Standards for a Future Claimants’ Representative Are Those for a Guardian Ad Litem

Any party in interest may nominate a future claimants’ representative in an asbestos case, according to Bankruptcy Judge Paul W. Bonapfel of Atlanta. The representative, he said, must meet the same standards as a guardian ad litem and demonstrate the ability to be an objective, reasonable, fair, zealous and effective advocate for future claimants.

Overruling an objection by the U.S. Trustee and applying the standards implied by the statute, Judge Bonapfel appointed the representative recommended by the debtor and the official creditors’ committee.

The Case

Judge Bonapfel was presiding over a relatively small asbestos case that was not prepackaged. To serve as the future claimants’ representative under Section 524(g)(4)(B)(i), the debtor and the committee proposed a partner from a major bankruptcy law firm who had served as the representative in five prior asbestos reorganizations.

Proposing three other individuals for the court’s consideration, the U.S. Trustee opposed the debtor’s choice, questioning the individual’s independence. Because the same players are involved repeatedly in asbestos cases, the U.S. Trustee worried that a handpicked representative would put the prospects for future employment ahead of the interests of future claimants.

The U.S. Trustee contended that the court should give no deference to the debtor’s choice and allow other parties to nominate representatives.

The (Lack of) Statutory Standards

No provision in the Bankruptcy Code, including Section 524(g), prescribes the standards for appointing a future claimants’ representative, Judge Bonapfel said. Other than declaring that the court makes the appointment, the statute is silent about who may nominate, whether there must be notice and a hearing, and the standards for evaluating candidates.

The debtor argued that disinterestedness is the only standard for judging a candidate. The U.S. Trustee contended that the representative must be independent, free of appearance of impropriety, and represent the highest possible standards for a fiduciary.

Judge Bonapfel ruled that any “party in interest” may nominate a representative, subject to “an independent inquiry by the Court.” He also held that “a debtor’s or committee’s choice is not entitled to deference.”

Judge Bonapfel could discern “no unreasonable harm” to result from “declining to rubber-stamp a debtor’s candidate,” because “costs cannot trump process.”

The (Judge-Made) Standards

Appointing a future claimants’ representative entails an evaluation of more than qualifications and disinterestedness, Judge Bonapfel said. The nominee must be “an objective and effective advocate.”

To find standards, Judge Bonapfel said the “best and closest model is the guardian ad litem,” because future claimants are “similar to minors or incapacitated adults in that they are incapable of representing themselves.”

Judge Bonapfel said that the representative must be qualified and disinterested. In addition, the individual must be “an objective, independent, and effective advocate for the best interests of the future claimants,” and, like a guardian ad litem, must provide “representation that is diligent, competent, and loyal.”

Evaluation of the Candidates

The debtor’s choice “in and of itself,” Judge Bonapfel said, “is [not] improper or disqualifies the debtor’s candidate.” Prior service in asbestos cases is also not a disqualification.

Judge Bonapfel said that all four candidates possessed the necessary characteristics. The court, he said, must select the one whose “experience and expertise makes him the best choice.”

Judge Bonapfel appointed the individual nominated by the debtor and the committee, in part because that person’s experience in other cases would minimize costs. Even though his hourly rate was high, the judge predicted that the debtor’s choice “will likely be more economical in the long run.”