In re Kensington Intern. Ltd.

• Decision Date: 17 May 2004
• Docket Number: No. 03-4212.,No. 04-1468.,No. 03-4526.,03-4212.,03-4526.,04-1468.
• Citation: 368 F.3d 289
• Parties: In re: KENSINGTON INTERNATIONAL LIMITED and Springfield Associates, LLC, Petitioners In re: D.K. Acquisition Partners, L.P.; Fernwood Associates, L.P. and Deutsche Bank Trust Company Americas, Petitioners In re: USG Corporation, Petitioner.
• Court: U.S. Court of Appeals — Third Circuit

368 F.3d 289

In re: KENSINGTON INTERNATIONAL LIMITED and Springfield Associates, LLC, Petitioners In re: D.K. Acquisition Partners, L.P.; Fernwood Associates, L.P. and Deutsche Bank Trust Company Americas, Petitioners

In re: USG Corporation, Petitioner.

No. 03-4212.

No. 03-4526.

No. 04-1468.

United States Court of Appeals, Third Circuit.

Argued on April 19, 2004.

Filed May 17, 2004.

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Roy T. Englert, Jr. (argued), Lawrence S. Robbins, Robbins, Russell, Englert, Orseck & Untereiner, Washington, DC, John J. Gibbons, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, NJ, Isaac M. Pachulski and K. John Shaffer, Stutman, Treister & Glatt Professional Corp., Los Angeles, CA, for Petitioners.

Charles Fried (argued), Cambridge, MA, Richard Mancino, Marc Abrams, Willkie, Farr & Gallagher, New York, Joanne B. Wills, Jennifer L. Scoliard, Klehr, Harrison, Harvey, Branzburg & Ellers, Wilmington, DE, for Petitioners.

Stephen C. Neal (argued), Scott D. Devereaux, Cooley Godward, Palo Alto, CA, Daniel J. DeFranceschi, Paul N. Heath, Richards Layton & Finger, Wilmington, DE, David G. Heiman, Jones Day, North Point, Cleveland, OH, Paul R. DeFilippo, Wollmuth, Maher & Deutsch, Newark, NJ, for Petitioner.

Charles O. Monk, II (argued), Saul Ewing, Baltimore, MD, Norman L. Pernick, J. Kate Stickles, Saul Ewing, Wilmington, DE, Richard E. Flamm, Berkeley, CA, for Respondents Owens Corning, et al.

David M. Bernick (argued), Michelle H. Browdy, Janet S. Baer, Kirkland & Ellis, Chicago, IL, Christopher Landau, Ashley C. Parrish, Kirkland & Ellis, Washington, DE, Laura Davis Jones, David W. Carickhoff, Jr., Pachulski, Stang, Ziehl, Young, Jones & Weintraub, Wilmington, DE, for Respondent W.R. Grace & Co.

Elihu Inselbuch (argued), Peter Van N. Lockwood, Nathan D. Finch, Caplin & Drysdale, New York, NY, Marla R. Eskin, Mark T. Hurford, Campbell & Levine, Wilmington, DE, for Respondents Official Committee of Asbestos Claimants of Owens Corning, Official Committee of Asbestos Personal Injury Claimants of W.R. Grace and Official Committee of Asbestos Personal Injury Claimants of USG Corporation.

Michael J. Crames (argued), Jane W. Parver, Aaron Stiefel, Edmund M. Emrich, Kaye Scholar, New York, NY, Edwin J. Harron, Young, Conaway, Stargatt & Taylor, Wilmington, DE, for Respondents James J. McMonagle and Dean M. Trafelet.

Daniel K. Hogan, Law Offices of Daniel K. Hogan, Wilmington, DE, Sander L. Esserman, Robert T. Brousseau, David J. Parsons, Stutzman, Bromberg, Esserman & Plifka, Dallas, TX, for Respondent Baron & Budd Claimants.

Jeffrey S. Trachtman, Kramer, Levin, Naftalis & Frankel, New York, NY, Adam G. Landis, Rebecca L. Butcher, Landis, Rath & Cobb, Wilmington, DE, for Respondent Credit Suisse First Boston Corp.

Neal J. Levitsky, L. Jason Cornell, Fox Rothschild, Wilmington, DE, Henry W. Simon, Robert A. Simon, Simon & Simon, Fort Worth, TX, for Respondent Waters & Kraus.

Edward L. Jacobs, Fort Thomas, KY, for Respondent Harry Grau & Sons.

Michael R. Lastowski, Duane Morris, Wilmington, DE, for Intervenor Official Committee of Unsecured Creditors of USG Corp. Mark E. Felger, Jeffrey R. Waxman, Cozen & O'Connor, Wilmington, DE, for Intervenor Official Committee of Unsecured Creditors of Armstrong World Industries, Inc.

Kenneth Pasquale, Lewis Kruger, Stroock, Stroock & Lavan, New York, NY, for Intervenor Official Committee of Unsecured Creditors of USG Corporation.

Roderick R. McKelvie, Fish & Neave, Washington, DC, Daniel J. Popeo, Richard A. Samp, Washington Legal Foundation, Washington, DC, for Amicus Curiae Washington Legal Foundation.

James L. Patton, Jr., Young, Conaway, Stargatt & Taylor, Wilmington, DE, for Amicus Curiae Eric D. Green.

Timothy K. Lewis, Schnader Harrison Segal & Lewis, Washington, DC, Craig Berrington, Lynda S. Mounts, American Insurance Association, Washington, DC, for Amicus Curiae American Insurance Association.

Before FUENTES, SMITH and GARTH, Circuit Judges.

GARTH, Circuit Judge.

Approximately six months ago, two emergency petitions were filed in this Court asking us to issue Writs of Mandamus disqualifying Senior District Court Judge Alfred M. Wolin of the District of New Jersey from continuing to preside over two of five asbestos-related bankruptcies that this Court had assigned to him in December 2001 for coordinated case management. The five companies in bankruptcy are Owens Corning, W.R. Grace & Co., USG Corporation, Armstrong World Industries, Inc., and Federal-Mogul Global, Inc. (collectively, the "Five Asbestos Cases").

The Petitions, which were brought by creditors of Owens Coming and W.R. Grace & Co., alleged that Judge Wolin had, through his association with certain consulting Advisors which he had appointed, created a perception that his impartiality "might reasonably be questioned" under 28 U.S.C. § 455(a). The Petitions asserted that disqualification was also warranted under 28 U.S.C. § 455(b)(1) as a result of ex parte communications among Judge Wolin and his advisors, the parties, and the attorneys.¹

Following a hearing on December 12, 2003, we concluded that we should not reach the merits of the Mandamus Petitions. Our decision was "prompted by our overarching concern that we [did] not have an adequately developed evidentiary record before us." In re Kensington Int'l Ltd., 353 F.3d 211, 214 (3d Cir.2003). "[R]eluctant to act in a complex situation such as this one, where so many vital interests are at stake, without a developed evidentiary record," we remanded the proceedings to Judge Wolin while retaining jurisdiction. Id. at 223. We instructed Judge Wolin to vacate his order staying discovery and allow expedited discovery to proceed. We also directed that he issue an expedited ruling on all of the recusal motions pending before him. Id. USG Corp. by this time had also filed a recusal motion.

On remand, Judge Wolin and the parties faithfully followed our instructions. Under stringent time restrictions and Judge Wolin's effective oversight, the parties conducted extensive discovery into the facts surrounding the recusal motions. Following an additional round of briefing, Judge Wolin issued a comprehensive written opinion and order on February 2, 2004 denying the recusal motions both on the merits and on timeliness grounds. See generally In re Owens Corning, 305 B.R. 175 (D.Del.2004).

As noted, we retained jurisdiction over the Mandamus Petitions. These Petitions were joined by USG Corp., the debtor in the USG Corp. bankruptcy. The Official Committee of Unsecured Creditors in the Armstrong World Industries, Inc. bankruptcy filed a fourth Petition, but due to its late filing we did not consolidate it with the other Petitions.

I.

Having exhaustively reviewed the now developed record, we have reached the following conclusions:

First, a reasonable person, knowing all of the relevant circumstances, would conclude that Judge Wolin's impartiality might reasonably be questioned in the Owens Corning, W.R. Grace & Co. and USG Corp. bankruptcies. Although the record does not demonstrate that Judge Wolin has done anything wrong or unethical or biased, he must be disqualified under 28 U.S.C. § 455(a) from further presiding over those three bankruptcies. See Alexander v. Primerica Holdings, Inc., 10 F.3d 155, 162 (3d Cir.1993) ("For purposes of § 455(a) disqualification, it does not matter whether the district court judge actually harbors any bias against a party or the party's counsel."). We emphasize that our review of the record has not revealed the slightest hint of any actual bias or partisanship by Judge Wolin. On the contrary, Judge Wolin has throughout his stewardship over the Five Asbestos Cases exhibited all of the judicial qualities, ethical conduct, and characteristics emblematic of the most experienced, competent, and distinguished Article III jurists. But the test for disqualification under § 455(a) is not actual bias; it is the perception of bias. See id.

Second, we find that the motions for recusal in the Owens Corning and W.R. Grace & Co. bankruptcies were timely under 28 U.S.C. § 455(a). In reaching that conclusion, we disagree with Judge Wolin that it was appropriate, in this case, to impute knowledge of the grounds for disqualification to the Petitioners. The evil that a timeliness requirement is intended to prevent-namely, holding in reserve a recusal demand until such time that a party perceives a strategic advantage-is served by requiring actual knowledge. Because the Petitioners did not themselves learn about the Advisors' conflict of interest (discussed infra) until shortly before they moved for disqualification, their motions were timely.

Third, USG Corp. stands on a different footing. The record discloses that the USG debtors and Unsecured Creditors Committee knew as early as January 2002 about the Advisors' conflict. However, other factors come into play as to USG Corp. (which we discuss infra) requiring Judge Wolin's disqualification.

Fourth, we do not decide whether the ex parte communications between Judge Wolin, on the one hand, and the Advisors, parties, and attorneys, on the other, provide a separate ground for disqualification under 28 U.S.C. § 455(b)(1). Nor do we decide whether those motions are timely. We feel constrained, however, to note that we look with disfavor upon both the extent to which, and manner in which, Judge Wolin engaged in ex parte communications. Whatever value the ex parte meetings may have had in moving the Five Asbestos Cases along or creating a settlement-friendly atmosphere was outweighed by the attendant risks and problems, which are catalogued in some detail in the Petitioners' briefs. See also Code of Conduct for U.S. Judges Canon 3 § A(4) (2003).

Fifth, we reach no decision on the Petition for Mandamus filed in the Armstrong World Industries, Inc. bankruptcy. As mentioned above, that Petition was not consolidated with the Petitions in Owens...