District Court Judge Disqualified from Asbestos-related Bankruptcy Cases

Journal Issue

Sep 2004

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Editor's Note:

The April issue of the ABI Journal included an article by David W. Houston IV, discussing the progress of the recusal petitions in the five asbestos
cases through the District Court for the District of Delaware. That article
described the procedures implemented by District Judge Alfred M. Wolin to
administer those complex cases and the resulting appeal by several parties
in the case. This month's article describes the outcome of that
appeal.

</blockquote>

The Third Circuit ordered
the recusal of U.S. District Judge Alfred M. Wolin in three of the five
pending Delaware asbestos-related bankruptcy cases over which he was
presiding.<a href="#2" name="2a">2</a> Judge Wolin is the senior judge for the District of New Jersey
who had been hand-picked by former Chief Judge Becker to preside over the
claims and issues in five asbestos bankruptcy cases involving chapter 11
debtors: Owens Corning, W.R. Grace & Co.,
USG Corp., Armstrong World Industries Inc. and Federal-Mogul Global Inc. (Five
Asbestos Cases).<a href="#3" name="3a">3</a> The recusal order applies in the Owens Corning, W.R. Grace & Co.
and USG Corp.
cases.<a href="#4" name="4a">4</a> The Third Circuit ordered the recusal based in large part on a
conflict of interest of two of Judge Wolin's five court-appointed
consultants (the "advisors") who had been selected to advise
the court.<a href="#5" name="5a">5</a>

At the outset of his involvement with the Five
Asbestos Cases, Judge Wolin appointed the five advisors to aid the court
in its efforts to streamline the case-management of the inherently complex
asbestos-related bankruptcy cases.<a href="#6" name="6a">6</a> "The order appointing them
provided, among other things, that they could advise Judge Wolin, mediate
disputes, hold case-management conferences and consult with the
attorneys."<a href="#7" name="7a">7</a> The advisors met ex parte with Judge Wolin in the early stages of the Five Asbestos
Cases to discuss the numerous issues that are attendant to asbestos-related
bankruptcy cases and to educate Judge Wolin so that he could become more
"conversant with the details of the asbestos litigation."<a href="#8" name="8a">8</a>

<h4>Reasons for Recusal</h4>

The two advisors at the center of the recusal
petitions are David R. Gross, a litigator with significant experience in
asbestos-related cases, and C. Judson Hamlin, a former judge of the
Appellate Division for the New Jersey Superior Court.<a href="#9" name="9a">9</a> Prior to his
appointment as an advisor in the Five Asbestos Cases, Hamlin had accepted
an appointment by the New Jersey Bankruptcy Court to serve as the legal
representative of present and future holders of asbestos-related demands in
the G-I Holdings
case, a separate asbestos-related bankruptcy case pending in New Jersey.<a href="#10" name="10a">10</a>
In the G-I Holdings case, Gross acts as Hamlin's local counsel.<a href="#11" name="11a">11</a> Significantly,
although the G-I Holdings case is pending separately from the Five Asbestos Cases, there is
a "substantial likelihood" that "some of the future
claimants in the G-I Holdings case will have claims against one or more of the debtors in the
Five Asbestos Cases."<a href="#12" name="12a">12</a> The court therefore found that their role as
future claimants representatives in the G-I
Holdings case caused Hamlin and Gross to
operate under a "structural conflict of interests."<a href="#13" name="13a">13</a> In the
Five Asbestos Cases, the advisors had a clear duty to remain
"neutral...and to provide objective, unbiased information to Judge
Wolin."<a href="#14" name="14a">14</a> The court concluded that as zealous advocates for the
future asbestos personal injury claimants in the G-I Holdings case, the advisors would
necessarily be compelled to take positions in the Five Asbestos Cases that
"favored future asbestos claimants."<a href="#15" name="15a">15</a> "By their very
position as representatives of the future asbestos claimants in G-I Holdings, Gross and Hamlin
signaled to all that they could not be non-partisan, benign or
neutral."<a href="#16" name="16a">16</a>

Additionally, the court noted its concern with the
extensive use of ex parte meetings in the Five Asbestos Cases.<a href="#17" name="17a">17</a> The court considered the
benefits of the ex parte communications to be "outweighed" by the
"attendant risks and problems" that are designed to be avoided
through the adversarial system.<a href="#18" name="18a">18</a> Contrary to Judge Wolin's
announcement at the initial case-management conference, where he stated
that such meetings would be used "sparingly,"<a href="#19" name="19a">19</a> the court found
ample evidence that Judge Wolin routinely conducted these meetings with the
advisors, parties and attorneys, and that the substance of these meetings
went to the "very heart"<a href="#20" name="20a">20</a> of the issues driving the Five
Asbestos Cases.

The court ultimately concluded that "a
reasonable person, knowing all of the relevant circumstances, would
conclude that Judge Wolin's impartiality might reasonably be
questioned."<a href="#21" name="21a">21</a> The conflict of Hamlin and Gross could not be
"disassociated from Judge Wolin" and together with the ex parte meetings constitutes an
"abuse of discretion" requiring recusal.<a href="#22" name="22a">22</a> The court made it
clear that Judge Wolin had done nothing "wrong" or
"unethical" or "biased." Rather, the court praised
Judge Wolin for his stewardship over the Five Asbestos Cases and noted that
in fact "[Judge Wolin] exhibited all of the judicial qualities,
ethical conduct and characteristics emblematic of the most experienced,
competent and distinguished Article III jurists."<a href="#23" name="23a">23</a> However, the
standard for recusal only requires the "perception of bias,"<a href="#24" name="24a">24</a> and
thus Judge Wolin's distinguished record did not protect him from
disqualification.

<h4>The Dissent</h4>

The disqualification of Judge Wolin was not
unanimous. Judge Julio M. Fuentes dissented and allowed that "[he
found] it telling that petitioners have not asked, and the majority has not
seen a need, for any of Judge Wolin's prior rulings to be
disturbed."<a href="#25" name="25a">25</a> Judge Fuentes did not find that the dual roles of
advisors Hamlin and Gross created a conflict, nor did he believe the ex parte communications
warranted Judge Wolin's disqualification.<a href="#26" name="26a">26</a> Ultimately, he agreed
with Judge Wolin's prior assessment that the recusal petitions were
untimely.<a href="#27" name="27a">27</a> He stated that the petitioners were engaging in
"litigious gamesmanship" that should not be rewarded.<a href="#28" name="28a">28</a> Judge
Fuentes believed that approving such conduct on the part of the litigants
was a much greater threat to the integrity of the judicial proceedings than
any of the admittedly "unconventional" methods employed by
Judge Wolin in his management of the Five Asbestos Cases.<a href="#29" name="29a">29</a>

<h4>Conclusion</h4>

After the Third Circuit rendered its opinion
requiring recusal, Judge Wolin announced his retirement, which moots any
future debate as to the need for further recusal orders concerning Judge
Wolin in the Five Asbestos Cases. Whether other courts will follow Judge
Wolin's innovative approach to administering asbestos-related
bankruptcy cases, particularly his unorthodox use of the
"hybrid" advisors, remains to be seen.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> Board
Certified in Business Bankruptcy Law by the American Board of
Certification. <a href="#1a">Return to article</a>

<a name="2">2</a> In re Kensington Int'l. Ltd., 368 F.3d 289 (3rd Cir. May 17, 2004). <a href="#2a">Return to article</a>

<a name="3">3</a> Id. at 319. <a href="#3a">Return to article</a>

<a name="4">4</a> Id. at 318. <a href="#4a">Return to article</a>

<a name="5">5</a> Id. at 304. <a href="#5a">Return to article</a>

<a name="6">6</a> Id. at 297. <a href="#6a">Return to article</a>

<a name="7">7</a> Id. at 308. <a href="#7a">Return to article</a>

<a name="8">8</a> Id. at 298. <a href="#8a">Return to article</a>

<a name="9">9</a> In re Kensington Int'l. Ltd., 353 F.3d 211, 215 (3rd Cir. Dec. 18, 2003) (remanding recusal petitions for further discovery). <a href="#9a">Return to article</a>

<a name="10">10</a> Id. <a href="#10a">Return to article</a>

<a name="11">11</a> Id. at 216. <a href="#11a">Return to article</a>

<a name="12">12</a> In re Kensingston, 368 F.3d at 299. <a href="#12a">Return to article</a>

<a name="13">13</a> Id. at 303. <a href="#13a">Return to article</a>

<a name="14">14</a> Id. <a href="#14a">Return to article</a>

<a name="15">15</a> Id. at 304. <a href="#15a">Return to article</a>

<a name="16">16</a> Id. <a href="#16a">Return to article</a>

<a name="17">17</a> Id. at 294. <a href="#17a">Return to article</a>

<a name="18">18</a> Id. at 294-295, 309-312. <a href="#18a">Return to article</a>

<a name="19">19</a> Id. at 297. <a href="#19a">Return to article</a>

<a name="20">20</a> Id. at 311. <a href="#20a">Return to article</a>

<a name="21">21</a> Id. at 294. <a href="#21a">Return to article</a>