In re Bestwall

Case Type:
Case Status:
Reversed and Remanded
21-2263 (3rd Circuit, Aug 24,2022) Published
Agreeing with Bestwall LLC (DR), a chapter 11 debtor in the U.S. Bankruptcy Court for the Western District of North Carolina (BC), that it had rightly invoked collateral estoppel, the U.S. Court of Appeals for the Third Circuit reversed the quashing by Delaware's District Court (DC) of the DR's BC-blessed subpoenas, to be enforced in full on remand, for access to data owned by ten trusts formed to process asbestos-related non-DR claims, held by their Delaware claims processing agent (AG), based on arguments rebuffed by the BC when AG-made and echoed to the DC by the trusts and some claimants.
Procedural context:
To prove its theory regarding asbestos claimants' purported penchant for "double-dipping", the DR sought to inspect the claimant data from other asbestos settlement trusts, thereby allowing it to compare the list of individuals who have filed claims against those trusts with the list of those who have filed claims against it. Accordingly, in July 2020, it filed a motion (Rule 2004 Motion) asking the BC to authorize subpoenas under Rule 2004 for, primarily, the AG, an entity called the Delaware Claims Processing Facility and a Delaware limited liability company that possesses the claimant data of, and administers legal claims against, ten asbestos settlement trusts doing business in Delaware (Trusts). When it filed its motion, the DR served copies on both the AG and the Trusts. The AG objected to the subpoenas as overly broad and intruding on confidential information or, in the alternative, asked the BC to order that any production of claimant data be limited to “a random sample of up to 10% of the 15,000 claimants[,]” and be anonymized before being produced to the DR or its expert. While the AG expressly stated that its objection should not be construed to limit or waive any objections by the Trusts or claimants, "despite being given notice of the effort to access their information, none of the Trusts appeared in the [BC] to object to the Rule 2004 Motion." Following extensive briefing, record development, and a two-day hearing that included argument from the AG, the BC granted the Rule 2004 Motion. Bestwall proceeded to serve the subpoenas in Delaware on the Facility and each of the Trusts. Two weeks later, the Trusts – "but not the AG"– moved in the DC to quash or modify the subpoenas. Shortly afterward, "several law firms claiming to represent more than 10,000 unidentified Matching Claimants joined in the Trusts’ motion." Presented with "the same arguments about overbreadth and confidentiality that the [AG] had made" and requests for the same conditions on production, "namely, random sampling and preproduction anonymization," articulated in the BC, now advanced by the Trusts, the DC quashed the subpoena with one order and clarified that any such subpoena would need to include the Trusts' proposed conditions with a second. The DR timely appealed the DC's orders.
In November 2017, the DR filed for chapter 11 in the BC. Facing asbestos-related mass tort liabilities, the DR has always sought to establish a settlement trust, as authorized by § 524(g). Based on its proposed plan of reorganization, the DR would fund a $1 billion trust to pay current and future asbestos claims. However, a dispute over liability calculations stalled proceedings, as the court-appointed representatives of individuals with current and future asbestos claims argued that liability for future claims should be based on the settlements of past asbestos claims against the DR, and the DR responded by deriding those historical settlements are poor indicators of its true liability. As part of thisargument, the DR warned that asbestos claimants routinely “doubledip,” taking money from multiple mass tort defendants and thus repeatedly recovering for the same injury, resulting in artificially inflated settlements.
Kent A. Jordan; Cheryl A. Krause; and David J. Porter

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