As a result of bugging the clerk's office and the court reporter's office, the transparency-blocking 90 day veil has now been lifted from some of the General Motors bankruptcy hearing transcripts.
Here is the June 25, 2009 transcript that reflects the asbestos plaintiff's lawyers withdrawing the request for appointment of a futures representative. The withdrawal was based on the grounds that there would not be a section 524(g) injunction order entered in the case and that orders entered in the case do not bind future claimants.
So, the asbestos personal injury litigation saga no doubt will go on as to GM at least for future claims. And, just as the bankruptcy court orders do not bind future personal injury claimants, the orders also should not bind underlying case co-defendants which decide to bring in those cases a contribution or apportionment claim against the new GM entity, if it survives.
As a result of bugging the clerk's office and the court reporter's office, the transparency-blocking 90 day veil has now been lifted from some of the General Motors bankruptcy hearing transcripts.
GM - Denial of Stay of Asset Sale and Denial of 2d Circuit Direct Appeal - "Equitable Mootness" to Follow and Defeat Appeals ?
Judge Gerber denied a stay of the asset sale and denied a direct appeal to the 2d Circuit; the order is here (Docket No. 3046). Basic news articles are here (WSJ) and here (NYT).
What the news articles do not mention is a bankruptcy appeal doctrine known as the "equitable mootness" doctrine. Under that doctrine, appeals are sometimes dismissed as moot after the relevant bankruptcy event has happened. Here, the relevant event would be the consummation of the upcoming asset sale that Judge Gerber has refised to stay.
For a recent, cogent and free law review article explaining the "equitable mootness" doctrine and why some say it is unconstitutional, go here for a Santa Clara Law Review article by a law student, Katelyn Knight.
There is irony to the current events in GM. Why? Because in various asbestos chapter 11 cases, counsel for asbestos claimants and counsel for futures representatives have argued and used the equitable mootness doctrine as a leverage point to try to shield chapter 11 plans they approved when many, many millions were being set aside for asbestos claimants. Now the equitable mootness doctrine may hit them as a sword. So goes life in litigation where much time is spent trying to dance on both sides of a sharp edge.
An AmLaw blog article here reports some GM bondholders are not appealing because they lack funds to fight after Judge Gerber refused to appoint an official committee for which legal fees would be paid by the estate. The article includes a helpful link back to a prior article regarding the refusal to allow an official committee.
According to the article:
"Second, and perhaps most interesting for bankruptcy gurus, Richman argues that the sale of GM under §363 of the bankruptcy code stretches §363 to a place it wasn't supposed to go. Here's his direct quote: "Our position on appeal would have been that in enacting section 363 as part of Chapter 11, Congress intended that it would only be used for legitimate sales to commercial purchasers, and not for a government-sponsored rescue where the government is the only purchaser."
Asbestos Claimants Appeal in GM and Seek Appeal to the Second Circuit, as Do Individual Accident Victims
The Ad Hoc Committee of Asbestos Claimants notice of appeal in GM is here but says only that an appeal is taken(Docket No. 2988). The appeal lists as counsel both Stutzman, Bromberg, Esserman + Plifka, as well as the Caplin + Drysdale firm. Like the other product liability claimants, the Ad Hoc Asbestos Claimants also have moved for a direct appeal to the Second Circuit. The Ad Hoc Committee also has moved for a stay of the sale approval order entered on Sunday night the 5th of July.
The core of the Ad Hoc Committee's substantive argument is as follows:
"12. Congress has proscribed the very conduct that the Debtors seek to accomplish through their improper Section 363 Sale--i.e., the transfer of substantially all of their assets to a "new" entity that will simply continue operating free from the liabilities of the old entity--in two parallel provisions of the Bankruptcy Code: Sections 1141(d)(3) and 727(a)(1). The Second Circuit has held that claims--and specifically successor liability claims--are not discharged by a corporate iquidation in bankruptcy. In re Goodman, 873F.2d 598, 602 (2d Cir. 1989). The Bankruptcy Court's erroneous interpretation of Section 363(f) effectively nullifies Sections 1141(d)(3) and 727(a)(1) by improperly allowing the Debtors to circumvent these Code provisions under the guise of a Section 363 sale.
13. Furthermore, the Sale Order purports to allow the Debtors to sell substantially all of their assets free and clear of "claims." However, successor liability is not a "claim," but rather is a status a purchaser has under applicable state law. Thus, Section 363 cannot apply to strip a purchaser of that status."
The Goodman case is a chapter 7 case, not a chapter 11 case, so GM presumably will argue it does not apply. Goodman, however, is a fairly compelling case for the product liability claimants. In Goodman, a businessman and his wife cover a period of years created a series of three businesses to do essentially the same work. The first company was party to labor contracts the later companies did not want to honor the prior labor obligations that had become inconvenient and expensive, and the first company had tried to discharge the obligations through chapter 7.
The Second Circuit held that the bankruptcy court order could not oust the jurisdiction of the NLRB to determine if the later entities were in fact successors to the old business regardless of the corporate niceties that purported to create differences between the different entities. So, in GM, the argument for the claimants runs that just as the bankruptcy court in Goodman could not deprive the NLRB of its power to consider whether the new entities should suffer successor liability under labor laws, the bankruptcy court in GM can not oust state courts of their traditional jurisdiction to decide whether and when to impose state law tort liability on alleged successor entities. The issues could be decided as matters of statutory construction grounds or constitutional law grounds (due process, 5th amendment takings , and maybe even equal protection under Bush v. Gore), but standard legal rules urge courts to resolve issues as a matter of statutory construction before reaching constitutional issues.
(Ironically, by the way, the Goodman case was argued and lost by Mr. Bruce Zirinsky while at Weil, Gotschal. Today, Mr. Zirinsky is with Greenberg Traurig and is the lead lawyer for the debtor in the Thompson -Hayward Chemical Co. asbestos chapter 11 case for which a chapter 11 plan was recently approved by the same Judge Gerber. Thompson-Hayward is a former manufacturer of Agent Orange and seller of asbestos fibers that is using chapter 11 to end its asbestos litigation issues and to settle out hundreds of millions of dollars of insurance policies that might otherwise be available to future claimants who could file direct actions against insurers.)
Meanwhile, the Individual Accident Litigants in GM also have sought a direct appeal to the 2d Circuit; the papers are here (Docket No. 2990). The accident litigants point out that the 2d Circuit still has not issued an opinion in Chrysler to explain the reasoning behind its judgment to approve the 363 asset sale. The accident litigants argue that this appeal in GM may also inform the Chrysler opinion the 2d Circuit said it would issue in due course, thus sharpening the issues for ultimate appeals to the Supreme Court in both Chrysler and GM.
The Individual Accident Victims further frame the issue in broad societal terms, arguing that society has a real stake in whether Code section 363 can be used to indestructible asset sales followed by de facto liquidations, a technique Wall Street can and does use to cause the bankruptcy code to cause immediate distributions of remaining assets before long tail tort claims emerge and are compensable. The Accident Victims frame the 363 issue as follows:
Indeed, this issue is one of the most important issues facing bankruptcy practitioners and distressed debtors generally.Satisfactory uniform resolution of the scope of Section 363 is critical for the entire nation, particularly since, as Professors Baird and Rasmussen wrote in The End of Bankruptcy, 55 Stan. L. Rev. 751, 752 (2003):
"Corporate reorganizations have all but disappeared. Giant corporations make head-lines when they file for Chapter 11, but they are no longer using it to rescue a firm from imminent failure. Many use Chapter 11 merely to sell their assets and divide up the proceeds.... Rarely is Chapter 11 a forum where the various stakeholders in a publicly held firm negotiate among each other over the firm's destiny"
GM Asset Sale Plan Approved by Judge Gerber; Some Individual Car Crash Victims Already Have Appealed
The General Motors chapter 11 asset sale was approved on Sunday night in an opinion that is 50 pages, plus appendices. The opinion is here. A first read of the opinion indicates that Judge Gerber agreed with GM on all material issues regarding freeing GM from liability for tort claims except to the extent "New GM" agreed to assume financial responsibility for some but not all future claims. More later wth additional specifics.
A notice of appeal was filed this morning by individual auto accident victims, and is here.
GM hearings Update - Asbestos Plaintiff''s Lawyers Argue and Lose But No Timely or Free Transcript - Bankruptcy Players Choose to Remain Opaque
Yesterday, representatives of the asbestos plaintiff's bar argued in opposition to the terms of GM's proposed asset sale, as briefly described in the NYT article here. The WSJ covered it here , but said even less.
Accounts of the hearing and other information sources also indicated that New GM will be aiming for an IPO next year, as described in this WSJ article. It surely will be interesting to read the disclosures and caveats in the prospectus when New GM tries to sell shares next year and the prospectus tries to disclose and explain the material long-term legal risks inherent in the present rush through chapter 11 in a manner that raises significant issues regarding the enforceability/constitutionality of the present proceedings.
Down the line, expect that disappointed asbestos claimants and/or car dealers may well sue New GM regardless of the bankruptcy court orders and/or may proceed with collateral attacks of the sort that were successfully raised in the Agent Orange cases when "later" tort claimants were allowed to sue the Agent Orange makers despite the prior class action and prior settlement. Why were the "later" claimants allowed to sue? Because they were not yet hurt and so did not yet have claims when the Agent Orange issues were in court, and no one in court actually protected their interests in a conflict free way. In short, the future claimants did not receive due process during the original Agent Orange proceedings.
How does that apply here? When New GM goes to sell shares, one can expect that disappointed asbestos claimants and car dealers will assert that this chapter 11 case has been unconstitutional. The result presumably will be the IPO share price will fall due to whatever value the market gives the uncertainty about whether New GM really is immune from future claims. If/when that happens, everyone will find themselves back in the type of situation that arose when the goal was to create a public market for shares in the Manville entity that emerged from chapter 11. Back then, concerns were raised that Manville shares were undervalued because of uncertainty regarding whether the outcome of the Manville bankruptcy would be legally sustainable over the long term due to constitutional and other legal issues arising in Manville's chapter 11 case. Ultimately, to help drive up the share price, Congress in 1994 enacted bankruptcy code section 524(g) to retroactively "bless" the result in the Manville bankruptcy.
How did 524(g) work? The statute did well to create short-term value that Wall Street could sell. But, the terms of section 524(g) ultimately proved to be a huge mistake since the section gave enormous leverage to holders of even meritless or de minimis tort claims. How did that happen? Section 524(g) says that a 524(g) injunction can issued to bar future asbestos claims only if the chapter 11 plan is approved by 75% of the asbestos claimants, and the statute did not on its face draw lines between the holders of meritless claims and the holders of more meritorious claims, such as the claims of victims of mesothelioma, a disease plainly caused in many cases by inhalation of asbestos. Therefore, due to the terms of section 524(g), and due to various tort law developments, the game for plaintiff's lawyers and claimants became all about aggregating thousands of asbestos claims, regardless of merit. Thus, in trying to fix a short-term problem, Congress itself helped to incentivize the x-ray vans and other union screenings that later lead to mass filings of law suits that started spiraling up in the mid to late 1990s and by 2000-2001 had exploded to the point that even more companies were driven into chapter 11.
P.S. The absence of transparency in bankruptcy continues. It would be interesting to read the argument and questions underway in GM, and indeed one would think that would be easy for this nationally important case for which the public and other businesses could and should be fully informed through prompt online publication of free copies of the hearing transcript. But that will not happen for 90 days because GM, the official committees, Judge Gerber and the Obama Administration's Auto Task Force have not taken the simple step of entering an order allowing immediate electronic posting in the docket of the hearing transcripts, a step that is taken 90 days after the hearing. Instead, they continue to tolerate (enjoy?) the antithesis of transparency, which is a short-sighted bankruptcy court rule requiring 90 days of delay for publication of hearing transcripts due to fears that a social security number or other like information might be uttered during the hearing and then published in a piece of paper.
In a painfully minor nod to this lack of transparency problem, the Court's website says that audio tapes will be put on PACER, but this week's hearings still are not online as audio files as of July 2 at 12:00 pm. So, for now, those with extra money can buy unofficial transcripts for however many hundreds or thousands of dollars they are being sold. Or, one can wait and slowly wade through the e online audio transcript when they some day are made available through PACER. Or, you can wait and be fully informed long after the information is most useful. Go here to read more about the audio transcripts. The same text also is set out below. If you do listen, let me know if you hear the lawyers or Judge Gerber mention any social security numbers.
The United States Bankruptcy Court for the Southern District of New York is pleased to announce a pilot project to make digital audio recordings of court proceedings relating to Chrysler LLC, 09-50002, and General Motors Corporation, 09-50026, publicly available online. The audio files are accessible through the Public Access to Court Electronic Records (PACER) system. Registration for PACER access may be obtained at http://www.pacer.psc.uscourts.gov/
Please remember that these digital recordings are copies of court proceedings and are provided as a convenience to the public at the cost of $0.08 per audio file. In accordance with 28 U.S.C. § 753 (b) "no transcripts of the proceedings of the court shall be considered as official except those made from the records certified by the reporter or other individual designated to produce the record." A list of approved transcription companies can be found on the court's website.
GM Court Denies Relief Sought By Asbestos Claimants for Futures Representative and No Decision on Separate Committee for Asbestos Claimants
In the GM bankruptcy, Judge Gerber has entered today his order [Docket No. 2857] denying the asbestos claimant's motion for appointment of a futures representative for asbestos claimants. He also adjourned to another day the motion requesting appointment of a separate official committee to represent asbestos claimants against GM. The latter motion may be put back on for hearing on three day notice. One wonders what negotiations are ongoing and what evidence is being gathered. The order is here.
GM Agrees to Assume Future Product Liability Claims and Asbestos Plaintiffs File Deposition Notices for Treasury Department and GM Spokerspersons
The Wall Street Journal for June 29 is reporting that GM agreed to assume the financial burden of future product liability claims. The article, by Mike Spector. is here.
Meanwhile, Docket Number 2609 is a Rule 30(b)(6) deposition notice from counsel for an asbestos creditor to take depositions of persons designated to speak by the Treasury Department and GM regarding various facts, including the reasons for the structure of the GM deal. The deposition notice is well worth reading. It call for depositions beginning Monday morning at 10:00. The same lawyers at Caplin & Drysdale previously issued notices calling for depositions of persons submitting declarations on behalf of the government.
"The Ad Hoc Committee of Asbestos Personal Injury Claimants is comprised of William J.
Lewis, a mesothelioma claimant with a settled but unpaid claim, represented by
SimmonsCooper LLC; Maureen Tavaglione, Personal Representative of the Estate of Robert
J. Tavaglione, represented by Waters & Kraus; Terry Roth, a lung cancer claimant,
represented by Brayton Purcell LLP; Jene Moore, Sr., a mesothelioma claimant represented
by Early Ludwick & Sweeney L.L.C.; Edward Levitch, a mesothelioma claimant represented
by Paul & Hanley LLP; and asbestos personal injury claimants represented by Cooney and
Conway; The Lanier Law Firm PLLC and Weitz & Luxemberg, P.C. Steven KazMcClain, Lyons, Greenwood & Harley, PLC, serves as an ex oficio member."
General Motors' most recent Quarterly Report (Form 10-Q) filed with the
Securities and Exchange Commission admits that it has hired the firm of
"Hamilton Rabinovitz & Associates, Inc., a firm specializing in estimating
asbestos claims, to assist us in determining our potential liability for pending
and unasserted future asbestos personal injury claims." After noting that
their estimates are "inherently subject to certain uncertainties" and that
their data sources and assumptions "may not prove to be reliable predictors
with respect to claims asserted against us," General Motors states that its
"liability recorded for asbestos-related matters was $627 million, $648 million
and $628 million at March 31, 2009, December 31, 2008 and March 31, 2008
Experience suggests that these figures fall on the extreme low side of likely future asbestos liability.
Thus the magnitude of General Motors' projected ongoing asbestos liability
has been a matter of public knowledge and should have been addressed by
both General Motors and the Auto Task Force in their restructuring
9. As stated in the Motion, to ensure that General Motors'
acknowledged future asbestos claimants are vigorously and faithfully
represented, a legal representative for future asbestos personal injury
claimants (a "Future Claimants' Representative") should be appointed at the
earliest possible date in order to take an "active and aggressive role" in
protecting their interests "at every step [of the] litigation." Findley v. Falise
(In re Johns-Manville Corp.), 898 F.Supp. 473, 565 (S.D.N.Y. 1995).
Similarly, because the Sale Motion now before this Court seeks to affect the
rights of current asbestos claimants as well as future asbestos demand
holders, an Official Committee of Asbestos Personal Injury Claimants (an
"Asbestos Committee") should be appointed as early in this bankruptcy case
committed, delaying appointment of a Future Claims' Representative and an
Asbestos Committee would, in effect, deny unknown future asbestos
claimants the protections to which they are entitled and deny current
asbestos claimants any meaningful participation in these cases.
The free version of the GM docket is located here. The case is assigned to Judge Gerber, who has been handling the Thompson-Hayward asbestos bankruptcy. An Am Law Daily article here provides a nice summary of the lawyers and parties, except that somehow it missed the lawyers for the asbestos claimants.
At least some of the lawyers for asbestos claimants show up in docket number 81, which is an appearance filed by Sander L. Esserman and Peter C. D'Apice of Stutzman, Bromberg, Esserman & Plifka as counsel for the Ad Hoc Committee of Asbestos Personal Injury Claimants. The ad hoc committee is said to consist, "at this time," of asbestos personal injury claimants represented by the law firms commonly known as 1) Waters & Krause; 2) SimmonsCooper, 3) Weitz & Luxenburg, and 4) Brayton Purcell. In addition, Stephen Kazan of Kazan, McClain, Lyons, Greenwood & Harley is listed as an ex officio member of the committee.
In addition, docket number 114 is an appearance for asbestos claimants represented by Kelley & Ferraro.