PHILADELPHIA (Legal Newsline) - A federal appeals court criticized as a “bad-faith tactic” a motion by insurance companies to disqualify a lawyer that was appointed by a judge to represent future asbestos claimants in the bankruptcy of Imerys Talc America.
The insurers argued James Patton had a conflict of interest because his firm - Young, Conaway, Stargatt & Taylor - represented numerous other insurers including two that were being sued by the customers in Delaware over asbestos coverage.
The bankruptcy judge rejected their objection, however, finding that Young, Conaway had erected an “ethical barrier” between Patton and its other asbestos work. The insurers appealed to federal court, which upheld the appointment, and to the Third Circuit Court of Appeals, which did likewise in a June 30 decision.
The court began by discussing whether the insurers even had standing to object, reiterating the holding from earlier decisions that restricts standing in asbestos bankruptcy cases to parties that face the loss of property or rights.
“We do have other litigants here who are better equipped” to object, the court said, including the two insurance companies represented by Patton’s firm in other asbestos litigation. It dismissed the objection by other insurers as a “a tactical one to delay Imerys’s plan confirmation.”
Imerys was driven into bankruptcy after plaintiff lawyers began targeting talc manufacturers with claims the product contains asbestos fibers, claims that are supported only by plaintiff experts. As with other asbestos defendants, Imerys is proceeding under section 524(g) of the federal bankruptcy code, which allows companies to set up trusts to pay claims to present and future claimants.
The Third Circuit noted the inherent conflict between those two groups, saying present claimants “are indifferent to whether the trust pays out on fraudulent claims, because the funds are unlikely to be exhausted before they receive their own payouts.”
“If anything, they may prefer a less onerous claims review process in order to maximize the speed with which they can recover against the trust,” the court said. Future claimants, on the other hand, “have a strong interest in intensifying the trust’s protections against fraudulent claims and early overpayments, as they need the trust’s funds to last until they can submit their own claims.