally and appropriately left to a

post-petition process governed by detailed, negotiated trust distribution procedures. The

bankruptcy court is not the proper forum for conducting a summary or mini-trial on personal

injury tort claims. See 28 U.S.C. §1141(a). Nor is a bankruptcy court the proper forum for

changing the way asbestos tort claims are traditionally handled in the state court litigation

system. Rather, it is the Bankruptcy Court’s charge to determine how claims would be valued in

the tort system as it presently exists. As it cannot be seriously disputed that parties do not have

access to the historical settlement data maintained by their adversaries in the tort system, it is

absurd to argue that access to that information is now somehow necessary to conduct an

estimation designed to approximate the aggregate liability had the Debtors’ stayed in that system.

Conversely, if one’s purpose is to reform the asbestos tort system or to gain some tactical

litigation advantage through the filing of bankruptcy, then this discovery makes perfect sense. As

neither of these are permissible reasons for seeking discovery under Rule 2004, the Debtors’

intrusive and unparalleled request for settlement data from the law firms should be rejected.


A.     Bates White’s “Need” for Settlement Data Has Been Rejected by the Only Two
       Courts Which Have Ruled on its Extraordinary Requests

       1.      The Debtors seek historical settlement data from third party law firms which is

burdensome, intrusive, and irrelevant to conducting an aggregate estimation of the Debtors’

asbestos liability. This Court has already rejected the argument in the context of claimant

settlement values and the Debtors’ have offered no additional need for seeking that very same

information from law firms. (TR of February 28, 2011 hearing at p. 131, line 8).

       2.      In an effort, however to disguise the true nature of their request, the Debtors assert

that they seek only “certain limited information” relating to “aggregate recoveries on

mesothelioma claims” and not the particular identity of any claimant or defendant, details

regarding the particular claims, or particular individual settlements. (Motion, p. 3, ¶3). Review

of their Motion, however, belies this claim. As paragraph 8 of their Motion makes clear, the

Debtors seek very specific and detailed information broken down in a myriad of ways—all to

allow Bates White to extract individual settlement amounts. It is plain that the Debtors seek but

another avenue to access those very settlement values that this Court has previously found to be

irrelevant to estimating the Debtors’ asbestos liability. The Committee respectfully contends that

this Court prior ruling that settlement values were not properly included on the PIQ is controlling

of the instant Motion.

       3.      Assuming, arguendo, it is not and as this Court may be aware, a practically

identical motion was made by the debtors in In re Garlock Sealing Technologies, LLC, Chapter

11 Case No. 10-31607, U.S. Bankruptcy Court for the Western District of North Carolina. Not

surprisingly, Bates White also serves as the asbestos consultant for the debtors in Garlock. The

Court in Garlock rejected the discovery initiatives on many of the same grounds proffered by the

Committee. The Garlock Court found that the propounded discovery requests sought information

that was traditionally protected as confidential and that was not generally available to co-

defendants in the tort system, absent a verdict. Importantly, the Court also found that the request

was an unprecedented intrusion on into the files and practices of attorneys who were not

parties to the bankruptcy proceeding or underlying law suits. See Exhibit A.

       4.      Again, what is behind the effort to obtain this settlement data is Bates White’s

“whole claim value” theory. As the Committee has previously argued, co-defendants in the tort

system do not have access to other co-defendants settlement values in negotiations. These

settlements are confidential. The settlement agreements that asbestos claimants have entered

into with defendants, including the Debtors, contain confidentiality clauses that prohibit

claimants from disclosing the settlement values to other parties. Moreover, settlements are just

that: a negotiated sum. Whether it is an individual settlement or aggregation of those amounts,

settlement values cannot be, by their very nature, probative of the Debtors’ several share of

liability. The only true measure of the total value of a particular claim is a jury’s verdict.4

        5.       This Court should follow its prior ruling and conclude, as the Garlock court did,

that the relief requested by the Debtors should be rejected as an intrusive foray into confidential

attorney files seeking information not available in the tort system and not available in the

bankruptcy system.

        B.       The Debtors Continue to Misstate Dr. Peterson’s Testimony

        6.       In the wake of the Court’s ruling that settlement values are not relevant to

estimation and thus were not to be included among the data to be collected as part of the personal

injury questionnaire, the Debtors advanced a new theory for needing the law firm’s database

information. The Debtors argued that the information was needed to rebut what they contended

will be Dr. Peterson’s testimony at the estimation trial in this case.

        7.       Specifically, counsel for the Debtors stated that settlement data was necessary to

rebut the anticipated testimony of the Committee’s expert Dr. Mark Petersen:

                 MR. GORDON: Dr. Peterson would say that, you know, the pie
                 representing the entire claim in 2000 was say about this big but in 2010 it
                 was about this big. So whether a particular defendant’s share stayed about
 If taken at face value, the Debtors’ argument that what the parties agree to pay in a settlement posture has any
bearing on a claim’s “whole claim value,” would arguably require the Debtors to reveal their maximum settlement
amount authority to the Committee as part of this process. Such is the absurdity of the Debtors’ proposal.

               the same on average or changed, even if it stayed the same the amount of
               money being paid would have gone up because that entire pie got much

               THE COURT: Well—

               MR. GORDON: So if you had a ten percent on average share in real
               dollars that would be a lot bigger.

               Dr. Bates would say that those two pies, although that second pie for 2010
               would be larger, it’s not significantly larger.

               And so the point is to measure that and particularly it’s important here
               because we know that Dr. Peterson’s position already is. He’s already
               taken it in this case. That’s what we’re getting at.
(February 28, 2011 Transcript at p. 167, lines 20-25, p. 168, lines 1-14, 22-25, p. 169, lines 1-3)

(emphasis added).

       8.      As with the Debtors’ prior attempts to use Dr. Petersen’s testimony to support

their “need” for this unprecedented discovery, this one too misses the mark. As Dr. Peterson

testified in the Garlock case, he does not care about the “pie,” and in fact gives no credence to

the “whole case value” concept as the following excerpt indicates:

               MR. CASSADA: Okay. But you don’t have any direct evidence yourself
               with respect to what the average total tort system value of a mesothelioma
               claim is?

               DR. PETERSON: … I am not using it (referring to whole case value) for
               – I don’t care what the total value of payments [by] the defense are. It’s
               not a material fact in this case. I don’t think it’s calculable. That’s not
               the reason I am interested in what Mr. Myers said. I am interested in what
               Mr. Myers is saying about the relative increase in the values of claims
               from one time period to another. That is useful evidence about the fact
               that asbestos values have been increasing during the decade of the 2000’s.
               It is not the only piece of evidence, but it is a useful piece of evidence for
               that purpose, not the absolute value but the relative increase.
               MR. CASSADA: . . . You said:

               “In order to accurately state the total tort system value of a mesothelioma
               claim, one would need to know what all defendants are paying, and there
               is no one would have that information.?


                    DR. PETERSON: I agree with that, and I am not interested in that issue.
                    MR. CASSADA: If Mr. Myers is wrong, what effect does that have on
                    your prior estimates?

                    DR. PETERSON: If he is wrong about the absolute value, it has zero
                    impact upon my forecast.

(TR of Garlock October 27, 2010 hearing at p. 679, lines 2-4, p. 681, lines 7-14,

p. 682, lines 8-11).5

           9.       In short, Dr. Peterson’s view is that it is neither possible nor necessary to calculate

a whole claim value based on the total settlements received on a claim. A claim only is valued

by a verdict. Thus, the Debtors’ assertion that Bates White must have confidential settlement

data to rebut the anticipated testimony of Dr. Peterson is simply incorrect.

           C.       Trend Data Cannot Be Determined by Reference to the Information Sought
                    by the Debtors

           10.      Even if Dr. Peterson did maintain the views regarding the average amount that

mesothelioma claimants presently receive in the tort system that Debtors contend he does

(which, as set forth above, he does not), the data that is being sought would not inform an

analysis of trends. Just as every car crash victim is unique, every asbestos victim is unique. The

age, occupation, exposure history, family situation, jurisdiction where the case was bought,

financial needs and a variety of other factors determine whether and at what values a claimant

will settle his claim. In addition, typically settlements are reached over a period of years, so that

the information is impossible to provide in the form in which the Debtors seek to have it


    Relevant pages of the Garlock hearing transcript are attached hereto as Exhibit B.

       11.     When examined, the newly proffered alleged “need” for this information to

analyze trend data is just another failed justification for obtaining irrelevant and confidential

individual settlement amounts.

       D.      The Motion Affects Important Rights of Individual Claimants Who Have
               Not Been Provided With Notice and an Opportunity To be Heard

       12.     As the Court in Garlock found, the discovery requested by the Debtors would be

an “unprecedented intrusion” into the practices and files of law firms who are not parties to the

bankruptcy proceedings or the proceedings in which they represented the claimants. See Garlock

Order. Indeed, the production of the information requested in the Motion infringes on the

fundamental relationship between an attorney and client and the disclosure of the information

requested would arguably violate both the attorney-client and work-product privileges. Even if

the information were privileged in the strictest sense, it is still information that a lawyer must

ethically hold in the strictest of confidence.

       13.     The law firms cannot produce the information requested by the Debtors absent

consent. Rule 1.6 of the Model Rules of Professional Conduct, which most states follow,

provides that “[a] lawyer shall not reveal information relating to the representation of a client

unless the client gives informed consent, the disclosure is impliedly authorized in order to carry

out the representation or the disclosure is permitted by paragraph (b).” MRPC 1.6(a). The

Comments to Rule 1.6 provide that:

               A fundamental principle in the client-lawyer relationship is that, in the
               absence of the client’s informed consent, the law must not reveal
               information relating to the representation. … This contributes to the trust
               that is the hallmark of the client-lawyer relationship. … The principle of
               client-lawyer confidentiality is given effect by related bodies of law: the
               attorney-client privilege, the work-product doctrine and the rule of
               confidentiality established in professional ethics. … The confidentiality

                rule, for example, applies not only to matters communicated in confident
                by the client but also to all information relating to the representation,
                whatever the source.

Comments to MRPC 1.6. These fundamental principles must not be ignored in weighing

in the merits of the discovery sought versus the imposition on non-parties to these


          14.   It cannot be seriously argued that information residing in a lawyer’s files

regarding a confidential settlement is not subject to the confidentiality provisions of the Model

Rules. Yet the Motion seeks information on thousands of asbestos claimants who have asserted

claims against the Debtors over the past sixteen years, without so much as a passing reference to

the rights of the individual claimants or any effort to provide them with notice of the Motion.

These law firms are not parties to the bankruptcy proceedings or the underlying cases in which

they represented claimants. Nor are the clients who have already settled claims against the

Debtors parties to these proceedings. The burden on the law firms to contact each of their clients

regarding the disclosure of information simply does not outweigh by the Debtors’ alleged “need”

for this information as the request for information.

          15.   If this Court is inclined to make any determinations on the merits of the Motion,

the Debtors should be required to properly serve the Motion on all claimants affected by the

discovery sought in the Motion and schedule it for another hearing.

          E.    The Motion Seeks Duplicative Discovery That Is Unnecessary Or At Best,

          16.   At the February 28, 2011 hearing, this Court raised concern about the remaining

2004 motions being premature in light of the resolution of the claimant questionnaire. The Court


               THE COURT: I think my major concern though is what discovery is
               necessary at all pending the responses to the PIQ.

(TR of February 28, 2011 hearing, p. 177, lines 11-12). That is precisely the question nagging

the Committee.

       17.     Much of the information the Debtors are seeking in the Motion will already be

made available to the Debtors through other sources including the claimant questionnaire, the

trusts’ publicly available data, possible trust discovery, and the Debtors’ own database. The

parties have already agreed that claimants will complete a detailed questionnaire that will

provide the Debtors with a claimants’ work history specifying sites and occupations where any

asbestos exposure took place, the number of co-defendants with whom they have settled, the

number of trusts for which claims have been submitted, the status of such claims, and the date of

any trust payment of co-defendant settlement. The Debtors should already have copies of

complaints and verified discovery responses identifying the co-defendants in their files and/or

database, and in any event, such pleadings will be attached to the completed questionnaire, if

available. The Court has indicated that the trusts may be required to provide aggregate payouts

by year and the trust and the TDPs are publicly available to quantify the percentage of payouts to

mesothelioma claims. Thus, the Debtors will have multiple sources from which to create an

estimation analysis and should not burden the law firms now before evaluating and assessing the

information already requested from other sources and already available to it.

       18.     Further, as recently as a few weeks ago, the Debtors’ estimation expert, Dr. Bates

admitted during his deposition that he has not only failed to review the Debtors’ own database,

he has not reviewed the complaints, depositions, interrogatories, and admissions contained in the

Debtors’ own files. See Bates Deposition TR at p. 33, lines 5-17; p. 38, lines 16-20; pp. 38-39,

lines 25-1-; pp. 44-45, lines 17-9; pp. 78-79, lines 11-23).6 Nor has he interviewed relevant

asbestos counsel. See Bates Deposition TR at p. 33-34, lines 20-10, p. 36, lines 2-6; pp. 36-37,

lines 20-3; p. 57, lines 15-22; p. 58, lines 17-19. And he has not had the opportunity to review

any claimant questionnaires as it will take several months for the claimant forms to be submitted

and analyzed by the experts.

           19.      Instead of waiting to review the data and information presently available or to be

submitted in the next few months, the Debtors propose yet another discovery motion seeking

information from a third-party source without first determining if such information is really

necessary. The Debtors should be directed to review their files, database, and the claimants’

questionnaire before requesting more burdensome discovery. Such requests serve only to further

delay the estimation process and any progress in this case.

           20.      Indeed, any further discovery concerning estimation of Debtors’ asbestos liability

should await proposal of a plan that has substantial likelihood of obtaining a confirming vote by

the Debtors’ asbestos claimants.

           F.       Because Settlement Values Are Irrelevant the Court Should Consider the
                    Potential For Misuse of this Highly Confidential Information

           21.      For the reasons set forth by the Committee in its numerous submissions on these

issues, the arguments Debtor advances in support of its need for this information to conduct a

reliable estimation are flawed. As this Court has ruled, a settlement with a defendant is the

liability of the Debtors to a particular claimant does not in any way depend on whether another

defendant also exposed the claimant to asbestos.

    A copy of the relevant pages of deposition transcript of Dr. Bates is attached hereto as Exhibit C.

        22.      However, Bates White persistence in seeking to obtain settlement data from the

law firms and the trusts raises significant questions for this Court relating to the possible the

potential for improper use of this data on behalf of Bates White’s other clients or for its own

pecuniary benefit.

        23.      This is particularly so where the experts affiliated with Bates White are well

known partisans in the adversarial process of asbestos litigation. It is not disputed that they

represent numerous defendants, public companies and insurers. They are also well known

advocates for change in the asbestos tort system. 7 Finally and until most recently, the principals

of Bates White participated in a venture known as Litigation Resolution Group, which by their

own description was a business venture set up to profit by acting as a broker buying and selling

aggregate asbestos liabilities of companies as an alternative to 524(g) relief.8

        24.      It is not difficult to see how receipt of the entire settlement histories of one’s

adversary would be of benefit to a defendant or its insurer. It would be a veritable road map for

successful settlement discussions. It is for this very reason that both plaintiffs’ counsel and

defense counsel jealously guard such information. As it is succinctly argued by counsel for the

CE Trust in response to Debtors’ 2004 Motion seeking individual settlement information from

the asbestos trusts:

 See, e.g. . Charles E. Bates, et al. The Naming Game, 24:15 Mealey’s Litigation Report: Asbestos 1 (Sept. 2,
2009); Charles E. Bates, et al., The Claiming Game, 25:1 Mealey’s Litigation Report: Asbestos 27 (Feb. 3, 2010).
  The Committee is not alleging that Dr. Bates has an improper motive and has heeded this Court’s instruction by
seeking leave to take his deposition. Those efforts have been delayed however, and are the subject of a Motion
currently before your Honor. See Motion to Compel Rule 2004 Examination of Dr. Charles E. Bates to Extend The
Deadline For Filing Any Motion Seeking to Disqualify Bates White As the Debtors’ Asbestos Estimation
Consultant [Document Number 993]. Given the existence of these uncontested facts the Committee contends that it
is appropriate to again raise these issues as the Court determines whether to order the production of confidential
settlement information to such an active participant for the defense.

       [T]his wealth of data that will allow it or its clients to circumvent the limits and costs of
       discovery in the tort system and gain an enormous advantage over asbestos plaintiffs’ and
       plaintiffs’ counsel who lack any comparable resource. In asbestos litigation, that kind of
       valuable advantage translates into dollars and cents in the ultimate resolution of the
       claims, and could significantly distort the balance of interests and burdens between
       plaintiffs and defendants in discovery, case preparation and settlement in the tort system.

Objection of Combustion Engineering 524(g) Trust to 2004 Motion For Order Pursuant to Rule

2004 to Compel Production of Historical DataBase [Document No. 1004] p. 15.

       25.     The dangers that arise from disclosure of confidential settlement information to

any adversary are evident. When coupled with Bates White’s strong and multi-faceted ties to the

asbestos defense bar, its well known views of claimants and its foray (albeit up until now,

unsuccessful) out of the expert/academic field and into the business of brokering asbestos claims,

those concerns become even more pronounced.


       26.     The Committee joins and adopts the arguments set forth in the Objection of

Certain Law Firms Representing Asbestos Personal Injury Claimants to the Motion of the

Debtors, Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure, Directing

Production By Certain Law Firms That Have Filed Asbestos-Related Lawsuits Against the

Debtors [Document No. 1017].


       For the reasons set forth herein, the Committee respectfully submits that the Motion be

denied in its entirety and such other relief as is appropriate.

Dated: March 11, 2011                          MONTGOMERY McCRACKEN
Wilmington, Delaware                            WALKER & RHOADS, LLP

                                               By: /s/ Natalie D. Ramsey
                                                  Natalie D. Ramsey, Esquire (DE Bar No. 5378)
                                                  Laurie A. Krepto, Esquire (DE Bar No. 4109)
                                                  1105 North Market Street, Suite 1500
                                                  Wilmington, DE 19801
                                                  (302) 504-7800


                                                   Mark B. Sheppard, Esquire
                                                   123 South Broad Street, 24th floor
                                                   Philadelphia, PA 19109
                                                   (215) 772-1500

                                                   Counsel for the Official Committee of
                                                   Asbestos Personal Injury Claimants


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