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District Court Judge Disqualified from Asbestos-related Bankruptcy Cases

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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.

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.2 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).3 The recusal order applies in the Owens Corning, W.R. Grace & Co. and USG Corp. cases.4 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.5

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.6 "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."7 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."8

Reasons for Recusal

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.9 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.10 In the G-I Holdings case, Gross acts as Hamlin's local counsel.11 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."12 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."13 In the Five Asbestos Cases, the advisors had a clear duty to remain "neutral...and to provide objective, unbiased information to Judge Wolin."14 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."15 "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."16

Additionally, the court noted its concern with the extensive use of ex parte meetings in the Five Asbestos Cases.17 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.18 Contrary to Judge Wolin's announcement at the initial case-management conference, where he stated that such meetings would be used "sparingly,"19 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"20 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."21 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.22 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."23 However, the standard for recusal only requires the "perception of bias,"24 and thus Judge Wolin's distinguished record did not protect him from disqualification.

The Dissent

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."25 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.26 Ultimately, he agreed with Judge Wolin's prior assessment that the recusal petitions were untimely.27 He stated that the petitioners were engaging in "litigious gamesmanship" that should not be rewarded.28 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.29

Conclusion

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.


Footnotes

1 Board Certified in Business Bankruptcy Law by the American Board of Certification. Return to article

2 In re Kensington Int'l. Ltd., 368 F.3d 289 (3rd Cir. May 17, 2004). Return to article

3 Id. at 319. Return to article

4 Id. at 318. Return to article

5 Id. at 304. Return to article

6 Id. at 297. Return to article

7 Id. at 308. Return to article

8 Id. at 298. Return to article

9 In re Kensington Int'l. Ltd., 353 F.3d 211, 215 (3rd Cir. Dec. 18, 2003) (remanding recusal petitions for further discovery). Return to article

10 Id. Return to article

11 Id. at 216. Return to article

12 In re Kensingston, 368 F.3d at 299. Return to article

13 Id. at 303. Return to article

14 Id. Return to article

15 Id. at 304. Return to article

16 Id. Return to article

17 Id. at 294. Return to article

18 Id. at 294-295, 309-312. Return to article

19 Id. at 297. Return to article

20 Id. at 311. Return to article

21 Id. at 294. Return to article

22 Id. at 318. Return to article

23 Id. at 294. Return to article

24 Id. Return to article

25 Id. at 319. Return to article

26 Id. Return to article

27 Id. Return to article

28 Id. Return to article

29 Id. Return to article

Journal Date: 
Wednesday, September 1, 2004

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