CHARLOTTE - Lawyers at Maune Raichle in St. Louis could lose licenses and face malpractice suits over contempt and sanction orders at bankruptcy court in North Carolina, according to appellate judge Robert King of the Fourth Circuit in Richmond, Virginia.
He believes they don’t deserve it but he came out on the losing side of an April 29 decision that blocked immediate appeal of a $402,817.70 contempt order against the firm.
Circuit judges Allison Rushing and Harvie Wilkinson ruled that Maune Raichle can’t appeal until bankruptcy proceedings of Georgia Pacific entity Bestwall have ended in Charlotte.
King dissented, stating the firm and clients from Illinois subject to the orders would be branded as contemnors for the indefinite future.
He wrote that if the orders hold up, the Illinois claimants might pursue malpractice claims against their own lawyers to avoid financial liability.
“Aside from potential litigation issues, the contempt and sanctions orders will impact the law firm’s reputation and the potential careers of its several lawyers,” he wrote.
“Any lawyer representing and serving the Illinois claimants risks additional sanctions by ethics committees and also by courts that issue law licenses.
“In Illinois and in most other jurisdictions lawyers held in contempt of court are on a tragic path towards grievous professional consequences including disbarment.”
King predicted the orders would strain attorney client relationships and Maune Raichle would probably face ethical dilemmas.
He claimed his recitation demanded that Maune Raichle lawyers be treated better.
Prior to 2017 Georgia Pacific spent almost $3 billion to resolve 430,000 asbestos suits.
It actively litigated 22,000 suits and almost twice that many remained open without action.
Three fourths were pending more than 10 years and most were pending more than 15 years.
With more on the way, Georgia Pacific split itself to resolve the claims in bankruptcy court.
It created New GP to continue normal operations and Bestwall to pay asbestos claims and run three profitable pieces of property.
Bestwall and New GP indemnified each other and held each other harmless from and against all losses to which they might become subject.
Bestwall petitioned to reorganize at Charlotte, where former bankruptcy judge George Hodges allowed Garlock Sealing Technologies to pin down the claims it faced.
Garlock sent personal injury questionnaires to 5,813 plaintiffs in its mesothelioma database and found more than a third didn’t have pending claims.
Claimants had resolved claims through dismissal or settlement, didn’t have mesothelioma, didn’t have Garlock exposure, withdrew claims or weren’t pursuing them.
Asbestos lawyers moved to dismiss Bestwall’s reorganization petition for bad faith in 2018, claiming Georgia Pacific created it to put claimants at a disadvantage.
Bankruptcy Judge Laura Beyer denied the motion in 2019 and certified the decision for direct appeal over the district court to the Fourth Circuit.
Judges there denied leave to appeal.
Beyer issued an injunction prohibiting suits against Georgia Pacific, and asbestos lawyers appealed to district court.
Bestwall moved for a hearing similar to bench trial for estimation of its asbestos liabilities.
Asbestos lawyers claimed Bestwall didn’t need an estimation hearing because it could assume settlements would continue at previous rates.
Bestwall disputed the assumption and moved to send questionnaires like Garlock.
Bestwall counsel Charles Bates of Washington claimed in 2020 that Bestwall believed it experienced the effect of withholding exposure information.
He claimed a plaintiff who withholds relevant alternative exposure information can effectively increase the amount of a settlement.
He claimed a defendant’s share of liability appears higher than it would if a plaintiff disclosed all sources of exposure.
He claimed if a plaintiff does not willingly disclose all sources, a defendant must spend money trying to find information through indirect sources.
He claimed Bestwall’s database associated about 3,000 mesothelioma records with firms under which Georgia Pacific paid amounts on a matrix or resolved groups with lump sums.
He claimed 70% of mesothelioma claims it paid to settle after 2010 were resolved through these agreements.
He claimed Bestwall avoided the cost of discovery and incurred on average less than $3,000 in defense costs in connection with these firms.
In 2021 Beyer ordered all mesothelioma claimants to answer Bestwall’s questionnaire.
She found it relevant to negotiation and confirmation of a plan that would be accepted by at least 75% of asbestos claimants who vote.
She retained exclusive jurisdiction to interpret, apply, and enforce the order.
She instructed anyone seeking relief from any provision to do so by motion in her court.
Asbestos lawyers tried to appeal to district court but District Judge Robert Conrad found he lacked jurisdiction because Beyer didn’t issue a final and appealable order.
Maune Raichle and some clients defied Beyer by suing for an injunction against the order in the Southern Illinois district.
The clerk randomly assigned District Judge Staci Yandle of Benton, who set a hearing.
Back in Charlotte, Beyer held Maune Raichle and clients in contempt.
Rather than impose sanctions she offered the firm and clients an opportunity to purge their contempt by dismissing the suit.
They didn’t and their tactic failed when Yandle found she lacked jurisdiction.
She said she’d stay in her lane and Beyer would stay in hers.
Beyer sanctioned Maune Raichle and clients jointly and severally for $402,817.70, finding it cost Bestwall that much to defend the suit and enforce her order.
Maune Raichle and clients appealed to District Judge Robert Conrad.
In January 2022 Conrad affirmed the preliminary injunction and asbestos lawyers appealed.
In December 2022 he affirmed the orders against Maune Raichle and clients, who appealed.
Asbestos lawyers moved again to dismiss last year, casting familiar allegations as violations of the bankruptcy clause of the U.S. Constitution.
They argued a business must be insolvent or in distress to file a bankruptcy petition.
Last June, Fourth Circuit judges George Agee and Henry Hudson found Conrad correctly affirmed Beyer’s injunction.
Agee found it evident that Bestwall did not manufacture jurisdiction because without the restructuring, asbestos claims would have remained with Old GP.
He found if Old GP had filed for bankruptcy, the bankruptcy court would have had jurisdiction over the same claims.
He found a party complaining of bad faith must show subjective bad faith and the objective futility of any possible reorganization.
“The Claimant Representatives have made no showing to this court of either required element,” he wrote.
He found they appeared to use jurisdictional arguments as a back door way to challenge the propriety of a reorganization and the merits of a chapter 11 plan yet to be filed.
“This is both premature and improper,” he wrote.
He found bankruptcy procedures promote equitable and timely resolution of claims compared to a state tort system that has caused delays in payment for legitimate claimants.
He found the main interference with timely resolution of claims in Bestwall’s proceeding appeared to be the challenge to the preliminary injunction.
He found it prolonged the process and prevented claimants from obtaining prompt relief.
He found it wasn’t clear why counsel for claimants relentlessly attempted to circumvent the bankruptcy proceeding.
“We note that aspirational greater fees that could be awarded to the claimants’ counsel in the state court proceedings is not a valid reason to object to the processing of the claims in the bankruptcy proceeding,” he wrote.
Dissenter King wrote, “Claimants are left without any ability to seek relief for their afflictions from Georgia Pacific or its corporate affiliates in the tort system.”
He predicted claimants would run out of time, “their years cut short by asbestos related disease while these bankruptcy proceedings grind on.
“Bestwall’s supposed indemnity obligations to New GP are in fact wholly circular, essentially a legal fiction.”
This February, Beyer denied the motion to dismiss on constitutional grounds.
She certified direct appeal to Fourth Circuit judges who granted the appeal.
This April, Fourth Circuit judges Rushing and Wilkinson affirmed the contempt and sanctions orders against Maune Raichle and clients.
Rushing wrote that a party may not immediately appeal a civil contempt order but must wait until final judgment.
She found the rule applies in bankruptcy except the relevant final judgment might be a decree ending the case or a decree ending a discrete proceeding within the case.
She found Beyer sanctioned the firm and clients for defying a discovery order.
“Because the orders do not terminate a procedural unit separate from the remaining bankruptcy case, they are not final appealable orders,” she wrote.
Dissenter King found all lawyers have an unrelenting responsibility to zealously assert the rights of their clients.
"That responsibility could well encompass the pursuit by Maune Raichle of the Illinois lawsuit on behalf of their clients,” he wrote.
He found their situation might have been more appropriate for a contested proceeding in Illinois than a contempt proceeding in a North Carolina bankruptcy court.
He found when Bestwall moved to enforce the questionnaire order a discrete procedural sequence commenced.
On May 29 Maune Raichle and clients proposed to post bond for the full amount plus interest if Beyer stays enforcement of the order until it is appealable.
Beyer set a hearing July 18.