It is striking news that a bankruptcy judge has refused to allow Congoleum to continue to try to confirm an asbestos bankruptcy plan. Instead, late last week, she cut off the litigation with a final order that is being appealed. The opinion and related papers are here. The case has along history that is summarized in an appendix to the opinion, and I will not try to summarize it here today since I am on vacation. That said, the appeal here, if it goes forward, could break some fascinating new legal ground applicable to any and all asbestos bankruptcies. Issues that could be resolved include standing to contest terms of the Chapter 11 plans, and the propriety of plan voting rights related to persons who settle claims before and after the bankruptcy under special deals.

The news is striking because over the last few years, there have been very few denials of the outcome sought by the asbestos plaintiff’s bar and the handful of companies that found the process expedient. Indeed, these and other players have created an asbestos compensation system parallel to but largely cut off from the tort system. That alternative system has been created in US federal bankruptcy court through trusts, with most created under chapter 11 of the bankruptcy code. The system is huge – existing asbestos trusts held something north of $ 30 billion prior to the financial fiasco, as is described in teh Bates White paper cited below.

The basic procedural history of asbestos bankruptcy litigation is well told in a wonderful series of continually updated papers that the Crowell & Moring firm makes available on its website at this page. Mark Plevin and other lawyers at their firm have represented insurers opposed to various terms of many of the chapter 11 plans. A great overview of the situation is provided by PdD economists Charles Bates and Charles Mullen of Bates White in their paper titled: Have Your Tort and Eat It Too.

Disclosure: I have in the past and do now represent non-insurer parties opposed to certain terms of asbestos bankrupcties, and also have represented and do represent entities that are defendants in or financially tied to asbestos litigation through indemnity obligations or shared insurance. Further specifics are available on my bio at my law firm’s website (www.butlerrubin.com) or feel free to email me at work if you need further information.