New York, NY, October 14, 2005-- A federal appeals court ruled yesterday that a Washington law firm had a conflict of interest when it advised Congoleum, a company coping with asbestos claims, according to the New York Times.
The newspaper reported that the firm, Gilbert, Heintz & Randolph, advised Congoleum, a maker of sheet and tile floor coverings, on resolving claims by people asserting that they were injured by exposure to asbestos, a carcinogen used as a fire retardant.
But in other cases, the firm represented people who brought claims against Congoleum. Gilbert, Heintz & Randolph also had worked in other asbestos cases with one plaintiff law firm, Weitz & Luxenberg, based in New York, representing people with claims against Congoleum, the newspaper said.
The newspsper reported that a three-judge panel of the United States Court of Appeals for the Third Circuit in Philadelphia concluded that Congoleum, which is in bankruptcy as a result of its asbestos liability, should not have hired Gilbert, Heintz & Randolph, or G.H.R., as the firm calls itself.
Yesterday's decision, according to the newspaper, came two months into a separate state court proceeding in New Jersey in which insurance companies have argued that they should not have to finance a $500 million trust that would be part of Congoleum's reorganization plan to put asbestos liability behind it. Congoleum, a unit of American Biltrite, is based in Mercerville, N.J.
Tancred V. Schiavoni, a lawyer in the New York office of O'Melveny & Myers, which is representing several insurance companies, said in the article that the appeals court decision helped to undermine Congoleum's reorganization plan and was a victory for the insurance companies. He also said that it was possible that G.H.R. could be compelled to pay back the fees it received from Congoleum.
The newspaper reported that according to yesterday's decision, G.H.R. was retained in February 2003 to advise Congoleum in negotiations with asbestos claimants as part of what is known as a prepackaged plan of reorganization under Chapter 11. When a company tries to put together such a filing to cope with asbestos liability, it essentially tries to reach agreement with as many claimants as possible, in advance, on how much money must be set aside to compensate claimants. The goal is to ensure a quick reorganization.
A bankruptcy judge approved Congoleum's retention of G.H.R. early in 2004. But the judge did not allow Congoleum to hire Kenesis Group, a Washington company that had screened asbestos claims against Congoleum, because the majority owner of Kenesis was G.H.R.
In reversing the decision on the retention of G.H.R., the appellate court wrote that the bankruptcy court should look carefully at how prepackaged bankruptcy agreements are reached.
"The parties here seek the court's imprimatur of a reorganization that will free the debtor of all current and future asbestos liability," the court wrote. "The legitimacy of such a transaction is dependent on the stature of the court."
