Appeals Court Orders Judge to Step Aside in Three Asbestos Cases
By Milt Freudenheim
New York Times
A federal appeals court yesterday ordered the judge overseeing five important asbestos-related bankruptcy proceedings to withdraw from three of the cases because of the appearance of bias.
Legal experts said the decision would probably force new delays and might cause far-reaching economic repercussions in the long-running litigation, which involves thousands of people who say they were harmed by exposure to asbestos.
I a 2-to-1 decision, a panel of the United States Court of Appeals for the Third Circuit in Philadelphia ordered Alfred M. Wolin, a federal district judge in Newark, to end his role in the bankruptcy hearings involving W. R. Grace, Owens Corning and U.S. Gypsum because his handling of the cases had the appearance of bias.
But the three-judge panel said Judge Wolin had not, in fact, "done anything wrong or unethical or biased." The appeals judges said they would decide later whether to remove him from a fourth case involving Armstrong World, which had asked to be included in any withdrawal order.
Legal experts called the order highly unusual in civil legal proceedings and said it would be up to Judge Wolin to decide whether to continue overseeing the fifth case, involving Federal-Mogul Global, which was not immediately involving in the ruling.
The ruling was requested by Kensington International Ltd., which bought $275 million in Owens Corning bank debt soon after the company sought bankruptcy protection, and Springfield Associates, another holder of distressed debt.
Lawyers for the creditors objected to meetings that Judge Wolin conducted with plaintiffs' lawyers and other parties to the case without a record being made for those who were absent. The meetings "were flawed because no opportunity existed for their adversaries to know precisely what was said" and what effects might result, the court said.
The creditors also argued that the judge had appointed advisers who were not impartial because they represented plaintiffs in a similar bankruptcy case in Newark involving a company called G.I. Holdings Inc. The court noted that the judge and his advisers met with asbestos plaintiffs' lawyers for 325 hours over several years.
The court said two of the advisers, David R. Gross and C. Judson Hamlin, had a conflict of interest because they represented individuals with asbestos claims against G.I. Holdings. The court said there was a "close relationship between the future asbestos claimants and the issues in the five asbestos cases" before Judge Wolin and the G.I. Holdings case.
Judge Leonard I. Garth, who wrote the order for the appeals panel, was joined by Judge D. Brooks Smith. Judge Julio M. Fuentes dissented, saying that he did not agree that Judge Wolin's advisers, Mr. Gross and Mr. Hamlin, "had a conflict of interest."
Judge Wolin did not comment on yesterday's ruling. Last February, he issued a 102-page opinion denying motions seeking his withdrawal.
Lawrence Robbins, a lawyer for Kensington, said seeking the withdrawal of Judge Wolin was risky. "It is unusual for a judge to be recused," he said. "It is unusual for a litigant to seek a judge's recusal. Litigants don't do it lightly. Something must be really quite wrong."
The debtholders sought to force Judge Wolin to withdraw after he decided to consolidate the future treatment of commercial creditors together with individual claims. That would have reduced the company's money available to pay debt and increased the potential for fees for plaintiffs' lawyers, a legal expert said.
"He was deciding critical issues very much in the interests of plaintiff lawyers," said Lester Brickman, a professor at the Benjamin N. Cardozo School of Law at Yeshiva University, who has studied asbestos litigation.
Mr. Robbins predicted that the case "will move along now," but other lawyers said the cases would be delayed by a year or more.
Judge Wolin was originally given responsibility for the five asbestos cases in 2001 by the chief judge of the appeals court in Philadelphia. The panel referred the future oversight of the three cases to the current chief judge.
The dispute involving Judge Wolin has already led plaintiffs' lawyers to increase their settlement demands significantly in many other cases involving companies that are not in bankruptcy proceedings to make up for the delay in resolving the five cases, Mr. Brickman said.
Companies have already paid more than $70 billion in asbestos claims, by some estimates, with insurance companies paying one-third to one-half of the total.
There have been 8,400 defendants in "tens of thousands of suits," said Stephen Carroll, a senior economist at the RAND Corporation research center in Santa Monica, Calif. Besides asbestos mining and products companies, defendants have included air-conditioning and heating companies, specialized contractors and water transport companies, he said.
Legislation to create a no-fault trust fund to compensate victims of asbestos-related diseases is stalemated in Congress. Advocates of the legislation say that more than 70 companies have been forced into bankruptcy by lawsuits.
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