In re AC and S, Inc., C.A. No. 02-12687, 2011 WL 4801527 (Bankr. D. Del. Oct. 7, 2011). This Bankruptcy Court opinion is available here.
Whether a chapter 11 debtor had standing to intervene in ten other bankruptcy cases in order to gain access to Rule 2019 statements that were filed with the Bankruptcy Court, but not placed on the public docket?
Judge Fitzgerald of the Delaware Bankruptcy Court ruled that it did not.
This summary was prepared by Tara Lattomus of Eckert Seamans.
Garlock Sealing Technologies, Inc. filed for bankruptcy under chapter 11 of the Bankruptcy Code in the Western District of North Carolina. Subsequently, Garlock filed motions to intervene in ten other bankruptcy cases pending in Delaware and the Western District of Pennsylvania in order to gain access to statements submitted to the respective bankruptcy courts pursuant to Federal Rule of Bankruptcy Procedure 2019. Generally, Rule 2019 requires attorneys who represent more than one client in a case to file a statement with the court identifying each client. Garlock also filed motions to reopen seven of the ten bankruptcy cases that were closed.
For years prior to its bankruptcy, Garlock was a co-defendant in asbestos actions and as a result, was also involved in a number of settlements. Garlock asserted that it needed access to the Rule 2019 statements in order to determine whether it had any RICO claims against asbestos plaintiffs’ law firms who may have concealed information regarding their clients’ exposure to certain asbestos products manufactured by others for the purpose of inflating settlement amounts with Garlock.
The Bankruptcy Court issued an opinion addressing the motions to intervene filed in all ten bankruptcy proceedings. Finding that Garlock lacked both constitutional and prudential standing to intervene in the cases, the Court denied Garlock’s motions seeking access to the Rule 2019 statements.
The Bankruptcy Court first determined that Garlock was not a party in interest in any of the bankruptcy cases. Garlock had filed objections to the bankruptcy plans in two of the ten cases, but had failed to file a claim in any of them. In addition, the alleged injury was purely speculative and raised the “specter of a nationwide conspiracy” to defraud Garlock without identifying one individual asbestos plaintiff involved in the scheme. Finally, even assuming the existence of an injury, the disclosure of the Rule 2019 statements could not redress the harm. Rule 2019 statements simply identify clients represented by the same counsel. They are not representations to the Court that a client holds a claim against the bankrupt entity. Accordingly, the Rule 2019 statements could not be used to establish that counsel were asserting claims against the bankrupt entities while also asserting claims against Garlock for the same exposure.
The motions to reopen were also denied based upon the enormous consequences associated with reopening cases which, in some situations, had been closed for nearly a decade.